ANNUAL REPORT 2020
Tenable Holdings, Inc.
Dear Stockholder:
I am pleased to invite you to attend the 2021 Annual Meeting of Stockholders (the Annual
Meeting) of Tenable Holdings, Inc. (Tenable), to be held on Tuesday, May 25, 2021 at 1:00
p.m. Eastern Time. We have adopted a virtual format for our Annual Meeting to provide a
consistent and convenient experience to all shareholders regardless of location and due to health
and safety concerns related to the COVID-19 pandemic. You may attend the Annual Meeting via
the Internet after you register at https://www.proxydocs.com/TENB. The virtual format allows you
to listen to the meeting, submit questions in advance of the meeting and vote online. You may
submit your vote prior to the start of the meeting, which can be done by following the instructions
you receive in your notice, proxy card, or voting instruction forms.
The attached Notice of Annual Meeting of Stockholders and Proxy Statement contain
details of the business to be conducted at the Annual Meeting.
Whether or not you plan to virtually attend the Annual Meeting, it is important that your
shares are represented and voted. Therefore, I urge you to please vote and submit your proxy
via the Internet, by telephone, or by mail.
On behalf of the Board of Directors, I would like to express our appreciation for your
support and continued interest in Tenable.
Sincerely,
Amit Yoran
Chairman & CEO
6100 Merriweather Drive, 12th Floor
Columbia, Maryland 21044
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 25, 2021
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of TENABLE HOLDINGS,
INC., a Delaware corporation (the "Company"). The Annual Meeting will be held on Tuesday, May 25,
2021 at 1:00 p.m. Eastern Time and will be a virtual stockholder meeting through which you can listen to
the meeting, submit questions and vote online. The meeting can be accessed by visiting https://
www.proxydocs.com/TENB and entering your control number which is included in the proxy materials
mailed to you. The meeting will be held for the following purposes:
1. To elect the Board of Directors’ nominees, Arthur W. Coviello, Jr., Kimberly L. Hammonds and Jerry
M. Kennelly, to the Board of Directors to hold office until the 2024 Annual Meeting of
Stockholders.
2. To ratify the selection by the Audit Committee of the Board of Directors of Ernst & Young LLP as the
independent registered public accounting firm of the Company for the year ending December 31,
2021.
3. To approve, on a non-binding advisory basis, the compensation of the Company's Named
Executive Officers as disclosed in this proxy statement.
4. To conduct any other business properly brought before the meeting.
These items of business are more fully described in the Proxy Statement accompanying this Notice.
The record date for the Annual Meeting is March 31, 2021. Only stockholders of record at the close of
business on that date may vote at the Annual Meeting or any adjournment thereof.
By Order of the Board of Directors,
Stephen A. Riddick
General Counsel and Corporate Secretary
Columbia, MD
April 13, 2021
You are cordially invited to attend the virtual annual meeting. Whether or not you expect to
attend the meeting, please vote over the telephone or the Internet as instructed in these materials
as promptly as possible in order to ensure your representation at the meeting. Even if you have
voted by proxy, you may still vote online if you attend the virtual annual meeting. Please note,
however, that if your shares are held of record by a broker, bank or other nominee and you wish
to vote at the meeting, you must obtain a proxy issued in your name from that record holder.
CONTENTS
QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING
PROPOSAL 1 ELECTION OF DIRECTORS
Information Regarding the Board of Directors and Corporate Governance
Independence of the Board of Directors
Role of the Board in Risk Oversight
Meetings of the Board of Directors
Information Regarding Committees of the Board of Directors
Audit Committee
Compensation Committee
Nominating and Corporate Governance Committee
Stockholder Communications with the Board of Directors
Code of Ethics
PROPOSAL 2 RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Fees and Services
Pre-Approval Policies and Procedures
PROPOSAL 3 ADVISORY VOTE TO APPROVE THE NAMED EXECUTIVE
OFFICER COMPENSATION
Corporate Social Responsibility
Executive Officers
Security Ownership of Certain Beneficial Owners and Management
Delinquent Section 16(a) Reports
Executive Compensation
Executive Summary
Executive Compensation Philosophy and Objectives
Compensation-Setting Process
Compensation Elements
Employment Arrangements
Post-Employment Compensation
Other Compensation Policies
Tax and Accounting Considerations
Summary Compensation Table
Grants of Plan-Based Awards
Outstanding Equity Awards
Options Exercised and Stock Vested
Employment Agreements with Our Named Executive Officers
Potential Payments Upon Termination or Change in Control
CEO Pay Ratio
Director Compensation
Securities Authorized for Issuance Under Equity Compensation Plans
Transactions With Related Persons and Indemnification
Related-Person Transactions Policy and Procedures
Certain Related Person Transactions
Indemnification
Householding of Proxy Materials
Other Matters
Appendix: Reconciliation of Non-GAAP Measures
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TENABLE HOLDINGS, INC.
6100 Merriweather Drive, 12th Floor
Columbia, Maryland 21044
PROXY STATEMENT
FOR THE 2021 ANNUAL MEETING OF STOCKHOLDERS
May 25, 2021
QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING
Why did I receive a notice regarding the availability of proxy materials on the Internet?
Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), we have
elected to provide access to our proxy materials over the Internet. Accordingly, we have sent you a
Notice of Internet Availability of Proxy Materials (the “Notice”) because the Board of Directors (the
"Board of Directors" or the "Board") of Tenable Holdings, Inc. (sometimes referred to as the
“Company” or “Tenable”) is soliciting your proxy to vote at the 2021 Annual Meeting of Stockholders,
including at any adjournments or postponements of the meeting. All stockholders will have the ability
to access the proxy materials on the website referred to in the Notice or request to receive a printed
set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to
request a printed copy may be found in the Notice.
We intend to mail the Notice on or about April 13, 2021 to all stockholders of record entitled to
vote at the Annual Meeting.
Will I receive any other proxy materials by mail?
We may, in our discretion, elect to send you a proxy card. We may also send you a second Notice
on or after April 23, 2021.
How do I attend the Annual Meeting?
The Annual Meeting will be a virtual stockholder meeting through which you can listen to the
meeting and vote online. The Annual Meeting can be accessed by visiting https://
www.proxydocs.com/TENB and entering your control number which is included in the proxy materials
mailed to you. We recommend that you log in a few minutes before the Annual Meeting to ensure that
you are logged in when the meeting starts. Online check-in will begin at approximately 12:45 p.m.
Eastern time. Information on how to vote online during the Annual Meeting is discussed below.
We have decided to hold a virtual stockholder meeting in light of public health concerns regarding
the COVID-19 pandemic in order to protect the health and safety of our stockholders, employees and
directors and to facilitate stockholder participation in the Annual Meeting. Stockholders attending the
virtual meeting will be afforded the same rights and opportunities to participate as they would at an in-
person meeting, however any questions will need to be submitted in advance of the meeting.
Who can vote at the Annual Meeting?
Only stockholders of record at the close of business on March 31, 2021 will be entitled to vote at
there were 105,512,922 shares of common stock
the Annual Meeting. On this record date,
outstanding and entitled to vote.
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Stockholder of Record: Shares Registered in Your Name
If on March 31, 2021 your shares were registered directly in your name with Tenable’s transfer
agent, American Stock Transfer & Trust Company, LLC, then you are a stockholder of record. As a
stockholder of record, you may vote online during the meeting or vote by proxy. Whether or not you
plan to attend the meeting, we urge you to vote by proxy using a proxy card that you may request or
that we may elect to deliver at a later time or vote by proxy over the telephone or Internet as
instructed below to ensure your vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker or Bank
If on March 31, 2021 your shares were held, not in your name, but rather in an account at a
brokerage firm, bank or other similar organization, then you are the beneficial owner of shares held in
“street name” and the Notice is being forwarded to you by that organization. The organization holding
your account is considered to be the stockholder of record for purposes of voting at the Annual
Meeting. As a beneficial owner, you have the right to direct your broker, bank or other agent regarding
how to vote the shares in your account. You are also invited to attend the Annual Meeting. However,
since you are not the stockholder of record, you may not vote your shares online during the Annual
Meeting unless you request and obtain a valid proxy from your broker, bank or other agent.
What am I voting on?
There are three matters scheduled for a vote:
Election of three directors (Proposal 1);
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Ratification of selection by the Audit Committee of the Board of Directors of Ernst & Young
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LLP as independent registered public accounting firm of the Company for the year ending
December 31, 2021 (Proposal 2); and
Advisory approval, on a non-binding basis, of the compensation of our Named Executive
Officers as disclosed in this proxy statement (Proposal 3).
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What if another matter is properly brought before the meeting?
The Board of Directors knows of no other matters that will be presented for consideration at the
Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the
persons named in the accompanying proxy to vote on those matters in accordance with their best
judgment.
How do I vote?
You may either vote “For” all the nominees to the Board of Directors or you may “Withhold” your
vote for any nominee you specify. For Proposals 2 and 3, you may vote “For” or “Against” or "Abstain"
from voting.
Stockholder of Record: Shares Registered in Your Name
If you are a stockholder of record, you may vote online during the Annual Meeting, vote by proxy
using a proxy card that you may request or that we may elect to deliver at a later time, vote by proxy
over the telephone or vote by proxy through the Internet. Whether or not you plan to attend the
meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the
meeting and vote online during the meeting even if you have already voted by proxy.
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To vote online during the meeting, access the Annual Meeting by visiting
www.proxypush.com/TENB and entering your control number which is included in the proxy
materials mailed to you. Please have your Notice in hand when you access the website and
follow the instructions.
To vote using the proxy card, simply complete, sign and date the proxy card that may be
delivered and return it promptly in the envelope provided. If you return your signed proxy card
to us before the Annual Meeting, we will vote your shares as you direct.
To vote over the telephone, dial toll-free 866-230-6244 using a touch-tone phone and follow
the recorded instructions. You will be asked to provide the control number from the Notice. To
ensure your vote is counted, your telephone vote must be received either prior to the start of
the meeting or, if you are attending the meeting, before the polls close during the meeting.
To vote through the Internet, go to www.proxypush.com/TENB to complete an electronic
proxy card. You will be asked to provide the control number from the Notice. To ensure your
vote is counted, your Internet vote must be received either prior to the start of the meeting or,
if you are attending the meeting, before the polls close during the meeting.
Beneficial Owner: Shares Registered in the Name of Broker or Bank
If you are a beneficial owner of shares registered in the name of your broker, bank or other agent,
you should have received a Notice containing voting instructions from that organization rather than
from Tenable. Simply follow the voting instructions in the Notice to ensure that your vote is counted.
To vote online during the Annual Meeting, you must obtain a valid proxy from your broker, bank or
other agent. Follow the instructions from your broker, bank or other agent included with these proxy
materials, or contact that organization to request a proxy form.
Internet proxy voting will be provided to allow you to vote your shares online, with procedures
designed to ensure the authenticity and correctness of your proxy vote instructions. However,
please be aware that you must bear any costs associated with your Internet access, such as
usage charges from Internet access providers and telephone companies.
How many votes do I have?
On each matter to be voted upon, you have one vote for each share of common stock you own as
of March 31, 2021.
If I am a stockholder of record and I do not vote, or if I return a proxy card or otherwise vote
without giving specific voting instructions, what happens?
If you are a stockholder of record and do not vote by completing your proxy card, by telephone,
through the Internet or online during the Annual Meeting, your shares will not be voted.
If you return a signed and dated proxy card or otherwise vote without marking voting selections,
your shares will be voted, as applicable, “For” the election of all nominees for director, “For” the
ratification of Ernst & Young LLP as independent auditors for the year ending December 31, 2021,
and "For" the approval of, on a non-binding advisory basis, the compensation of our Named
Executive Officers. If any other matter is properly presented at the meeting, your proxyholder (one of
the individuals named on your proxy card) will vote your shares using his best judgment.
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If I am a beneficial owner of shares held in street name and I do not provide my broker or bank
with voting instructions, what happens?
If you are a beneficial owner of shares held in street name and you do not instruct your broker,
bank or other agent how to vote your shares, your broker, bank or other agent may still be able to
vote your shares in its discretion. In this regard, brokers, banks and other securities intermediaries
may use their discretion to vote your “uninstructed” shares with respect to matters considered to be
“routine” under applicable rules, but not with respect to “non-routine” matters. Proposals 1 and 3 are
considered to be “non-routine” under applicable rules, meaning that your broker may not vote your
shares on those proposals in the absence of your voting instructions. However, Proposal 2 is
considered to be “routine” under applicable rules, meaning that if you do not return voting instructions
to your broker by its deadline, your shares may be voted by your broker in its discretion on Proposal
2.
If you are a beneficial owner of shares held in street name, in order to ensure your shares
are voted in the way you would prefer, you must provide voting instructions to your broker,
bank or other agent by the deadline provided in the materials you receive from your broker,
bank or other agent.
Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In addition to these proxy materials, our
directors and employees may also solicit proxies in person, by telephone or by other means of
communication. Directors and employees will not be paid any additional compensation for soliciting
proxies. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding
proxy materials to beneficial owners.
What does it mean if I receive more than one Notice?
If you receive more than one Notice, your shares may be registered in more than one name or in
different accounts. Please follow the voting instructions on the Notice to ensure that all of your shares
are voted.
Can I change my vote after submitting my proxy?
Stockholder of Record: Shares Registered in Your Name
Yes. You can revoke your proxy at any time before the final vote at the meeting. If you are the
record holder of your shares, you may revoke your proxy in any one of the following ways:
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You may submit another properly completed proxy card with a later date.
You may grant a subsequent proxy by telephone or through the Internet.
You may send a timely written notice that you are revoking your proxy to Tenable Holdings,
Inc., Attention: Corporate Secretary at 6100 Merriweather Drive, 12th Floor, Columbia,
Maryland 21044.
You may attend the Annual Meeting and vote online. Simply attending the meeting will not, by
itself, revoke your proxy.
Your most current proxy card or telephone or Internet proxy is the one that is counted.
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Beneficial Owner: Shares Registered in the Name of Broker or Bank
If your shares are held by your broker, bank or other agent, you should follow the instructions
provided by your broker, bank or other agent.
When are stockholder proposals and director nominations due for next year’s Annual
Meeting?
To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in
writing by December 14, 2021, to 6100 Merriweather Drive, 12th Floor, Columbia, Maryland 21044. If
you wish to nominate an individual for election at, or bring business other than through a stockholder
proposal before, the 2022 Annual Meeting of Stockholders, you must deliver your notice to our
Corporate Secretary at the address above between January 25, 2022 and February 24, 2022. Your
notice to the Corporate Secretary must set forth information specified in our bylaws, including your
name and address and the class and number of shares of our stock that you beneficially own.
If you propose to bring business before an annual meeting of stockholders other than a director
nomination, your notice must also include, as to each matter proposed, the following: (1) a brief
description of the business desired to be brought before such annual meeting and the reasons for
conducting that business at the annual meeting and (2) any material interest you have in that
business. If you propose to nominate an individual for election as a director, your notice must also
include, as to each person you propose to nominate for election as a director, the following: (1) the
name, age, business address and residence address of the person, (2) the principal occupation or
employment of the person, (3) the class and number of shares of our stock that are owned of record
and beneficially owned by the person, (4) the date or dates on which the shares were acquired and
the investment intent of the acquisition; (5) a statement whether such person, if elected, intends to
tender, promptly following such person’s failure to receive the required vote for election or re-election
at the next meeting at which such person would face election or re-election, an irrevocable
resignation effective upon acceptance of such resignation by the Board of Directors and (6) any other
information concerning the person as would be required to be disclosed in a proxy statement soliciting
proxies for the election of that person as a director in an election contest (even if an election contest
is not involved), or that is otherwise required to be disclosed pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated
under the Exchange Act, including the person's written consent to being named as a nominee and to
serving as a director if elected. We may require any proposed nominee to furnish other information as
we may reasonably require to determine the eligibility of the proposed nominee to serve as an
independent director or that could be material to a reasonable stockholder's understanding of the
independence, or lack of independence, of the proposed nominee.
For more information, and for more detailed requirements, please refer to our Amended and
Restated Bylaws, filed as Exhibit 3.4 to our Registration Statement on Form S-1 (File No.
333-226002), filed with the SEC on June 29, 2018.
How are votes counted?
Votes will be counted by the inspector of election appointed for the meeting, who will separately
count, for Proposal 1, the proposal to elect directors, votes “For,” “Withhold” and broker non-votes
(described below); for Proposal 2, the proposal to ratify our independent auditors, votes “For,”
“Against” and “Abstain”; and, for Proposal 3, the proposal to approve, on a non-binding advisory
basis, the compensation of our Named Executive Officers, ”For," "Against" and “Abstain” and
broker non-votes. If you “Abstain” it will be counted towards the vote total for Proposals 2 and 3. For
Proposal 2 and 3, it will have the same effect as “Against” votes. Broker non-votes on Proposals 1
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and 3 will have no effect and will not be counted towards the vote total for those proposals. We do not
expect broker non-votes on Proposal 2.
What are “broker non-votes”?
As discussed above, when a beneficial owner of shares held in street name does not give voting
instructions to his or her broker, bank or other securities intermediary holding his or her shares as to
how to vote on matters deemed to be “non-routine” under applicable rules, the broker, bank or other
such agent cannot vote the shares. These un-voted shares are counted as “broker non-votes.”
Proposal 1 and 3 are considered to be “non-routine” under applicable rules and we therefore expect
broker non-votes on these proposals. However, as Proposal 2 is considered “routine” under
applicable rules, we do not expect broker non-votes on this proposal.
As a reminder, if you are a beneficial owner of shares held in street name, in order to
ensure your shares are voted in the way you would prefer, you must provide voting
instructions to your broker, bank or other agent by the deadline provided in the materials you
receive from your broker, bank or other agent.
How many votes are needed to approve each proposal?
For Proposal 1, the election of directors, the three nominees receiving the most “For” votes from
the holders of shares present online at the meeting or represented by proxy and entitled to vote on
the election of directors will be elected. Only votes “For” will affect the outcome. Broker non-votes will
have no effect.
To be approved, Proposal 2, ratification of the selection of Ernst & Young LLP as the Company’s
independent registered public accounting firm for 2021, must receive “For” votes from the holders of a
majority of shares present online at the meeting or represented by proxy and entitled to vote on the
matter. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Since brokers
have authority to vote on your behalf with respect to Proposal 2, we do not expect broker non-votes
on this proposal.
For Proposal 3, advisory approval of the compensation of our Named Executive Officers will be
considered to be approved if it receives "For" votes from the holders of a majority of the shares
present online at the meeting or represented by proxy and entitled to vote thereon to be approved. If
you “Abstain” from voting, it will have the same effect as an “Against” vote on this proposal. Broker
non-votes will have no effect.
What is the quorum requirement?
A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if
stockholders holding at least a majority of the outstanding shares entitled to vote are present online at
the meeting or represented by proxy. On the record date, there were 105,512,922 shares outstanding
and entitled to vote. Thus, the holders of 52,756,462 shares must be present online at the meeting or
represented by proxy at the meeting to have a quorum.
Your shares will be counted towards the quorum only if you submit a valid proxy (or one is
submitted on your behalf by your broker, bank or other nominee) or if you vote online during the
virtual meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If
there is no quorum, the chairperson of the meeting or the holders of a majority of shares present
online at the meeting or represented by proxy may adjourn the meeting to another date.
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Will a list of record stockholders as of the record date be available?
Upon request, a list of our record shareholders as of the close of business on the record date will
be made available to stockholders. In addition, for the ten days prior to the Annual Meeting, the list
will be available upon request for examination by any stockholder of record for a legally valid purpose.
To access the list of record shareholders beginning May 15, 2021 and until the Annual Meeting,
stockholders should email David Bartholomew, Associate General Counsel, at
dbartholomew@tenable.com.
How do I ask a question at the Annual Meeting?
Only stockholders of record as of March 31, 2021 may submit questions or comments in advance
of the virtual stockholders meeting. If you would like to submit a question or comment, you may do so
prior to 5:00 p.m. Eastern Time on May 21, 2021 by following the instructions in your registration
documents on https://www.proxydocs.com/TENB.
To help ensure that we have a productive and efficient meeting, and in fairness to all stockholders
in attendance, you will also find posted our rules of conduct for the Annual Meeting when you log in
prior to the start of the Annual Meeting. In accordance with the rules of conduct, we ask that you limit
your submission to one brief question or comment that is relevant to the Annual Meeting or our
business and that such remarks are respectful of your fellow stockholders and meeting participants.
Our management may group submitted questions by topic with a representative question read aloud
and answered. In addition, questions may be ruled out of order if they are, among other things,
irrelevant to our business, related to pending or threatened litigation, disorderly, repetitious of
statements already made, or in furtherance of the speaker's own personal, political or business
interests. Questions will be addressed in the "Question and Answer" portion of the Annual Meeting.
What do I do if I have technical difficulties in connection with the Annual Meeting?
If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time,
please call the technical support number that will be posted on the Annual Meeting login page.
Technical support will be available beginning at approximately 12:00 p.m. Eastern time on May 25,
2021.
How can I find out the results of the voting at the Annual Meeting?
Preliminary voting results will be announced at the Annual Meeting. In addition, final voting results
will be published in a current report on Form 8-K that we expect to file within four business days after
the Annual Meeting. If final voting results are not available to us in time to file a Form 8-K within four
business days after the meeting, we intend to file a Form 8-K to publish preliminary results and, within
four business days after the final results are known to us, file an additional Form 8-K to publish the
final results.
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PROPOSAL 1
ELECTION OF DIRECTORS
Tenable’s Board of Directors is divided into three classes and each class has a three-year term.
Vacancies on the Board may be filled only by persons elected by a majority of the remaining directors.
A director elected by the Board to fill a vacancy in a class, including vacancies created by an increase
in the number of directors, shall serve for the remainder of the full term of that class and until the
director’s successor is duly elected and qualified.
The Board of Directors currently consists of nine members. There are three directors in the class
whose term of office expires in 2021. Each of the nominees listed below is currently a director of the
Company and was previously elected by the stockholders. If elected at the Annual Meeting, each of
these nominees would serve until the 2024 Annual Meeting of Stockholders and until their successor
has been duly elected and qualified, or, if sooner, until the director’s death, resignation or removal. It
is the Company’s policy to invite and encourage directors and nominees for director to attend each
annual meeting of stockholders. In 2020, all of our directors attended the Annual Meeting.
Directors are elected by a plurality of the votes of the holders of shares present online at the
meeting or represented by proxy and entitled to vote on the election of directors. Accordingly, the
three nominees receiving the highest number of affirmative votes will be elected. Shares represented
by executed proxies will be voted, if authority to do so is not withheld, for the election of the three
nominees named below. If any nominee becomes unavailable for election as a result of an
unexpected occurrence, shares that would have been voted for that nominee will instead will be voted
for the election of a substitute nominee proposed by the Board. Each person nominated for election
has agreed to serve if elected. The Company’s management has no reason to believe that any
nominee will be unable to serve.
CLASS III NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2024
ANNUAL MEETING
The following is a brief biography of each nominee for director and a discussion of the specific
experience, qualifications, attributes or skills of each nominee that led the Nominating and Corporate
Governance Committee of the Board of Directors to recommend that person as a nominee for
director, as of the date of this proxy statement.
The Nominating and Corporate Governance Committee seeks to assemble a board of directors
that, as a whole, possesses the appropriate balance of professional and industry knowledge, financial
expertise and high-level management experience necessary to oversee and direct the Company’s
business. To that end, the Committee has identified and evaluated nominees in the broader context of
the Board’s overall composition, with the goal of recruiting members who complement and strengthen
the skills of other members and who also exhibit integrity, collegiality, sound business judgment and
other qualities that the Committee views as critical to effective functioning of the Board. To provide a
mix of experience and perspective on the Board, the Committee also takes into account gender, age,
and ethnic diversity. The brief biographies below include information, as of the date of this proxy
statement, regarding the specific and particular experience, qualifications, attributes or skills of each
director or nominee that led the Committee to believe that that nominee should continue to serve on
the Board.
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Arthur W. Coviello, Jr., age 67
Arthur W. Coviello, Jr. has served as a member of our Board of Directors since February 2018.
Mr. Coviello is a Venture Partner at Rally Ventures, LLC, a position he has held since May 2015.
Mr. Coviello has served on the boards of directors of Synchrony Financial since November 2015,
FireEye, Inc. since December 2020, and Epiphany Technology Acquisition Corp. since November
2020. He previously served on the boards of directors of Gigamon, Inc. from April 2017 until its
acquisition in December 2017 and EnerNOC, Inc. from June 2009 until its acquisition in August 2017.
Mr. Coviello received a B.B.A. in Business Administration from the University of Massachusetts. Our
Board of Directors believes that Mr. Coviello is qualified to serve as a director based on his extensive
security industry and management experience and his experience as a director of public technology
companies.
Kimberly L. Hammonds, age 53
Kimberly L. Hammonds has served as a member of our Board of Directors since June 2018. Ms.
Hammonds founded the Mangrove Digital Group, LLC in May 2018. She previously served as Group
Chief Operating Officer of Deutsche Bank AG, a global financial services company, from January
2016 to June 2018, and as a member of the management board of Deutsche Bank from August 2016
to June 2018. She joined Deutsche Bank as Global Chief Information Officer and Global Co-Head of
Group Technology and Operations in November 2013, a position that she held until January 2016.
Ms. Hammonds has served on the boards of directors of Box, Inc. since October 2018 and Zoom
Video Communications since September 2018 and previously served on the boards of directors of
Red Hat Inc. from August 2015 to July 2019 and Cloudera, Inc. from March 2017 to January 2020.
Ms. Hammonds received a B.S. in Mechanical Engineering from the University of Michigan and an
M.B.A. from Western Michigan University. Our Board of Directors believes that Ms. Hammonds is
qualified to serve as a director based on her extensive management experience and her experience
as a director of public technology companies.
Jerry M. Kennelly, age 70
Jerry M. Kennelly has served as a member of our Board of Directors since May 2018. Mr.
Kennelly is the Chairman and Chief Executive Officer of Scandic Capital, LLC, an investment firm, a
position he has held since April 2018. Prior to joining Scandic, Mr. Kennelly co-founded Riverbed
Technology, Inc., a network infrastructure company, in 2002, and served as its Chairman and Chief
Executive Officer from May 2002 to April 2018. Mr. Kennelly served on the board of directors of
Nimble Storage, Inc., a flash storage company, from April 2013 to April 2017 when Nimble Storage
was acquired by Hewlett Packard Enterprise Company. Mr. Kennelly received a B.A. in Political
Economy from Williams College and an M.S. in Accounting from New York University. Our Board of
Directors believes that Mr. Kennelly is qualified to serve as a director based on his extensive
operating and executive management experience with technology companies and his experience as
a director of public technology companies.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
12
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2022 ANNUAL MEETING
Amit Yoran, age 50
Amit Yoran has served as our Chief Executive Officer and Chairman since December 2016 and
was appointed as our President, in addition to Chief Executive Officer and Chairman, in May 2018.
Prior to joining Tenable, Mr. Yoran served as President of RSA Solutions, Inc. from October 2014 to
December 2016. Mr. Yoran received a B.S. from the United States Military Academy at West Point
and an M.S. in Computer Science from George Washington University. Our Board of Directors
believes that Mr. Yoran is qualified to serve as a director based on his role as our Chief Executive
Officer and his extensive management experience in the technology and security industries.
Ping Li, age 48
Ping Li has served as a member of our Board of Directors since October 2012. Mr. Li is a Partner
at Accel, a venture capital firm, where he has worked since 2004. Mr. Li served on the board of
directors of Cloudera, Inc. from October 2008 to July 2018. Mr. Li received an A.B. in Economics from
Harvard University and an M.B.A. from Stanford University. Our Board of Directors believes that Mr. Li
is qualified to serve as a director based on his extensive investment experience in the IT and security
industries and his experience serving as a director of a public technology company.
Linda K. Zecher, age 67
Linda K. Zecher has served as a member of our Board of Directors since August 2019. Ms.
Zecher is the Chief Executive Officer and Managing Partner of the Barkley Group, a consulting firm
focused on effective digital transformation, and has held such positions since January 2017. Prior to
that time, she served as the President and Chief Executive Officer, and a member of the board of
directors, of Houghton Mifflin Harcourt Company from September 2011 to September 2016. Ms.
Zecher has served as a member of the board of directors of Hasbro, Inc. since August 2014. Ms.
Zecher received a B.S. in Earth Science from The Ohio State University. Our Board of Directors
believes that Ms. Zecher is qualified to serve as a director based on her extensive management
experience with technology companies and her experience as a director of public companies.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2023 ANNUAL MEETING
John C. Huffard, Jr., age 53
John C. Huffard, Jr. served as our Chief Operating Officer from May 2018 through December
2019. Prior to that, he served as our President and Chief Operating Officer from November 2008 to
May 2018, and he co-founded our company in 2002. Mr. Huffard has also served as a member of our
Board of Directors since 2002 and as a member of the board of directors of Norfolk Southern
Corporation since February 2020. Mr. Huffard received a B.S.B.A. from Washington and Lee
University and an M.B.A. from Babson College. Our Board of Directors believes that Mr. Huffard is
qualified to serve as a director based on his in-depth knowledge of our company and our products
due to his role as our co-founder and prior role as our Chief Operating Officer.
A. Brooke Seawell, age 73
A. Brooke Seawell has served as a member of our Board of Directors since October 2017.
Mr. Seawell is a Venture Partner at New Enterprise Associates Inc., a position he has held since
January 2005. Mr. Seawell has served on the board of directors of NVIDIA Corporation, a visual
computing company, since December 1997 and Eargo, Inc., a medical device company, since
13
September 2020. He previously served on the board of directors of Tableau Software, Inc., a business
intelligence software company, from November 2011 to August 2019. Mr. Seawell received both a
B.A. in Economics and an M.B.A. in Finance from Stanford University. Our Board of Directors
believes that Mr. Seawell is qualified to serve as a director based on his extensive experience in
technology finance and operations, including having served as the chief financial officer of two public
companies and his experience as a director of public technology companies.
Richard M. Wells, age 43
Richard M. Wells has served as a member of our Board of Directors since December 2015.
Mr. Wells serves as a Managing Director at Insight Venture Management, LLC, a private equity and
venture capital firm, a position he has held since 2005. He also currently serves on the boards of
directors of a number of private technology companies. Mr. Wells received a B.S. in Economics from
the University of Pennsylvania and an M.B.A. from Harvard University. Our Board of Directors
believes that Mr. Wells is qualified to serve as a director based on his extensive experience in
investing and advising managers of high growth software and Internet companies.
14
INFORMATION REGARDING THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Independence of the Board of Directors
As required under the Nasdaq Stock Market (“Nasdaq”) listing standards, a majority of the
members of a listed company’s Board of Directors must qualify as “independent,” as affirmatively
determined by the Board of Directors. The Board consults with the Company’s counsel to ensure that
the Board’s determinations are consistent with relevant securities and other laws and regulations
regarding the definition of “independent,” including those set forth in pertinent listing standards of
Nasdaq, as in effect from time to time.
Consistent with these considerations, after review of all relevant identified transactions or
relationships between each director, or any of his or her family members, and the Company, its senior
management and its independent auditors, the Board has affirmatively determined that the following
seven directors are independent directors within the meaning of the applicable Nasdaq listing
standards: Arthur W. Coviello, Jr., Kimberly L. Hammonds, Jerry M. Kennelly, Ping Li, A. Brooke
Seawell, Richard M. Wells and Linda K. Zecher. In making this determination, the Board found that
none of these directors or nominees for director had a material or other disqualifying relationship with
the Company.
Board Leadership Structure
Our Board of Directors is currently chaired by Mr. Yoran, our Chief Executive Officer. The Board
believes that combining the positions of Chief Executive Officer and Board Chair helps to ensure that
the Board and management act with a common purpose. The Board believes that combining the
positions of Chief Executive Officer and Board Chair provides a single, clear chain of command to
execute Tenable’s strategic initiatives and business plans. In addition, the Board believes that a
combined Chief Executive Officer/Board Chair is better positioned to act as a bridge between
management and the Board, facilitating the regular flow of information. The Board also believes that it
is advantageous to have a Board Chair with significant history with and extensive knowledge of
Tenable (as is the case with Mr. Yoran).
The Board has also appointed Mr. Li as lead independent director in order to help reinforce the
independence of the Board as a whole. The position of lead independent director has been structured
to serve as an effective balance to Mr. Yoran’s leadership as our combined Chief Executive Officer
and Board Chair. The lead independent director is empowered to, among other duties and
responsibilities, work with the Chief Executive Officer and Board Chair to develop and approve an
appropriate Board meeting schedule; work with the Chief Executive Officer and Board Chair to
develop and approve Board meeting agendas; provide the Chief Executive Officer and Board Chair
feedback on the quality, quantity, and timeliness of the information provided to the Board; develop the
agenda and moderate executive sessions of the independent members of the Board; preside over
Board meetings when the Chief Executive Officer and Board Chair is not present or when Board or
Chief Executive Officer performance or compensation is discussed; act as principal liaison between
the independent members of the Board and Chief Executive Officer and Board Chair; convene
meetings of the independent directors as appropriate; and perform such other duties as may be
established or delegated by the Board. As a result, the Company believes that the lead independent
director can help ensure the effective independent functioning of the Board in its oversight
responsibilities. In addition, the Company believes that the lead independent director serves as a
conduit between the other independent directors and the Board Chair, for example, by facilitating the
inclusion on meeting agendas of matters of concern to the independent directors.
15
Role of the Board in Risk Oversight
One of the Board’s key functions is informed oversight of Tenable’s risk management process.
The Board does not have a standing risk management committee, but rather administers this
oversight function directly through the Board as a whole, as well as through various Board standing
committees that address risks inherent in their respective areas of oversight. In particular, our Board
is responsible for monitoring and assessing strategic risk exposure, including a determination of the
nature and level of risk appropriate for the Company.
Our Audit Committee has the responsibility to consider and discuss our major financial risk
exposures and the steps our management has taken to monitor and control these exposures,
including guidelines and policies to govern the process by which risk assessment and management is
undertaken. The Audit Committee also monitors compliance with legal and regulatory requirements, in
addition to oversight of the performance of our internal audit function. Audit Committee responsibilities
also include oversight of information security risk management, including thorough oversight of the
Cybersecurity Subcommittee of the Audit Committee, which assists the Audit Committee and the
Board in overseeing cybersecurity risk management.
Our Nominating and Corporate Governance Committee monitors the effectiveness of our
corporate governance guidelines, including whether they are successful in preventing illegal or
improper liability-creating conduct.
Our Compensation Committee assesses and monitors whether any of our compensation policies
and programs has the potential to encourage excessive risk-taking.
Typically, the entire Board meets with members of management responsible for risk management
at least annually, and the applicable Board committees meet at least annually with the employees
responsible for risk management in the committees’ respective areas of oversight. Both the Board as
a whole and the various standing committees receive periodic reports from members of management
responsible for risk management, as well as incidental reports as matters may arise. It is the
responsibility of the committee chairs to report findings regarding material risk exposures to the Board
as quickly as possible.
Meetings of the Board of Directors
The Board of Directors met four times during 2020. Each director attended all of the meetings of
the Board and of each of the committees on which he or she served during 2020.
16
Information Regarding Committees of the Board of Directors
The Board has three committees: an Audit Committee, a Compensation Committee and a
Nominating and Corporate Governance Committee. The following table provides membership and
meeting information for 2020 for each of the Board committees:
Name
Arthur W. Coviello, Jr.
Kimberly L. Hammonds
Jerry M. Kennelly
Ping Li
A. Brooke Seawell
Richard M. Wells
Linda K. Zecher
Total meetings in 2020
_____________
*
Committee Chairperson
Audit
X
X
X*
8
Compensation
Nominating and
Corporate Governance
X*
X
X*
X
X
X
5
X
X
4
Below is a description of each committee of the Board of Directors. Each of the committees has
authority to engage legal counsel or other experts or consultants, as it deems appropriate to carry out
its responsibilities. The Board of Directors has determined that each member of each committee
meets the applicable Nasdaq rules and regulations regarding “independence” and each member is
free of any relationship that would impair his or her individual exercise of independent judgment with
regard to the Company.
Audit Committee
The Audit Committee of the Board of Directors was established by the Board in accordance with
Section 3(a)(58)(A) of the Exchange Act to oversee the Company’s corporate accounting and
financial reporting processes and audits of its financial statements. For this purpose, the Audit
Committee performs several functions. The principal duties and responsibilities of our audit committee
include, among other things:
•
•
•
•
•
•
selecting a qualified firm to serve as the independent registered public accounting firm to
audit our financial statements;
helping to ensure the independence and performance of the independent registered public
accounting firm;
discussing the scope and results of the audit with the independent registered public
accounting firm, and reviewing, with management and the independent registered public
accounting firm, our interim and year-end operating results, including a review of our
disclosures under "Management's Discussion and Analysis of Financial Condition and results
of Operations";
developing procedures for employees to submit concerns anonymously about questionable
accounting or audit matters;
reviewing our policies on risk assessment and risk management;
overseeing the organization and performance of the Company's internal audit function;
• meeting in executive session with management and the Company's independent registered
public accountants;
17
•
•
•
reviewing related party transactions;
obtaining and reviewing a report by the independent registered public accounting firm at least
annually, that describes its internal quality-control procedures, any material issues with such
procedures, and any steps taken to deal with such issues when required by applicable law;
and
approving (or, as permitted, pre-approving) all audit and all permissible non-audit services to
be performed by the independent registered public accounting firm.
The Audit Committee is composed of three directors: Arthur W. Coviello, Jr., Kimberly L.
Hammonds and A. Brooke Seawell. The Audit Committee met eight times during 2020. The Board
has adopted a written Audit Committee charter that is available to stockholders on our website at
www.tenable.com.
The Board of Directors reviews the Nasdaq listing standards definition of independence for Audit
Committee members on an annual basis and has determined that all members of the Company’s
Audit Committee are independent (as independence is currently defined in Rule 5605(c)(2)(A)(i) and
(ii) of the Nasdaq listing rules).
The Board of Directors has also determined that Mr. Seawell qualifies as an “audit committee
financial expert,” as defined in applicable SEC rules. The Board made a qualitative assessment of Mr.
Seawell’s level of knowledge and experience based on a number of factors, including his formal
education and experience as a chief financial officer of public reporting companies.
Report of the Audit Committee of the Board of Directors*
The Audit Committee has reviewed and discussed the audited financial statements for the year
ended December 31, 2020 with management of the Company. The Audit Committee has discussed
with the independent registered public accounting firm the matters required to be discussed by the
applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and SEC.
The Audit Committee has also received the written disclosures and the letter from the independent
registered public accounting firm required by applicable requirements of the PCAOB regarding the
independent registered public accounting firm's communications with the audit committee concerning
independence, and has discussed with the independent registered public accounting firm the
accounting firm’s independence. Based on the foregoing, the Audit Committee has recommended to
the Board of Directors that the audited financial statements be included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2020.
A. Brooke Seawell, Chair
Kimberly L. Hammonds
Arthur W. Coviello, Jr.
*The material in this report is not "soliciting material," is not deemed "filed" with the Commission
and is not to be incorporated by reference in any filing of the Company under the Securities Act or the
Exchange Act, whether made before or after the date hereof and irrespective of any general
incorporation language in any such filing.
Compensation Committee
The Compensation Committee of the Board of Directors acts on behalf of the Board to review,
modify and oversee the Company’s compensation strategy, policies, plans and programs, including:
18
•
•
•
establishment of corporate and individual performance objectives relevant to the
compensation of our executive officers, directors and other senior management and
evaluation of performance in light of these stated objectives;
review and recommend to the Board for approval of the compensation and other terms of
employment or service, including severance and change-in-control arrangements, of our
Chief Executive Officer, the other executive officers and directors; and
administration of our equity compensation plans, bonus plans, benefit plans and other similar
plans and programs.
The Compensation Committee is composed of four directors: Jerry M. Kennelly, Ping Li, Richard
M. Wells and Linda K. Zecher. All members of the Company’s Compensation Committee are
independent (as independence is currently defined in Rule 5605(d)(2) of the Nasdaq listing rules. The
Compensation Committee met five times during 2020. The Board has adopted a written
Compensation Committee charter that is available to stockholders on our website at
www.tenable.com.
Compensation Committee Processes and Procedures
Typically, the Compensation Committee meets quarterly and with greater frequency when
necessary. The agenda for each meeting is usually developed by the Chair of the Compensation
Committee, in consultation with the Chief Executive Officer, Chief People Officer and Compensia, Inc.
("Compensia"), the compensation consultant engaged by the Compensation Committee. The
Compensation Committee meets regularly in executive session. In addition to our Chief Executive
Officer, our Chief People Officer and our General Counsel also regularly attend meetings at the
invitation of the Compensation Committee and take part in discussions about executive
compensation. From time to time, various members of management and other employees as well as
outside advisors or consultants may be invited by the Compensation Committee to make
presentations, to provide financial or other background information or advice or to otherwise
participate in Compensation Committee meetings. The Chief Executive Officer may not participate in,
or be present during, any deliberations or determinations of the Compensation Committee regarding
his compensation or individual performance objectives. The charter of the Compensation Committee
grants the Compensation Committee full access to all books, records, facilities and personnel of the
Company. In addition, under its charter, the Compensation Committee has the authority to obtain, at
the expense of the Company, advice and assistance from compensation consultants and internal and
external legal, accounting or other advisors and other external resources that the Compensation
Committee considers necessary or appropriate in the performance of its duties. The Compensation
Committee has direct responsibility for the oversight of the work of any consultants or advisers
engaged for the purpose of advising the Committee. In particular, the Compensation Committee has
the sole authority to retain, in its sole discretion, compensation consultants to assist in its evaluation
of executive and director compensation, including the authority to approve the consultant’s
reasonable fees and other retention terms. Under the charter, the Compensation Committee may
select, or receive advice from, a compensation consultant, legal counsel or other adviser to the
compensation committee, other than in-house legal counsel and certain other types of advisers, only
after taking into consideration six factors, prescribed by the SEC and Nasdaq, that bear upon the
adviser’s independence; however, there is no requirement that any adviser be independent.
During the past calendar year, after taking into consideration the six factors prescribed by the
SEC and Nasdaq described above, the Compensation Committee retained Compensia as its
compensation consultant. Our Compensation Committee identified Compensia based on
Compensia's general reputation in the industry. The Compensation Committee requested that
Compensia:
19
•
•
evaluate the efficacy of the Company’s existing compensation strategy and practices in
supporting and reinforcing the Company’s long-term strategic goals; and
assist in refining the Company’s compensation strategy and in developing and implementing
an executive compensation program to execute that strategy.
As part of its engagement, Compensia was requested by the Compensation Committee to review
and update the group of companies that we use for comparative purposes and to perform an analysis
of competitive performance and compensation levels for that group. The specific determinations of
the Compensation Committee with respect to executive compensation for the year ended December
31, 2020, as well as the role of the compensation consultant in assisting with those determinations,
are described in greater detail in the “Compensation Discussion and Analysis” section of this proxy
statement.
Under its charter, the Compensation Committee may form, and delegate authority to,
subcommittees as appropriate. In 2020, the Compensation Committee delegated authority to Mr.
Yoran, in his capacity as our Chief Executive Officer and Chairman, to grant, without any further
action required by the Compensation Committee, stock awards to certain employees who are not
officers of the Company, up to and including employees at the senior vice president level. The
purpose of this delegation of authority is to enhance the flexibility of equity award administration within
the Company and to facilitate the timely grant of stock awards to non-management employees,
particularly new employees and promoted employees, within specified limits approved by the
Compensation Committee. The number of shares underlying awards approved by Mr. Yoran are
subject to maximum limits based on a targeted market range of share value and other parameters for
each recipient’s classification as set forth in guidelines approved by the Compensation Committee
from time to time. Typically, as part of its oversight function, the Compensation Committee reviews on
a quarterly basis the list of grants made by Mr. Yoran. During 2020, Mr. Yoran exercised his authority
to grant a total of 685,820 restricted stock units ("RSUs") to qualifying employees. No other equity
awards were granted pursuant to Mr. Yoran’s authority during 2020.
The Compensation Committee typically makes adjustments to annual compensation, approves
changes to the key financial metric targets and formulas used to determine annual bonus payments,
approves additional equity awards and establishes new performance objectives at one or more
meetings held during the first quarter of the year. However, the Compensation Committee also
considers matters related to individual compensation, such as compensation for new executive hires,
as well as high-level strategic issues, such as the efficacy of the Company’s compensation strategy,
potential modifications to that strategy and new trends, plans or approaches to compensation, at
various meetings throughout the year. Generally, the Compensation Committee’s process comprises
two related elements: the determination of compensation levels and the establishment of performance
objectives for the current year. For executives other than the Chief Executive Officer, the
Compensation Committee solicits and considers evaluations and recommendations submitted to the
Committee by the Chief Executive Officer. In the case of the Chief Executive Officer, the evaluation of
his performance is conducted by the Compensation Committee, which determines any adjustments to
his compensation as well as awards to be granted. For all executives and directors as part of its
deliberations, the Compensation Committee may review and consider, as appropriate, materials such
as financial reports and projections, operational data, tax and accounting information, tally sheets that
set forth the total compensation that may become payable to executives in various hypothetical
scenarios, executive and director stock ownership information, company stock performance data,
analyses of historical executive compensation levels and current company-wide compensation levels
and recommendations of the Compensation Committee’s compensation consultant, including
analyses of executive and director compensation paid at other companies identified by the consultant.
20
Compensation Committee Interlocks and Insider Participation
None of the current members of our Compensation Committee has ever been an executive officer
or employee of ours. None of our executive officers currently serves, or has served during the last
completed year, on the compensation committee or board of directors of any other entity that has one
or more executive officers serving as a member of our Board of Directors or Compensation
Committee.
Report of the Compensation Committee of the Board of Directors*
The Compensation Committee has reviewed and discussed with management the Compensation
Discussion and Analysis (“CD&A”) contained in this proxy statement. Based on this review and
discussion, the Compensation Committee has recommended to the Board of Directors that the CD&A
be included in this proxy statement and incorporated into the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2020.
Jerry M. Kennelly, Chair
Ping Li
Richard M. Wells
Linda K. Zecher
*The material in this report is not “soliciting material,” is furnished to, but not deemed “filed” with,
the Commission and is not deemed to be incorporated by reference in any filing of the Company
under the Securities Act or the Exchange Act, other than the Company’s Annual Report on Form
10-K, where it shall be deemed to be “furnished,” whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee of the Board of Directors is responsible
for identifying, reviewing and evaluating candidates to serve as directors of the Company (consistent
with criteria approved by the Board), reviewing and evaluating incumbent directors, recommending to
the Board for selection candidates for election to the Board of Directors, making recommendations to
the Board regarding the membership of the committees of the Board, assessing the performance of
management and the Board, and developing a set of corporate governance principles for the
Company.
The Nominating and Corporate Governance Committee is composed of four directors: Arthur W.
Coviello, Jr., Kimberly L. Hammonds, Linda K. Zecher and Richard M. Wells. All members of the
Nominating and Corporate Governance Committee are independent (as independence is currently
defined in Rule 5605(a)(2) of the Nasdaq listing rules). The Nominating and Corporate Governance
Committee met four times during 2020. The Board has adopted a written Nominating and Corporate
Governance Committee charter that is available to stockholders on the our website at
www.tenable.com.
The Nominating and Corporate Governance Committee believes that candidates for director
should have certain minimum qualifications, including the ability to read and understand basic
financial statements, being over 21 years of age and having the highest personal integrity and ethics.
The Nominating and Corporate Governance Committee also intends to consider such factors as
possessing relevant expertise upon which to be able to offer advice and guidance to management,
having sufficient time to devote to the affairs of the Company, demonstrated excellence in his or her
field, having the ability to exercise sound business judgment and having the commitment to rigorously
21
represent the long-term interests of the Company’s stockholders. However, the Nominating and
Corporate Governance Committee retains the right to modify these qualifications from time to time.
Board diversity and inclusion is critical to Tenable’s success. Candidates for director nominees are
reviewed in the context of the current composition of the Board, the operating requirements of the
Company and the long-term interests of stockholders. In conducting this assessment, the Nominating
and Corporate Governance Committee typically considers diversity (including gender, racial and
ethnic diversity), age, skills and such other factors as it deems appropriate, given the current needs of
the Board and the Company, to maintain a balance of knowledge, experience and capability.
The Nominating and Corporate Governance Committee appreciates the value of thoughtful Board
refreshment, and regularly identifies and considers qualities, skills and other director attributes that
would enhance the composition of the Board. In the case of incumbent directors whose terms of office
are set to expire, the Nominating and Corporate Governance Committee will review these directors’
overall service to the Company during their terms, including the number of meetings attended, level of
participation, quality of performance and any other relationships and transactions that might impair
the directors’ independence. The Committee also takes into account the results of the Board’s self-
evaluation, conducted annually on a group and individual basis. In the case of new director
candidates, the Nominating and Corporate Governance Committee also determines whether the
nominee is independent for Nasdaq purposes, which determination is based upon applicable Nasdaq
listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. The
Nominating and Corporate Governance Committee then uses its network of contacts to compile a list
of potential candidates, but also engages professional search firms from time to time to assist in
identifying potential candidates. The Nominating and Corporate Governance Committee conducts any
appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates
after considering the function and needs of the Board. The Nominating and Corporate Governance
Committee meets to discuss and consider the candidates’ qualifications and then selects a nominee
for recommendation to the Board by majority vote.
The Nominating and Corporate Governance Committee will consider director candidates
recommended by stockholders. The Nominating and Corporate Governance Committee does not
intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth
above, based on whether or not the candidate was recommended by a stockholder. Stockholders
who wish to recommend individuals for consideration by the Nominating and Corporate Governance
Committee to become nominees for election to the Board may do so by delivering a written
recommendation to the Nominating and Corporate Governance Committee at the following address:
Tenable Holdings, Inc., Attention: Corporate Secretary, 6100 Merriweather Drive, 12th Floor,
Columbia, Maryland 21044, at least 90 days, but not more than 120 days prior to the anniversary date
of the preceding year's annual meeting of stockholders. Submissions must include the name and
address of the stockholder on whose behalf the submission is made, the number of shares of Tenable
stock owned beneficially by such stockholder on the date of the submission, the full name of the
proposed nominee, a description of the proposed nominee’s business experience for at least the
previous five years, complete biographical information and a description of the proposed nominee's
qualifications as a director. Any submission must be accompanied by the written consent of the
proposed nominee to be named as a nominee and to serve as a director if elected.
Stockholder Communications with the Board of Directors
All stockholders and other interested parties are welcome to communicate with our non-
management directors through an established process for stockholder communication. For a
communication directed to our non-management directors, please contact our Corporate Secretary or
Legal Department in writing at the address listed below.
22
Tenable Holdings, Inc.
6100 Merriweather Drive, 12th Floor
Columbia, MD 21044
Attn: Corporate Secretary or Legal Department
Our Corporate Secretary or Legal Department will review all incoming stockholder
communications and determine whether the communication should be presented to the Board or the
appropriate director. The purpose of this screening is to allow the Board to avoid having to consider
irrelevant or inappropriate communications, such as mass mailings, product complaints or inquiries,
job inquiries, business solicitations and patently offensive or otherwise inappropriate material. The
screening procedures have been approved by a majority of our independent directors. All
communications directed to the Audit Committee in accordance with the Company’s whistleblower
policy that relate to questionable accounting or auditing matters involving the Company will be
promptly and directly forwarded to the Audit Committee.
Code of Ethics
We have adopted the Tenable Code of Business Conduct and Ethics that applies to all officers,
directors and employees. The Code of Business Conduct and Ethics is available on our website at
www.tenable.com. If we make any substantive amendments to the Code of Business Conduct and
Ethics or grant any waiver from a provision of the Code to any executive officer or director, we will
promptly disclose the nature of the amendment or waiver on our website.
Hedging Policy
Our Insider Trading Policy prohibits our employees, including our executive officers, and the non-
employee members of our Board of Directors from engaging in short sales, transactions in put or call
options, hedging transactions, using margin accounts, pledges, or other inherently speculative
transactions involving our equity securities.
23
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has selected Ernst & Young LLP as the
Company’s independent registered public accounting firm for the year ending December 31, 2021
and has further directed that management submit the selection of its independent registered public
accounting firm for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP has
audited the Company’s financial statements since 2014. Representatives of Ernst & Young LLP are
expected to be present online at the Annual Meeting. They will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate questions.
Neither the Company’s Bylaws nor other governing documents or law require stockholder
ratification of the selection of Ernst & Young LLP as the Company’s independent registered public
accounting firm. However, the Audit Committee of the Board is submitting the selection of Ernst &
Young LLP to the stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Audit Committee of the Board will reconsider whether or
not to retain that firm. Even if the selection is ratified, the Audit Committee of the Board in its
discretion may direct the appointment of a different independent registered public accounting firm at
any time during the year if they determine that such a change would be in the best interests of the
Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present online at the meeting or
represented by proxy and entitled to vote on the matter at the Annual Meeting will be required to ratify
the selection of Ernst & Young LLP.
Fees and Services
The following table represents aggregate fees billed to the Company by Ernst & Young LLP, the
Company’s principal accountant.
(in thousands)
Audit Fees(1)
All Other Fees(2)
Total Fees
Year Ended December 31,
2020
2019
$
$
1,491 $
56
1,547 $
1,876
5
1,881
Audit fees consisted of fees billed for professional services provided in connection with the
_____________
(1)
audits of our annual consolidated financial statements and our internal control over financial reporting,
the review of our quarterly condensed consolidated financial statements, and related procedures and
audit services that are normally provided by the independent registered public accounting firm in
connection with regulatory filings. Audit fees included fees for procedures performed in connection
with our secondary offering in 2020 and fees for a business combination in 2019.
(2)
fees in 2020 included fees for permissible advisory services.
All other fees were related to access to online accounting and tax research software. All other
All fees and services described above were pre-approved by the Audit Committee.
Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-
audit services rendered by the Company’s independent registered public accounting firm, Ernst &
24
Young LLP. The policy generally pre-approves specified services in the defined categories of audit
services, audit-related services and tax services up to specified amounts. Pre-approval may also be
given as part of the Audit Committee’s approval of the scope of the engagement of the independent
registered public accounting firm or on an individual, explicit, case-by-case basis before the
independent registered public accounting firm is engaged to provide each service. The Chair of the
Audit Committee has been delegated authority to pre-approve certain audit and non-audit services,
but the decision must be reported to the full Audit Committee at its next scheduled meeting.
The Audit Committee has determined that the rendering of services other than audit services by
Ernst & Young LLP is compatible with maintaining the principal accountant’s independence.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
25
PROPOSAL 3
ADVISORY VOTE TO APPROVE THE NAMED EXECUTIVE OFFICER COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the
Exchange Act enable our stockholders to approve, on an advisory non-binding basis, the
compensation of our Named Executive Officers as disclosed in this proxy statement. This proposal,
commonly known as a "Say-on-Pay" proposal, gives our stockholders the opportunity to express their
views on our Named Executive Officers' compensation as a whole. The vote is not intended to
address any specific item of compensation or any specific Named Executive Officer, but rather the
overall compensation of all our Named Executive Officers and the philosophy, policies and practices
described in this proxy statement. At the 2020 Annual Meeting of Stockholders, the stockholders
indicated their preference that the Company solicit a Say-on-Pay vote every year. The Board has
adopted a policy that is consistent with that preference. In accordance with that policy, this year, we
are asking stockholders to approve, on an advisory basis, the compensation of our Named Executive
Officers as disclosed in this proxy statement in accordance with SEC rules.
The Say-on-Pay vote is advisory, and therefore is not binding on us, the Compensation
Committee or the Board. The Say-on-Pay vote will, however, provide information to us regarding
investor sentiment about our executive compensation philosophy, policies and practices, which the
Compensation Committee will be able to consider when determining executive compensation for the
remainder of the current fiscal year and beyond. The Board and our Compensation Committee value
the opinions of our stockholders and to the extent there is any significant vote against the Named
Executive Officer compensation as disclosed in this proxy statement, we will endeavor to
communicate with stockholders to better understand the concerns that influenced the vote, consider
our stockholders’ concerns and the Compensation Committee will evaluate whether any actions are
necessary to address those concerns.
The compensation of our Named Executive Officers subject to the vote is disclosed in the
Compensation Discussion and Analysis section, the compensation tables and the related narrative
disclosure contained in this proxy statement. As discussed in those disclosures, we believe that our
compensation policies and decisions are aligned with our stockholders’ interests to support long-term
value creation and enable us to attract and retain talented executives.
Accordingly, the Board is asking the stockholders to indicate their support for the compensation of
our Named Executive Officers as described in this proxy statement by casting a non-binding advisory
vote “FOR” the following resolution:
“RESOLVED, that the compensation paid to the Company’s named executive officers, as
disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and
Analysis, compensation tables and narrative discussion is hereby APPROVED.”
Advisory approval of this proposal requires the vote of the holders of a majority of the shares
present online or represented by proxy and entitled to vote on the matter at the annual meeting.
Unless the Board decides to modify its policy regarding the frequency of soliciting Say-on-Pay votes,
the next scheduled Say-on-Pay vote will be at the 2022 Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
26
CORPORATE SOCIAL RESPONSIBILITY
We believe good governance at all levels is necessary to drive corporate responsibility, which in
turn promotes the long-term interests of our stockholders and strengthens Board and management
accountability. We focus our efforts in the following key areas:
• Governance of sustainability;
•
•
Environmental stewardship; and
Social responsibility in: cybersecurity, diversity and inclusion, employee engagement, and
community involvement.
Governance of Sustainability
As a part of its primary duty overseeing the Company's corporate strategy, our Board also
oversees how environmental and social issues may impact the long-term interests of our stockholders
and stakeholders. We stress that corporate responsibility is part of every employee’s job because
achieving operational excellence is intrinsically tied to how responsibly we run our business.
As a part of this endeavor, the Board oversees the management team as it seeks to meet the
Company's goals and responsibilities relating to sustainability and corporate social responsibility,
particularly those that may affect the stakeholders and stockholders of our company, and the
communities in which we operate. In addition to our governance best practices, we consider
environmental and social issues in our operations. As part of overseeing our corporate strategy and
our enterprise risk management program, our Board has a degree of insight into our environmental
and social practices. We believe that socially responsible operating practices go hand in hand with
generating value for our stockholders, providing cybersecurity solutions for our clients, being good
neighbors within our communities, and being a good employer to our employees. In our view, our
corporate governance is more effective when we consider environmental and social issues as part of
our oversight of corporate strategy, key risks, and our operations more generally.
In 2020, we pooled internal and external resources to assess environmental, social and
governance ("ESG") factors that are material to our business. With the assistance of external ESG
consultants, we analyzed our businesses to better understand our material ESG risks and
opportunities relevant for our company based on the views held by our stockholders, leading ESG
frameworks and ESG rating agencies. We utilized criteria established by the Sustainability Accounting
Standard Board and the Task Force on Climate-related Disclosures to perform the assessment.
Environmental Stewardship
Our Board and management team recognize that we have a role to play in environmental
stewardship. Given that the Company is a software solutions company, greenhouse gas emissions
and water and energy usage are not material factors to the day-to-day operations of our business. We
believe, however, that environmentally responsible operating practices are important to generating
value for our stockholders, being a good partner with our customers, and being a good employer to
our employees.
Energy consumption and usage within data centers is an important component of our day-to-day
operations of our business. We outsource our data center needs to Amazon Web Services (“AWS”).
In 2014, AWS shared its long-term commitment to achieve 100 percent renewable energy usage for
27
the global AWS infrastructure footprint. Our new corporate headquarters is a LEED Certified Gold for
Core Construction. We are also pursuing an Energy Star rating.
Cybersecurity
The Company takes great pride in assisting our customers with enhancing their security posture
through the use of our services and products. We understand that customers must trust and have
confidence in the security of an organization to use its service offerings for managing their
vulnerability data. As such, we take the overall security of the Company's products and their
supporting infrastructure very seriously.
The Company aligns its information security and risk management program to the NIST Cyber
Security Framework and has implemented an information security management system (“ISMS”) to
protect the confidentiality, integrity, and availability of assets against threats and vulnerabilities. The
Company achieved ISO/IEC 27001:2013 certification, recognizing its proven commitment to the
highest level of information security management.
Outside of internal improvements to our platform and customer relationship management, we do
not use customer data for any other purposes.
Diversity and Inclusion
We seek to cultivate a diverse and inclusive workforce and environment to achieve exceptional
business results. When we value and celebrate differences, we drive more innovation and grow
closer to our customers, partners, and communities. We strive to be a career destination where
employees from all backgrounds are welcome and empowered, treated with fairness and respect,
presented with opportunities to make a difference, and provided opportunities to grow.
We undertake numerous efforts to increase diversity in our employee population and to foster a
culture of fairness and belonging through a number of measures in our recruiting, engagement,
retention, and outreach practices. Our dedicated Diversity & Inclusion Council and Employee
Resource Groups – along with our committed leaders and managers – strive to attract and hire
employees who bring broad diversity of background, thought, and style into the company and foster a
sense of inclusion to make them want to stay. To support these initiatives, we build partnerships within
our communities to support organizations and events that strive for greater representation of women
and underrepresented minorities in cybersecurity, hold inclusion and bias mitigation training and offer
targeted development opportunities to assist with career advancement. In addition, our global talent
acquisition team received a diversity sourcing and recruiting certification.
Employee Engagement
The Company promotes and supports employee development and organizational effectiveness
by providing high-quality learning and development programs. These programs are designed to meet
individual, team, and organizational needs and objectives. We strive to enhance learning and
development programs to create a better workplace environment and to build a better Tenable. We
aim to incentivize our employees by aligning a portion of their compensation with the overall success
of our business. All new hires are given an equity grant and there is broad employee participation in
our Employee Stock Purchase Plan.
28
Community Involvement
We're a company built on our “We Care” core value, and we look to make a positive difference in
everything that we do – in our work, with our customers and our colleagues, and in our communities.
• We contribute to cybersecurity awareness, education, and scholarships, and inspire students
to pursue cybersecurity careers or a STEM field of study.
• Our We Care In Action (“WCIA”) campaign invites employees to submit nominations for
charitable organization sponsorship. For each WCIA global cause selected annually by our
employees, Tenable makes a donation, and we encourage our employees to contribute either
by making a donation, volunteering their time in support of the cause, or learning about and
helping to spread awareness for the cause. In 2020, we selected Make-A-Wish foundation as
our WCIA global cause.
•
Each employee is given one day of paid leave per year to participate in volunteer activities for
a charitable organization of their choice, including activities for a nonprofit or charitable
organization, school events, disaster relief assistance, and peaceful activism.
Additional Information
For additional information and to view our report on corporate social responsibility, you can visit
our website at www.investors.tenable.com.
EXECUTIVE OFFICERS
Our executive officers, and their respective ages as of April 13, 2021, are as follows:
Name
Executive Officers
Amit Yoran
Stephen A. Vintz
Stephen A. Riddick
Age
Position(s)
50 Chief Executive Officer and Chairman
52 Chief Financial Officer
57 General Counsel and Corporate Secretary
The biography of Mr. Yoran is set forth in “Proposal 1: Election of Directors” above.
Stephen A. Vintz has served as our Chief Financial Officer since October 2014. Mr. Vintz has
served on the board of directors of the Kennedy Krieger Institute since December 2012. Mr. Vintz
received a B.B.A. in Accounting from Loyola University Maryland and is a Certified Public Accountant.
Stephen A. Riddick has served as our General Counsel since May 2016 and was appointed as
our Corporate Secretary, in addition to General Counsel, in May 2018. Prior to joining Tenable,
Mr. Riddick served in a number of roles, including Global Associate General Counsel, at Linde plc (fka
Praxair, Inc.), a publicly traded producer and distributor of industrial gases and related technologies,
from September 2010 to February 2016. Mr. Riddick received a B.A. in Economics from the University
of Virginia and a J.D. from the University of North Carolina School of Law.
29
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of the Company’s
common stock as of March 5, 2021 by: (i) each director and nominee for director; (ii) each of the
executive officers named in the Summary Compensation Table; (iii) all executive officers and directors
of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its common stock.
5% or greater stockholders:
Beneficial Owner
Entities affiliated with Insight Partners(2)
FMR LLC(3)
The Vanguard Group(4)
Select Equity Group, L.P.(5)
BlackRock, Inc.(6)
Named executive officers and directors:
Amit Yoran(7)
Stephen A. Vintz(8)
Stephen A. Riddick(9)
John C. Huffard, Jr.(10)
Arthur W. Coviello, Jr.(11)
Kimberly L. Hammonds
Jerry M. Kennelly(12)
Ping Li(13)
A. Brooke Seawell(14)
Richard M. Wells(15)
Linda K. Zecher
Beneficial Ownership(1)
Number of Shares Percent of Total
10,100,312
9.6%
9,460,162
6,196,709
5,323,628
5,258,684
3,825,622
698,011
44,985
3,766,096
148,410
—
55,486
421,996
202,500
36,225
—
9.0
5.9
5.0
5.0
3.5
*
*
3.6
*
*
*
*
*
*
*
All current executive officers and directors as a group (11
persons)(16)
_____________
* Represents beneficial ownership of less than 1%.
9,199,331
8.4%
This table is based upon information supplied by officers, directors and principal stockholders
(1)
and Schedules 13D and 13G filed with the SEC. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable, the Company believes that each of
the stockholders named in this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on 105,438,121 shares
outstanding on March 5, 2021, adjusted as required by rules promulgated by the SEC.
Consists of (a) 3,111,873 shares of common stock held by Insight Venture Partners IX, L.P.,
(2)
or IVP IX, (b) 1,546,213 shares of common stock held by Insight Venture Partners (Cayman) IX, L.P.,
or IVP (Cayman) IX, (c) 329,702 shares of common stock held by Insight Venture Partners
(Delaware) IX, L.P., or IVP (Delaware) IX, (d) 62,114 shares of common stock held by Insight Venture
Partners IX (Co-Investors), L.P., or IVP IX (Co-Investors), and, collectively with IVP IX, IVP (Cayman)
IX and IVP (Delaware) IX, the “IVP IX Funds”, (e) 1,462,620 shares of common stock held by Insight
30
Venture Partners Growth-Buyout Coinvestment Fund, L.P., or IVP Coinvestment, (f) 1,175,861 shares
of common stock held by Insight Venture Partners Growth-Buyout Coinvestment Fund (Cayman),
L.P., or IVP Coinvestment (Cayman), (g) 1,081,210 shares of common stock held by Insight Venture
Partners Growth-Buyout Coinvestment Fund (Delaware), L.P., or IVP Coinvestment (Delaware), and
(h) 1,330,719 shares of common stock held by Insight Venture Partners Growth-Buyout Coinvestment
Fund (B), L.P., or IVP Coinvestment (B), and, collectively with IVP Coinvestment, IVP Coinvestment
(Cayman) and IVP Coinvestment (Delaware), the “IVP Coinvestment Funds” and, together with the
IVP IX Funds, the “IVP Funds.” Insight Venture Associates IX, Ltd., or IVA IX Ltd., is the general
partner of Insight Venture Associates IX, L.P., which is the general partner of each of the IVP IX
Funds. Insight Venture Associates Growth-Buyout Coinvestment, Ltd., or IVA Coinvestment Ltd., is
the general partner of Insight Venture Associates Growth-Buyout Coinvestment, L.P., which is the
general partner of each of the IVP Coinvestment Funds. Insight Holdings Group, LLC, or Insight
Holdings, is the sole shareholder of each of IVA IX Ltd. and IVA Coinvestment Ltd. Each of Jeffrey L.
Horing, Deven Parekh, Peter Sobiloff, Jeffrey Lieberman and Michael Triplett is a member of the
board of managers of Insight Holdings and as such may be deemed to have shared voting and
dispositive power over the shares held by each of the IVP Funds. Richard M. Wells is a Managing
Director at Insight Venture Management, LLC, an entity affiliated with the IVP Funds, but does not
have voting and dispositive power over the shares held by IVP Funds. The principal business address
for all entities and individuals affiliated with Insight Partners is c/o Insight Partners, 1114 Avenue of the
Americas, 36th Floor, New York, New York, 10036.
As reported in a Schedule 13G/A filed with the Securities and Exchange Commission on
(3)
February 8, 2021, which states that FMR LLC has sole dispositive power with respect to all of the
shares and sole voting power with respect to 1,453,350 of the shares. The principal business address
of FMR LLC is 245 Summer Street, Boston, Massachusetts 02210.
As reported in a Schedule 13G filed with the Securities and Exchange Commission on
(4)
February 10, 2021, which states that The Vanguard Group, Inc. has sole dispositive power with
respect to 5,988,354 of the shares and shared dispositive power with respect to 208,355 of the
shares and share voting power with respect to 158,849 of the shares. The Vanguard Group, Inc. is
the parent holding company of Vanguard Asset Management, Limited, Vanguard Fiduciary Trust
Company, Vanguard Global Advisors, LLC, Vanguard Group (Ireland) Limited, Vanguard Investments
Australia Ltd, Vanguard Investments Canada Inc., Vanguard Investments Hong Kong Limited and
Vanguard Investments UK, Limited, which act as investment advisers to registered investment
companies and separate accounts that own the reported shares. The principal business address of
The Vanguard Group, Inc. is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355.
As reported in a Schedule 13G filed with the Securities and Exchange Commission on
(5)
February 12, 2021. George S. Loening is the majority owner of Select Equity Group, L.P. and
managing member of its general partner and shares voting and dispositive power over the reported
shares. The address for Select Equity Group, L.P. and Mr. Loening is 380 Lafayette Street, 6th Floor,
New York, New York 10003.
As reported in a Schedule 13G filed with the Securities and Exchange Commission on
(6)
February 2, 2021, which states that BlackRock, Inc. has sole dispositive power with respect to all of
the shares and sole voting power with respect to 5,186,548 of the shares. BlackRock, Inc. is the
parent holding company of BlackRock Life Limited, BlackRock Advisors, LLC, BlackRock
(Netherlands) B.V., BlackRock Institutional Trust Company, National Association, BlackRock Asset
Management Ireland Limited, BlackRock Financial Management, Inc., BlackRock Asset Management
Schweiz AG, BlackRock Investment Management, LLC, BlackRock Investment Management (UK)
Limited, BlackRock Asset Management Canada Limited, BlackRock Investment Management
(Australia) Limited, BlackRock Fund Advisors and BlackRock Fund Managers Ltd, which act as
investment advisers to registered investment companies and separate accounts that own the reported
31
shares. The principal business address of BlackRock, Inc. is 55 East 52nd Street, New York, New
York 10055.
(7)
Consists of (a) 649,811 shares of common stock held by Mr. Yoran directly, (b) 538,447
shares of common stock held by the Amit Yoran 2020 Family Trust, and (c) 2,637,364 shares of
common stock issuable upon the exercise of outstanding options exercisable within 60 days of March
5, 2021.
(8)
issuable upon the exercise of outstanding options exercisable within 60 days of March 5, 2021.
Consists of (a) 75,795 shares of common stock and (b) 622,216 shares of common stock
(9)
Consists of (a) 21,395 shares of common stock and (b) 23,590 shares of common stock
issuable upon the exercise of outstanding options exercisable within 60 days of March 5, 2021.
(10)
Consists of (a) 2,173 shares of common stock held by Mr. Huffard directly, (b) 31,847 shares
of common stock held by Mr. Huffard’s spouse in the Mary Kathryn Braden Huffard Revocable Trust
U/T/A dated March 2, 2012, (c) 3,294,982 shares of common stock held by Jonathan M. Forster, as
Trustee, and Mary Kathryn Braden Huffard, as Business Advisor, of The Three Suns 2019 Exempt
Irrevocable Trust U/T/A dated November 15, 2019, (d) 390,183 shares of common stock held by Mary
Kathryn Braden Huffard and Jonathan M. Forster, as Trustees of The Three Suns 2019 Non-Exempt
Irrevocable Trust U/T/A dated November 15, 2019, and (e) 46,911 shares of common stock held by
Mr. Huffard and Mary Kathryn Braden Huffard, as Trustees of The John Cloyd Huffard Jr Revocable
Trust U/T/A dated March 2, 2012. Effective April 6, 2021, Mr. Huffard and his spouse no longer have
beneficial ownership of the shares held by the Three Suns 2019 Exempt Irrevocable Trust U/T/A
dated November 15, 2019.
(11)
issuable upon the exercise of outstanding options exercisable within 60 days of March 5, 2021.
Consists of (a) 14,240 shares of common stock and (b) 134,170 shares of common stock
Consists of (a) 14,153 shares of common stock held directly by Kennelly Partners, L.P., an
(12)
entity controlled by Mr. Kennelly, and (b) 41,333 shares of common stock issuable upon the exercise
of outstanding options exercisable within 60 days of March 5, 2021.
(13)
Consists of (a) 302,971 of common stock held by Li Family Trust, or the Trust, and (b)
119,025 of common stock held by Li Family GST Exempt Trust, or GST. Ping Li is trustee of the Trust
and has voting and dispositive power over the shares held by the Trust. Members of Ping Li’s
immediate family are beneficial holders of the GST, and he may be deemed to exercise voting and
investment power over the shares held by the GST.
(14)
issuable upon the exercise of outstanding options exercisable within 60 days of March 5, 2021.
Consists of (a) 30,000 shares of common stock and (b) 172,500 shares of common stock
(15)
shares of common stock held by RW Fund IX LLC, an entity controlled by Mr. Wells.
Consists of (a) 18,338 shares of common stock held by Mr. Wells directly and (b) 17,887
Consists of (a) 5,568,158 shares of common stock and (b) 3,631,173 shares of common
(16)
stock issuable upon the exercise of outstanding options exercisable within 60 days of March 5, 2021.
DELINQUENT SECTION 16(A) REPORTS
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and
persons who own more than ten percent of a registered class of the Company’s equity securities, to
32
file with the SEC initial reports of ownership and reports of changes in ownership of common stock
and other equity securities of the Company. Officers, directors and greater than ten percent
stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a)
forms they file.
To the Company’s knowledge, based solely on a review of the copies of such reports furnished to
the Company and written representations that no other reports were required, during the year ended
December 31, 2020, all Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except that one report covering one
transaction was inadvertently filed late on behalf of Mr. Li by the Company and one report covering
two transactions was inadvertently filed late on behalf of Mr. Yoran by the Company.
33
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides information regarding the 2020 compensation
program for our principal executive officer, our principal financial officer and the only other executive
officer (our “Named Executive Officers”). For 2020, our Named Executive Officers were:
Name
Amit Yoran
Stephen A. Vintz
Position
Chief Executive Officer and Chairman of the Board of Directors
Chief Financial Officer
Stephen A. Riddick
General Counsel and Corporate Secretary
This Compensation Discussion and Analysis describes the material elements of our executive
compensation program during 2020. It also provides an overview of our executive compensation
philosophy, including our principal compensation policies and practices. Finally, it analyzes how and
why the Compensation Committee arrived at the specific compensation decisions for our Named
Executive Officers in 2020 and discusses the key factors that the Compensation Committee
considered in determining their compensation.
Executive Summary
Who We Are
We are a leading provider of Cyber Exposure solutions. Cyber Exposure is a discipline for
managing, measuring and comparing cybersecurity risk in the digital era.
Our platform offerings provide broad visibility into security issues such as vulnerabilities,
misconfigurations, internal and regulatory compliance violations and other indicators of the state of an
organization’s security across IT infrastructure and applications, cloud environments and Industrial
IoT and OT environments. We also provide deep analytics to help organizations score, trend and
compare their cyber exposure over time, and communicate cyber risk in business terms to make
better strategic decisions. Our platform offerings integrate and analyze data from our native collectors
alongside IT asset, vulnerability and threat data from third-party systems and applications to prioritize
security issues for remediation and focus an organization’s resources based on risk and business
criticality.
As of December 31, 2020, we had over 30,000 customers who licensed our Tenable.io,
Tenable.sc, Tenable.ot or Nessus Professional products. As of December 31, 2020, our customers
include more than 50% of the Fortune 500, more than 30% of the Global 2000, and large government
agencies. In 2020, no single customer represented more than 2% of our revenue.
2020 Business Highlights
2020 was marked by attractive revenue and calculated current billings growth and expanding
operating margins and positive free cash flow. Our 2020 highlights were as follows:
•
•
•
Added 1,455 new enterprise platform customers and 196 net new six-figure enterprise
platform customers
Revenue was $440.2 million, a 24% increase year-over-year.
Calculated current billings was $494.7 million, a 19% increase year-over-year.
34
• GAAP loss from operations was $36.4 million; Non-GAAP income from operations was $25.8
million.
• GAAP net loss per share was $0.42; Non-GAAP diluted earnings per share was $0.19.
•
Free cash flow was $44.0 million, compared to $(31.4) million in 2019.
Refer to the appendix for reconciliations of non-GAAP measures to comparable GAAP measures.
Executive Compensation Highlights
Based on our overall operating environment and these results, the Compensation Committee
took the following key actions with respect to the compensation of our Named Executive Officers for
and during 2020:
•
•
•
Base Salaries - Approved base salaries of $450,000 for Mr. Yoran, $375,000 for Mr. Vintz and
$330,000 for Mr. Riddick.
Cash Bonuses - Revised our short-term cash incentive bonus plan in April to base cash
bonuses on corporate performance metrics consisting of bookings, revenue, and, given its
growing importance to our business for 2020, free cash flow, with each metric target pre-
established by our Board of Directors as part of its review of the annual operating plan, and to
change the timing of bonus payouts due to the economic uncertainty resulting from the
COVID-19 pandemic, which resulted in full-year earned bonus payouts of approximately
$409,000 for our CEO, approximately $295,000 for Mr. Vintz, and approximately $150,000 for
Mr. Riddick, based on our achievement of the selected corporate performance metrics, other
than with respect to the first quarter, which was paid at a lower percentage to preserve cash
given the uncertainty caused by the COVID-19 pandemic. We established the corporate
governance metrics and related target levels in April 2020 and did not make any adjustments
to the targets during 2020, despite the impact to our business caused by the COVID-19
pandemic.
Long-Term Incentive Compensation - Granted long-term incentive compensation
opportunities in the form of time-based restricted stock unit (“RSU”) awards that may be
settled for shares of our common stock with grant date fair values of approximately
$6,600,000 to Mr. Yoran, approximately $4,000,000 to Mr. Vintz and approximately
$1,800,000 to Mr. Riddick.
Relationship Between Pay and Performance
We believe our executive compensation program is reasonable and competitive, and
appropriately balances the goals of attracting, motivating, rewarding, and retaining our Named
Executive Officers with the goal of aligning their interests with those of our stockholders. To ensure
this alignment and to motivate and reward individual initiative and effort, we seek to ensure that a
meaningful portion of our Named Executive Officers’ target annual total direct compensation is both
variable in nature and “at-risk.”
We emphasize variable “at-risk” compensation through two separate compensation elements.
First, we provide the opportunity to participate in our short-term cash incentive bonus plan which
provides payments based on the achievement by our Named Executive Officers of pre-established
short-term financial results compared to pre-established targets as determined from time to time by
the Company and reviewed by our Board of Directors in connection with our annual operating plan.
Second, since our initial public offering we have granted RSU awards to our Named Executive
Officers. Given our brief operating history and status as a public company and as a result of the
uncertainty in the macro-economy in 2020 caused by the COVID-19 pandemic, we believe that, at
35
this stage of our development, time-based RSU awards are the appropriate long-term incentive
compensation vehicle for us. The value of RSU awards depends on the performance (and resulting
value) of our common stock, thereby aligning the interests of our Named Executive Officers and
stockholders and incentivizing them to build sustainable long-term value for the benefit of our
stockholders and satisfying our retention objectives. Going forward, as we deem appropriate, we may
introduce other forms of stock-based compensation awards into our executive compensation program
to offer our Named Executive Officers additional types of equity incentives that further these
objectives.
These variable pay elements ensure that a substantial portion of our Named Executive Officers’
target total direct compensation is contingent (rather than fixed) in nature, with the amounts ultimately
payable commensurate with our actual performance.
For 2020, 94% of our CEO’s total reported compensation and an average of 89% of our other
Named Executive Officers’ total reported compensation was linked to performance, consisting of the
quarterly and annual bonuses earned and equity incentives awarded, as reported in the Summary
Compensation Table.
CEO Pay Mix
Other Executives Pay Mix
Base Salary 6%
Actual
Bonus 5%
Base Salary
11%
Actual
Bonus 7%
Equity
Awards 89%
Equity
Awards 82%
We believe that this design provides balanced incentives for our Named Executive Officers to
meet our business objectives and drive long-term growth. The Compensation Committee takes
seriously its responsibility to maintain an appropriate pay-for-performance alignment with an
emphasis on long-term stockholder value creation.
Executive Compensation Policies and Practices
We endeavor to maintain sound governance standards consistent with our executive
compensation policies and practices. The Compensation Committee evaluates our executive
compensation program on a regular basis to ensure that it is consistent with our short-term and long-
term goals given the dynamic nature of our business and the market in which we compete for
executive talent. The following summarizes our executive compensation and related policies and
practices:
What We Do
• Maintain an Independent Compensation Committee. The Compensation Committee
consists solely of independent directors who establish our compensation practices.
36
•
•
•
•
Retain an Independent Compensation Advisor. The Compensation Committee has
engaged its own compensation consultant to provide information, analysis, and other advice
on executive compensation independent of management. This consultant performed no other
consulting or other services for us in 2020.
Annual Executive Compensation Review. The Compensation Committee conducts an
annual review and approval of our compensation strategy, including a review and
determination of our compensation peer group used for comparative purposes and a review
of our compensation-related risk profile to ensure that our compensation programs do not
encourage excessive or inappropriate risk-taking and that the level of risk that they do
encourage is not reasonably likely to have a material adverse effect on us.
Compensation At-Risk. Our executive compensation program is designed so that a
significant portion of our Named Executive Officers’ compensation is “at risk” based on
corporate performance, as well as equity-based, to align the interests of our Named
Executive Officers and stockholders.
Use a Pay-for-Performance Philosophy. The majority of our Named Executive Officers’
compensation is directly linked to corporate performance; we also structure their target total
direct compensation opportunities with a significant long-term equity component, thereby
making a substantial portion of each Named Executive Officer’s target total direct
compensation dependent upon our stock price and/or total stockholder return.
• Multi-Year Vesting Requirements. The annual equity awards granted to our Named
Executive Officers vest over multi-year periods, consistent with current market practice and
our retention objectives.
“Double-Trigger” Change-in-Control Arrangements. All change-in-control payments and
benefits are based on a “double-trigger” arrangement (that is, they require both a change-in-
control of the Company plus a qualifying termination of employment before payments and
benefits are paid). In addition, all such payments and benefits are subject to the execution
and delivery of an effective general release of claims in favor of the Company.
Succession Planning. Our Board of Directors reviews the risks associated with our key
executive officer positions to ensure an adequate succession strategy and plans are in place.
•
•
What We Do Not Do
•
•
•
•
•
•
No Guaranteed Bonuses. We do not provide guaranteed bonuses to our executive officers.
No Executive Retirement Plans. We do not currently offer, nor do we have plans to offer,
defined benefit pension plans or any non-qualified deferred compensation plans or
arrangements to our Named Executive Officers other than the plans and arrangements that
are available to all employees. Our Named Executive Officers are eligible to participate in our
401(k) Plan on the same basis as our other employees.
No Perquisites. We do not provide perquisites or other personal benefits to our Named
Executive Officers beyond what are provided to our other employees.
No Tax Payments on Perquisites. We do not provide any tax reimbursement payments
(including “gross-ups”) on any perquisites or other personal benefits, other than on standard
relocation benefits.
No Excise Tax Payments on Future Post-Employment Compensation Arrangements.
We do not provide any excise tax reimbursement payments (including “gross-ups”) on
payments or benefits contingent upon a change in control of the Company.
No Hedging or Pledging of our Equity Securities. Our Insider Trading Policy prohibits our
employees, including our executive officers, and the non-employee members of our Board of
Directors from engaging in short sales, transactions in put or call options, hedging
37
transactions, using margin accounts, pledges, or other inherently speculative transactions
involving our equity securities.
Stockholder Advisory Vote on Named Executive Officer Compensation
At the Annual Meeting of Stockholders to which this Proxy Statement relates, we will be
conducting our first non-binding stockholder advisory vote on the compensation of our Named
Executive Officers (commonly known as a “Say-on-Pay” vote). For additional information about the
Say-on-Pay vote, see “Proposal 3" above.
At our 2020 Annual Meeting of Stockholders, we conducted a non-binding stockholder advisory
vote on the frequency of future Say-on-Pay votes (commonly known as a “Say-When-on-Pay” vote).
Our stockholders expressed a preference for holding future Say-on-Pay votes on an annual, rather
than a biennial or triennial, basis. In recognition of this preference and other factors considered, our
Board of Directors determined that, until the next Say-When-on-Pay vote, we will hold annual Say-on-
Pay votes.
We value the opinions of our stockholders. Our Board of Directors and the Compensation
Committee will consider the outcome of future advisory votes on the compensation of our Named
Executive Officers, as well as feedback received throughout the year, when making compensation
decisions for our executive officers.
Executive Compensation Philosophy and Objectives
Our executive compensation program is guided by our overarching philosophy of paying for
demonstrable performance. Consistent with this philosophy, we have designed our executive
compensation program to achieve the following primary objectives:
•
•
•
Provide market competitive compensation and benefit levels that will attract, motivate,
reward, and retain a highly talented team of executives within the context of responsible cost
management;
Establish a direct link between our financial and operational results and strategic objectives
and the compensation of our executives;
Align the interests and objectives of our executives with those of our stockholders by linking
their long-term incentive compensation opportunities to stockholder value creation and their
cash incentives to our annual performance; and
• Offer total compensation opportunities to our executives that, while competitive, are internally
consistent.
We believe that our executive compensation program should include short-term and long-term
elements, including cash and equity compensation, and should reward consistent performance that
meets or exceeds expectations. We evaluate both performance and compensation to make sure that
the compensation provided to our executives remains competitive relative to compensation paid by
companies of similar size operating in our industry, taking into account our relative performance, our
strategic objectives, and the performance of the individual executive.
Executive Compensation Design
The annual compensation arrangements for our Named Executive Officers consist of base salary,
quarterly and annual performance-based cash bonuses, and long-term incentive compensation in the
form of equity awards. The key component of our executive compensation program continues to be
38
equity awards. Historically, we have emphasized the use of equity to provide incentives for our
Named Executive Officers to focus on the growth of our overall enterprise value and, correspondingly,
to create sustainable value for our stockholders. Since our initial public offering, we have used time-
based RSU awards that have been settled in shares of our common stock as our principal equity
incentive vehicle.
We believe that RSU awards offer our Named Executive Officers a valuable long-term incentive
that aligns their interests with the long-term interests of our stockholders. Going forward, as we deem
appropriate, we may introduce other forms of stock-based compensation awards into our executive
compensation program to offer our Named Executive Officers additional types of equity incentives
that further this objective.
We also offer cash compensation in the form of base salaries and quarterly and annual
performance-based cash bonuses. Typically, we have structured our cash bonus opportunities to
focus on the achievement of specific short-term financial objectives that will further our longer-term
growth objectives.
We have not adopted any formal policies or employed guidelines for allocating compensation
between current and long-term compensation, between cash and non-cash compensation, or among
different forms of non-cash compensation. Instead, the Compensation Committee reviews each
element of executive compensation separately and also takes into consideration the value of each
Named Executive Officer's target total direct compensation opportunity (the sum of base salary, cash
bonus opportunity, and equity awards) as a whole, and its relative size in comparison to companies in
our compensation peer group.
Compensation-Setting Process
Role of Compensation Committee
The Compensation Committee discharges the responsibilities of our Board of Directors relating to
the compensation of our Named Executive Officers. It also makes compensation recommendations
for the non-employee members of our Board of Directors to our full Board of Directors for their review
and approval. The Compensation Committee has overall responsibility for overseeing our
compensation and benefits policies generally, and overseeing and evaluating the compensation
plans, policies, and practices applicable to our CEO and other Named Executive Officers.
In carrying out its responsibilities, the Compensation Committee reviews our compensation
philosophy, as well as our executive compensation program, at least annually. As part of this review
process, the Compensation Committee applies the objectives described above within the context of
our overall compensation philosophy while simultaneously considering the compensation levels
needed to ensure that our executive compensation program remains competitive. In addition, the
Compensation Committee considers whether we are meeting our retention objectives and the
potential cost of replacing key executive officers, and reviews the performance of our Named
Executive Officers when making decisions with respect to their compensation.
The Compensation Committee’s authority, duties, and responsibilities are further described in its
charter, which is reviewed annually and revised and updated as warranted. The charter is available at
https://investors.tenable.com.
The Compensation Committee retains a compensation consultant (as described below) to provide
support in its review and assessment of our executive compensation program.
39
Determining Total Direct Compensation
The Compensation Committee reviews the base salary levels, cash bonus targets, and long-term
incentive compensation of our Named Executive Officers and all related performance criteria at the
beginning of each year, or more frequently as warranted. Compensation adjustments to base salary
are generally effective on March 1 and changes to target bonus amounts are generally effective at the
beginning of the year.
In making decisions about the compensation of our Named Executive Officers, the members of
the Compensation Committee do not establish a specific target and instead rely primarily on their
general experience and subjective considerations of various factors, including the following:
•
•
•
•
•
•
•
•
•
our executive compensation program objectives;
our performance against the financial, operational, and strategic objectives established by the
Compensation Committee and our Board of Directors;
each individual Named Executive Officer’s knowledge, skills, experience, qualifications, and
tenure relative to other similarly situated executives at the companies in our compensation
peer group;
the scope of each Named Executive Officer’s role and responsibilities compared to other
similarly situated executives at the companies in our compensation peer group;
the prior performance of each individual Named Executive Officer, based on a subjective
assessment of his or her contributions to our overall performance, ability to lead his or her
business unit or function, and work as part of a team, all of which reflect our core values;
the potential of each individual Named Executive Officer to contribute to our long-term
financial, operational, and strategic objectives;
our financial performance relative to our peers;
the compensation practices of our compensation peer group and the positioning of each
Named Executive Officer’s compensation in a ranking of peer company compensation levels
based on an analysis of competitive market data; and
the recommendations of our CEO with respect to the compensation of our Named Executive
Officers (except with respect to his own compensation).
These factors provide the framework for compensation decision-making and final decisions
regarding the compensation for each Named Executive Officer. No single factor is determinative in
setting compensation levels, nor is the impact of any individual factor on the determination of pay
levels quantifiable.
The Compensation Committee does not weigh these factors in any predetermined manner, nor
does it apply any formulas in developing its compensation decisions. The members of the
Compensation Committee consider this information in light of their individual experience, knowledge
of the Company, knowledge of the competitive market, knowledge of each Named Executive Officer,
and business judgment in making their decisions.
The Compensation Committee does not engage in formal benchmarking against other
companies’ compensation programs or practices to establish our compensation levels or make
specific compensation decisions with respect to our Named Executive Officers. Instead, in making its
determinations, the Compensation Committee reviews information summarizing the compensation
paid at the companies in our compensation peer group, to the extent that the executive positions at
these companies are considered comparable to our positions and informative of the competitive
40
environment and from more broad-based compensation surveys to gain a general understanding of
market compensation levels.
Role of Management
In discharging its responsibilities, the Compensation Committee works with members of our
management, including our CEO. Our management assists the Compensation Committee by
providing information on corporate and individual performance, market compensation data, and
management’s perspective on compensation matters. The Compensation Committee solicits and
reviews our CEO’s proposals with respect to program structures, as well as his recommendations for
adjustments to annual cash compensation, long-term incentive compensation opportunities and other
compensation-related matters for our Named Executive Officers (except with respect to his own
compensation) based on his evaluation of their performance for the prior year.
At the beginning of each year, our CEO reviews the performance of our other Named Executive
Officers based on such individual’s level of success in accomplishing the business objectives
established for him or her for the prior year and his or her overall performance during that year, and
then shares these evaluations with, and makes recommendations to, the Compensation Committee
for each element of compensation as described above.
The Compensation Committee reviews our CEO's proposals and recommendations and
discusses them with him and considers them as one factor in determining and approving the
compensation of our other Named Executive Officers. Our CEO also attends meetings of our Board of
Directors and the Compensation Committee at which executive compensation matters are addressed,
except with respect to discussions involving his own compensation.
Role of Compensation Consultant
The Compensation Committee has the sole authority to retain an external compensation
consultant to assist it by providing information, analysis, and other advice relating to our executive
compensation program and the decisions resulting from its annual executive compensation review,
including the authority to approve the consultant’s reasonable fees and other retention terms. The
compensation consultant reports directly to the Compensation Committee and its chair, and serves at
the discretion of the Compensation Committee, which reviews the engagement annually.
In 2020, the Compensation Committee engaged Compensia, a national compensation consulting
firm, to serve as its compensation consultant to advise on executive compensation matters, including
competitive market pay practices for our Named Executive Officers, and to assist with the data
analysis and development of the compensation peer group.
During 2020, Compensia attended the meetings of the Compensation Committee (both with and
without management present) as requested and provided various services, including the following:
•
•
•
the review, analysis, and updating of our compensation peer group;
the review and analysis of the base salary levels, cash bonus opportunities, and long-term
incentive compensation opportunities of our executive officers, including our Named
Executive Officers, against competitive market data based on the companies in the
compensation peer group and selected compensation surveys;
the review and analysis of the compensation arrangements of the non-employee members of
our Board of Directors against competitive market data based on the companies in the
compensation peer group and selected compensation surveys;
41
•
•
•
•
the review and analysis of competitive market practices in the design of short-term cash
incentive compensation plans for executives;
an assessment of executive compensation trends within our industry, and updating on
corporate governance and regulatory issues and developments;
consultation with the Compensation Committee chair and other members between
Compensation Committee meetings; and
support on other ad hoc matters throughout the year.
The terms of Compensia’s engagement includes reporting directly to the Compensation
Committee chair. Compensia also coordinated with our management for data collection and job
matching for our executive officers. In 2020, Compensia did not provide any other services to us.
The Compensation Committee has evaluated its relationship with Compensia to ensure that it
believes that such firm is independent from management. This review process included a review of
the services that Compensia provided, the quality of those services, and the fees associated with the
services provided during 2020. Based on this review, as well as consideration of the factors affecting
independence set forth in Exchange Act Rule 10C-1(b)(4), Rule 5605(d)(3)(D) of the NASDAQ
Marketplace Rules, and such other factors as were deemed relevant under the circumstances, the
Compensation Committee has determined that no conflict of interest was raised as a result of the
work performed by Compensia.
Competitive Positioning
For purposes of assessing our executive compensation against the competitive market, the
Compensation Committee reviews and considers the compensation levels and practices of a select
group of peer companies. This compensation peer group consists of technology companies that are
similar to us in terms of revenue, market capitalization, and industry focus. The competitive data
drawn from this compensation peer group is only one of several factors that the Compensation
Committee considers, however, in making its decisions with respect to the compensation of our
Named Executive Officers.
The compensation peer group for 2020, which was developed in July 2019 with the assistance of
Compensia, to analyze the compensation of our executive officers, including our Named Executive
Officers, comprised publicly-traded technology companies against which we compete for executive
talent. In identifying and selecting the companies to comprise the compensation peer group,
Compensia considered the following criteria:
•
•
•
•
•
•
publicly traded companies headquartered in the United States and traded on a major United
States stock exchange;
companies in the information technology sector;
companies with similar revenues - within a range of approximately 0.33x to approximately
3.0x of our last four quarters' revenue of approximately $290 million (approximately $100
million to $870 million)
companies with similar market capitalizations - within a range of approximately 0.33x to
approximately 3.0x of our then-projected market capitalization of approximately $2.7 billion
(approximately $910 million to approximately $8.2 billion);
companies in the Internet/network security software sector; and
companies with revenue growth generally greater than 20%.
42
Using this methodology, the Compensation Committee approved a compensation peer group
consisting of the following companies:
Blackline
Box
Carbon Black
Cloudera
Coupa Software
FireEye
Forescout Technologies
Hubspot
New Relic
Okta
Paycom Software
Paylocity
Proofpoint
Qualys
Rapid7
Sailpoint Technologies
Secureworks
Varonis Systems
Zendesk
The Compensation Committee used data drawn from the companies in our compensation peer
group, as well as data from a custom data cut drawn from the Radford Global Technology Survey, to
evaluate and analyze the competitive market when determining the total direct compensation of our
Named Executive Officers, including base salary, target cash bonus opportunities, and long-term
incentive compensation opportunities.
The Compensation Committee reviews our compensation peer group at least annually and
makes adjustments to its composition if warranted, taking into account changes in both our business
and the businesses of the companies in the peer group.
43
Compensation Elements
In 2020, the principal elements of our executive compensation program, and the objective and
key features of each element, were as follows:
Element
Type and Form of
Element
Objective
Base Salary
Fixed/Cash
Cash Bonuses Variable/Cash
Designed to attract and
retain highly talented
executives by providing
financial stability and security
for performing job
responsibilities through a
fixed amount that is market
competitive and rewards
performance
Designed to motivate and
reward executives with
financial incentives for
achieving or exceeding
rigorous quarterly and
annual financial objectives
related to our key business
imperatives
Key Features
Generally reviewed annually at
beginning of year and
determined based on various
factors, including company and
individual performance,
retention objectives, a
competitive market analysis,
and recommendations of CEO
• Target bonus amounts
generally reviewed annually at
beginning of year and
determined based on various
factors, including company and
individual performance, a
competitive market analysis,
and recommendations of CEO
• Bonus payments earned
determined after each quarter
and full-year
• Bonus payments are generally
dependent upon achievement of
pre-established corporate
financial objectives selected by
our Compensation Committee
from our annual operating plan
reviewed by our Board of
Directors
44
Long Term
Incentive
Compensation
Variable/ Equity
awards in the form
of RSU awards
that may be settled
for shares of our
common stock
Designed to motivate and
reward executives for
successful long-term
performance, align interests
of executives and
stockholders by motivating
them to create sustainable
long-term stockholder value,
and encourage continued
employment of executives
over the long-term
Other
Compensation
Retirement and
health and welfare
benefits offered to
all employees on
the same terms
Employee benefits that
promote employee savings
and health and welfare,
which assists in attracting
and retaining our executives
and employees
• Annual award opportunities
generally reviewed and
determined annually at
beginning of year or as
appropriate during year for new
hires, promotions, or other
special circumstances
• Individual awards determined
based on various factors,
including company and
individual performance,
retention value of outstanding
equity holdings, and competitive
market analysis
• Historically granted RSU
awards or stock options with
four-year vesting requirements,
although the Compensation
Committee has discretion to
grant other equity vehicles and
use different vesting
requirements or performance
conditions
Indirect compensation element
consisting of programs such as
medical, vision, dental, life and
disability insurance, as well as
the 401(k) Plan with a company
matching contribution and an
ESPP, and other plans and
programs made available to all
eligible employees
Base Salary
Base salary represents the fixed portion of the compensation of our Named Executive Officers
and is an important element of compensation intended to attract and retain highly talented individuals.
Generally, we use base salary to provide each Named Executive Officer with a specified level of cash
compensation during the year with the expectation that he or she will perform his or her
responsibilities to the best of his or her ability and in our best interests.
Generally, we establish the initial base salaries of our Named Executive Officers through arm’s-
length negotiation at the time we hire the individual, taking into account his or her position,
qualifications, experience, prior salary level, and the base salaries of our other executive officers.
Thereafter, the Compensation Committee reviews the base salaries of our Named Executive Officers
each year as part of its annual compensation review, with input from our CEO (except with respect to
his own base salary) and makes adjustments as it determines to be reasonable and necessary to
reflect the scope of a Named Executive Officer’s performance, individual contributions and
responsibilities, position in the case of a promotion, and market conditions.
45
In February 2020, the Compensation Committee reviewed the base salaries of our Named
Executive Officers, taking into consideration a competitive market analysis prepared by its
compensation consultant and the recommendations of our CEO, as well as the other factors
described in “Compensation-Setting Process - Determining Total Direct Compensation” above.
Following this review, the Compensation Committee determined to adjust the base salaries of our
Named Executive Officers to reflect current market positioning.
The base salaries of our Named Executive Officers were as follows:
Named Executive Officer
Mr. Yoran
Mr. Vintz
Mr. Riddick
$
2019 Base Salary
2020 Base Salary
400,000 $
350,000
320,000
450,000
375,000
330,000
Percentage Adjustment
12.5 %
7.1 %
3.1 %
The base salaries paid to our Named Executive Officers during 2020 are set forth in the Summary
Compensation Table below.
Cash Bonuses
To motivate and reward achievement of our short-term corporate financial objectives as reflected
in our annual operating plan, as well as to further our long-term strategic and growth goals, our
Named Executive Officers are eligible to participate in our broad-based short-term cash incentive
bonus plan. The Compensation Committee chooses a set of pre-established financial metrics
(collectively, the “Board Metrics”), which are set forth in our annual operating plan which is reviewed
by our Board of Directors, that balances our growth objectives with our goal of achieving profitability
and generating positive cash flow.
The short-term cash incentive bonus plan provides participants, including our Named Executive
Officers, with an opportunity to earn formula-based cash bonuses on a quarterly and annual basis.
We believe that paying bonuses throughout the year is the most effective way to motivate
achievement of our short-term financial goals because quarterly and annual payments align with the
time periods for which we provide external guidance to the investment community. In a typical year,
bonus payments for our Named Executive Officers with respect to the Board Metrics are made in five
equally weighted installments, one following each quarter and the fifth payment following year-end, in
each case based on a portion of the participants’ target cash bonus opportunity for the year
attributable to the Board Metrics and only to the extent that we have achieved the applicable Board
Metrics for each respective quarter and the full year. Again, in a typical year, actual bonus payments
at each periodic interval are calculated by multiplying 20% of a participant’s target cash bonus
opportunity attributable to the Board Metrics by the weighted average percentage attainment level of
the applicable financial goals for each applicable quarter or full year.
Target Short-Term Cash Incentive Bonus Opportunities
For purposes of the short-term cash incentive bonus plan, cash bonuses are based upon a
specific percentage of each participant’s annual base salary. In February 2020, the Compensation
Committee reviewed the target short-term cash incentive bonus opportunities of our Named Executive
Officers in place for 2020, taking into consideration a competitive market analysis prepared by its
compensation consultant and the recommendations of our CEO (except with respect to his own target
short-term cash incentive bonus opportunity), as well as the other factors described in
“Compensation-Setting Process - Determining Total Direct Compensation” above. Following this
review, the Compensation Committee determined to increase the target short-term cash incentive
bonus opportunities of our Named Executive Officers to better position their target total cash
46
compensation opportunities to the median of the competitive market as reflected by our compensation
peer group.
The target short-term cash incentive bonus opportunities of our Named Executive Officers for
2020 were as follows:
Named Executive Officer
2020 Target Cash Bonus Opportunity
Mr. Yoran
Mr. Vintz
Mr. Riddick
$
450,000
325,000
165,000
Short-Term Cash Incentive Bonus Plan Design
Review of Original Plan Design in March
In February 2020, as part of its annual compensation review, the Compensation Committee met
with management to discuss potential changes to the design of the short-term cash incentive bonus
plan, including replacing the adjusted EBITDA performance metric used in the prior year’s plan with a
pro forma operating expenses metric and weighting the short-term cash incentive bonus plan equally
between the selected Board Metrics and our corporate bookings plan goals for the year. Before
making any final decision on the plan design, however, the Compensation Committee requested that
management provide illustrative examples of the financial impact of the proposed changes to the plan
for 2020.
Revisions to Plan Design in April
With the onset of the COVID-19 pandemic in March 2020 and its resulting significant impact on
the global economy, the Compensation Committee and management immediately began to evaluate
the likely impact on our business. As part of this effort, the Compensation Committee directed
management to re-examine the short-term cash incentive bonus plan to determine the continuing
viability of the original plan design in a rapidly deteriorating and uncertain economy. Upon completing
its examination, management met with the Compensation Committee in April to propose certain
changes to the short-term cash incentive bonus plan, which the Compensation Committee
subsequently approved, including (i) changing the Board Metrics to the achievement of a target based
on bookings (the “Bookings Target”) (which was weighted one-third) and the achievement of a target
based on the sum of revenue and free cash flow (the “Revenue/FCF Target”) (which was weighted
two-thirds), in each case using the target levels included in the Board-reviewed 2020 annual
operating plan, (ii) providing scaling at 1.5x for performance above and below the target performance
level of both the Bookings Target and the Revenue/FCF Target, and (iii) changing the bonus payout
timing from four quarterly payments and one annual payment to a single annual payment. For
purposes of the plan, the Bookings Target was to be measured on a quarter-by-quarter basis, while
the Revenue/FCF Target was to be measured each quarter on the basis of the year-to-date sum of
the two amounts.
For purposes of the short-term cash incentive bonus plan (and as defined in the 2020 annual
operating plan), each of these performance metrics was to be calculated as follows:
•
Bookings - bookings was to be calculated as sales of new and renewal subscription licenses,
perpetual licenses and related first-year maintenance, and services and training, which are
closed in a period. Bookings is based on annual contract value (ACV), whereby we include
only the first-year contract value as booked in cases where a multi-year deal is prepaid or
billed upfront.
47
• Revenue - revenue was to be calculated in accordance with GAAP and as set forth in our
quarterly and annual financial statements.
•
Free cash flow – free cash flow was to be calculated as GAAP net cash flows from operating
activities reduced by purchases of property and equipment.
The Compensation Committee believed that, given our past performance and the importance of
free cash flow as an indicator of how much cash we had readily available to us, these were the most
appropriate corporate performance metrics to use for purposes of the short-term cash incentive bonus
plan, because, in its view, they would provide meaningful measures of our ability to successful grow
and manage our business.
Our Board of Directors believed that, for purposes of the short-term cash incentive bonus plan,
these were the most appropriate corporate performance measures to use because, in its view, they
would provide meaningful indicators of our successful execution of our annual operating plan and our
ability to enhance long-term value creation. In particular, we believe our bookings levels is an effective
measure of annual contract value, which management uses to measure the growth of our business.
For 2020, our Board of Directors established anticipated target levels for each performance
measure which were set forth in our annual operating plan. These annual target levels were as
follows:
(in thousands)
Revenue
Free Cash Flow(1)
Bookings
Target Performance Level
$
453,145
24,901
( 2 )
_____________
(1)
GAAP measures to comparable GAAP measures.
Free Cash Flow is a non-GAAP measure. Refer to the appendix for reconciliations of non-
We have chosen not to disclose the various target performance levels for our bookings
(2)
performance measure as such information is proprietary in nature, the disclosure of which could result
in competitive harm to the Company. For 2020, the Board of Directors considered the target
performance achievement levels for the Board Metrics to be challenging but achievable with
significant effort requiring circumstances to align as projected.
Revisions to Plan Design in May
Management continued to monitor the impact of the COVID-19 pandemic on our business
following the revisions to the plan design in April and after assessing our first quarter results (including
our first quarter of positive free cash flow), determined that the financial impact of the pandemic on
our business for the year was likely to be less severe than originally anticipated. Based on this
assessment, management met with the Compensation Committee in May to propose certain
additional changes to our short-term cash incentive bonus plan, which the Compensation Committee
subsequently approved, including the following:
•
•
Resuming the quarterly bonus program (vs. the single lump sum annual payment proposed
and approved in April) based on our expected annual performance which would support the
Company’s retention objectives by providing quarterly installment payments.
In connection with this restoration of the quarterly bonus program, modifying the bonus
targets for the first through third quarters to represent 20% of each participant’s target short-
term cash incentive bonus opportunities, with the fourth quarter and full year to represent
40% of the target opportunity, and reducing the minimum threshold from 75% to 60% of each
48
•
•
•
quarterly short-term cash incentive bonus opportunity to ensure the possibility of a payout in a
year of economic uncertainty.
To conserve cash, for the first quarter providing a payout equal to 60% of a participant’s
target short-term cash incentive bonus opportunity even though the calculated payout based
on the revised corporate financial metrics approved in April would have a resulted in a greater
payout), with such payout to be made in June.
For the second, third and fourth quarters, determining the Board Metrics payout percentage
based on managements’ best estimate (as of that respective period) of our likely actual full
year results for bookings, revenue, and free cash flow measured against the Bookings Target
and the Revenue/FCF Target for those metrics. Given the uncertainty around the duration of
the pandemic and its impact on the overall economy, management and the Compensation
Committee believed that estimating the likely full year results was the best way to track our
performance over the course of the year. As the year progressed, however, the payout
percentage increased from 93% to 98.5% as remote work models enabled us to proactively
manage expenditures, resulting in lower business travel, meeting and facility, and demand
generation program costs.
True-up calculations for the third and fourth quarters to ensure that the collective bonus
payouts for the second through fourth quarters aligned with our actual year-end financial
results for the Board Metrics of 98.6%.
• Maintaining scaling at 1.5x for performance above and below target level performance for the
Bookings Target and the Revenue/FCF Target.
The Compensation Committee did not change the related Bookings Target or Revenue/FCF
Target that it had established in April 2020, despite the impact to our business caused by the
COVID-19 pandemic.
Change in Timing of Final Bonus Payment
In December 2020, the Compensation Committee determined to change the timing of the fourth
quarter and full year payment (representing 40% of each participant’s target short-term cash incentive
bonus opportunity), originally scheduled for February 2021, to be paid 50% in advance in December
2020 and 50% in February 2021.
2020 Cash Bonus Results
Our actual performance against the aggregate target level for the various corporate performance
measures for each quarter and for the full year, as applicable, as well as the amounts received by
each Named Executive Officer, were reviewed by the Compensation Committee in February 2021. In
recognizing our strong performance for the latter three quarters of the year and for 2020 as a whole
the Compensation Committee noted that, even after considering the economic uncertainty brought on
by the COVID-19 pandemic, we were able perform at a high level with respect to each of the selected
performance metrics, including maintaining top line growth, expanding our operating margins, and
generating positive free cash flow.
49
The following table provides information regarding the quarterly and full year payout level
achieved and the actual quarterly and full year cash bonuses earned by the Named Executive
Officers during 2020:
Named Executive
Officer
Performance
Period
Target Quarterly/
Annual Bonus
Aggregate
Weighted Average
Achievement/
Payment
Percentage
Actual Quarterly/
Annual Bonus
$
$
$
$
$
Mr. Yoran
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full Year
Total 2020
Mr. Vintz
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full Year
Total 2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full Year
Mr. Riddick
Total 2020
$
90,000
90,000
90,000
90,000
90,000
450,000
65,000
65,000
65,000
65,000
65,000
325,000
33,000
33,000
33,000
33,000
33,000
165,000
60.0 % $
93.0 %
98.5 %
98.5 %
98.6 %
54,000 (1)
83,700 (2)
93,593 (3)
88,643 (6)
89,072 (7)
$
409,008
60.0 % $
93.0 %
98.5 %
98.5 %
98.6 %
39,000 (1)
60,450 (2)
67,595 (4)
64,020 (6)
64,329 (8)
$
295,394
60.0 % $
93.0 %
98.5 %
98.5 %
98.6 %
19,800 (1)
30,690 (2)
34,317 (5)
32,503 (6)
32,659 (9)
$
149,969
Represents 60% of the portion of the target short-term cash incentive bonus opportunity
Includes $64,020 payable for the third quarter and a “true-up” of $3,575 to adjust second
Based on an estimated Board Metrics payout percentage for the year of 93.0%.
Includes $88,643 payable for the third quarter and a “true-up” of $4,950 to adjust second
_____________
(1)
allocated to the first quarter of 2020. The actual achievement for the first quarter was greater than
60%, however, the Compensation Committee elected to pay at the 60% level to preserve cash given
the uncertainty relating to the COVID-19 pandemic.
(2)
(3)
quarter bonus payout for the estimated Board Metrics payout percentage for the year of 98.5%.
(4)
quarter bonus payout for the estimated Board Metrics payout percentage for the year of 98.5%.
(5)
quarter bonus payout for the estimated Board Metrics payout percentage for the year of 98.5%.
(6)
Metrics payout percentage of 98.5%.
(7)
Includes $88,861 paid in February 2021 and a “true-up” of $211 to adjust the second and
third quarters bonus payout for the actual Board Metrics payout percentage for the year of 98.6%.
(8)
Includes $64,177 paid in February 2021 and a “true-up” of $152 to adjust the second and
third quarters bonus payout for the actual Board Metrics payout percentage for the year of 98.6%.
(9)
quarters bonus payout for the actual Board Metrics payout percentage for the year of 98.6%.
Represents one-half of fourth quarter target bonus (40%) multiplied by the estimated Board
Includes $32,502 payable for the third quarter and a “true-up” of $1,815 to adjust second
Includes $32,582 paid in February 2021 and a “true-up” of $77 to adjust the second and third
50
The cash bonus payments made to our Named Executive Officers for 2020 are set forth in the
“Summary Compensation Table” below.
Long-Term Incentive Compensation
We view long-term incentive compensation in the form of equity awards as a critical element of
our executive compensation program. We use equity awards to incentivize and reward our Named
Executive Officers for long-term corporate performance based on the value of our common stock and,
thereby, to align the interests of our Named Executive Officers with the interests of our stockholders.
In February 2020, as part of its annual compensation review the Compensation Committee
determined to grant equity awards to our Named Executive Officers in the form of time-based RSU
awards that are settled for shares of our common stock. RSU awards serve as an incentive that is
aligned with the long-term interests of our stockholders because their value increases (or decreases)
with any change in the value of the underlying shares. Further, RSUs serve our retention objectives
because they are subject to a multi-year vesting requirement based on continued service.
The Compensation Committee, in exercising its judgment, determines the amount and form of
these awards after taking into consideration a competitive market analysis prepared by its
compensation consultant, the outstanding equity holdings of each Named Executive Officer (including
the current economic value of his or her unvested equity holdings and the ability of these unvested
holdings to satisfy our retention objectives), the projected impact of the proposed awards on our
earnings, the proportion of our total shares outstanding used for annual employee long-term incentive
compensation awards (our “burn rate”) in relation to the annual burn rate ranges of the companies in
our compensation peer group and other recently-public technology companies, the potential voting
power dilution to our stockholders in relation to the median practice of the companies in our
compensation peer group, the recommendations of our CEO (except with respect to his own equity
award), and the other factors described in “Compensation-Setting Process - Determining Total Direct
Compensation” above. Based upon these factors, the Compensation Committee determines the size
of each equity award at levels it considered appropriate to create a meaningful opportunity for reward
predicated on the creation of long-term stockholder value.
In February 2020, the Compensation Committee granted RSU awards to our Named Executive
Officers in amounts that it considered to be consistent with our compensation philosophy and its
desired market positioning as follows:
Named Executive Officer
Mr. Yoran
Mr. Vintz
Mr. Riddick
Restricted Stock Unit Award
(shares)
232,804
141,093
63,492
$
Restricted Stock Unit Award
(grant date fair value)
6,600,000
4,000,000
1,800,000
The RSU awards granted to our Named Executive Officers vest over a four-year period, with 25%
of the total number of units subject to the award vesting on the first anniversary of February 19, 2020,
the vesting commencement date, and 1/16th of the total number of units subject to the award vesting
in quarterly installments over the following three years, contingent upon the Named Executive
Officer’s continued employment by us through each applicable vesting date.
The equity awards granted to our Named Executive Officers in 2020 are set forth in the
“Summary Compensation Table” and the “Grants of Plan-Based Awards Table” below.
51
Health and Welfare, Retirement and ESPP Benefits
Our Named Executive Officers are eligible to receive the same employee benefits that are
generally available to all full-time, salaried employees, subject to the satisfaction of certain eligibility
requirements. These benefits include medical, dental, and vision insurance, business travel
insurance, an employee assistance program, health and dependent care flexible spending accounts,
basic life insurance, accidental death and dismemberment insurance, short-term and long-term
disability insurance, commuter benefits, and reimbursement for mobile phone coverage.
We also maintain a Section 401(k) retirement plan (the “Section 401(k) Plan”) that provides
eligible employees, including our Named Executive Officers, with an opportunity to save for retirement
on a tax-advantaged basis. We have the ability to make discretionary contributions to the Section
401(k) Plan and for 2020, during each pay period, we made matching contributions for each $1.00 of
an employee’s contribution, up to a maximum of 4% of the employee’s eligible earnings, subject to
annual limitations, for the applicable pay period.
We provide additional long-term equity incentives through the 2018 Employee Stock Purchase
Plan (the “ESPP”), which became effective in connection with our initial public offering in July 2018.
The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section
423 of the Code. Generally all of our regular employees (including our Named Executive Officers
during their employment with us) may participate in the ESPP and may contribute, normally through
payroll deductions, up to 15% of their earnings for the purchase of our common stock. The ESPP is
implemented through a series of offerings of purchase rights to eligible employees. Each offering will
have one or more purchase dates on which our common stock will be purchased for employees
participating in the offering. Unless otherwise determined by our Compensation Committee, shares
are purchased for accounts of employees participating in the ESPP at a price per share equal to the
lower of (a) 85% of the fair market value of our common stock on the first date of an offering or (b)
85% of the fair market value of our common stock on the date of purchase.
Perquisites and Other Personal Benefits
Currently, we do not view perquisites or other personal benefits as a significant component of our
executive compensation program. Accordingly, we do not provide significant perquisites or other
personal benefits to our Named Executive Officers, except as generally made available to our
employees or in situations where we believe it is appropriate to assist an individual in the
performance of his or her duties, to make him or her more efficient and effective, and for recruitment
and retention purposes. During 2020, none of our Named Executive Officers received perquisites or
other personal benefits that were, in the aggregate, $10,000 or more for each individual.
Employment Arrangements
We entered into written employment offer letters with each of our Named Executive Officers in
connection with their initial employment with us.
These employment offer letters were superseded and replaced in their entirety by amended and
restated employment agreements which were entered into and effective as of February 2019.
The amended and restated employment agreement reflect a standardized approach for the
payment of severance and change in control payments and benefits to our Named Executive Officers.
Under this approach, the post-employment compensation arrangements of our Named Executive
Officers were established on a uniform basis and at levels that generally align with current market
practice.
52
For detailed descriptions of the amended and restated employment agreements with our Named
Executive Officers, see “Potential Payments upon Termination or Change in Control” below.
Post-Employment Compensation
Their amended and restated employment agreements provide our Named Executive Officers with
certain protections in the event of their termination of employment by virtue of death or disability. In
addition, the amended and restated employment agreements provide for certain protections in the
event of an involuntary termination of employment, including an involuntary termination of
employment in connection with a change in control of the Company. We believe that these protections
are necessary from a retention standpoint.
These arrangements provide reasonable compensation to the Named Executive Officer if he or
she leaves our employ under certain circumstances to facilitate his or her transition to new
employment. Further, in some instances we seek to mitigate any potential employer liability and avoid
future disputes or litigation by requiring a departing Named Executive Officer to execute and deliver
an effective general release of claims in favor of the Company in a form acceptable to us as a
condition to receiving post-employment compensation payments or benefits. We also believe that
these arrangements help maintain the continued focus and dedication of our Named Executive
Officers to their assigned duties to maximize stockholder value if there is a potential transaction that
could involve a change in control of the Company.
Under the amended and restated employment agreements, all payments and benefits in the
event of a change in control of the Company are payable only if there is a subsequent loss of
employment by a Named Executive Officer (a so-called “double-trigger” arrangement). In the case of
the acceleration of vesting of outstanding equity awards, we use this double-trigger arrangement to
protect against the loss of retention value following a change in control of the Company and to avoid
windfalls, both of which could occur if vesting of either equity or cash-based awards accelerated
automatically as a result of the transaction.
We do not use excise tax payments (or “gross-ups”) relating to a change in control of the
Company and have no such obligations in place with respect to any of our Named Executive Officers.
We believe that having in place reasonable and competitive post-employment compensation
arrangements, including in the event of a change in control of the Company, are essential to attracting
and retaining highly qualified executives. The Compensation Committee does not consider the
specific amounts payable under the post-employment compensation arrangements when determining
the annual compensation for our Named Executive Officers. We do believe, however, that these
arrangements are necessary to offer compensation packages that are competitive.
For detailed descriptions of the post-employment compensation arrangements with our Named
Executive Officers, as well as an estimate of the potential payments and benefits payable under these
arrangements, see “Potential Payments upon Termination or Change in Control” below.
Other Compensation Policies
Hedging and Pledging Prohibitions
Under our Insider Trading Policy, our employees (including officers), members of our Board of
Directors, and consultants are prohibited from engaging in short sales, transactions in put or call
options, hedging transactions, margin accounts, pledges, or other inherently speculative transactions
with respect to our stock.
53
Tax and Accounting Considerations
The Compensation Committee takes the applicable tax and accounting requirements into
consideration in designing and overseeing our executive compensation program.
Deductibility of Executive Compensation
Generally, Section 162(m) of the Code as amended by the Tax Cuts and Jobs Act of 2017 (the
“TCJA”) disallows public companies a tax deduction for federal income tax purposes of remuneration
in excess of $1 million paid to their chief executive officer, chief financial officer, and any employee
who is among the three highest compensated executive officers for the taxable year (other than the
chief executive officer and chief financial officer) (each, a “Covered Employee”). In addition, once an
individual becomes a Covered Employee for any taxable year beginning after December 31, 2016,
that individual will remain a Covered Employee for all future years, including following any termination
of employment.
The regulations promulgated under Section 162(m) contain a transition rule that applies to
companies that become subject to Section 162(m) by reason of becoming publicly held. Pursuant to
this rule, certain compensation granted during a transition period (and, with respect to RSU awards,
that are paid out before the end of the transition period) currently is not counted toward the deduction
limitation of Section 162(m) if the compensation is paid under a compensation arrangement that was
in existence before the effective date of the initial public offering and which was disclosed in the
company’s public filings at the time of its initial public offering, subject to certain other requirements
and limitations. We currently expect our transition period to expire at our first meeting of stockholders
at which directors are to be elected to be held in 2022, although it could expire earlier in certain
circumstances.
Although the Compensation Committee may consider the tax implications as one factor in making
compensation decisions for our Covered Employees, the Compensation Committee also considers
other factors in making such decisions, including ensuring that our executive compensation program
supports our business strategy. Consequently, the Compensation Committee retains the discretion
and flexibility to compensate our Named Executive Officers in a manner consistent with the objectives
of our executive compensation program and the best interests of the Company and our stockholders,
which may include providing for compensation that is not deductible by the Company due to the
deduction limit of Section 162(m). While the transition relief for newly-public companies may help to
minimize the effect of the Section 162(m) deduction limit under Section 162(m) in the short-term, we
expect that, going forward, some portion of our Named Executive Officers’ compensation will not be
fully deductible by the Company for federal income tax purposes.
Accounting for Stock-Based Compensation
The Compensation Committee takes accounting considerations into account in designing
compensation plans and arrangements for our executive officers and other employees. Chief among
these is Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC
Topic 718”), the standard which governs the accounting treatment of certain stock-based
compensation. Among other things, ASC Topic 718 requires us to record a compensation expense in
our income statement for all equity awards granted to our executive officers and other employees.
This compensation expense is based on the grant date “fair value” of the equity award and, in most
cases, will be recognized ratably over the award’s requisite service period (which, generally, will
correspond to the award’s vesting schedule). This compensation expense is also reported in the
compensation tables below, even though recipients may never realize any value from their equity
awards.
54
SUMMARY COMPENSATION TABLE
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation awarded to, earned by and
paid to our Named Executive Officers with respect to the years ended December 31, 2018, 2019 and
2020.
Name and
Principal Position
Amit Yoran(3)
Chief Executive
Officer and
Chairman
Stephen A. Vintz
Chief Financial
Officer
Stephen A. Riddick
General Counsel
and Corporate
Secretary
Year
Salary
Stock
Awards(1)
Option
Awards(1)
Non-Equity
Incentive Plan
Compensation(2)
All Other
Compensation(4)
Total
2020
$ 441,667
$6,599,993
$
— $
409,008
$
300
$ 7,450,968
2019
400,000
6,199,989
—
2018
400,000
— 4,123,067
2020
370,833
3,999,987
2019
350,000
3,999,988
—
—
2018
343,000
— 3,086,405
2020
328,333
1,799,998
$
— $
2019
320,000
1,399,974
—
2018
285,000
—
846,703
423,780
339,760
295,394
238,376
233,623
149,969
158,918
158,820
—
—
7,023,769
4,862,827
11,742
4,677,956
11,200
4,599,564
3,649
3,666,677
11,717
2,290,017
11,200
1,890,092
11,000
1,301,523
This column reflects the aggregate grant date fair value of RSUs and option awards granted
_____________
(1)
during the year measured pursuant to ASC Topic 718. This calculation assumes that the Named
Executive Officer will perform the requisite service for the award to vest in full as required by SEC
rules. These amounts do not reflect the actual economic value that will be realized by the Named
Executive Officer upon vesting of the RSUs and stock options, the exercise of the stock options, or
the sale of the restricted stock or the common stock underlying such stock options or RSUs. The
assumptions we used in valuing stock options are described in Note 10 to our consolidated financial
statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
These amounts reflect the cash awards paid under the short-term cash incentive bonus plan
(2)
for performance during the applicable year. See the Compensation Discussion and Analysis for a
more complete description of how the cash bonuses were determined for the year ended December
31, 2020.
(3)
compensation in his capacity as a director.
Mr. Yoran is also a member of our Board of Directors but does not receive any additional
These amounts include company matching contributions under our 401(k) Plan. Additionally,
(4)
in 2020, all employees were granted a one-time remote work stipend of $300 due to the COVID-19
pandemic.
Grants of Plan-Based Awards
The following table provides information on cash-based performance awards and restricted stock
unit awards in 2020 to our Named Executive Officers. There can be no assurance that the Grant Date
55
Fair Value, as listed in this table, of the Stock Awards will ever be realized. These Grant Date Fair
Value amounts also are included in the “Stock Awards” column of the Summary Compensation Table.
Estimated Future Payouts Under Non-Equity
Incentive Plan Awards
Grant
Date
Threshold
($)
Target
($)
Maximum
($)
All Other Stock
Awards: Number
of Shares of
Stock or Units
(#)(1)
Grant Date Fair
Value of Stock
Awards ($)
Name
Amit Yoran
(2) $
— $
450,000
$
2/19/2020
Stephen A. Vintz
(2)
2/19/2020
Stephen A. Riddick
(2)
2/19/2020
—
—
325,000
165,000
—
—
—
232,804
$
6,599,993
141,093
3,999,987
63,492
1,799,998
RSUs granted under our 2018 Equity Incentive Plan vest 25% on February 19, 2021, and
_____________
(1)
quarterly thereafter for the following three years. Each award is settled in shares of common stock on
each vesting date, subject to the Named Executive Officer’s continuous service with the company
through the applicable vesting date.
These rows represent possible payouts pursuant to the short-term cash incentive bonus plan
(2)
for 2020. For 2020, the short-term cash incentive bonus plan included a minimum threshold of 60% of
each quarterly short-term cash incentive bonus opportunity and did not include maximum values. For
more information about these payments, see the Compensation Discussion & Analysis.
Outstanding Equity Awards
The following table sets forth certain information about outstanding equity awards granted to our
Named Executive Officers that remain outstanding as of December 31, 2020.
Name
Amit Yoran
Stephen A.
Vintz
Stephen A.
Riddick
_____________
Grant Date
1/18/2017
1/18/2017
6/21/2018
2/20/2019
2/19/2020
12/16/2014(7)
6/30/2016
6/21/2018
2/20/2019
2/19/2020
6/26/2017
6/21/2018
2/20/2019
2/19/2020
Stock Awards(1)
Number of
Shares of
Stock That
Have Not
Vested (#)
Market
Value of
Shares of
Stock That
Have Not
Vested(3)
98,918 (4) $ 5,169,455
119,191 (6)
232,804 (10) 12,166,337
6,228,922
76,897 (6)
4,018,637
141,093 (10) 7,373,520
26,915 (6)
63,492 (10) 3,318,092
1,406,578
Option Awards(1)
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price(2)
Option
Expiration
Date
2,397,053
177,471 (4) $
4.25
1/18/2027
—
70,704
—
—
505,500
105,000
211,716
—
—
118,750
4,840
—
—
—
494,953 (5)
16.21
6/21/2028
2.36
4.15
12/16/2024
6/30/2026
16.21
6/21/2028
5.96
16.21
6/26/2027
6/21/2028
—
—
—
—
211,718 (8)
—
—
56,250 (9)
101,642 (5)
—
—
56
(1)
the table were granted under our 2016 Stock Incentive Plan.
Except as noted, all of the option, restricted stock and restricted stock unit awards listed in
All of the option awards listed in the table were granted with a per share exercise price equal
(2)
to or above the fair market value of one share of our common stock on the date of grant, as
determined in good faith by our Board of Directors.
(3)
the closing price of our common stock of $52.26 per share on December 31, 2020.
Represents the market value of the restricted stock award or restricted stock unit based on
25% of the shares subject to such awards vested on January 1, 2018, and continue to vest
(4)
quarterly over three years thereafter, in each case subject to Mr. Yoran’s continued service, and
subject to accelerated vesting in specified circumstances.
25% of the shares subject to the option vest in equal monthly installments over the twelve-
(5)
month period beginning on June 21, 2020, and ending on the third anniversary of the grant date, and
will continue to vest monthly over the twelve-month period thereafter, in each case subject to the
recipient’s continued service, and subject to accelerated vesting in specified circumstances.
(6)
Granted under our 2018 Equity Incentive Plan. 25% of the shares subject to the RSU award
vested on February 20, 2020, and the remainder continue to vest in equal quarterly installments over
three years thereafter, in each case subject to the recipient’s continued service, and subject to
accelerated vesting in specified circumstances.
(7)
Granted under our 2012 Stock Incentive Plan.
25% of the shares underlying the option vested on June 21, 2019 and continue to vest on
(8)
each twelve-month anniversary thereafter, in each case subject to Mr. Vintz’s continued service, and
subject to accelerated vesting in specified circumstances.
(9)
25% of the shares subject to the option vested on June 26, 2018, and continue to vest on
each twelve-month anniversary thereafter, in each case subject to Mr. Riddick’s continued service,
and subject to accelerated vesting in specified circumstances.
Granted under our 2018 Equity Incentive Plan. 25% of the shares subject to the RSU award
(10)
will vest on February 19, 2021, and the remainder continue to vest in equal quarterly installments over
three years thereafter, in each case subject to the recipient’s continued service, and subject to
accelerated vesting in specified circumstances.
Options Exercised and Stock Vested
The following table shows information regarding the exercise of options and the vesting of stock
previously granted to our Named Executive Officers during 2020.
Option Awards
Stock Awards
Number of
Shares Acquired
on Exercise (#)
Value Realized
on Exercise ($)(1)
Number of
Shares Acquired
on Vesting (#)
Value Realized
on Vesting ($)(2)
265,000
$
8,015,049
488,373
$
14,109,600
—
—
184,680
5,031,962
59,808
20,931
1,830,296
640,546
Name
Amit Yoran
Stephen A. Vintz
Stephen A. Riddick
_____________
57
The dollar amounts shown are determined by multiplying the number of options that were
(1)
exercised by the intrinsic value of the options exercised based on the per share closing price of our
common stock on the exercise date.
(2)
the per share closing price of our common stock on the vesting date.
The dollar amounts shown are determined by multiplying the number of shares that vested by
Employment Agreements with Our Named Executive Officers
Mr. Yoran
We entered into an offer letter with Mr. Yoran in October 2016, an addendum thereto in February
2017 and an amended and restated employment agreement in February 2019. Pursuant to the terms
of his amended and restated employment agreement, Mr. Yoran’s employment is at will and may be
terminated at any time by us or Mr. Yoran. Under the terms of the agreement, Mr. Yoran is eligible to
receive an annual base salary of $400,000, and quarterly bonuses with an aggregate annual target of
$400,000 based upon the assessment by the Board or the Compensation Committee of Mr. Yoran’s
performance and our attainment of targeted goals as set by the Board or Compensation Committee.
In connection with entering into his amended and restated employment agreement, Mr. Yoran also
entered into an intellectual property, non-disclosure and non-solicitation agreement with us.
Under his employment agreement currently in effect, if Mr. Yoran is terminated without cause or
resigns for good reason (each as defined in his amended and restated employment agreement), or if
Mr. Yoran dies or his employment is terminated due to disability (as defined in his amended and
restated employment agreement), provided he (or his estate, as applicable) signs and does not
revoke a separation agreement that includes a release of claims, Mr. Yoran (or his estate) is eligible to
receive 18 months of continued base salary, payment by the company of the employer-portion of
premiums for continued group health coverage for up to 12 months following termination, a lump sum
cash payment equal to Mr. Yoran’s target annual bonus for the year in which the termination occurs,
prorated based on the last day of employment and reduced by the amount of any quarterly bonuses
previously paid or due for the year in which the termination occurs, and pro-rated accelerated vesting
of his outstanding unvested equity awards based on the applicable vesting schedule. If Mr. Yoran is
terminated without cause or resigns for good reason within the three months prior to or 12 months
following a change in control (as defined in his amended and restated employment agreement),
provided he signs and does not revoke a separation agreement that includes a release of claims, Mr.
Yoran is eligible to receive the same base salary severance and group health plan contributions set
forth above (provided that the base salary severance will be paid in a lump sum), a bonus severance
payment equal to the sum of (i) 1.5 times Mr. Yoran’s target annual bonus for the year in which the
termination occurs, prorated based on the last day of employment and reduced by the amount of any
quarterly bonuses previously paid or due for the year in which the termination occurs, plus (ii) 1.5
times Mr. Yoran’s target annual bonus for the year in which the termination occurs, and accelerated
vesting in full of any outstanding unvested equity incentive awards held by Mr. Yoran. Such severance
is further conditioned upon Mr. Yoran’s compliance with certain non-disclosure and non-solicitation
obligations and resignation from all positions with us.
Mr. Vintz and Mr. Riddick
We entered into an offer letter with Mr. Vintz in October 2014 and an amended and restated
employment agreement in February 2019. Pursuant to the terms of his amended and restated
employment agreement, Mr. Vintz’s employment is at will and may be terminated at any time by us or
Mr. Vintz. Under the terms of the agreement, Mr. Vintz is eligible to receive an annual base salary of
$350,000, and quarterly bonuses with an aggregate annual target of $225,000 based upon the
58
assessment by our Chief Executive Officer of Mr. Vintz’s performance and our attainment of targeted
goals as set by the Board or Compensation Committee. In connection with entering into his amended
and restated employment agreement, Mr. Vintz also entered into an intellectual property, non-
disclosure and non-solicitation agreement with us.
We entered into an offer letter with Mr. Riddick in May 2016 and an amended and restated
employment agreement in February 2019. Pursuant to the terms of his employment agreement, Mr.
Riddick’s employment is at will and may be terminated at any time by us or Mr. Riddick. Under the
terms of the agreement, Mr. Riddick is eligible to receive an annual base salary of $320,000, and
quarterly bonuses with an aggregate annual target of $150,000 based upon the assessment by our
Chief Executive Officer of Mr. Riddick’s performance and our attainment of targeted goals as set by
the Board or Compensation Committee. In connection with entering into his amended and restated
employment agreement, Mr. Riddick also entered into an intellectual property, non-disclosure and
non-solicitation agreement with us.
Under the employment agreements currently in effect with Mr. Vintz and Mr. Riddick, if the Named
Executive Officer is terminated without cause or resigns for good reason (each as defined in the
amended and restated employment agreement), provided the Named Executive Officer signs and
does not revoke a separation agreement that includes a release of claims, the Named Executive
Officer is eligible to receive 12 months of continued base salary, payment by the company of the
employer-portion of premiums for continued group health coverage for up to 12 months following
termination, a lump sum cash payment equal to the Named Executive Officer’s target annual bonus
for the year in which the termination occurs, prorated based on the last day of employment and
reduced by the amount of any quarterly bonuses previously paid or due for the year in which the
termination occurs, and pro-rated accelerated vesting of the Named Executive Officer’s outstanding
unvested equity awards based on the applicable vesting schedule. If such termination or resignation
occurs within the three months prior to or 12 months following a change in control (as defined in his
amended and restated employment agreement), provided the Named Executive Officer signs and
does not revoke a separation agreement that includes a release of claims, the Named Executive
Officer is eligible to receive the same base salary severance and group health plan contributions set
forth above (provided that the base salary severance will be paid in a lump sum), a bonus severance
payment equal to the sum of (i) one times the Named Executive Officer’s target annual bonus for the
year in which the termination occurs, prorated based on the last day of employment and reduced by
the amount of any quarterly bonuses previously paid or due for the year in which the termination
occurs, plus (ii) one times the Named Executive Officer’s target annual bonus for the year in which
the termination occurs, and accelerated vesting in full of any outstanding unvested equity incentive
awards held by the Named Executive Officer. In addition, if the Named Executive Officer dies or his
employment is terminated due to disability (as defined in his employment agreement), provided the
Named Executive Officer’s estate or the Named Executive Officer, as applicable, signs and does not
revoke a separation agreement that includes a release of claims, the Named Executive Officer’s
dependents and the Named Executive Officer, as applicable, are eligible to receive payment by the
company of the employer-portion of premiums for continued group health coverage for up to 12
months following termination. Such severance is further conditioned upon the Named Executive
Officer’s compliance with certain non-disclosure and non-solicitation obligations and resignation from
all positions with us.
Potential Payments Upon Termination or Change in Control
The table below sets forth the values that the continuing Named Executive Officers would derive
in the event of (i) death or disability, (ii) termination without cause or resignation for good reason not
in connection with a change of control (“Non-CIC Termination”), and (iii) termination without cause or
59
resignation for good reason in connection with a change of control (“CIC Termination”), assuming that
in each case the event occurred on the last business day of 2020.
Death/Disability
Non-CIC Termination
CIC Termination
Name
Amit Yoran
Cash
Severance(1)
Equity
Severance(2)
Cash
Severance(3)
Equity
Severance(2)
Cash
Severance(4)
Equity
Severance(2)
$
831,414
$ 25,856,174
$
831,414
$ 16,238,825
$
1,731,414
$ 49,928,152
Stephen A. Vintz
16,137
7,373,520
485,072
1,908,090
810,072
19,024,591
Stephen A. Riddick
9,228
3,318,092
386,918
1,825,634
551,918
10,993,239
For Mr. Vintz and Mr. Riddick, represents the value of the payment by the company of the
_____________
(1)
employer-paid portion of premiums for continued group health coverage for 12 months following
termination. For Mr. Yoran, represents the value of 18 months of continued base salary, payment by
the company of the employer-paid portion of premiums for continued group health coverage for 12
months following termination, and a lump sum cash payment equal to Mr. Yoran’s target annual bonus
reduced by the amount of the quarterly bonuses paid during 2020.
Represents the value of accelerated vesting of restricted stock, the value of accelerated
(2)
vesting of restricted stock units, and the intrinsic value of stock options for which vesting is
accelerated, as applicable, in each case based on the closing price of our common stock of $52.26
per share on December 31, 2020.
(3)
Represents the value of 12 months of continued base salary (18 months for Mr. Yoran),
payment by the company of the employer-paid portion of premiums for continued group health
coverage for 12 months following termination, and a lump sum cash payment equal to the Named
Executive Officer’s target annual bonus reduced by the amount of the quarterly bonuses paid during
2020.
Represents the value of a lump sum cash payment equal to 12 months of base salary (18
(4)
months for Mr. Yoran), payment by the company of the employer-paid portion of premiums for
continued group health coverage for 12 months following termination, a lump sum cash payment
equal to one times the Named Executive Officer’s target annual bonus (1.5 times for Mr. Yoran)
reduced by the amount of the quarterly bonuses paid during 2020, and a lump sum cash payment
equal to one times the Named Executive Officer’s target annual bonus (1.5 times for Mr. Yoran).
CEO Pay Ratio
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act and SEC rules, we are
required to provide a reasonable estimate of the ratio of the annual total compensation of Mr. Yoran,
our Chief Executive Officer, to the median of the annual total compensation of our other employees.
For our last completed year, which ended December 31, 2020:
•
The median of the annual total compensation of all of our employees (other than Mr. Yoran),
including employees of our consolidated subsidiaries, was approximately $152,463. This
annual total compensation is calculated in accordance with Item 402(c)(2)(x) of Regulation S-
K, and reflects, among other things, salary and bonus earned and aggregate “grant date fair
value” of RSU awards granted during 2020.
• Mr. Yoran's annual total compensation for 2020, as reported in the Summary Compensation
Table included in this Proxy Statement, was $7,450,968.
•
Based on the above, for fiscal 2020, the ratio of Mr. Yoran's annual total compensation to the
median of the annual total compensation of all employees was approximately 49 to 1.
60
This pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of
Regulation S-K under the Securities Act of 1933, as amended, and applicable guidance and is based
upon our reasonable judgment and assumptions. The SEC rules do not specify a single methodology
for identification of the median employee or calculation of the pay ratio, and other companies may use
assumptions and methodologies that are different from those used by us in calculating their pay ratio.
Accordingly, the pay ratio disclosed by other companies, even companies within the same industry as
us, may not be comparable to our pay ratio as disclosed above.
The methodology, including any material assumptions, adjustments and estimates, we used to
calculate the pay ratio is described below.
•
•
For purposes of the pay ratio calculation, we included substantially all of our full-time, part-
time and temporary employees globally as of December 31, 2020. As permitted by the SEC
rules, we excluded 5% of our global employee population from the calculation by excluding all
employees in a given jurisdiction located outside of the United States, starting with the
jurisdiction that had the lowest number of employees as of December 31, 2020, and
continuing to exclude all employees in jurisdictions with an increasingly greater number of
employees as of such date until 5% of our total global employee population was excluded.
We excluded these employees given the small number of employees in those jurisdictions
and the estimated cost of obtaining their compensation information. As of December 31,
2020, our workforce consisted of 1,301 employees (including individuals employed by our
consolidated subsidiaries), 912 of whom were U.S. employees, and 389 (or approximately
30% of our total employee population as of December 31, 2020) were employees located
outside of the United States, after excluding 66 employees located outside the United States
via the methodology described above.
To identify the median employee from the employee population described above, we
determined the sum of each employee's (i) annual base salary as of December 31, 2020
(calculated as annual base pay using a reasonable estimate of hours worked during 2020 for
hourly employees and using annual base salary for our remaining employees), plus (ii)
earned annual cash incentive bonus or commission, as applicable, for 2020. Permanent
employees who joined in 2020 were assumed to have worked for the entire year, and thus we
annualized the pay of such new hires. This compensation measure was consistently applied
to all employees included in the calculation and reasonably reflects the annual compensation
of all of our employees. Compensation paid in foreign currency was converted to U.S. dollars
using a spot exchange rate on December 31, 2020. In determining the median compensated
employee, we did not make any cost of living adjustments to the compensation paid to any
employee outside of the U.S.
• Once we identified our median employee, we calculated the median employee’s annual total
compensation in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K,
including for this purpose the aggregate grant date fair value of equity awards (as determined
in accordance with footnote 1 of the 2020 Summary Compensation Table) granted in fiscal
2020, yielding the median annual total compensation disclosed above. With respect to Mr.
Yoran's annual total compensation, we used the amount reported in the “Total” column of our
2020 Summary Compensation Table.
61
Director Compensation
DIRECTOR COMPENSATION
This section provides information regarding the compensation of our non-employee directors in
2020. Our non-employee directors are also entitled to reimbursement of direct expenses incurred in
connection with attending meetings of our Board of Directors or committees thereof. We may provide
both cash and equity compensation to our independent directors.
2020 Cash Compensation
Except as described in the footnotes to the table below, the cash compensation amounts set forth
below were payable to each non-employee director for their service on the Board of Directors of the
company for the year ended December 31, 2020:
Annual Board Service Retainer - $30,000
•
•
•
•
•
•
•
Annual Retainer for Chairman of the Audit Committee - $20,000
Annual Retainer for Chairman of the Compensation Committee - $12,000
Annual Retainer for Chairman of the Nominating and Corporate Governance Committee -
$7,500
Annual Retainer for members of the Audit Committee - $10,000
Annual Retainer for members of the Compensation Committee - $6,000
Annual Retainer for members of the Nominating and Corporate Governance Committee -
$4,000
2020 Equity Compensation
On May 28, 2020, each director identified in footnote (3) to the table below was granted 6,677
RSUs, with the shares underlying the RSUs vesting on the earlier of the first anniversary of the date
of grant of the company’s next annual stockholder meeting, subject to each director’s continued
service as a director through the applicable vesting date and accelerated vesting in specified
circumstances.
2020 Director Compensation Table
The following table provides information as to the compensation of our non-employee directors
for the year ended December 31, 2020.
Name(1)
Arthur W. Coviello, Jr.
Kimberly L. Hammonds
John C. Huffard, Jr.
Jerry M. Kennelly
Ping Li(4)
A. Brooke Seawell
Richard M. Wells(4)
Linda Zecher
_____________
Fees Earned or
Paid in Cash
Stock Awards(2)(3)
Total
247,476
243,976
229,976
241,976
—
249,976
—
239,976
$
47,500 $
199,976 $
199,976
199,976
199,976
—
199,976
—
199,976
44,000
30,000
42,000
—
50,000
—
40,000
62
(1)
Mr. Yoran’s compensation is fully reflected in the “Summary Compensation Table” above.
Mr. Yoran did not earn compensation during 2020 for his service on our Board of Directors.
(2)
The amounts in the Stock Awards column reflect the aggregate grant date fair value of each
RSU award granted during the year ended December 31, 2020, computed in accordance with ASC
Topic 718. This calculation assumes that the director will perform the requisite service for the award to
vest in full as required by SEC rules. These amounts do not reflect the actual economic value that will
be realized by the director upon vesting of the RSUs or the sale of the common stock underlying such
RSUs.
As of December 31, 2020, Ms. Hammonds and Messrs. Coviello, Kennelly, and Seawell held
(3)
options to purchase 76,667 shares, 153,336 shares, 134,000 shares, and 230,000 shares,
respectively, of our common stock. None of our other non-employee directors held options to
purchase shares of our common stock as of December 31, 2020. As of December 31, 2020, Ms.
Hammonds and Messrs. Coviello, Huffard, Kennelly and Seawell each held 6,677 RSUs and Ms.
Zecher held 18,232 RSUs. None of our other non-employee directors held stock awards as of
December 31, 2020.
(4)
Mr. Li and Mr. Wells are affiliated with Accel and Insight Venture Partners, respectively, each
a current or former major stockholder of the Company, and accordingly did not receive cash or equity
compensation for their service as directors during 2020.
63
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table summarizes our equity compensation plan information as of December 31,
2020. Information is included for equity compensation plans approved by our stockholders. We do not
have any equity compensation plans not approved by our stockholders.
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants, and Rights (a)
Weighted Average
Exercise Price of
Outstanding
Options, Warrants
and Rights (b)(1)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))(c)(2)
14,252,427 $
—
14,252,427 $
8.94
—
8.94
22,876,007
—
22,876,007
Plan Category
Equity compensation plans
approved by stockholders
Equity compensation plans
not approved by
stockholders
Total
_____________
(1)
4,489,773 shares in column (a) that are issuable upon vesting of RSUs, which have no exercise price.
The weighted average exercise price of the outstanding stock options and rights excludes
Includes our 2018 Equity Incentive Plan (“2018 Plan”) and 2018 ESPP. Stock options or other
(2)
stock awards granted under our 2002 Stock Incentive Plan, 2012 Stock Incentive Plan and 2016
Stock Incentive Plan that are forfeited, terminated, expired or repurchased become available for
issuance under our 2018 Plan. Our 2018 Plan provides that the total number of shares reserved of
common stock reserved for issuance thereunder will be automatically increased, on January 1 of
each calendar year, in an amount equal to 5% of the total number of shares of our capital stock
outstanding on December 31 of the prior calendar year, or a lesser number of shares determined by
our Board. Our 2018 ESPP provides that the number of shares of our common stock reserved for
issuance thereunder will automatically increase on January of each calendar year by the lesser of: (1)
1.5% of the total number of shares our capital stock outstanding on December 31st of the preceding
year; (2) 8,000,000 shares; or (3) a lesser number of shares determined by our Board. On January 1,
2021, the number of shares reserved for issuance under our 2018 Plan and our 2018 ESPP
automatically increased by 5,185,762 shares and 1,555,728 shares, respectively, pursuant to these
provisions. These increases are not reflected in the table above.
64
TRANSACTIONS WITH RELATED PERSONS AND INDEMNIFICATION
Related-Person Transactions Policy and Procedures
We have adopted a related person transaction policy that sets forth our procedures for the
identification, review, consideration and approval or ratification of related person transactions. For
purposes of our policy only, a related person transaction is a transaction, arrangement or relationship,
or any series of similar transactions, arrangements or relationships, in which we and any related
person are, were or will be participants in which the amount involved exceeds $120,000. Transactions
involving compensation for services provided to us as an employee or director are not covered by this
policy. A related person is any executive officer, director or beneficial owner of more than 5% of any
class of our voting securities, including any of their immediate family members and any entity owned
or controlled by such persons.
Under the policy, if a transaction has been identified as a related person transaction, including
any transaction that was not a related person transaction when originally consummated or any
transaction that was not initially identified as a related person transaction prior to consummation, our
management must present information regarding the related person transaction to our Audit
Committee, or, if Audit Committee approval would be inappropriate, to another independent body of
our Board of Directors, for review, consideration and approval or ratification. The presentation must
include a description of, among other things, the material facts, the interests, direct and indirect, of the
related persons, the benefits to us of the transaction and whether the transaction is on terms that are
comparable to the terms available to or from, as the case may be, an unrelated third party or to or
from employees generally. Under the policy, we will collect information that we deem reasonably
necessary from each director, executive officer and, to the extent feasible, significant stockholder to
enable us to identify any existing or potential related-person transactions and to effectuate the terms
of the policy. In addition, under our Code of Business Conduct and Ethics, our employees and
directors have an affirmative responsibility to disclose any transaction or relationship that reasonably
could be expected to give rise to a conflict of interest. In considering related person transactions, our
Audit Committee, or other independent body of our Board of Directors, will take into account the
relevant available facts and circumstances including, but not limited to:
•
•
•
•
the risks, costs and benefits to us;
the impact on a director's independence in the event that the related person is a director,
immediate family member of a director or an entity with which a director is affiliated;
the availability of other sources for comparable services or products; and
the terms available to or from, as the case may be, unrelated third parties or to or from
employees generally.
The policy requires that, in determining whether to approve, ratify or reject a related person
transaction, our Audit Committee, or other independent body of our Board of Directors, must consider,
in light of known circumstances, whether the transaction is in, or is not inconsistent with, our best
interests and those of our stockholders, as our Audit Committee, or other independent body of our
Board of Directors, determines in the good faith exercise of its discretion.
Certain Related Person Transactions
The following includes a summary of transactions since January 1, 2020 to which we have been a
party, in which the amount involved in the transaction exceeded $120,000, and in which any of our
directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our voting
securities or any member of the immediate family of any of the foregoing persons had or will have a
direct or indirect material interest. Other than described below, there have not been, nor are there
65
currently any proposed, transactions or series of similar transactions to which we have been or will be
a party other than compensation arrangements, which include equity and other compensation,
termination, change in control and other arrangements, which are described under “Executive
Compensation” and “Director Compensation.”
Employment Arrangements with Messrs. Schonberger and Vintz
We have employed Ron Schonberger, the brother of Amit Yoran, our Chief Executive Officer and
Chairman, as our Associate General Counsel since October 2017, and Frank Vintz, the brother of
Stephen A. Vintz, our Chief Financial Officer, as a Director of Customer Success since March 2017.
Each of Mr. Schonberger and Mr. Frank Vintz is paid compensation consisting of salary, bonus and
the fair value of options to purchase common stock or RSUs. In 2020, Mr. Schonberger and Mr. Frank
Vintz received total cash and equity compensation of approximately $400,000 and $300,000,
respectively.
Indemnification
We provide indemnification for our directors and executive officers so that they will be free from
undue concern about personal liability in connection with their service to the Company. Under our
Bylaws, we are required to indemnify our directors and executive officers to the extent not prohibited
under Delaware law. We have also entered into indemnity agreements with our executive officers and
directors. These agreements provide, among other things, that we will indemnify the officer or
director, under the circumstances and to the extent provided for in the agreement, for expenses,
damages, judgments, fines and settlements he or she may be required to pay in actions or
proceedings which he or she is or may be made a party by reason of his or her position as a director,
officer or other agent of the Company, and otherwise to the fullest extent permitted under Delaware
law and our Bylaws.
66
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries, such as brokers, to satisfy
the delivery requirements for Notices of Internet Availability of Proxy Materials or other Annual
Meeting materials with respect to two or more stockholders sharing the same address by delivering a
single Notice of Internet Availability of Proxy Materials or other Annual Meeting materials addressed to
those stockholders. This process, which is commonly referred to as “householding,” potentially means
extra convenience for stockholders and cost savings for companies.
This year, a number of brokers with account holders who are our stockholders will be
“householding” the Company’s proxy materials. A single Notice of Internet Availability of Proxy
Materials will be delivered to multiple stockholders sharing an address unless contrary instructions
have been received from the affected stockholders. Once you have received notice from your broker
that they will be “householding” communications to your address, “householding” will continue until
you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to
participate in “householding” and would prefer to receive a separate Notice of Internet Availability of
Proxy Materials, please notify your broker or us. Direct your written request to Tenable Holdings, Inc.,
Attn: Corporate Secretary, 6100 Merriweather Drive, 12th Floor, Columbia, Maryland 21044.
Stockholders who currently receive multiple copies of the Notices of Internet Availability of Proxy
Materials at their addresses and would like to request “householding” of their communications should
contact their brokers.
67
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for consideration at the
Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the
persons named in the accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors,
Stephen A. Riddick
General Counsel and Corporate Secretary
Dated: April 13, 2021
A copy of the Company’s Annual Report to the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 2020 is available without charge upon written
request to Tenable Holdings, Inc., Attention: Corporate Secretary, Tenable Holdings, Inc., 6100
Merriweather Drive, 12th Floor, Columbia, Maryland 21044.
68
APPENDIX
RECONCILIATION OF NON-GAAP MEASURES
In this proxy statement, we discuss certain operating metrics and non-GAAP financial measures,
as described below, which we think are important to better understand and evaluate our core
operating and financial performance. These non-GAAP financial measures, which may be different
than similarly titled measures used by other companies, are presented to enhance investors’ overall
understanding of our financial performance and should not be considered a substitute for, or superior
to, the financial information prepared and presented in accordance with GAAP included in our Annual
Report on Form 10-K. We believe that these operating metrics and non-GAAP financial measures
provide useful information about our operating and financial performance, enhance the overall
understanding of our past performance and future prospects and allow for greater transparency with
respect to important metrics used by management for financial and operational decision-making.
Calculated Current Billings
We define calculated current billings, a non-GAAP financial measure, as total revenue recognized
in a period plus the change in current deferred revenue in the corresponding period. We believe that
calculated current billings is a key metric to measure our periodic performance. Given that most of our
customers pay in advance (including multi-year contracts), but we generally recognize the related
revenue ratably over time, we use calculated current billings to measure and monitor our ability to
provide our business with the working capital generated by upfront payments from our customers. We
believe that calculated current billings, which excludes deferred revenue for periods beyond twelve
months in a customer’s contractual term, more closely correlates with ACV and that the variability in
total billings, depending on the timing of large multi-year contracts and the preference for annual
billing versus multi-year upfront billing, may distort growth in one period over another.
The following table presents a reconciliation of revenue, the most directly comparable financial
measure calculated in accordance with GAAP, to calculated current billings:
(in thousands)
Revenue
Deferred revenue (current), end of period
Deferred revenue (current), beginning of period(1)
Calculated current billings
Year Ended December 31,
2020
2019
440,221 $
328,819
354,586
274,348
(274,348)
494,692 $
(214,069)
414,865
$
$
_______________
(1)
deferred revenue.
Deferred revenue (current), beginning of period for 2019 includes $0.4 million related to acquired
Free Cash Flow
We define free cash flow, a non-GAAP financial measure, as net cash provided by (used in)
operating activities less purchases of property and equipment. We believe free cash flow is an
important liquidity measure of the cash (if any) that is available, after purchases of property and
equipment, for investment in our business and to make acquisitions. We believe that free cash flow is
useful to investors as a liquidity measure because it measures our ability to generate or use cash.
69
The following table presents a reconciliation of net cash provided by (used in) operating activities,
the most directly comparable financial measure calculated in accordance with GAAP, to free cash
flow:
(in thousands)
Net cash provided by (used in) operating activities
Purchases of property and equipment
Free cash flow(1)
Year Ended December 31,
2020
2019
$
$
64,232 $
(20,277)
43,955 $
(10,744)
(20,674)
)
(31,418)
(
Our ESPP impacted free cash flow by $0.9 million and $(0.9) million in 2020 and 2019,
_______________
(1)
respectively. Proceeds from lease incentives were $14.2 million in 2020 and capital expenditures
related to our new headquarters were $17.2 million and $11.4 million in 2020 and 2019, respectively.
Cash payments associated with the Indegy acquisition were $0.7 million and $13.1 million in 2020
and 2019, respectively. Free cash flow for 2020 was reduced by approximately $17 million as a result
of the accelerated timing of payments for cloud software subscriptions, insurance and rent.
Non-GAAP Income (Loss) from Operations
We use non-GAAP income (loss) from operations as a key indicator of our financial performance.
We define non-GAAP income (loss) from operations as loss from operations, excluding the effects of
stock-based compensation, acquisition-related expenses and amortization of acquired intangible
assets. Acquisition-related expenses include transaction expenses and costs related to the transfer of
acquired intellectual property.
The following table presents a reconciliation of loss from operations, the most directly comparable
financial measure calculated in accordance with GAAP, to non-GAAP income (loss) from operations:
(dollars in thousands)
Loss from operations
Stock-based compensation
Acquisition-related expenses
Amortization of acquired intangible assets
Year Ended December 31,
2020
2019
$
(36,433) $
59,573
339
2,314
(90,799)
43,443
3,970
620
)
(42,766)
(
Non-GAAP income (loss) from operations
$
25,793 $
Non-GAAP Net Income (Loss) and Non-GAAP Earnings (Loss) Per Share
We use non-GAAP net income (loss), which excludes the effect of stock-based compensation,
acquisition-related expenses and amortization of acquired intangible assets, as well as the related tax
impact, to calculate non-GAAP earnings (loss) per share. We believe that these non-GAAP measures
provide important information to management and investors because they facilitate comparisons of
our core operating results over multiple periods.
70
The following table presents a reconciliation of net loss and net loss per share, the most
comparable financial measures calculated in accordance with GAAP, to non-GAAP net income (loss)
and non-GAAP earnings (loss) per share.
(in thousands, except for per share amounts)
Net loss
Stock-based compensation
Tax impact of stock-based compensation(1)
Acquisition-related expenses
Tax impact of acquisition(2)
Amortization of acquired intangible assets(3)
Non-GAAP net income (loss)
Net loss per share, diluted
Stock-based compensation
Tax impact of stock-based compensation(1)
Acquisition-related expenses
Tax impact of acquisition(2)
Amortization of acquired intangible assets(3)
Adjustment to diluted earnings per share(4)
Non-GAAP earnings (loss) per share, diluted
Year Ended December 31,
2020
2019
(42,731) $
59,573
1,299
339
—
2,314
(99,013)
43,443
(95)
3,970
10,582
620
20,794 $
)
(40,493)
(
(0.42) $
0.59
0.01
—
—
0.02
(0.01)
0.19 $
(1.03)
0.45
—
0.04
0.11
0.01
—
)
(
(0.42)
$
$
$
$
Weighted-average shares used to compute GAAP net loss per share,
diluted
101,009
96,014
Weighted-average shares used to compute non-GAAP earnings (loss)
per share, diluted(5)
109,962
96,014
The tax impact of stock-based compensation is based on the tax treatment for applicable tax
________________
(1)
jurisdictions.
(2)
and $4.2 million of deferred tax expense related to the transfer of acquired intellectual property.
(3)
The tax impact of amortization of acquired intangible assets is not material.
The tax impact of the Indegy acquisition in 2019 includes $6.3 million of current tax expense
(4)
to non-GAAP earnings per share, which includes potentially dilutive shares.
Adjustment to reconcile GAAP net loss per share, which excludes potentially dilutive shares,
(5)
outstanding are the same, as potentially dilutive shares would be antidilutive.
In periods in which there is a non-GAAP net loss, basic and diluted weighted average shares
71
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-K
______________________________________
☒
☐
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2020
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission file number 001-38600
______________________________________
TENABLE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
______________________________________
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
Delaware
47-5580846
6100 Merriweather Drive, Columbia, Maryland, 21044
(Address of principal executive offices, including zip code)
(410) 872-0555
(Registrant’s telephone number, including area code)
______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of exchange on which registered
Common stock, par value $0.01 per share
TENB
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒
No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
As of June 30, 2020, the aggregate market value of the common stock of the registrant held by non-affiliates was
approximately $2.1 billion.
The number of shares of the Registrant's common stock outstanding as of February 16, 2021 was 104,036,276.
Portions of the registrant's definitive Proxy Statement relating to the 2021 Annual Meeting of Stockholders are
incorporated herein by reference in Part III of this Annual Report on Form 10-K. The Proxy Statement will be filed with the
Securities and Exchange Commission within 120 days after the year ended December 31, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
TENABLE HOLDINGS, INC.
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
Page
5
13
44
44
44
44
45
47
49
73
75
109
109
110
111
111
111
111
111
112
3
Forward-Looking Statements
PART I
This Annual Report on Form 10-K, including the sections entitled "Business," "Risk Factors,"
and "Management's Discussion and Analysis of Financial Condition and Results of Operations,"
contains forward-looking statements that involve known and unknown risks, uncertainties and other
factors that may cause our actual results, levels of activity, performance or achievements to be
materially different from the information expressed or implied by these forward-looking statements.
Statements that are not purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. In some cases, you can identify forward-looking statements by the words
“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,”
“ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” or the negative of these
terms, or other comparable terminology intended to identify statements about the future. These
forward-looking statements include, but are not limited to, statements concerning the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the anticipated impact of the global economic uncertainty and financial market conditions
caused by the COVID-19 pandemic on our business, results of operations and financial
condition, including on our sales and our revenue growth rate;
our market opportunity;
the effects of increased competition as well as innovations by new and existing competitors in
our market;
our ability to adapt to technological change, release new products and product features and
effectively enhance, innovate and scale our enterprise platform and solutions;
our ability to effectively manage or sustain our growth and to achieve profitability;
our ability to maintain and expand our customer base, including by attracting new customers;
our relationships with third parties, including channel partners;
completed and potential acquisitions and integration of complementary businesses and
technologies;
our ability to maintain, or strengthen awareness of, our brand;
perceived or actual problems with the security, integrity, reliability, compatibility and quality of
our platform and solutions;
future revenue, hiring plans, expenses, capital expenditures, capital requirements and stock
performance;
our ability to attract and retain qualified employees and key personnel and further expand our
overall headcount;
our ability to stay abreast of new or modified laws and regulations that currently apply or
become applicable to our business both in the United States and internationally;
our ability to maintain, protect and enhance our intellectual property;
costs associated with defending intellectual property infringement and other claims; and
the future trading prices of our common stock and the impact of securities analysts’ reports on
these prices.
These statements represent the beliefs and assumptions of our management based on
information currently available to us. Such forward-looking statements are subject to risks,
uncertainties and other important factors that could cause actual results and the timing of certain
events to differ materially from future results expressed or implied by such forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited to
4
those discussed in the section titled “Risk Factors” included under Part I, Item 1A. Such risks and
uncertainties may be amplified by the COVID-19 pandemic and its potential impact on our business
and the global economy. You should not rely upon forward-looking statements as predictions of future
events. Furthermore, such forward-looking statements speak only as of the date of this report. Except
as required by law, we undertake no obligation to update any forward-looking statements to reflect
events or circumstances that occur after the date of this report.
Item 1.
Business
Overview
We are a leading provider of Cyber Exposure solutions. Cyber Exposure is a discipline for
managing, measuring and comparing cybersecurity risk in the digital era.
Digital transformation is driving radical change and is powering the economy and our social
infrastructure. A digital-first economy is only sustainable if it is built with a solid cybersecurity
foundation. As organizations modernize their IT infrastructures and adopt cloud or hybrid cloud
architectures that are no longer housed in the confines of their corporate networks, they have less
visibility and control over the security of these assets. Organizations are also increasingly
implementing modern solutions, such as Internet of Things, or IoT, devices, web applications and
application containers, to enable the rapid development and deployment of new products, services
and business models, as well as to drive operational efficiencies. Further, safety-critical Operational
Technology, or OT, such as Industrial Control Systems, are now network-connected and must be
secured from cybersecurity threats.
While other functions in an organization, such as finance and operations, have a system to help
them manage and measure risk, cybersecurity risk has not historically been adequately measured or
understood. Our enterprise platform provides a unified view into the organization’s state of security,
enables security teams to prioritize and focus their remediation efforts, and translates vulnerability
data into actionable business metrics and insights that boards of directors and executives can
understand and use to make strategic decisions. We believe our Cyber Exposure solutions are
transforming how cybersecurity risk is managed and measured and will help organizations more
rapidly embrace digital transformation.
Our platform offerings provide broad visibility into security issues such as vulnerabilities,
misconfigurations, internal and regulatory compliance violations and other indicators of the state of an
organization’s security across IT infrastructure and applications, cloud environments and Industrial
IoT and OT environments. We also provide deep analytics to help organizations score, trend and
compare their cyber exposure over time, and communicate cyber risk in business terms to make
better strategic decisions. Our platform offerings integrate and analyze data from our native collectors
alongside IT asset, vulnerability and threat data from third-party systems and applications to prioritize
security issues for remediation and focus an organization’s resources based on risk and business
criticality.
In 2020, 2019 and 2018 our total revenue was $440.2 million, $354.6 million and $267.4 million,
respectively, representing year-over-year growth rates of 24% from 2019 to 2020 and 33% from 2018
to 2019. Our net loss was $42.7 million, $99.0 million and $73.5 million in 2020, 2019 and 2018,
respectively. Our cash flows from operating activities were $64.2 million, $(10.7) million and $(2.6)
million in 2020, 2019 and 2018, respectively.
5
Our Platform Offerings
Our vision is to empower every organization to understand and reduce their cybersecurity risk.
Our Enterprise Platform Offerings
Our enterprise platform enables organizations to answer foundational and strategic questions
such as:
• Where are we exposed?
• Where should we prioritize based on risk?
•
•
Are we reducing our exposure over time?
How do we compare to our peers?
Our enterprise platform offerings include Tenable.io, which is our cloud-delivered software as a
service, or SaaS, offering, and Tenable.sc, which is our on-premises offering, both of which provide
organizations with a risk-based view of traditional and modern attack surfaces. These applications are
designed with views, workflows and dashboards to deliver a complete and continuous view of all
assets, both known and previously unknown, and any associated vulnerabilities, internal and
regulatory compliance violations, misconfigurations and other cybersecurity issues, prioritize these
issues for remediation based on risk assessment and predictive analytics, and provide insightful
remediation guidance.
Our enterprise platform offerings also include Tenable.ot, which is our on-premises solution that
provides threat detection and mitigation, asset tracking, vulnerability management, and configuration
control capabilities to protect OT environments, including industrial networks. Tenable.ot is sold as a
stand-alone solution and integrates with Tenable.io and Tenable.sc.
Our enterprise platform offerings deliver the following capabilities:
•
•
•
Live asset discovery. We can automatically discover a broad range of traditional and modern
IT assets, including on-premises infrastructure, web applications, cloud environments, mobile
devices, containers, IoT devices and OT systems. We use a combination of active scanning,
passive network monitoring and public cloud monitoring via our connector to identify known
and unknown assets on the network. Additionally, in 2020 we released Frictionless
Assessment, which evaluates cloud assets and detects new vulnerabilities within a dynamic
environment without having to schedule a scan or deploy an agent.
Automated exposure assessment. With every change in a customer’s computing
environment, we can automatically assess and identify where there are vulnerabilities,
internal and regulatory compliance violations and misconfigurations across assets and cloud
environments, such as missing software patches or outdated software versions. In addition,
we can help optimize existing security technology investments to identify indicators of cyber
exposure, such as improperly configured anti-virus software.
Deep analytics to allow for prioritization. We combine our product, vulnerability data and
threat intelligence with third-party data to provide business context and enable organizations
to prioritize remediation efforts based on the business criticality of the asset and the likelihood
of exploit. Predictive Prioritization enables organizations to reduce business risk by focusing
on the vulnerabilities with the greatest likelihood of imminently being exploited. It combines
Tenable vulnerability data with third-party threat and vulnerability data across more than 150
data sources using a proprietary machine learning algorithm developed by Tenable Research
and data science teams to provide clear guidance on where to focus remediation efforts.
6
Predictive Prioritization provides a threat-based view of vulnerabilities, which is a critical
component of modern risk-based vulnerability management.
• Open and extensible platform. Our enterprise platform integrates with industry-leading IT
workflow, security information and event management, or SIEM, and systems management
tools to accelerate remediation and provide common visibility across security and IT
operations teams.
•
Cyber exposure measurement. Tenable Lumin, released in 2019, leverages our expansive
knowledge base of assets and vulnerabilities coupled with data science insights to help our
customers objectively score, trend and benchmark cyber exposure across their organizations,
including by business unit or geography, for comparison and best practices. We believe this
capability is critical to help security executives effectively translate technical information and
communicate cybersecurity risk to a non-technical audience, including the C-suite and the
board of directors, to make better strategic decisions on where to focus investment to
maximize cybersecurity risk reduction. As we continue to expand our database with more
vulnerability and asset intelligence as well as additional third-party data sources, we
anticipate that we will be able to leverage these insights in Lumin to measure an
organization’s cyber exposure beyond vulnerabilities to overall cybersecurity program
effectiveness.
Nessus
Our co-founder is the creator of Nessus, one of the most widely deployed vulnerability
assessment solutions in the cybersecurity industry. Nessus underpins our enterprise platform. Since
the introduction of Nessus in 1998, an extensive community of Nessus users has emerged. We
continue to cultivate knowledge and affinity within this user base, which, when combined with our
enterprise customers and our Tenable Research team of cybersecurity and data science experts,
creates powerful network effects in the form of a continuous feedback loop of data and insights. We
use these learnings to expand our assessment capabilities and coverage, continually optimize our
solutions and inform our product strategy and innovation priorities. We believe these data and insights
will also fuel and strengthen our benchmarking capabilities over time.
Nessus Professional
Nessus Professional is a vulnerability assessment solution for identifying security vulnerabilities,
configuration issues and malware. Nessus Professional serves as both a stand-alone product
designed for security consultants and practitioners performing one-time or ad-hoc assessment as well
as an on-ramp product to our enterprise platform. With broad vulnerability coverage, accurate
analysis and an easy-to-use interface, Nessus Professional offers a cost-effective and comprehensive
solution for security consultants and users with ad-hoc assessment needs.
Nessus Essentials
We also offer a free version of our Nessus product, Nessus Essentials, which includes
vulnerability and configuration assessment for a limited number of assets, but does not include
access to support and certain features that Nessus Professional customers enjoy.
Technology Architecture
Our platform is built from the ground up to support the needs of modern IT assets and
environments. Our platform’s scalability can meet the requirements of the largest global enterprise
customers, which may require assessment for millions of assets.
7
Foundational elements of our technology architecture include:
•
•
•
•
•
Public cloud infrastructure for agility. Our use of the public cloud delivers agility and
market responsiveness without the capital investment or time delay involved with planning,
purchasing and deploying hardware. It also provides a flexible cost profile in which capacity
can be quickly adjusted up or down in response to new opportunities and market demand,
with relatively modest fixed costs.
Scalability. Our platform scales up and down to continuously meet customer demands,
through the use of public cloud infrastructure around the world. This approach provides
elastic resources for compute, data transfer and storage, and allows us to meet the needs of
even the largest global enterprises and government agencies. Our platform manages and
supports millions of assets for multiple enterprise customers across a variety of industries,
with the ability to process millions of application programming interface, or API, calls daily.
The platform can scale to support IoT deployments that are an order of magnitude larger than
IT deployments.
Availability. Our modern architecture, leveraging state-of-the-art public cloud services, offers
high availability and high performance. It provides geographic redundancy, as well as
automated backup, without the need for us to build redundant infrastructure. As a result, we
offer a service level agreement for Tenable.io that promises 99.95% availability to help ensure
the reliability of operation for our customers.
Extensibility and integration. Our open API and software development kit, or SDK, enables
import of data from third-party sources and sensors, including competitor products, to
augment our native discovery, assessment and analytics. This is essential to providing a
unified view of assets, vulnerabilities and exposure across the enterprise. These capabilities
also enable flexible export of our data to third party systems.
Unified Platform. Our products are built on a unified platform with a unified data model that
enables us to share data, assets and vulnerabilities across our applications so our customers
can run workflows and have a consistent user experience across our products.
• Widely adopted industry standard file format. The “.Nessus” file format for vulnerability
data used in all of our products is openly documented and supported by dozens of products
and programming languages, which simplifies integration with our ecosystem partners’
technologies.
Our Technology Ecosystem
We have partnered and/or integrated with market leading technology companies to pioneer the
industry’s first Cyber Exposure ecosystem to help organizations build resilient cybersecurity
programs. Our ecosystem consists of a variety of third-party data import sources into our platform
offerings, as well as export of our data out to third-party IT systems. Our technology ecosystem
connects disparate solutions and data to automate processes and accelerate an organization’s ability
to understand, manage and reduce its cyber exposure.
We integrate a variety of third-party data sources, including ticketing, configuration management
databases, or CMDBs, and systems management, into our platform to augment our native data
collection and help with analysis and remediation prioritization. Furthermore, our data is also exported
out to enrich third-party IT management and security systems.
8
Our Growth Strategy
Our objectives are to maintain our market leadership in Cyber Exposure and to capture our large
market opportunity. To accomplish these objectives, we intend to:
•
•
•
•
Continue to Acquire New Enterprise Platform Customers. We believe there is a
substantial opportunity to increase adoption of our enterprise platform offerings. We have
experienced growth in new enterprise platform customers due to investments in sales and
marketing. We intend to continue to aggressively pursue new domestic and international
customers by adding sales capacity and leveraging our network of channel partnerships
around the world.
Expand Asset Coverage Within Our Customer Base. We believe we have a significant
opportunity to expand our relationships with our existing customers by targeting additional
teams, business units or geographies, pursuing broad enterprise deployments and generally
expanding our coverage of their IT assets and cross-selling new applications and solutions.
Invest in Our Technology Platform. We intend to continue to innovate and develop our
enterprise platform, including the addition of incremental capabilities, such as coverage of
new attack surfaces and asset types and the addition of analytical capabilities, to help our
customers measure and benchmark their cyber exposure. As we collect more data and ingest
more data from third-party sources, we believe our data set will become even more valuable
over time, which will allow us to continue to develop new analytical products and capabilities
to our existing product suite over time.
Explore Acquisition Opportunities. We may acquire other businesses, technology and/or
development personnel that will expand and enhance the functionality of our platform
offerings. In 2019, we acquired Indegy Ltd., or Indegy, a leader in industrial cybersecurity that
provides visibility, security and control across OT environments. Indegy expanded our depth
of OT expertise and intelligence and our breadth of OT-specific capabilities from vulnerability
management to asset inventory, configuration management and threat detection.
Customers
We sell and market our enterprise platform offerings through our field sales force that works
closely with our channel partners, which includes a network of distributors and resellers, in developing
sales opportunities. We use a two-tiered channel model whereby we sell our enterprise platform
offerings to our distributors, which in turn sell to our resellers, which then sell to end users, which we
call customers.
Our customers are located in over 160 countries and include enterprises of all sizes and span a
wide range of industries, including manufacturing, energy and industrials; technology, media and
telecommunications; banking, insurance and finance; government, education and non-profit;
healthcare; and retail and consumer.
As of December 31, 2020, we had over 30,000 customers who licensed our Tenable.io,
Tenable.sc, Tenable.ot or Nessus Professional products. Our customers include more than 50% of the
Fortune 500 and over 30% of the Global 2000 organizations at December 31, 2020. In 2020, 2019
and 2018, no single customer represented more than 2% of our revenue.
Sales and Marketing
Our sales strategy employs both a direct-touch approach through our sales forces and a low-
touch approach through sales closed by our channel partners and transacted on our e-commerce
9
website. Both direct-touch and channel-originated sales are fulfilled through our channel partnerships.
Our sales and customer success renewal teams collaborate closely with our channel partners to
prospect, manage and support our customers, developing and maintaining close relationships with all
of our enterprise platform customers.
We sell to organizations of all sizes across a broad range of industries, with a specific focus on
enterprise accounts. Our sales team is divided by customer size and geography, including the
Americas; Europe, the Middle East and Africa ("EMEA"); and Asia Pacific and Japan.
Our partner ecosystem provides us with a number of advantages, including increased in-bound
registered sales leads, broader geographic reach and greater deal velocity. Our channel partners
include distributors, value-added resellers, system integrators and managed security service
providers.
Our marketing efforts focus on cultivating brand awareness and leveraging our brand strength
with Nessus, building demand across all segments with a specific emphasis on our enterprise
customers and delivering tailored marketing programs focused on security executives, functional
managers and security practitioners and consultants with Nessus. We also provide educational
programs to DevOps teams for our Container Security and Web Application Scanning products. We
execute marketing programs targeted at new customer acquisition, customer retention and cross-
selling and up-selling of products across our platform.
Research and Development
We continue to invest substantial resources in research and development to enhance our
platform offerings by developing new features, functionality, and applications. Our engineering
expertise combines extensive security product development experience with individuals who possess
deep cloud and user interface design background.
Additionally, our Tenable Research team includes a team of cybersecurity and data science
experts who deliver Cyber Exposure intelligence, data science insights, alerts and security advisories.
Frequent updates from Tenable Research ensure the latest vulnerability checks, zero-day research,
and configuration benchmarks are available within our Cyber Exposure solutions.
We believe ongoing and timely development of new products and features is imperative to
maintaining our competitive position. We continue to invest in development of our solutions across
our global research and development team.
Our research and development expense was $101.7 million, $87.1 million and $76.7 million in
2020, 2019 and 2018, respectively.
Backlog
We define backlog as contractually committed orders to be invoiced under our existing
agreements that are not included in the deferred revenue on our consolidated balance sheets. As of
December 31, 2020 and 2019, we had backlog of $8.0 million and $3.6 million, respectively. We
expect substantially all of the backlog at December 31, 2020 to be invoiced within the following twelve
months.
Competition
The market for cybersecurity solutions is fragmented, intensely competitive and constantly
evolving. We compete with a range of established and emerging cybersecurity software and services
10
vendors, as well as homegrown solutions. With the introduction of new technologies and market
entrants, we expect the competitive environment to remain intense going forward. Our competitors
include: vulnerability management and assessment vendors, including Qualys and Rapid7; diversified
security software and services vendors, including IBM; endpoint security vendors with nascent
vulnerability assessment capabilities, including Tanium and CrowdStrike; and providers of point
solutions that compete with some of the features present in our solutions. We also compete against
internally-developed efforts that often use open source solutions.
We believe that the principal competitive factors affecting the market for cybersecurity solutions
include product functionality, breadth and depth of offerings, flexibility of delivery models, ease of
deployment and use, integration capabilities such as open APIs and scalability, uptime and
performance. We believe that our suite of solutions generally competes favorably with respect to
these factors and may serve as a complement to the solutions offered by our competitors in some
cases. Some of our more established actual and potential competitors have greater name recognition,
longer operating histories, more established customer relationships, larger marketing budgets and
significantly greater resources than we do. In addition, as our market grows and rapidly changes, we
expect it will continue to attract new competitors, including companies that are larger and more
established than us and smaller emerging companies, which could introduce new products and
services.
Intellectual Property
Our success depends in part upon our ability to protect our core technology and intellectual
property. We rely on a combination of trade secrets, copyrights, patents and trademarks, as well as
contractual protections, to establish and protect our intellectual property rights and protect our
proprietary technology.
As of December 31, 2020, we had 21 issued patents and nine patent applications pending in the
United States. Our issued patents expire between 2027 and 2038 and cover our network scanning,
monitoring and analysis technologies and additional features of our platform offerings. As of
December 31, 2020, we had 19 registered trademarks and one trademark application pending in the
United States. We view our copyrights, trade secrets and know-how as a significant component of our
intellectual property assets.
We also license certain software from third parties for integration into our solutions, including
open source software and other software available on commercially reasonable terms. We cannot
assure you that such third parties will maintain such software or continue to make it available.
We control access to and use of our proprietary software and other confidential information
through the use of internal and external controls, including contractual protections with employees,
contractors, customers and partners, and our software is protected by U.S. and international copyright
and trade secret laws. Despite our efforts to protect our trade secrets and proprietary rights through
intellectual property rights, licenses and confidentiality and invention assignment agreements,
unauthorized parties may still attempt to copy, reverse engineer, misappropriate or otherwise obtain
and use our software and technology. In addition, we intend to continue to expand our international
operations, and effective patent, copyright, trademark and trade secret protection may not be
available or may be limited in foreign countries.
Government Regulation
Various federal, state and foreign legislative and regulatory bodies have legislation pending that
could affect our business. In particular, the European Union passed the General Data Protection
11
Regulation, or GDPR, which came into force on May 25, 2018. The GDPR includes more stringent
operational requirements on entities that receive or process personal data (as compared to existing
EU law), along with significant penalties for non-compliance, more robust obligations on data
processors and data controllers, greater rights for data subjects (potentially requiring significant
changes to both our technology and operations), and heavier documentation requirements for data
protection compliance programs. In addition, the GDPR increases the scrutiny of transfers of personal
data from locations in the EEA to the United States and other jurisdictions that the European
Commission does not recognize as having “adequate” data protection laws, and imposes substantial
fines for breaches and violations (up to the greater of €20 million or 4% of consolidated annual
worldwide gross revenue).
Similarly, there are a number of federal and state level legislative proposals in the United States
that could impose new obligations on us. For example, California recently enacted the California
Consumer Privacy Act, or the CCPA, which went into effect on January 1, 2020 and creates new
individual privacy rights for consumers and places increased privacy and security obligations on
entities handling the personal data of consumers or households. The CCPA requires covered
companies to provide new disclosures to California consumers, which could include our employees
residing in California based on the broad definitions in the law, to provide such consumers new ways
to opt out of certain sales of personal information, and to allow for a new private cause of action for
data breaches. Other states are beginning to pass similar laws. In addition, some countries are
considering or have passed legislation implementing more onerous data protection requirements or
requiring local storage and processing of data or other requirements that could increase the cost and
complexity of delivering our services.
Like other U.S.-based IT security products, our products are subject to U.S. export control laws
and regulations, specifically the Export Administration Regulations, or EAR, U.S. economic and trade
sanctions regulations and applicable foreign government import, export and use requirements.
Certain of our products are subject to encryption controls under the EAR due to the nature of the
product and its use or incorporation of encryption functionality. Under the encryption controls in the
EAR, applicable products may only be exported outside of the United States with required export
authorizations, such as a license, a license exception or other appropriate government authorizations.
In addition to the restrictions under the EAR, U.S. export control laws and economic sanctions prohibit
the export of products and services to countries, governments, entities or persons subject to U.S.
embargoes or trade sanctions.
Human Capital
As of December 31, 2020, we had 1,367 employees, including 455 employees located outside of
the United States. None of our U.S. employees are represented by a labor union or covered by a
collective bargaining agreement. Certain international employees are subject to collective bargaining
agreements in connection with local labor laws. We have not experienced any work stoppages, and
we consider our relations with our employees to be good.
We believe in upholding a core set of values for our entire global workforce:
• One Tenable: We are united as one Tenable team. We win together. We are one team
internally, with our customers, with our partners and in the market.
• We Care: About our work, about our customers, about one another and about our
communities. We speak straight and we do the right thing.
•
Deliver Results: We set high goals, take bold risks, measure honestly and deliver results
that exceed expectations.
• What We Do Matters: The work that we do makes a difference in the world.
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Our key human capital objectives are to attract, retain and develop our highly talented existing
and future employees, while cultivating a diverse and inclusive workforce and environment to achieve
exceptional business results. We strive to be a career destination where employees from all
backgrounds are welcome and empowered, are treated with fairness and respect, can make a
difference, and have the opportunity to grow.
Financial Information and Segments
Segment and geographic information required by Part I, Item 1 of Form 10-K can be found in
Note 1 and Note 13 of the Notes to our Consolidated Financial Statements included in Part II, Item 8,
Financial Statements, of this Form 10-K.
Corporate Information
Tenable Network Security, Inc., our predecessor, was incorporated under the laws of the State of
Delaware in 2002. Tenable Holdings, Inc. was incorporated in Delaware in October 2015, and in
November 2015, Tenable Network Security, Inc. was merged into our wholly-owned indirect
subsidiary and in 2017 was renamed as Tenable, Inc.
Our principal executive offices are located at 6100 Merriweather Drive, Columbia, Maryland
21044. Our telephone number is (410) 872-0555. Our website address is www.tenable.com. The
information contained on, or that can be accessed through, our website is not incorporated by
reference, and you should not consider any information contained on, or that can be accessed
through, our website as part of this Annual Report on Form 10-K.
“Tenable,” “Nessus,” “Tenable.io," "Lumin" and the Tenable logo, and other trademarks or service
marks of Tenable Holdings, Inc. appearing in this Annual Report on Form 10-K are the property of
Tenable Holdings, Inc. This Annual Report on Form 10-K contains additional trade names, trademarks
and service marks of others, which are the property of their respective owners. Solely for
convenience, trademarks and trade names referred to in this Annual Report on Form 10-K may
appear without the ® or TM symbols.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-
K, Proxy Statement, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the
Exchange Act, are available for download free of charge from our investor relations website https://
investors.tenable.com after we file them with the Securities and Exchange Commission, or the
SEC. The SEC’s website https://www.sec.gov contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC.
The contents of any website referred to in this Form 10-K are not intended to be incorporated into
this Annual Report on Form 10-K or in any other report or document we file with the SEC.
Item 1A.
Risk Factors
Our operations and financial results are subject to significant risks and uncertainties including
those described below. You should carefully consider the risks and uncertainties described below, in
addition to other information contained in this Annual Report on Form 10-K, including our
consolidated financial statements and related notes. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we
currently believe are not material, may also become important factors that adversely affect our
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business. If any of the following risks or others not specified below materialize, our business, financial
condition and results of operations could be materially and adversely affected.
Selected Risks Affecting Our Business
Our business is subject to a number of risks of which you should be aware before making a
decision to invest in our common stock. These risks are more fully described in this “Risk Factors”
section, including the following:
• Our business, operations and financial performance may be materially adversely affected by
the ongoing and evolving COVID-19 pandemic.
• We have a history of losses and may not achieve or maintain profitability in the future.
• We may not be able to sustain our revenue growth rate in the future.
• We may not be able to scale our business quickly enough to meet our customers’ growing
needs.
• Our brand, reputation and ability to attract, retain and serve our customers are dependent in
part upon the reliable and accurate performance of our solutions, infrastructure and third-
party suppliers. If we experience performance problems, or if our solutions fail to detect
vulnerabilities or incorrectly detect vulnerabilities, or if they contain undetected errors or
defects, our brand and reputation could be harmed.
• Our future quarterly results of operations are likely to fluctuate significantly due to a wide
range of factors, which makes our future results difficult to predict.
• We face intense competition. If we do not continue to innovate and offer solutions that
address the dynamic cybersecurity landscape, we may not remain competitive.
• Our business and results of operations depend substantially on our customers renewing their
subscriptions with us and expanding the number of IT assets or IP addresses under their
subscriptions. Any decline in our customer renewals, terminations or failure to convince our
customers to expand their use of subscription offerings would harm our business, results of
operations, and financial condition.
• We rely on third parties to maintain and operate certain elements of our network
infrastructure.
• We rely on our third-party channel partner network of distributors and resellers to generate a
substantial amount of our revenue.
Risks Related to Our Business and Industry
Our business, operations and financial performance may be materially adversely affected
by the ongoing and evolving COVID-19 pandemic.
Our business, operations and financial performance could be adversely affected by the effects of
the ongoing and evolving COVID-19 pandemic, and such affect could be material; however, as of
December 31, 2020, we have not seen a significant adverse impact to our financial position, results of
operations, cash flows and liquidity as a result of the COVID-19 pandemic. The COVID-19 pandemic
has resulted in travel and other restrictions in order to reduce the spread of the disease, including
state and local orders across the United States and in countries in which we operate that, among
other things, direct individuals to follow social distancing guidelines and or to shelter at their places of
residence, direct businesses and governmental agencies to cease non-essential operations at
physical locations, prohibit certain non-essential gatherings and events and order cessation of non-
essential travel. In response to public health directives and orders, we have implemented work-from-
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home policies for our global workforce, including at our headquarters in Columbia, Maryland, and we
have suspended work-related travel and in-person customer and sales interactions.
Remote work policies, quarantines, shelter-in-place and similar government orders, shutdowns or
other restrictions on the conduct of business operations related to the COVID-19 pandemic may
adversely affect our business and our ability to generate sales of, and revenues from, our platform
offerings. For example, substantially all of our field sales and other professional services are now
being conducted remotely, and while we do not yet know if such remote operations will affect our
ability to attract, retain or upsell customers, we anticipate that our revenue growth could be adversely
impacted by the COVID-19 pandemic and weak global economic conditions.
We also do not yet know the full effects of the ongoing COVID-19 pandemic on our partners,
customers and service providers. Health concerns and political or governmental developments in
response to COVID-19 could create or contribute to economic, social or labor instability or prolonged
contractions in the industries in which our customers or partners operate. As a result, existing and
potential customers have and may continue to choose to reduce or delay technology spending in
response to the COVID-19 pandemic, or may attempt to renegotiate contracts and obtain
concessions, which could materially and negatively impact our operating results, financial condition
and prospects. Because our platform offerings are primarily sold on a subscription basis, any such
adverse effects may not be fully reflected in our operating results until future periods, and such effects
may be offset by temporary decreases in our expenses related to restrictions on the conduct of our
business. We may incur additional costs when we resume business-related travel and return to the
office, the timing and extent of which remains unknown.
The COVID-19 pandemic continues to rapidly evolve. The full extent to which the COVID-19
pandemic impacts our business and operations will depend on future developments that are highly
uncertain and cannot be predicted with confidence at the time of this Form 10-K, such as the duration
of the outbreak, the duration and effect of business disruptions, the ultimate effectiveness of the travel
restrictions, quarantines, social distancing requirements and business closures in the United States
and other countries to contain and treat the disease, and the availability, timing and effectiveness of a
vaccine, both domestically and globally. Accordingly, we do not yet know the full extent of potential
impacts on our business and operations, or those of our partners and customers, or the global
economy as a whole. The pandemic could adversely affect our revenue growth and financial results,
and such affect could be material. Weak global economic conditions also may exacerbate the
ongoing impact of the pandemic.
In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and
results of operations, it may also have the effect of heightening many of the other risks and
uncertainties described in this “Risk Factors” section.
We have a history of losses and may not achieve or maintain profitability in the future.
We have historically incurred net losses, including net losses of $42.7 million, $99.0 million and
$73.5 million in 2020, 2019 and 2018, respectively. As of December 31, 2020, we had an
accumulated deficit of $607.9 million. Because the market for our offerings is highly competitive and
rapidly evolving and these solutions have not yet reached widespread adoption, it is difficult for us to
predict our future results of operations. Further, we do not yet know the full effects of the COVID-19
pandemic, which increases the difficulty in predicting future results of operations.
While we have experienced significant revenue growth in recent periods, we are not certain
whether or when we will obtain a high enough volume of sales of our offerings to sustain or increase
our growth or achieve or maintain profitability in the future. We also expect our costs to increase in
future periods, which could negatively affect our future operating results if our revenue does not
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increase at a greater rate. In particular, we expect to continue to expend substantial financial and
other resources on:
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public cloud infrastructure and computing costs;
research and development related to our offerings, including investments in our research and
development team;
sales and marketing, including a significant expansion of our sales organization, both
domestically and internationally;
continued international expansion of our business; and
general and administrative expense, including legal and accounting expenses related to
being a public company.
These investments may not result in increased revenue or growth in our business. If we are
unable to increase our revenue at a rate sufficient to offset the expected increase in our costs, our
business, financial position and results of operations will be harmed and we may not be able to
achieve or maintain profitability over the long term. Additionally, we may encounter unforeseen
operating expenses, difficulties, complications, delays and other unknown factors that may result in
losses in future periods. If our revenue growth does not meet our expectations in future periods, our
financial performance may be harmed, and we may not achieve or maintain profitability in the future.
We may not be able to sustain our revenue growth rate in the future.
From 2019 to 2020, our revenue grew from $354.6 million to $440.2 million, representing year-
over-year growth of 24%. This growth was primarily from an increase in subscription revenue.
Although we have experienced rapid growth historically and currently have high customer renewal
rates, we may not continue to grow as rapidly in the future due to a decline in our renewal rates,
failure to attract new customers or other factors. Any success that we may experience in the future
will depend in large part on our ability to, among other things:
• maintain and expand our customer base;
•
increase revenue from existing customers through increased or broader use of our offerings
within their organizations;
improve the performance and capabilities of our offerings through research and development;
•
continue to develop and expand our enterprise platform;
•
• maintain the rate at which customers purchase and renew subscriptions to our enterprise
platform offerings;
continue to successfully expand our business domestically and internationally; and
successfully compete with other companies.
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If we are unable to maintain consistent revenue or revenue growth, including as a result of the
COVID-19 pandemic, our stock price could be volatile, and it may be difficult to achieve and maintain
profitability. You should not rely on our revenue for any prior quarterly or annual periods as any
indication of our future revenue or revenue growth.
We may be unable to rapidly and efficiently adjust our cost structure in response to significant
revenue declines, which could adversely affect our operating results.
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We recognize substantially all of our revenue ratably over the term of our subscriptions
and, to a lesser extent, perpetual licenses ratably over an expected period of benefit and, as a
result, downturns in sales may not be immediately reflected in our operating results.
We recognize substantially all of our revenue ratably over the terms of our subscriptions with
customers, which generally occurs over a one-year period and, for our perpetual licenses, over a five-
year expected period of benefit. As a result, a substantial portion of the revenue that we report in each
period will be derived from the recognition of deferred revenue relating to agreements entered into
during previous periods. Consequently, a decline in new sales or renewals in any one period,
including as a result of the COVID-19 pandemic, may not be immediately reflected in our revenue
results for that period. This decline, however, will negatively affect our revenue in future periods.
Accordingly, the effect of significant downturns in sales and market acceptance of our solutions and
potential changes in our rate of renewals may not be fully reflected in our results of operations until
future periods. This also makes it difficult for us to rapidly increase our revenue growth through
additional sales in any period, as revenue from new customers generally will be recognized over the
term of the applicable agreement.
We may not be able to scale our business quickly enough to meet our customers’ growing
needs.
As usage of our enterprise platform grows, and as customers expand in size or expand the
number of IT assets or IP addresses under their subscriptions, we may need to devote additional
resources to improving our technology architecture, integrating with third-party systems and
maintaining infrastructure performance. In addition, we will need to appropriately scale our sales and
marketing headcount, as well as grow our third-party channel partner network, to serve our growing
customer base. If we are unable to scale our business appropriately, it could reduce the
attractiveness of our solutions to customers, resulting in decreased sales to new customers, lower
renewal rates by existing customers or the issuance of service credits or requested refunds, each of
which could hurt our revenue growth and our reputation. Even if we are able to upgrade our systems
and expand our personnel, any such expansion will be expensive and complex, requiring
management time and attention. We could also face inefficiencies or operational failures as a result of
our efforts to scale our infrastructure. Moreover, there are inherent risks associated with upgrading,
improving and expanding our information technology systems. We cannot be sure that the expansion
and improvements to our infrastructure and systems will be fully or effectively implemented on a
timely basis, if at all. These efforts may reduce revenue and our margins and adversely impact our
financial results.
If our enterprise platform offerings do not interoperate with our customers’ network and
security infrastructure, including remote devices, or with third-party products, websites or
services, our results of operations may be harmed.
Our enterprise platform offerings, Tenable.io and Tenable.sc, must interoperate with our
customers’ existing network and security infrastructure, including remote devices. These complex
systems are developed, delivered and maintained by the customer, their employees and a myriad of
vendors and service providers. As a result, the components of our customers’ infrastructure, including
remote devices, have different specifications, rapidly evolve, utilize multiple protocol standards,
include multiple versions and generations of products and may be highly customized. We must be
able to interoperate and provide our security offerings to customers with highly complex and
customized networks, including remote devices, which requires careful planning and execution
between our customers, our customer support teams and our channel partners. Further, when new or
updated elements of our customers’ infrastructure, new usage trends, such as remote work during the
COVID-19 pandemic, or new industry standards or protocols are introduced, we may have to update
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or enhance our cloud platform and our other solutions to allow us to continue to provide service to
customers. Our competitors or other vendors may refuse to work with us to allow their products to
interoperate with our solutions, which could make it difficult for our cloud platform to function properly
in customer networks that include these third-party products.
We may not deliver or maintain interoperability quickly or cost-effectively, or at all. These efforts
require capital investment and engineering resources. If we fail to maintain compatibility of our cloud
platform and our other solutions with our customers’ network and security infrastructures, including for
remote devices, our customers may not be able to fully utilize our solutions, and we may, among
other consequences, lose or fail to increase our market share and experience reduced demand for
our services, which would materially harm our business, operating results and financial condition.
Our brand, reputation and ability to attract, retain and serve our customers are dependent
in part upon the reliable and accurate performance of our solutions, infrastructure and third-
party suppliers. If we experience performance problems, or if our solutions fail to detect
vulnerabilities or incorrectly detect vulnerabilities, or if they contain undetected errors or
defects, our brand and reputation could be harmed.
We have experienced, and may in the future experience, disruptions, outages and other
performance problems due to a variety of factors, including infrastructure changes, deliberate or
unintentional human or software errors, capacity constraints and fraud or cybersecurity attacks. Any
disruptions or other performance problems with our solutions could harm our reputation and business
and may damage our customers’ businesses, including by interrupting their networking traffic or
operational technology environments. Interruptions in our service delivery might reduce our revenue,
cause us to issue credits to customers, subject us to potential liability and cause customers to not
renew their purchases of our solutions.
In addition, if our solutions fail to detect vulnerabilities in our customers’ cybersecurity
infrastructure, including for remote devices, or if our solutions fail to identify new and increasingly
complex methods of cyberattacks, our business and reputation may suffer. There is no guarantee that
our solutions will detect all vulnerabilities, especially in light of the rapidly changing security landscape
to which we must respond, including the increased remote work environment during the COVID-19
pandemic. Additionally, our solutions may falsely detect vulnerabilities or threats that do not actually
exist. For example, our solutions rely on information provided by an active community of users who
contribute new exploits, attacks and vulnerabilities. If the information from these third parties is
inaccurate, the potential for false indications of security vulnerabilities increases. These false
positives, while typical in the industry, may impair the perceived reliability of our offerings and
adversely impact market acceptance of our products and could result in negative publicity, loss of
customers and sales and increased costs to remedy any problem.
We have experienced errors or defects in the past in connection with the release of new solutions
and product upgrades, and we expect that these errors or defects will be found from time to time in
the future in new or enhanced solutions after commercial release. Defects may cause our solutions to
be vulnerable to attacks, cause them to fail to detect vulnerabilities, or temporarily interrupt
customers’ networking traffic or operational technology environments, any of which may damage our
customers’ business and could hurt our reputation. If our solutions fail to detect vulnerabilities for any
reason, we may incur significant costs, the attention of our key personnel could be diverted, our
customers may delay or withhold payment to us or elect not to renew or other significant customer
relations problems may arise. We may also be subject to liability claims for damages related to errors
or defects in our solutions. A material liability claim or other occurrence that harms our reputation or
decreases market acceptance of our solutions may harm our business and operating results.
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Threats from bad actors and advanced new attacks against information systems increase risk of
cybersecurity incidents. These incidents can include, but are not limited to, gaining unauthorized
access to digital systems for purposes of misappropriating assets or sensitive information, corrupting
data or causing operational disruption. Because the techniques used to obtain unauthorized access,
insert malicious code or other otherwise sabotage systems change frequently and may not
immediately produce signs of intrusion, we may be unable to implement adequate preventative
measures or timely discover these intrusions. An actual or perceived security breach or theft of the
sensitive data of ours, one of our customers or partners, regardless of whether the breach is
attributable to the failure of our solutions, could adversely affect the market’s perception of our brand
and our offerings and subject us to legal claims.
Our future quarterly results of operations are likely to fluctuate significantly due to a wide
range of factors, which makes our future results difficult to predict.
Our revenue and results of operations have historically varied from period to period, and we
expect that they will continue to do so as a result of a number of factors, many of which are outside of
our control, including:
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the potential impact of the COVID-19 pandemic on our business and that of our partners and
customers;
the level of demand for our enterprise platform;
the introduction of new products and product enhancements by existing competitors or new
entrants into our market, and changes in pricing for solutions offered by us or our
competitors;
the rate of renewal of subscriptions, and extent of expansion of assets under such
subscriptions, with existing customers;
the mix of customers licensing our products on a subscription basis as compared to a
perpetual license;
large customers failing to renew their subscriptions;
the size, timing and terms of our subscription agreements with new customers;
our ability to interoperate our solutions with our customers’ network and security
infrastructure, including remote devices;
the timing and growth of our business, in particular through our hiring of new employees and
international expansion;
network outages, security breaches, technical difficulties or interruptions with our solutions
(including security breaches by our service providers or vendors);
changes in the growth rate of the markets in which we compete;
the length of the license term, amount prepaid and other material terms of subscriptions to
our solutions sold during a period;
customers delaying purchasing decisions in anticipation of new developments or
enhancements by us or our competitors or otherwise;
changes in customers’ budgets;
seasonal variations related to sales and marketing and other activities, such as expenses
related to our customers;
our ability to increase, retain and incentivize the channel partners that market and sell our
solutions;
our ability to integrate our solutions with our ecosystem partners’ technology;
our ability to integrate any future acquisitions of businesses;
our brand and reputation;
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the timing of our adoption of new or revised accounting pronouncements applicable to public
companies and the impact on our results of operations;
our ability to control costs, including our operating expenses, such as third-party cloud
infrastructure costs and facilities costs;
our ability to hire, train and maintain our direct sales force;
unforeseen litigation and intellectual property infringement;
fluctuations in our effective tax rate;
general economic and political conditions, both domestically and internationally, as well as
economic conditions specifically affecting industries in which our customers operate; and
other events or factors, including those resulting from pandemics, war, incidents of terrorism
or responses to these events.
Any one of these or other factors discussed elsewhere in this Annual Report on Form 10-K, or the
cumulative effect of some of these factors, may result in fluctuations in our revenue and operating
results, meaning that quarter-to-quarter comparisons of our revenue, results of operations and cash
flows may not necessarily be indicative of our future performance and may cause us to miss our
guidance and analyst expectations and may cause our stock price to decline.
In addition, we have historically experienced seasonality in entering into agreements with
customers. We typically enter into a significantly higher percentage of agreements with new
customers, as well as renewal agreements with existing customers, in the third and fourth quarters.
The increase in customer agreements in the third quarter is primarily attributable to U.S. government
and related agencies, and the increase in the fourth quarter is primarily attributable to large enterprise
account buying patterns typical in the software industry. We expect that seasonality will continue to
affect our operating results in the future and may reduce our ability to predict cash flow and optimize
the timing of our operating expenses.
We face intense competition. If we do not continue to innovate and offer solutions that
address the dynamic cybersecurity landscape, we may not remain competitive.
The market for cybersecurity solutions is fragmented, intensely competitive and constantly
evolving. We compete with a range of established and emerging cybersecurity software and services
vendors, as well as homegrown solutions. Our competitors include: vulnerability management and
assessment vendors, including Qualys and Rapid7; diversified security software and services
vendors, including IBM; endpoint security vendors with nascent vulnerability assessment capabilities,
including Tanium and CrowdStrike; and providers of point solutions that compete with some of the
features present in our solutions. We also compete against internally-developed efforts that often use
open source solutions.
Some of our actual and potential competitors have significant advantages over us, such as longer
operating histories, significantly greater financial, technical, marketing or other resources, stronger
brand and business user recognition, larger intellectual property portfolios, government certifications
and broader global distribution and presence. In addition, our industry is evolving rapidly and is
becoming increasingly competitive. Companies that are larger and more established than us are
focusing on cybersecurity and could directly compete with us. For example, in 2019 Microsoft
introduced a vulnerability management offering as part of their existing endpoint security platform.
Smaller companies could also launch new products and services that we do not offer and that could
gain market acceptance quickly.
In addition, some of our larger competitors have substantially broader product offerings and can
bundle competing products and services with other software offerings which customers may choose
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even if individual products have more limited functionality than our solutions. These competitors may
also offer their products at a lower price, which could increase pricing pressure on our offerings and
cause the average sales price for our offerings to decline. These larger competitors are also often
better positioned to withstand any significant reduction in capital spending, and will therefore not be
as susceptible to economic downturns. One component of our enterprise platform involves assessing
cyber exposure in a public cloud environment. We are dependent upon the providers to allow our
solutions to access their cloud offerings. If one or more cloud providers elected to offer exclusively
their own cloud security product or otherwise eliminate the ability of our solutions to access their cloud
on behalf of our customers, our business and financial results could be harmed.
Additionally, the cybersecurity market is characterized by very rapid technological advances,
changes in customer requirements, frequent new product introductions and enhancements and
evolving industry standards. Our success depends on continued innovation to provide features that
make our solutions responsive to the cybersecurity landscape, including the shift to employees
working from home during the COVID-19 pandemic. Developing new solutions and product
enhancements is uncertain, expensive and time-consuming, and there is no assurance that such
activities will result in significant cost savings, revenue or other expected benefits. If we spend
significant time and effort on research and development and are unable to generate an adequate
return on our investment, our business and results of operations may be materially and adversely
affected. Further, we may not be able to successfully anticipate or adapt to changing technology or
customer requirements or the dynamic threat landscape on a timely basis, or at all, which would
impair our ability to execute on our business strategy. Our competitors may be able to respond more
quickly and effectively than we can to new or changing opportunities, technologies, standards or
customer requirements or new or evolving attacks by, or indicators of compromise that identify, cyber
bad actors.
Furthermore, our current and potential competitors may establish cooperative relationships
among themselves or with third parties that may further enhance their resources and products and
services offerings in the markets we address. In addition, current or potential competitors may be
acquired by third parties with greater available resources, which may enable them to adapt more
quickly to new technologies and customer needs, devote greater resources to the promotion or sale
of their products and services, initiate or withstand substantial price competition, take advantage of
other opportunities more readily or develop and expand their product and service offerings more
quickly than we do. For all of these reasons, we may not be able to compete successfully against our
current or future competitors.
Our business and results of operations depend substantially on our customers renewing
their subscriptions with us and expanding the number of IT assets or IP addresses under their
subscriptions. Any decline in our customer renewals, terminations or failure to convince our
customers to expand their use of subscription offerings would harm our business, results of
operations, and financial condition.
Our subscription offerings are term-based and a majority of our subscription contracts are for one
year in duration. In order for us to maintain or improve our results of operations, it is important that a
high percentage of our customers renew their subscriptions with us when the existing subscription
term expires, and renew on the same or more favorable terms. Our customers have no obligation to
renew their subscriptions, and we may not be able to accurately predict customer renewal rates. In
addition, the growth of our business depends in part on our customers expanding their use of
subscription offerings and related services. Historically, some of our customers have elected not to
renew their subscriptions with us for a variety of reasons, including as a result of changes in their
strategic IT priorities, budgets, costs and, in some instances, due to competing solutions. Our
retention rate may also decline or fluctuate if our existing customers choose to reduce or delay
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technology spending in response to economic conditions resulting from the ongoing COVID-19
pandemic, as well as a result of a number of other factors, including our customers’ satisfaction or
dissatisfaction with our software, the increase in the contract value of subscription and support
contracts from new customers, the effectiveness of our customer support services, our pricing, the
prices of competing products or services, mergers and acquisitions affecting our customer base,
global economic conditions, and the other risk factors described in this Annual Report on Form 10-K.
Additionally, many of our customers, including certain top customers, have the right to terminate their
agreements with us for convenience and for other reasons. We cannot assure you that customers will
maintain their agreements with us, renew subscriptions or increase their usage of our software. If our
customers do not maintain or renew their subscriptions or renew on less favorable terms, or if we are
unable to expand our customers’ use of our software, our business, results of operations, and
financial condition may be harmed.
We must maintain and enhance our brand.
We believe that developing and maintaining widespread awareness of our brand in a cost-
effective manner is critical to achieving widespread acceptance of our enterprise platform and
attracting new customers. Brand promotion activities may not generate customer awareness or
increase revenue and, even if they do, any increase in revenue may not offset the expenses we incur
in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial
expenses, we may fail to attract or retain customers necessary to realize a sufficient return on our
brand-building efforts, or to achieve the widespread brand awareness that is critical for broad
customer adoption of our solutions.
We rely on third parties to maintain and operate certain elements of our network
infrastructure.
We utilize data centers located in North America, Europe and Asia to operate and maintain certain
elements of our own network infrastructure. Some elements of this complex system are operated by
third parties that we do not control and that could require significant time to replace. We expect this
dependence on third parties to continue. For example, Tenable.io is hosted on Amazon Web
Services, or AWS, which provides us with computing and storage capacity. Interruptions in our
systems or the third-party systems on which we rely, particularly AWS, whether due to system
failures, computer viruses, physical or electronic break-ins or other factors, could affect the security or
availability of our solutions, network infrastructure and website.
Our existing data center facilities and third-party hosting providers have no obligations to renew
their agreements with us on commercially reasonable terms or at all, and certain of the agreements
governing these relationships may be terminated by either party with notice or access to hosting
services may be restricted by the provider at any time, with no or limited notice. For example, our
agreement with AWS allows AWS to terminate the agreement with two years’ written notice and
allows AWS, under certain circumstances, to temporarily restrict access to hosting services provided
by AWS without prior notice. Although we expect that we could receive similar services from other
third parties, if any of our arrangements with third parties, including AWS, are terminated, we could
experience interruptions on our platform and in our ability to make our platform available to
customers, as well as downtime, delays and additional expenses in arranging alternative cloud
infrastructure services.
It is possible that our customers and potential customers would hold us accountable for any
breach of security affecting third parties’ infrastructure. We may incur significant liability from those
customers and from third parties with respect to any such breach. Because our agreement with AWS
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limits their liability for damages, we may not be able to recover a material portion of our liabilities to
our customers and third parties from AWS in the event of any breach affecting AWS systems.
Organizations may be reluctant to purchase our enterprise platform offerings that are
cloud-based due to the actual or perceived vulnerability of cloud solutions.
Some organizations, including those in the defense industry and highly regulated industries such
as healthcare and financial services, have historically been reluctant to use cloud-based solutions for
cybersecurity because they have concerns regarding the risks associated with the reliability or
security of the technology delivery model associated with these solutions. If we or other software
companies with cloud-based offerings experience security incidents, breaches of customer data,
disruptions in service delivery or other problems, the market for cloud-based solutions as a whole
may be negatively impacted, which in turn would negatively impact our revenue and our growth
prospects.
Our sales cycle is long and unpredictable.
The timing of sales of our offerings is difficult to forecast because of the length and
unpredictability of our sales cycle, particularly with large enterprises and with respect to certain of our
solutions. We sell our solutions primarily to IT departments that are managing a growing set of user
and compliance demands, which has increased the complexity of customer requirements to be met
and confirmed during the sales cycle and prolonged our sales cycle. Our average sales cycle with an
enterprise customer is approximately four months, and to the extent we continue to enter into larger
deals, our average sales cycle is likely to increase. Further, the length of time that potential customers
devote to their testing and evaluation, contract negotiation and budgeting processes varies
significantly, depending on the size of the organization and nature of the product or service under
consideration. The COVID-19 pandemic has also impacted the budgets and purchasing decisions
and processes of certain of our customers and prospective customers, some of whom have added
additional controls on expenditures and require additional internal approvals of expenditures, even if
relatively small in dollar amount, all of which could lengthen our sales cycle. In addition, we might
devote substantial time and effort to a particular unsuccessful sales effort, and as a result, we could
lose other sales opportunities or incur expenses that are not offset by an increase in revenue, which
could harm our business.
Regulatory, legislative or self-regulatory standard developments regarding privacy and
data security matters could adversely affect our ability to conduct our business.
We, along with a significant number of our customers, are subject to laws, rules, regulations, and
industry standards related to data privacy and cyber security, and restrictions or technological
requirements regarding the collection, use, storage, protection, retention or transfer of data. For
example, the General Data Protection Regulation, or GDPR, came into force in May 2018. The GDPR
contains numerous requirements and changes from prior European Union, or EU, law, including more
robust obligations on data processors and data controllers, greater rights for data subjects, and
heavier documentation requirements for data protection compliance programs. Specifically, the GDPR
introduced numerous privacy-related changes for companies operating in the EU, including greater
control over personal data by data subjects, such as the “right to be forgotten", increased data
portability for EU consumers, data breach notification requirements, and increased fines. In particular,
under the GDPR, fines of up to €20 million or up to 4% of the annual global revenue of the
noncompliant company, whichever is greater, could be imposed for violations of certain of the GDPR’s
requirements. The GDPR requirements apply not only to third-party transactions, but also to transfers
of information between us and our subsidiaries, including employee information. We have an internal
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data privacy function that oversees and supervises our compliance with European data protection
regulations.
In the United States and globally, governments and agencies have adopted, and could in the
future adopt, modify, apply or enforce laws, policies, regulations, and standards covering data subject
privacy, data security, technologies such as cookies that are used to collect, store and/or process
data, marketing online, the use of data to inform marketing, the taxation of products and services,
unfair and deceptive practices and the collection, including the collection of information, use,
processing, transfer, storage and/or disclosure of data associated with unique individual internet
users. We may be subject directly or via contract to such laws, policies, regulations, and standards.
New regulation or legislative actions regarding data privacy and security, together with applicable
industry standards, may increase the costs of doing business and could have a material adverse
impact on our operations and cash flows.
While we have taken steps to mitigate the impact on us, such as implementing standard
contractual clauses as appropriate and self-certifying under the EU-US Privacy Shield, or the Privacy
Shield, the efficacy and longevity of these mechanisms remains uncertain. For example, the
European Court of Justice recently invalidated the use of the Privacy Shield, which had enabled the
transfer of personal data from the European Union to the United States for companies like us that
were self-certified under the Privacy Shield. The ECJ also called into question the use of the standard
contractual clauses. As we are no longer able to rely on the Privacy Shield, our costs could increase
and our ability to efficiently process personal data from the European Union could be negatively
impacted. In addition, there are various activities in the European Union that could lead to the
invalidation of the standard contractual clauses as accepted mechanisms for transferring personal
data of European Union data subjects across borders, which could require us to implement costly
substitutions for the data transfers we undertake in order to perform our services, or prevent such
transfers entirely. Further, local data protection authorities general may have different interpretations
of the GDPR, leading to potential inconsistencies amongst various EU states.
Additionally, the exit by the United Kingdom from the EU, or Brexit, took effect in January 2020,
which will lead to further legislative and regulatory changes. While the Data Protection Act of 2018,
that “implements” and complements the GDPR achieved Royal Assent on May 23, 2018 and is now
effective in the United Kingdom, it is still unclear whether transfer of data from the EEA to the United
Kingdom will remain lawful in the long term under GDPR. With the expiration of the transition period
on December 31, 2020, companies will have to comply with the GDPR and the GDPR as
incorporated into United Kingdom national law, which has the ability to separately fine up to the
greater of £17.5 million or 4% of global turnover. The relationship between the United Kingdom and
the European Union in relation to certain aspects of data protection law remains unclear, for example
around how data can lawfully be transferred between each jurisdiction, which exposes us to further
compliance risk. We may incur liabilities, expenses, costs, and other operational losses under GDPR
and applicable EU Member States and the United Kingdom privacy laws in connection with any
measures we take to comply with them.
Similarly, there are a number of federal and state level legislative proposals in the United States
that could impose new obligations on us. For example, the California Consumer Privacy Act, or the
CCPA, went into effect on January 1, 2020 and creates new individual privacy rights for consumers
and places increased privacy and security obligations on entities handling the personal data of
consumers or households. The CCPA requires covered businesses to provide new disclosures to
California consumers, which could include our employees residing in California based on the broad
definitions in the law, to provide such consumers new ways to opt out of certain sales of personal
information and to allow for new causes of action for data breaches. In addition, some countries are
considering or have passed legislation implementing more onerous data protection requirements or
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requiring local storage and processing of data or other requirements that could increase the cost and
complexity of delivering our services.
Further, California voters approved a new privacy law, the California Privacy Rights Act, or CPRA,
in the November 3, 2020 election. Effective starting on January 1, 2023, the CPRA will significantly
modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal
information. The CPRA also creates a new state agency that will be vested with authority to
implement and enforce the CCPA and the CPRA. New legislation proposed or enacted in various
other states will continue to shape the data privacy environment nationally. Certain state laws may be
more stringent or broader in scope, or offer greater individual rights, with respect to confidential,
sensitive and personal information than federal, international or other state laws, and such laws may
differ from each other, which may complicate compliance efforts.
If we are investigated by an applicable data protection authority or are determined to have not
complied with applicable laws, we may face fines and other penalties. Any such investigation or
charges by applicable data protection authorities could have a negative effect on our existing
business and on our ability to attract and retain new customers. Existing and proposed laws and
regulations can be costly to comply with, could expose us to significant penalties for non-compliance,
can delay or impede the development or adoption of our products and services, reduce the overall
demand for our services, result in negative publicity, increase our operating costs, require significant
management time and attention and subject us to claims or other remedies, including fines or
demands that we modify or cease existing business practices.
We rely on our third-party channel partner network of distributors and resellers to
generate a substantial amount of our revenue.
Our success is dependent in part upon establishing and maintaining relationships with a variety of
channel partners that we utilize to extend our geographic reach and market penetration. We use a
two-tiered, indirect fulfillment model whereby we sell our products and services to our distributors,
which in turn sell to our resellers, which then sell to our end users, which we call customers. We
anticipate that we will continue to rely on this two-tiered sales model in order to help facilitate sales of
our offerings as part of larger purchases in the United States and to grow our business internationally.
In 2020, 2019 and 2018, we derived 91%, 90% and 88%, respectively, of our revenue from
subscriptions and perpetual licenses sold through channel partners, and the percentage of revenue
derived from channel partners may continue to increase in future periods. Ingram Micro, Inc., a
distributor, accounted for 43%, 43% and 46% of our revenue in 2020, 2019 and 2018, respectively,
and 41% of our accounts receivable as of December 31, 2020 and 40% as of December 31, 2019.
Our agreements with our channel partners, including our agreement with Ingram Micro, are non-
exclusive and do not prohibit them from working with our competitors or offering competing solutions,
and some of our channel partners may have more established relationships with our competitors.
Similarly, our channel partners have no obligations to renew their agreements with us on
commercially reasonable terms or at all, and certain of the agreements governing these relationships
may be terminated by either party at any time, with no or limited notice. For example, our agreement
with Ingram Micro allows Ingram Micro to terminate the agreement in their discretion upon 30 days’
written notice to us. If our channel partners choose to place greater emphasis on products of their
own or those offered by our competitors or a result of an acquisition, competitive factors or other
reasons do not continue to market and sell our solutions in an effective manner or at all, our ability to
grow our business and sell our solutions, particularly in key international markets, may be adversely
affected. In addition, our failure to recruit additional channel partners, or any reduction or delay in their
sales of our solutions and professional services, including as a result of the COVID-19 pandemic, or
conflicts between channel sales and our direct sales and marketing activities may harm our results of
operations. Finally, even if we are successful, our relationships with channel partners may not result
in greater customer usage of our solutions and professional services or increased revenue.
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A portion of our revenue is generated from subscriptions and perpetual licenses sold to
domestic governmental entities, foreign governmental entities and other heavily regulated
organizations, which are subject to a number of challenges and risks.
A portion of our revenue is generated from subscriptions and perpetual licenses sold to
governmental entities in the United States. Additionally, many of our current and prospective
customers, such as those in the financial services, energy, insurance and healthcare industries, are
highly regulated and may be required to comply with more stringent regulations in connection with
subscribing to and implementing our enterprise platform. Selling licenses to these entities can be
highly competitive, expensive and time-consuming, often requiring significant upfront time and
expense without any assurance that we will successfully complete a sale. Governmental demand and
payment for our enterprise platform may also be impacted by public sector budgetary cycles and
funding authorizations, with funding reductions or delays adversely affecting public sector demand for
our enterprise platform. In addition, governmental entities have the authority to terminate contracts at
any time for the convenience of the government, which creates risk regarding revenue anticipated
under our existing government contracts.
Further, governmental and highly regulated entities often require contract terms that differ from
our standard customer arrangements, including terms that can lead to those customers obtaining
broader rights in our solutions than would be expected under a standard commercial contract and
terms that can allow for early termination. The U.S. government will be able to terminate any of its
contracts with us either for its convenience or if we default by failing to perform in accordance with the
contract schedule and terms. Termination for convenience provisions would generally enable us to
recover only our costs incurred or committed, settlement expenses, and profit on the work completed
prior to termination. Termination for default provisions do not permit these recoveries and would make
us liable for excess costs incurred by the U.S. government in procuring undelivered items from
another source. Contracts with governmental and highly regulated entities may also include
preferential pricing terms. In the United States, federal government agencies may promulgate
regulations, and the President may issue executive orders, requiring federal contractors to adhere to
different or additional requirements after a contract is signed. If we do not meet applicable
requirements of law or contract, we could be subject to significant liability from our customers or
regulators. Even if we do meet these requirements, the additional costs associated with providing our
enterprise platform to government and highly regulated customers could harm our operating results.
Moreover, changes in the underlying statutory and regulatory conditions that affect these types of
customers could harm our ability to efficiently provide them access to our enterprise platform and to
grow or maintain our customer base. In addition, engaging in sales activities to foreign governments
introduces additional compliance risks, including risks specific to anti-bribery regulations, including the
U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.K. Bribery Act 2010 and
other similar statutory requirements prohibiting bribery and corruption in the jurisdictions in which we
operate. Further, in some jurisdictions we may be required to obtain government certifications, which
may be costly to maintain and, if we lost such certifications in the future or if such certification
requirements changed, would restrict our ability to sell to government entities until we have attained
such certifications.
Some of our revenue is derived from contracts with U.S. government entities, as well as
subcontracts with higher-tier contractors. As a result, we are subject to federal contracting regulations,
including the Federal Acquisition Regulation, or the FAR. Under the FAR, certain types of contracts
require pricing that is based on estimated direct and indirect costs, which are subject to change.
In connection with our U.S. government contracts, we may be subject to government audits and
review of our policies, procedures, and internal controls for compliance with contract terms,
procurement regulations, and applicable laws. In certain circumstances, if we do not comply with the
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terms of a contract or with regulations or statutes, we could be subject to contract termination or
downward contract price adjustments or refund obligations, could be assessed civil or criminal
penalties, or could be debarred or suspended from obtaining future government contracts for a
specified period of time. Any such termination, adjustment, sanction, debarment or suspension could
have an adverse effect on our business.
In the course of providing our solutions and professional services to governmental entities, our
employees and those of our channel partners may be exposed to sensitive government information.
Any failure by us or our channel partners to safeguard and maintain the confidentiality of such
information could subject us to liability and reputational harm, which could materially and adversely
affect our results of operations and financial performance.
Our pricing model subjects us to various challenges that could make it difficult for us to
derive expected value from our customers and we may need to reduce our prices or change
our pricing model to remain competitive.
Subscriptions and perpetual licenses to our enterprise platform are generally priced based on the
number of IP addresses or total IT assets that can be monitored. We expect that we may need to
change our pricing from time to time. As competitors introduce new products that compete with ours
or reduce their prices, we may be unable to attract new customers or retain existing customers based
on our historical pricing. We also must determine the appropriate price to enable us to compete
effectively internationally. Moreover, mid- to large-size enterprises may demand substantial price
discounts as part of the negotiation of sales contracts and, as the amount of IT assets or IP
addresses within our customers' organization grows, we may face additional pressure from our
customers regarding our pricing. As a result, we may be required or choose to reduce our prices or
change our pricing model, which could adversely affect our business, revenue, operating margins and
financial condition.
Further, our subscription agreements and perpetual licenses generally provide that we can audit
our customers’ use of our offerings to ensure compliance with the terms of such agreement or license
and monitor an increase in IT assets and IP addresses being monitored. However, a customer may
resist or refuse to allow us to audit their usage, in which case we may have to pursue legal recourse
to enforce our rights under the agreement or license, which would require us to spend money, distract
management and potentially adversely affect our relationship with our customers and users.
If our enterprise platform offerings do not achieve sufficient market acceptance, our
results of operations and competitive position will suffer.
We spend substantial amounts of time and money to research and develop and enhance our
enterprise platform offerings to meet our customers’ rapidly evolving demands. In addition, we invest
in efforts to continue to add capabilities to our existing products and enable the continued detection of
new network vulnerabilities. We typically incur expenses and expend resources upfront to market,
promote and sell our new and enhanced offerings. Therefore, when we develop and introduce new or
enhanced offerings, they must achieve high levels of market acceptance in order to justify the amount
of our investment in developing and bringing them to market. For example, if Tenable Lumin does not
garner widespread market adoption and implementation, our operating results and competitive
position could suffer.
Further, we may make enhancements to our offerings that our customers do not like, find useful
or agree with. We may also discontinue certain features, begin to charge for certain features that are
currently free or increase fees for any of our features or usage of our offerings.
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Our new offerings or enhancements and changes to our existing offerings could fail to attain
sufficient market acceptance for many reasons, including:
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failure to predict market demand accurately, including changes in demand as a result of the
COVID-19 pandemic, in terms of functionality and to supply offerings that meets this demand
in a timely fashion;
defects, errors or failures;
negative publicity about their performance or effectiveness;
delays in releasing our new offerings or enhancements to our existing offerings to the market;
introduction or anticipated introduction of competing products by our competitors;
poor business conditions for our customers, including as a result of the COVID-19 pandemic,
causing them to delay or forgo IT purchases; and
reluctance of customers to purchase cloud-based offerings.
If our new or enhanced offerings do not achieve adequate acceptance in the market, our
competitive position will be impaired, and our revenue will be diminished. The adverse effect on our
operating results may be particularly acute because of the significant research, development,
marketing, sales and other expenses we will have incurred in connection with the new or enhanced
offerings.
Our strategy of offering and deploying our solutions in the cloud, on-premises
environments or using a hybrid approach causes us to incur increased expenses and may
pose challenges to our business.
We offer and sell our enterprise platform for use in the cloud, on-premises environments or using
a hybrid approach using the customer’s own infrastructure. Our cloud offering enables our customers
to eliminate the burden of provisioning and maintaining infrastructure and to scale their usage of our
solutions quickly, while our on-premises offering allows for the customer’s complete control over data
security and software infrastructure. Historically, our solutions were developed in the context of the
on-premises offering, and we have less operating experience offering and selling subscriptions to our
solutions via our cloud offering. Although a substantial majority of our revenue has historically been
generated from customers using our solutions on an on-premises basis, our customers are
increasingly adopting our cloud offering. We expect that our customers will continue to move to our
cloud offering and that it will become more central to our distribution model. We expect our gross
profit to increase in absolute dollars and our gross margin to decrease to the extent that revenue from
our cloud-based subscriptions increases as a percentage of revenue, although our gross margin
could fluctuate from period to period. To support both on-premises environments and cloud instances
of our product, our support team must be trained on and learn multiple environments in which our
solution is deployed, which is more expensive than supporting only a cloud offering. Moreover, we
must engineer our software for an on-premises environment, cloud offering and hybrid installation,
which we expect will cause us additional research and development expense that may impact our
operating results. As more of our customers transition to the cloud, we may be subject to additional
competitive pressures, which may harm our business. We are directing a significant portion of our
financial and operating resources to implement a robust and secure cloud offering for our customers,
but even if we continue to make these investments, we may be unsuccessful in growing or
implementing our cloud offering in a way that competes successfully against our current and future
competitors and our business, results of operations and financial condition could be harmed.
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Our customers’ increased usage of our cloud-based offerings requires us to continually
improve our computer network and infrastructure to avoid service interruptions or slower
system performance.
As usage of our cloud-based offerings grows and as customers use them for more complicated
applications, increased assets and with increased data requirements, we will need to devote
additional resources to improving our platform architecture and our infrastructure in order to maintain
the performance of our cloud offering. Any failure or delays in our computer systems could cause
service interruptions or slower system performance. If sustained or repeated, these performance
issues could reduce the attractiveness of our enterprise platform to customers. These performance
issues could result in lost customer opportunities and lower renewal rates, any of which could hurt our
revenue growth, customer loyalty and reputation.
A component of our growth strategy is dependent on our continued international
expansion, which adds complexity to our operations.
We market and sell our solutions and professional services throughout the world and have
personnel in many parts of the world. International operations generated 39% and 37% of our
revenue in 2020 and 2019, respectively. Our growth strategy is dependent, in part, on our continued
international expansion. We expect to conduct a significant amount of our business with organizations
that are located outside the United States, particularly in Europe and Asia. We cannot assure that our
expansion efforts into international markets will be successful in creating further demand for our
solutions and professional services outside of the United States or in effectively selling our solutions
and professional services in the international markets that we enter. Our current international
operations and future initiatives will involve a variety of risks, including:
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increased management, infrastructure and legal costs associated with having international
operations;
reliance on channel partners;
trade and foreign exchange restrictions, including potential changes in trade relations arising
from policy initiatives implemented by the current U.S. administration;
economic or political instability in foreign markets, including instability related to the United
Kingdom’s recent exit from the European Union and the corresponding impact on its ongoing
legal, political, and economic relationship with the European Union;
travel restrictions resulting from the COVID-19 pandemic, including restrictions on U.S.
travelers from entering some foreign countries;
greater difficulty in enforcing contracts, accounts receivable collection and longer collection
periods;
changes in regulatory requirements, including, but not limited to data privacy, data protection
and data security regulations;
difficulties and costs of staffing, managing and potentially reorganizing foreign operations;
the uncertainty and limitation of protection for intellectual property rights in some countries;
costs of compliance with foreign laws and regulations and the risks and costs of non-
compliance with such laws and regulations;
differing labor regulations in foreign jurisdictions where labor laws are generally more
advantageous to employees, including deemed hourly wage and overtime regulations in
these locations;
costs of compliance with U.S. laws and regulations for foreign operations, including the
FCPA, import and export control laws, tariffs, trade barriers, economic sanctions and other
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regulatory or contractual limitations on our ability to sell or provide our solutions in certain
foreign markets, and the risks and costs of non-compliance;
requirements to comply with foreign privacy, data protection and information security laws
and regulations and the risks and costs of noncompliance;
heightened risks of unfair or corrupt business practices in certain geographies and of
improper or fraudulent sales arrangements that may impact financial results and result in
restatements of, and irregularities in, financial statements;
the potential for political unrest, pandemics, acts of terrorism, hostilities or war;
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geographic dispersion;
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costs associated with language localization of our solutions; and
costs of compliance with multiple and possibly overlapping tax structures.
Our business, including the sales of our solutions and professional services by us and our
channel partners, may be subject to foreign governmental regulations, which vary substantially from
country to country and change from time to time. Our failure, or the failure by our channel partners, to
comply with these regulations could adversely affect our business. Further, in many foreign countries
it is common for others to engage in business practices that are prohibited by our internal policies and
procedures or U.S. regulations applicable to us. Although we have implemented policies and
procedures designed to comply with these laws and policies, there can be no assurance that our
employees, contractors, channel partners and agents have complied, or will comply, with these laws
and policies. Violations of laws or key control policies by our employees, contractors, channel
partners or agents could result in delays in revenue recognition, financial reporting misstatements,
fines, penalties or the prohibition of the importation or exportation of our solutions and could have a
material adverse effect on our business and results of operations. If we are unable to successfully
manage the challenges of international expansion and operations, our business and operating results
could be adversely affected.
We rely on the performance of highly skilled personnel, including senior management and
our engineering, professional services, sales and technology professionals, and our ability to
increase our customer base will depend to a significant extent on our ability to expand our
sales and marketing operations.
We believe our success has depended, and continues to depend, on the efforts and talents of our
senior management team and our highly skilled team members, including our sales personnel,
professional services personnel and software engineers. We do not maintain key person insurance on
any of our executive officers or key employees. Our senior management and key employees are
employed on an at-will basis, which means that they could terminate their employment with us at any
time. The loss of any of our senior management or key employees could adversely affect our ability to
execute our business plan, and we may not be able to find adequate replacements. We cannot
ensure that we will be able to retain the services of any members of our senior management or other
key employees.
Our ability to successfully pursue our growth strategy also depends on our ability to attract,
motivate and retain our personnel. Competition for well-qualified employees in all aspects of our
business is intense. If we do not succeed in attracting well-qualified employees or retaining and
motivating existing employees, our business would be adversely affected.
In addition, our ability to increase our customer base and achieve broader market acceptance of
our Cyber Exposure solutions will depend to a significant extent on our ability to expand our sales
force and our third-party channel partner network of distributors and resellers, both domestically and
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internationally. We may not be successful in attracting and retaining talented sales personnel or
strategic partners, and any new sales personnel or strategic partners may not be able to achieve
productivity in a reasonable period of time or at all. We also plan to dedicate significant resources to
sales and marketing programs, including through electronic marketing campaigns and, when deemed
safe to do so, trade event sponsorship and participation. All of these efforts will require us to invest
significant financial and other resources and our business will be harmed if our efforts do not generate
a correspondingly significant increase in revenue.
We must offer high-quality support.
Our customers rely on our personnel for support of our enterprise platform. High-quality support is
important for the renewal of our agreements with existing customers and to our existing customers
expanding the number of IP addresses or IT assets under their subscriptions. The importance of high-
quality support will increase as we expand our business and pursue new customers. If we do not help
our customers quickly resolve issues and provide effective ongoing support, our ability to sell new
software to existing and new customers would suffer and our reputation with existing or potential
customers would be harmed.
Our growth depends in part on the success of our strategic relationships with third
parties.
In order to grow our business, we anticipate that we will continue to depend on relationships with
strategic partners to provide broader customer coverage and solution delivery capabilities. We
depend on partnerships with market leading technology companies to maintain and expand our Cyber
Exposure ecosystem by integrating third party data into our platform. Identifying partners, and
negotiating and documenting relationships with them, requires significant time and resources. Our
agreements with our strategic partners generally are non-exclusive and do not prohibit them from
working with our competitors or offering competing solutions. Our competitors may be effective in
providing incentives to third parties to favor their products or services or to prevent or reduce
subscriptions to our services. If our partners choose to place greater emphasis on products of their
own or those offered by our competitors or do not effectively market and sell our product, our ability to
grow our business and sell software and professional services may be adversely affected. In addition,
acquisitions of our partners by our competitors could result in a decrease in the number of our current
and potential customers, as our partners may no longer facilitate the adoption of our solutions by
potential customers. We also license third-party threat data that is used in our solutions in order to
deliver our offerings. In the future, this data may not be available to us on commercially reasonable
terms, or at all. Any loss of the right to use any of this data could result in delays in the provisioning of
our offerings until equivalent data is either developed by us, or, if available, is identified, obtained and
integrated, which could harm our business.
If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability
to compete in the marketplace or to grow our revenue could be impaired and our operating results
may suffer. Even if we are successful, we cannot assure you that these relationships will result in
increased customer usage of our solutions or increased revenue.
Catastrophic events may disrupt our business.
Our corporate headquarters are located in Columbia, Maryland. The area around Washington,
D.C. could be subject to terrorist attacks. Additionally, we rely on our network and third-party
infrastructure and enterprise applications, internal technology systems and our website for our
development, marketing, operational support, hosted services and sales activities. Our employees
have been working remotely due to the COVID-19 pandemic, which may pose additional security
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risks. In the event of a major hurricane, earthquake or catastrophic event such as fire, power loss,
telecommunications failure, cyberattack, war or terrorist attack, or epidemic or pandemic, such as the
COVID-19 pandemic, that impacts our corporate headquarters, other facilities, or off-premises
infrastructure, we may be unable to continue our operations and may endure system interruptions,
reputational harm, delays in our software development, lengthy interruptions in our services, breaches
of data security and loss of critical data, all of which could have an adverse effect on our future
operating results.
Recent and future acquisitions could disrupt our business and adversely affect our
business operations and financial results.
We have in the past acquired products, technologies and businesses from other parties, such as
our recent acquisition of Indegy Ltd. in December 2019, and we may choose to expand our current
business by acquiring additional businesses or technologies in the future. Acquisitions, including the
Indegy acquisition, involve many risks, including the following:
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an acquisition may negatively affect our financial results because it may require us to incur
charges or assume substantial debt or other liabilities, may cause adverse tax consequences
or unfavorable accounting treatment, may expose us to claims and disputes by third parties,
including intellectual property claims and disputes, or may not generate sufficient financial
return to offset additional costs and expenses related to the acquisition;
we may encounter difficulties or unforeseen expenditures in integrating the business,
technologies, products, personnel or operations of any company that we acquire, particularly
if key personnel of the acquired company decide not to work for us;
an acquisition may disrupt our ongoing business, divert resources, increase our expenses
and distract our management;
an acquisition may result in a delay or reduction of customer purchases for both us and the
company acquired due to customer uncertainty about continuity and effectiveness of service
from either company;
we may encounter difficulties in, or may be unable to, successfully sell any acquired
solutions;
an acquisition may involve the entry into geographic or business markets in which we have
little or no prior experience or where competitors have stronger market positions;
our use of cash to pay for an acquisition would limit other potential uses for our cash; and
if we incur debt to fund such acquisition, such debt may subject us to material restrictions on
our ability to conduct our business as well as financial maintenance covenants.
The occurrence of any of these risks could have a material adverse effect on our business
operations and financial results. In addition, we may only be able to conduct limited due diligence on
an acquired company’s operations. Following an acquisition, we may be subject to unforeseen
liabilities arising from an acquired company’s past or present operations and these liabilities may be
greater than the warranty and indemnity limitations that we negotiate. Any unforeseen liability that is
greater than these warranty and indemnity limitations could have a negative impact on our financial
condition.
We may require additional capital to support business growth, and this capital might not
be available on acceptable terms, if at all.
We expect that our existing cash and cash equivalents will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next 12 months. However, we
intend to continue to make investments to support our business growth and may require additional
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funds to respond to business challenges, including the need to develop new features or enhance our
product, improve our operating infrastructure or acquire complementary businesses and technologies.
Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we
raise additional funds through future issuances of equity or convertible debt securities, our existing
stockholders could suffer significant dilution, and any new equity securities we issue could have
rights, preferences and privileges superior to those of holders of our common stock. Our credit
agreement with Silicon Valley Bank includes restrictive covenants relating to our capital raising
activities and other financial and operational matters, which may make it more difficult for us to obtain
additional capital and to pursue business opportunities, including potential acquisitions, and any debt
financing that we secure in the future could have similar restrictive covenants. We may not be able to
obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate
financing or financing on terms satisfactory to us when we require it, our ability to continue to support
our business growth and to respond to business challenges could be significantly impaired, and our
business may be adversely affected.
The nature of our business requires the application of complex accounting rules and
regulations. If there are significant changes in current principles, financial reporting standards
or interpretations, or if our estimates or judgments relating to our critical accounting policies
prove to be incorrect, we may experience unexpected financial reporting fluctuations and our
results of operations could be adversely affected.
The accounting rules and regulations that we must comply with are complex and subject to
interpretation by the Financial Accounting Standards Board, the Securities and Exchange
Commission, or SEC, and various bodies formed to promulgate and interpret appropriate accounting
principles. In addition, many companies’ accounting disclosures are being subjected to heightened
scrutiny by regulators and the public. Further, the accounting rules and regulations are continually
changing in ways that could impact our financial statements.
The preparation of financial statements in conformity with generally accepted accounting
principles in the United States, or U.S. GAAP, requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, as provided in the section of
this report titled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.” Significant assumptions and estimates used in preparing our consolidated financial
statements include the determination of the estimated economic life of perpetual licenses for revenue
recognition, the estimated period of benefit for deferred commissions, useful lives of long-lived assets,
the valuation of stock-based compensation, the incremental borrowing rate for operating leases, and
the valuation of deferred tax assets. Our results of operations may be adversely affected if our
assumptions change or if actual circumstances differ from those in our assumptions, which could
cause our results of operations to fall below the expectations of securities analysts and investors,
resulting in a decline in the trading price of our common stock.
Additionally, we regularly monitor our compliance with applicable financial reporting standards
and review new pronouncements and drafts thereof that are relevant to us. We might be required to
change our accounting policies, alter our operational policies and implement new or enhance existing
systems, or we may be required to restate our published financial statements, as a result of new
standards, changes to existing standards and changes in their interpretation. Such changes to
existing standards or changes in their interpretation may have an adverse effect on our reputation,
business, financial position and profit, or cause an adverse deviation from our revenue and operating
profit target, which may negatively impact our financial results.
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Risks Related to Government Regulation, Data Collection and Intellectual Property
Our business could be adversely affected if our employees cannot obtain and maintain
required security clearances or we cannot establish and maintain a required facility security
clearance.
Certain U.S. government contracts may require our employees to maintain various levels of
security clearances, and may require us to maintain a facility security clearance, to comply with
Department of Defense, or DoD, requirements. The DoD has strict security clearance requirements
for personnel who perform work in support of classified programs. Obtaining and maintaining a facility
clearance and security clearances for employees can be a difficult, sometimes lengthy process. If we
do not have employees with the appropriate security clearances, then a customer requiring classified
work could terminate an existing contract or decide not to renew the contract upon its expiration. To
the extent we are not able to obtain or maintain a facility security clearance, we may not be able to bid
on or win new classified contracts, and existing contracts requiring a facility security clearance could
be terminated.
Any failure to protect our proprietary technology and intellectual property rights could
substantially harm our business and operating results.
Our success and ability to compete depend in part on our ability to protect our proprietary
technology and intellectual property. To safeguard these rights, we rely on a combination of patent,
trademark, copyright and trade secret laws and contractual protections in the United States and other
jurisdictions, all of which provide only limited protection and may not now or in the future provide us
with a competitive advantage.
As of December 31, 2020, we had 21 issued patents and nine patent applications pending in the
United States relating to our technology. We cannot assure you that any patents will issue from any
patent applications, that patents that issue from such applications will give us the protection that we
seek or that any such patents will not be challenged, invalidated or circumvented. Any patents that
may issue in the future from our pending or future patent applications may not provide sufficiently
broad protection and may not be enforceable in actions against alleged infringers. Obtaining and
enforcing software patents in the United States is becoming increasingly challenging. Any patents we
have obtained or may obtain in the future may be found to be invalid or unenforceable in light of
recent and future changes in the law. We have registered the “Tenable,” “Nessus,” “Tenable.io” and
"Lumin" trademarks and our Tenable logo in the United States and certain other countries. We have
registrations and/or pending applications for additional trademarks in the United States; however, we
cannot assure you that any future trademark registrations will be issued for pending or future
applications or that any registered trademarks will be enforceable or provide adequate protection of
our proprietary rights. While we have copyrights in our software we do not typically register such
copyrights with the Copyright Office. This failure to register the copyrights in our software may
preclude us from obtaining statutory damages for infringement under certain circumstances. We also
license software from third parties for integration into our software, including open source software
and other software available on commercially reasonable terms. We cannot assure you that such
third parties will maintain such software or continue to make it available.
In order to protect our unpatented proprietary technologies and processes, we rely on trade
secret laws and confidentiality and invention assignment agreements with our employees,
consultants, strategic partners, vendors and others. Despite our efforts to protect our proprietary
technology and trade secrets, unauthorized parties may attempt to misappropriate, copy, reverse
engineer or otherwise obtain and use them. In addition, others may independently discover our trade
secrets, in which case we would not be able to assert trade secret rights, or develop similar
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technologies and processes. Further, several agreements may give customers limited rights to access
portions of our proprietary source code, and the contractual provisions that we enter into may not
prevent unauthorized use or disclosure of our proprietary technology or intellectual property and may
not provide an adequate remedy in the event of unauthorized use or disclosure of our proprietary
technology or intellectual property rights. Moreover, policing unauthorized use of our technologies,
trade secrets and intellectual property is difficult, expensive and time-consuming, particularly in
foreign countries where the laws may not be as protective of intellectual property rights as those in
the United States and where mechanisms for enforcement of intellectual property rights may be weak.
To the extent that we expand our activities outside of the United States, our exposure to unauthorized
copying and use of our solutions and proprietary information may increase. We may be unable to
determine the extent of any unauthorized use or infringement of our solutions, technologies or
intellectual property rights.
There can be no assurance that the steps that we take will be adequate to protect our proprietary
technology and intellectual property, that others will not develop or patent similar or superior
technologies, solutions or services, or that our trademarks, patents, and other intellectual property will
not be challenged, invalidated or circumvented by others. Furthermore, effective trademark, patent,
copyright, and trade secret protection may not be available in every country in which our software is
available or where we have employees or independent contractors. In addition, the legal standards
relating to the validity, enforceability, and scope of protection of intellectual property rights in internet
and software-related industries are uncertain and still evolving.
In order to protect our intellectual property rights, we may be required to spend significant
resources to monitor and protect these rights. Litigation brought to protect and enforce our intellectual
property rights could be costly, time-consuming and distracting to management and could result in the
impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our
intellectual property rights may be met with defenses, counterclaims and countersuits attacking the
validity and enforceability of our intellectual property rights. Our failure to secure, protect and enforce
our intellectual property rights could seriously adversely affect our brand and adversely impact our
business.
We may be subject to intellectual property rights claims by third parties, which are
extremely costly to defend, could require us to pay significant damages and could limit our
ability to use certain technologies.
Companies in the software and technology industries, including some of our current and potential
competitors, own significant numbers of patents, copyrights, trademarks and trade secrets and
frequently enter into litigation based on allegations of infringement or other violations of intellectual
property rights. In addition, many of these companies have the capability to dedicate substantially
greater resources to enforce their intellectual property rights and to defend claims that may be
brought against them. The litigation may involve patent holding companies or other adverse patent
owners that have no relevant product revenue and against which our patents may therefore provide
little or no deterrence. In the past, we have been subject to allegations of patent infringement that
were unsuccessful, and we expect in the future to be subject to claims that we have misappropriated,
misused, or infringed other parties’ intellectual property rights, and, to the extent we gain greater
market visibility or face increasing competition, we face a higher risk of being the subject of
intellectual property infringement claims, which is not uncommon with respect to enterprise software
companies. We may in the future be subject to claims that employees or contractors, or we, have
inadvertently or otherwise used or disclosed trade secrets or other proprietary information of our
competitors or other parties. To the extent that intellectual property claims are made against our
customers based on their usage of our technology, we have certain obligations to indemnify and
defend such customers from those claims. The term of our contractual indemnity provisions often
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survives termination or expiration of the applicable agreement. Large indemnity payments, defense
costs or damage claims from contractual breach could harm our business, results of operations and
financial condition.
There may be third-party intellectual property rights, including issued or pending patents that
cover significant aspects of our technologies or business methods. Any intellectual property claims,
with or without merit, could be very time-consuming, could be expensive to settle or litigate, could
divert our management’s attention and other resources and could result in adverse publicity. These
claims could also subject us to making substantial payments for legal fees, settlement payments, and
other costs or damages, potentially including treble damages if we are found to have willfully infringed
patents or copyrights. These claims could also result in our having to stop making, selling, offering for
sale, or using technology found to be in violation of a third party’s rights. We might be required to
seek a license for the third-party intellectual property rights, which may not be available on
reasonable terms or at all. Even if a license is available to us, we may be required to pay significant
upfront fees, milestones or royalties, which would increase our operating expenses. Moreover, to the
extent we only have a license to any intellectual property used in our solutions, there may be no
guarantee of continued access to such intellectual property, including on reasonable terms. As a
result, we may be required to develop alternative non-infringing technology, which could require
significant effort and expense. If a third party is able to obtain an injunction preventing us from
accessing such third-party intellectual property rights, or if we cannot license or develop technology
for any infringing aspect of our business, we would be forced to limit or stop sales of our software or
cease business activities covered by such intellectual property, and may be unable to compete
effectively. Any of these results would adversely affect our business, results of operations, financial
condition and cash flows.
Portions of our solutions utilize open source software, and any failure to comply with the
terms of one or more of these open source licenses could negatively affect our business.
Our software contains software made available by third parties under so-called “open source”
licenses. From time to time, there have been claims against companies that distribute or use open
source software in their products and services, asserting that such open source software infringes the
claimants’ intellectual property rights. We could be subject to suits by parties claiming that what we
believe to be licensed open source software infringes their intellectual property rights. Use and
distribution of open source software may entail greater risks than use of third-party commercial
software, as open source licensors generally do not provide warranties or other contractual
protections regarding infringement claims or the quality of the code. In addition, certain open source
licenses require that source code for software programs that are subject to the license be made
available to the public and that any modifications or derivative works to such open source software
continue to be licensed under the same terms. Further, certain open source licenses also include a
provision that if we enforce any patents against the software programs that are subject to the license,
we would lose the license to such software. If we were to fail to comply with the terms of such open
source software licenses, such failures could result in costly litigation, lead to negative public relations
or require that we quickly find replacement software which may be difficult to accomplish in a timely
manner.
Although we monitor our use of open source software in an effort both to comply with the terms of
the applicable open source licenses and to avoid subjecting our software to conditions we do not
intend, the terms of many open source licenses have not been interpreted by U.S. courts, and there is
a risk that these licenses could be construed in a way that could impose unanticipated conditions or
restrictions on our ability to commercialize our product or operate our business. By the terms of
certain open source licenses, we could be required to release the source code of our software and to
make our proprietary software available under open source licenses, if we combine or distribute our
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software with open source software in a certain manner. In the event that portions of our software are
determined to be subject to an open source license, we could be required to publicly release the
affected portions of our source code, re-engineer all, or a portion of, that software or otherwise be
limited in the licensing of our software, each of which could reduce or eliminate the value of our
product. Many of the risks associated with usage of open source software cannot be eliminated, and
could negatively affect our business, results of operations and financial condition.
Risks Related to an Investment in Our Common Stock
Our stock price may be volatile, and the value of our common stock may decline.
The market price of our common stock may fluctuate substantially and depends on a number of
factors, including those described in this “Risk Factors” section, many of which are beyond our control
and may not be related to our operating performance. Factors that could cause fluctuations in the
market price of our common stock include the following:
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actual or anticipated changes or fluctuations in our operating results;
the financial projections we may provide to the public, any changes in these projections or our
failure to meet these projections;
announcements by us or our competitors of new products or new or terminated significant
contracts, commercial relationships or capital commitments;
industry or financial analyst or investor reaction to our press releases, other public
announcements and filings with the SEC;
rumors and market speculation involving us or other companies in our industry;
price and volume fluctuations in the overall stock market from time to time;
changes in operating performance and stock market valuations of other technology
companies generally, or those in our industry in particular;
sales of shares of our common stock by us or our stockholders, or the perception that these
sales might occur, including in connection with anticipated distributions of shares of our
common stock by entities affiliated with members of our Board of Directors;
failure of industry or financial analysts to maintain coverage of us, changes in financial
estimates by any analysts who follow our company, or our failure to meet these estimates or
the expectations of investors;
actual or anticipated developments in our business or our competitors’ businesses or the
competitive landscape generally;
litigation involving us, our industry or both, or investigations by regulators into our operations
or those of our competitors;
developments or disputes concerning our intellectual property rights or our solutions, or third-
party proprietary rights;
announced or completed acquisitions of businesses or technologies by us or our competitors;
new laws or regulations or new interpretations of existing laws or regulations applicable to our
business;
any major changes in our management or our Board of Directors;
general economic conditions and slow or negative growth of our markets; and
other events or factors, including those resulting from pandemics, war, incidents of terrorism
or responses to these events.
Recently, the stock markets have experienced extreme price and volume fluctuations that have
affected and continue to affect the market prices of equity securities of many companies, including in
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connection with the COVID-19 pandemic. These fluctuations have often been unrelated or
disproportionate to the operating performance of those companies. Broad market and industry
fluctuations, as well as general economic, political, regulatory and market conditions, may negatively
impact the market price of our common stock. In the past, companies that have experienced volatility
in the market price of their securities have been subject to securities class action litigation. We may
be the target of this type of litigation in the future, which could result in substantial costs and divert our
management’s attention.
If securities or industry analysts do not publish research or reports about our business, or
publish negative reports about our business, our stock price and trading volume could
decline.
The trading market for our common stock will depend, in part, on the research and reports that
securities or industry analysts publish about us or our business. We do not control these analysts or
the content and opinions included in their reports. If our financial performance fails to meet analyst
estimates or one or more of the analysts who cover us downgrade our shares or change their opinion
of our shares, our share price would likely decline. In addition, the stock prices of many companies in
the technology industry have declined significantly after those companies have failed to meet, or
significantly exceed, the financial guidance publicly announced by the companies or the expectations
of analysts. If our financial results fail to meet, or exceed, our announced guidance or the
expectations of analysts or public investors, analysts could downgrade our common stock or publish
unfavorable research about us. If one or more of these analysts cease coverage of our company or
fail to regularly publish reports on us, we could lose visibility in the financial markets, which could
cause our share price or trading volume to decline.
Future sales of substantial amounts of our common stock in the public markets by us or
our stockholders, or the perception such sales might occur, could reduce the price that our
common stock might otherwise attain.
Sales of a substantial number of shares of our common stock in the public market by us or our
stockholders, or the perception that these sales might occur, including in connection with anticipated
distributions of shares of our common stock by entities affiliated with members of our Board of
Directors, could depress the market price of our common stock, impair our ability to raise capital
through the sale of additional equity securities and make it more difficult for you to sell your common
stock at a time and price that you deem appropriate. Further, the number of new shares of our
common stock issued by us in connection with raising additional capital in connection with a
financing, acquisition, investment or otherwise could result in substantial dilution to our existing
stockholders.
In addition, we have filed registration statements on Form S-8 under the Securities Act registering
the issuance of shares of common stock subject to options and other equity awards issued or
reserved for future issuance under our equity incentive plans. Shares registered under these
registration statements, and under additional registration statements on Form S-8 that we may file to
register additional shares of common stock pursuant to provisions of our equity incentive plans that
provide for an automatic increase in the number of shares reserved and available for issuance each
year, are available for sale in the public market subject to vesting arrangements and exercise of
options and the restrictions of Rule 144 under the Securities Act in the case of our affiliates.
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We do not intend to pay dividends for the foreseeable future and, as a result, your ability
to achieve a return on your investment will depend on appreciation in the price of our common
stock.
We have never declared or paid any cash dividends on our common stock and do not intend to
pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future
earnings for use in the development of our business and for general corporate purposes. Any
determination to pay dividends in the future will be at the discretion of our Board of Directors.
Accordingly, investors must rely on sales of their common stock after price appreciation, which may
never occur, as the only way to realize any future gains on their investments. In addition, our credit
agreement with Silicon Valley Bank contains restrictive covenants that prohibit us, subject to certain
exceptions, from paying dividends on our common stock.
Anti-takeover provisions in our charter documents and under Delaware law could make an
acquisition of us more difficult, limit attempts by our stockholders to replace or remove
members of our Board of Directors and our current management and could negatively impact
the market price of our common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws contain
provisions that could delay or prevent a change in control of our company. These provisions could
also make it difficult for stockholders to elect directors that are not nominated by the current members
of our Board of Directors or take other corporate actions, including effecting changes in our
management. These provisions include:
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a classified Board of Directors with three-year staggered terms, which could delay the ability
of stockholders to change the membership of a majority of our Board of Directors;
the ability of our Board of Directors to issue shares of preferred stock and to determine the
price and other terms of those shares, including preferences and voting rights, without
stockholder approval, which could be used to significantly dilute the ownership of a hostile
acquirer;
the exclusive right of our Board of Directors to elect a director to fill a vacancy created by the
expansion of our Board of Directors or the resignation, death or removal of a director, which
prevents stockholders from being able to fill vacancies on our Board of Directors;
a prohibition on stockholder action by written consent, which forces stockholder action to be
taken at an annual or special meeting of our stockholders;
the requirement that a special meeting of stockholders may be called only by the chairperson
of our Board of Directors, Chief Executive Officer or president (in the absence of a chief
executive officer) or a majority vote of our Board of Directors, which could delay the ability of
our stockholders to force consideration of a proposal or to take action, including the removal
of directors;
the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of
all of the then outstanding shares of the voting stock, voting together as a single class, to
amend the provisions of our amended and restated certificate of incorporation relating to the
issuance of preferred stock and management of our business or our amended and restated
bylaws, which may inhibit the ability of an acquirer to affect such amendments to facilitate an
unsolicited takeover attempt;
the ability of our Board of Directors, by majority vote, to amend our amended and restated
bylaws, which may allow our Board of Directors to take additional actions to prevent an
unsolicited takeover and inhibit the ability of an acquirer to amend our amended and restated
bylaws to facilitate an unsolicited takeover attempt; and
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advance notice procedures with which stockholders must comply to nominate candidates to
our Board of Directors or to propose matters to be acted upon at a stockholders’ meeting,
which may discourage or deter a potential acquirer from conducting a solicitation of proxies to
elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
These provisions may prohibit large stockholders, in particular those owning 15% or more of our
outstanding voting stock, from merging or combining with us for a certain period of time.
Our amended and restated certificate of incorporation provides that the Court of Chancery
of the State of Delaware or the U.S. federal district courts will be the exclusive forums for
substantially all disputes between us and our stockholders, which could limit our
stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,
officers or other employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the
State of Delaware is the sole and exclusive forum for the following types of actions or proceedings
under Delaware statutory or common law:
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any derivative action or proceeding brought on our behalf;
any action asserting a breach of fiduciary duty owed by any of our directors, officers or other
employees to us or our stockholders;
any action asserting a claim against us arising pursuant to any provisions of the Delaware
General Corporation Law, our amended and restated certificate of incorporation or our
amended and restated bylaws; or
any action asserting a claim against us that is governed by the internal affairs doctrine.
This provision would not apply to suits brought to enforce a duty or liability created by the
Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal
and state courts over all such Securities Act actions. Accordingly, both state and federal courts have
jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and
the threat of inconsistent or contrary rulings by different courts, among other considerations, our
amended and restated certificate of incorporation further provides that the federal district courts of the
United States of America will be the exclusive forum for resolving any complaint asserting a cause of
action arising under the Securities Act. While the Delaware courts have determined that such choice
of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue
other than those designated in the exclusive forum provisions. In such instance, we would expect to
vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and
restated certificate of incorporation. This may require significant additional costs associated with
resolving such action in other jurisdictions and there can be no assurance that the provisions will be
enforced by a court in those other jurisdictions.
These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial
forum that it finds favorable for disputes with us or our directors, officers or other employees, which
may discourage such lawsuits against us and our directors, officers or other employees. If a court
were to find either exclusive forum provision in our amended and restated certificate of incorporation
to be inapplicable or unenforceable in an action, we may incur significant additional costs associated
with resolving the dispute in other jurisdictions, all of which could seriously harm our business.
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General Risks
We are subject to anti-corruption laws, anti-bribery and similar laws with respect to our
domestic and international operations, and non-compliance with such laws can subject us to
criminal and/or civil liability and materially harm our business and reputation.
We are subject to the anti-bribery laws of the jurisdictions in which we operate. These include the
FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the U.K.
Bribery Act 2010, and other anti-corruption laws in countries in which we conduct activities. Anti-
corruption laws are interpreted broadly and prohibit our company from authorizing, offering, or
providing, directly or indirectly, improper payments or benefits in order to gain or maintain business,
including payments to recipients in the public or private sector. We use third-party law firms,
accountants, and other representatives for regulatory compliance, sales, and other purposes in
several countries. We sell directly and indirectly, via third-party representatives, to both private and
government sectors in the United States and in other jurisdictions. Our employees and third-party
representatives interact with these customers, which may include government officials. We can be
held liable for the corrupt or other illegal activities of these third-party representatives, our employees,
contractors, and other agents, even if we do not explicitly authorize such activities. Noncompliance
with these laws could subject us to whistleblower complaints, investigations, sanctions, settlements,
prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil
and criminal penalties or injunctions, suspension and/or debarment from contracting with certain
persons, the loss of export privileges, reputational harm, adverse media coverage, and other
collateral consequences. If any subpoenas or investigations are launched, or governmental or other
sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our reputation,
business, results of operations and financial condition could be materially harmed. In addition,
responding to any action will likely result in a materially significant diversion of management’s
attention and resources and significant defense costs and other professional fees. Enforcement
actions and sanctions could further harm our business, results of operations, and financial condition.
Moreover, as an issuer of securities, we also are subject to the accounting and internal controls
provisions of the FCPA. These provisions require us to maintain accurate books and records and a
system of internal controls sufficient to detect and prevent corrupt conduct. Failure to abide by these
provisions may have an adverse effect on our business, operations or financial condition.
We are subject to governmental export and import controls and economic and trade
sanctions that could impair our ability to conduct business in international markets and
subject us to liability if we are not in compliance with applicable laws and regulations.
The United States and other countries maintain and administer export and import laws and
regulations. Our products are subject to U.S. export control and import laws and regulations, including
the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and
trade sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Control. We
are required to comply with these laws and regulations. If we fail to comply with such laws and
regulations, we and certain of our employees could be subject to substantial civil or criminal penalties,
including the possible loss of export or import privileges; fines, which may be imposed on us and
responsible employees or managers; and, in extreme cases, the incarceration of responsible
employees or managers. Obtaining the necessary authorizations, including any required license, for a
particular sale may be time-consuming, is not guaranteed and may result in the delay or loss of sales
opportunities. In addition, changes in our solutions, or changes in applicable export or import laws
and regulations may create delays in the introduction and sale of our products in international markets
or, in some cases, prevent the export or import of our solutions to certain countries, governments or
persons altogether. Any change in export or import laws and regulations or economic or trade
sanctions, shift in the enforcement or scope of existing laws and regulations, or change in the
41
countries, governments, persons or technologies targeted by such laws and regulations could also
result in decreased use of our products, or in our decreased ability to export or sell our products to
existing or potential customers. Any decreased use of our products or limitation on our ability to export
or sell our products would likely adversely affect our business, financial condition, and results of
operations.
Furthermore, we incorporate encryption technology into certain of our solutions. Various countries
regulate the import of certain encryption technology, including import permitting and licensing
requirements, and have enacted laws that could limit our ability to distribute our solutions or could
limit our customers’ ability to implement our solutions in those countries. Encrypted products and the
underlying technology may also be subject to export control restrictions. Governmental regulation of
encryption technology and regulation of imports or exports of encryption solutions, or our failure to
obtain required import or export approval for our solutions, could harm our international sales and
adversely affect our revenue. Compliance with applicable laws and regulations regarding the export
and import of our solutions, including with respect to new solutions or changes in existing solutions,
may create delays in the introduction of our solutions in international markets, prevent our customers
with international operations from deploying our solutions globally or, in some cases, could prevent
the export or import of our solutions to certain countries, governments, entities or persons altogether.
Moreover, U.S. export control laws and economic sanctions programs prohibit the shipment of
certain products and services to countries, governments and persons that are subject to U.S.
economic embargoes and trade sanctions. Any violations of such economic embargoes and trade
sanction regulations could have negative consequences, including government investigations,
penalties and reputational harm.
Uncertainties in the interpretation and application of applicable tax laws could materially
affect our tax obligations and effective tax rate. Our operating results may be negatively
affected if we are required to pay additional taxes, including sales and use tax, value added
tax, or other transaction taxes, and we could be subject to liability with respect to all or a
portion of past or future sales.
The tax regimes to which we are subject or under which we operate, including income and non-
income taxes, are unsettled and may be subject to significant change. For example, the 2017 Tax
Cuts and Jobs Act, or the Tax Act, as modified in 2020 by the Coronavirus Aid, Relief, and Economic
Security Act, or the CARES Act, made broad and complex changes to the U.S. tax code, including
changes to U.S. federal tax rates, additional limitations on the deductibility of interest, both positive
and negative changes to the utilization of future net operating loss, or NOL, carryforwards, allowing
for the expensing of certain capital expenditures, and putting into effect a modified territorial system.
The issuance of additional regulatory or accounting guidance related to the Tax Act, or changes
proposed or implemented by in the new Presidential administration or otherwise, could materially
affect our tax obligations and effective tax rate.
In addition, forecasts of our income tax position and effective tax rate for financial accounting
purposes are complex and subject to uncertainty because our income tax position for each year
combines the effects of a mix of profits earned and losses incurred by us in various tax jurisdictions
with a broad range of income tax rates, as well as changes in the valuation of deferred tax assets and
liabilities, the impact of various accounting rules and changes to these rules and tax laws, the results
of examinations by various tax authorities, and the impact of any acquisition, business combination or
other reorganization or financing transaction. To forecast our global tax rate, we estimate our pre-tax
profits and losses by jurisdiction and forecast our tax expense by jurisdiction. If the mix of profits and
losses, our ability to use tax credits, our assessment of the need for valuation allowances, or effective
tax rates by jurisdiction is different than those estimated, our actual tax rate could be materially
42
different than forecasted, which could have a material impact on our results of business, financial
condition and results of operations.
We currently collect and remit sales and use, value added and other transaction taxes in certain
of the jurisdictions where we do business based on our assessment of the amount of taxes owed by
us in such jurisdictions. However, in some jurisdictions in which we do business, we do not believe
that we owe such taxes, and therefore we currently do not collect and remit such taxes in those
jurisdictions or record contingent tax liabilities in respect of those jurisdictions. A successful assertion
that we are required to pay additional taxes in connection with sales of our solutions, or the imposition
of new laws or regulations requiring the payment of additional taxes, would create increased costs
and administrative burdens for us. If we are subject to additional taxes and determine to offset such
increased costs by collecting and remitting such taxes from our customers, or otherwise passing
those costs through to our customers, companies may be discouraged from using our solutions. Any
increased tax burden may decrease our ability or willingness to compete in relatively burdensome tax
jurisdictions, result in substantial tax liabilities related to past sales or otherwise harm our business
and operating results.
Our ability to use net operating losses to offset future taxable income may be subject to
certain limitations.
As of December 31, 2020 we had U.S. federal, state and foreign NOL, of $254.7 million, $188.5
million, and $209.8 million, respectively, available to offset future taxable income, some of which
begin to expire in 2030. Federal NOLs incurred in taxable years beginning after December 31, 2017
can be carried forward indefinitely, but the deductibility of federal NOLs in taxable years beginning
after December 31, 2020, is subject to certain limitations. A lack of future taxable income would
adversely affect our ability to utilize these NOLs before they expire.
In addition, under the provisions of the Internal Revenue Code of 1986, as amended, or the
Internal Revenue Code, substantial changes in our ownership may limit the amount of pre-change
NOLs that can be utilized annually in the future to offset taxable income. Section 382 of the Internal
Revenue Code imposes limitations on a company’s ability to use its NOLs if one or more stockholders
or groups of stockholders that own at least 5% of the company’s stock increase their ownership by
more than 50 percentage points over their lowest ownership percentage within a rolling three-year
period. Similar rules may apply under state tax laws. Based upon an analysis as of December 31,
2020, we determined that we do not expect these limitations to materially impair our ability to use our
NOLs prior to expiration. However, if changes in our ownership occurred after such date, or occur in
the future, our ability to use our NOLs may be further limited. Subsequent statutory or regulatory
changes in respect of the utilization of NOLs for federal or state purposes, such as suspensions on
the use of NOLs or limitations on the deductibility of NOLs carried forward, or other unforeseen
reasons, may result in our existing NOLs expiring or otherwise being unavailable to offset future
income tax liabilities. For these reasons, we may not be able to utilize a material portion of the NOLs,
even if we achieve profitability.
We are obligated to maintain proper and effective internal controls over financial reporting,
and any failure to maintain the adequacy of these internal controls may adversely affect
investor confidence in our company and, as a result, the value of our common stock.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to furnish a
report by management on, among other things, the effectiveness of our internal control over financial
reporting on an annual basis. This assessment includes disclosure of any material weaknesses
identified by our management in our internal control over financial reporting. We are also required to
disclose significant changes made in our internal control procedures on a quarterly basis.
43
During the evaluation and testing process of our internal controls, if we identify one or more
material weaknesses in our internal control over financial reporting, we will be unable to assert that
our internal control over financial reporting is effective. We cannot assure you that there will not be
material weaknesses or significant deficiencies in our internal control over financial reporting in the
future. Any failure to maintain internal control over financial reporting could severely inhibit our ability
to accurately report our financial condition or results of operations. If we are unable to conclude that
our internal control over financial reporting is effective, or if our independent registered public
accounting firm determines we have a material weakness or significant deficiency in our internal
control over financial reporting, we could lose investor confidence in the accuracy and completeness
of our financial reports, the market price of our common stock could decline, and we could be subject
to sanctions or investigations by the Nasdaq, the SEC or other regulatory authorities. Failure to
remedy any material weakness in our internal control over financial reporting, or to maintain other
effective control systems required of public companies, could also restrict our future access to the
capital markets.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
In 2020, we moved into our new corporate headquarters, which is located near our former
headquarters in Columbia, Maryland. Our new corporate headquarters consist of approximately
160,000 square feet under a lease that expires in February 2032. We maintain additional offices in
multiple locations in the United States and internationally in Europe and the Middle East, Asia Pacific
and South America. We believe that our current facilities are adequate to meet our ongoing needs
and that suitable additional alternative spaces will be available in the future on commercially
reasonable terms.
Item 3.
Legal Proceedings
From time to time, we may be subject to legal proceedings and claims in the ordinary course of
business. We are not presently a party to any legal proceedings that, if determined adversely to us,
would individually or taken together have a material adverse effect on our business, results of
operations, financial condition or cash flows. We have received, and may in the future continue to
receive, claims from third parties asserting, among other things, infringement of their intellectual
property rights. Future litigation may be necessary to defend ourselves, our partners and our
customers by determining the scope, enforceability and validity of third-party proprietary rights, or to
establish our proprietary rights. The results of any current or future litigation cannot be predicted with
certainty, and regardless of the outcome, litigation can have an adverse impact on us because of
defense and settlement costs, diversion of management resources and other factors.
Item 4.
Mine Safety Disclosures
Not applicable.
44
PART II
Item 5.
Issuer Purchases of Equity Securities
Market for Registrant's Common Equity, Related Stockholder Matters and
Market Information for Common Stock
Our common stock trades on the Nasdaq Global Select Market under the ticker symbol "TENB."
Holders of Record
At December 31, 2020, we had 24 holders of record. Because many of our shares of common
stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate
the total number of stockholders represented by these record holders.
Dividend Policy
We have never declared or paid any dividends on our common stock. In addition, our loan and
security agreement with Silicon Valley Bank contains restrictive covenants that prohibit us, subject to
certain exceptions, from paying dividends on our common stock. We currently intend to retain all
available funds and any future earnings for the operation and expansion of our business and do not
anticipate declaring or paying cash dividends in the foreseeable future. The payment of any future
dividends will be at the discretion of our board of directors and will depend on our results of
operations, capital requirements, financial condition, prospects, contractual arrangements, any
limitations on payment of dividends present in our current and future debt agreements, and other
factors that our board of directors may deem relevant.
Unregistered Sales of Equity Securities
None.
Use of Proceeds from IPO
On July 30, 2018, we completed our IPO, in which we issued and sold 12,535,000 shares of
common stock at a price to the public of $23.00 per share, including 1,635,000 shares of common
stock purchased by our underwriters pursuant to the full exercise of their over-allotment option to
purchase additional shares. The offer and sale of all of the shares in the IPO were registered under
the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-226002), which was
declared effective by the SEC on July 25, 2018.
Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, Allen & Company LLC and Deutsche
Bank Securities Inc. acted as active book-running managers for the offering. Stifel, Nicolaus &
Company, Incorporated acted as passive book-running manager for the offering, and William Blair &
Company, L.L.C. and BTIG, LLC acted as co-managers for the offering. The offering commenced on
July 25, 2018 and did not terminate before all securities registered on the registration statement were
sold.
We received net proceeds of $264.6 million after deducting underwriting discounts and
commissions and offering expenses. No offering expenses incurred by us were paid directly or
indirectly to any of our directors, officers or persons owning ten percent or more of our capital stock
(or their associates or affiliates).
45
There has been no material change in the planned use of the IPO proceeds as described in our
final prospectus for our IPO dated as of July 25, 2018 and filed with the SEC pursuant to Rule
424(b)(4) under the Securities Act on July 26, 2018.
Issuer Purchases of Equity Securities
None.
46
Item 6.
Selected Financial Data
The following selected consolidated statements of operations data for the years ended December
31, 2020, 2019 and 2018 and the selected consolidated balance sheet data as of December 31, 2020
and 2019 are derived from our audited consolidated financial statements included in this Annual
Report on Form 10-K. The consolidated statements of operations data for the years ended December
31, 2017 and 2016 and consolidated balance sheet data as of December 31, 2018, 2017 and 2016
are from our audited financial statements not included in this Annual Report on Form 10-K.
You should read the following selected financial data with the historical consolidated financial
statements and related notes to those statements, as well as “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” included in this Annual Report on Form 10-K.
Consolidated Statements of Operations Data:
Year Ended December 31,
(in thousands, except per share data)
Revenue(1)
Cost of revenue(2)
Gross profit
Operating expenses:
Sales and marketing(2)
Research and development(2)
General and administrative(2)
Total operating expenses
Loss from operations
Interest income (expense), net
Other expense, net
Loss before income taxes
Provision for income taxes
Net loss
Accretion of Series A and B redeemable
convertible preferred stock
Net loss attributable to common
stockholders
2020
2019
2018
2017
2016
$440,221 $354,586 $267,360 $187,727 $124,371
14,219
43,167
77,554
60,818
25,588
362,667
293,768
224,193
162,139
110,152
224,277
101,687
73,136
399,100
(36,433)
1,244
(1,885)
(37,074)
5,657
(42,731)
228,035
87,064
69,468
384,567
(90,799)
5,830
(680)
(85,649)
13,364
(99,013)
173,344
76,698
46,732
296,774
(72,581)
2,355
(931)
(71,157)
2,364
(73,521)
116,299
57,673
28,927
202,899
(40,760)
(75)
(16)
(40,851)
171
(41,022)
85,736
40,085
20,164
145,985
(35,833)
(35)
(497)
(36,365)
843
(37,208)
—
—
(434)
(763)
(763)
)
$(42,731) $(99,013) $(73,955) $(41,785) $(37,971)
(
)
)
(
(
)
(
)
(
Net loss per share attributable to common
stockholders, basic and diluted(3)
Weighted-average shares used to compute
net loss per share attributable to common
stockholders, basic and diluted
$
(0.42) $
(1.03) $
(1.38) $
(1.88) $
(1.81)
101,009
96,014
53,669
22,211
20,974
We adopted Accounting Standards Codification Topic 606, Revenue From Contracts With
_______________
(1)
Customers, or ASC 606, on January 1, 2017 using the modified retrospective method. The 2016
consolidated statement of operations was not adjusted for the adoption of ASC 606.
47
(2)
Includes stock-based compensation expense as follows:
(in thousands)
Cost of revenue
Sales and marketing
Research and development
General and administrative
Total stock-based compensation
expense
Year Ended December 31,
2020
2019
2018
2017
2016
$ 3,158 $ 2,817 $ 1,707 $
16,032
19,842
6,911
14,794
21,779
8,911
15,683
5,804
8,453
281 $
1,579
1,782
4,118
223
969
602
738
$ 59,573 $ 43,443 $ 22,875 $ 7,760 $ 2,532
(3)
See Note 11 to our consolidated financial statements in this Annual Report on Form 10-K for
details on the calculation of basic and diluted net loss per share attributable to common stockholders.
Consolidated Balance Sheet Data:
December 31,
(in thousands)
2020
2019
2018
2017
2016
Cash and cash equivalents
Working capital (deficit)(1)
Total assets
Deferred revenue, current and non-current
Redeemable convertible preferred stock
Accumulated deficit
Total stockholders' equity (deficit)
$178,223 $ 74,363 $165,116 $ 27,210 $ 34,470
(18,538)
142,484
105,494
460,612
107,447
289,903
276,972
(313,147)
(301,918)
(69,091)
164,337
225,818
— 277,735
(392,587)
(371,665)
35,319
558,612
363,127
—
(565,121)
98,905
108,891
690,589
434,510
—
(607,852)
150,665
(466,108)
121,763
_______________
(1)
We define working capital (deficit) as total current assets less total current liabilities. See our
consolidated financial statements in this Annual Report on Form 10-K for further details regarding our
current assets and current liabilities. Changes in working capital (deficit) between 2016 and 2017
reflect increases in deferred revenue and deferred commissions as a result of our subscription model
and our adoption of ASC 606 on January 1, 2017.
48
Item 7.
Operations
Management's Discussion and Analysis of Financial Condition and Results of
The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with our consolidated financial statements and related notes included
elsewhere in this Annual Report on Form 10-K, or this Form 10-K. This Form 10-K contains forward-
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or
the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. These statements are often identified by the use of words such as “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or
the negative or plural of these words or similar expressions or variations. Such forward-looking
statements are subject to a number of risks, uncertainties, assumptions and other factors that could
cause actual results and the timing of certain events to differ materially from future results expressed
or implied by the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those identified herein, and those discussed in the section
titled “Risk Factors,” set forth in Part I, Item 1A of this Form 10-K and in our other filings with the SEC.
Such risks and uncertainties may be amplified by the COVID-19 pandemic and its potential impact on
our business and the global economy. You should not rely upon forward-looking statements as
predictions of future events. Furthermore, such forward-looking statements speak only as of the date
of this report. Except as required by law, we undertake no obligation to update any forward-looking
statements to reflect events or circumstances after the date of such statements.
Overview
We are a leading provider of Cyber Exposure solutions. Cyber Exposure is a discipline for
managing, measuring and comparing cybersecurity risk in the digital era.
Our enterprise platform offerings include Tenable.io, which is our cloud-delivered software as a
service, or SaaS, offering and Tenable.sc, which is our on-premises offering, both of which provide
organizations with a risk-based view of traditional and modern attack surfaces. These applications are
designed with views, workflows and dashboards to deliver a complete and continuous view of all
assets, both known and previously unknown, and any associated vulnerabilities, internal and
regulatory compliance violations, misconfigurations and other cybersecurity issues, prioritize these
issues for remediation based on risk assessment and predictive analytics, and provide insightful
remediation guidance.
Our enterprise platform offerings also include Tenable.ot, which is our on-premises solution that
provides threat detection and mitigation, asset tracking, vulnerability management, and configuration
control capabilities to protect OT environments, including industrial networks. Tenable.ot is sold as a
stand-alone solution and integrates with Tenable.io and Tenable.sc.
Our enterprise platform offerings are primarily sold on a subscription basis with a one-year term.
Our subscription terms are generally not longer than three years. These offerings are typically prepaid
in advance. To a lesser extent, we recognize revenue ratably from perpetual licenses and from the
related ongoing maintenance.
We sell and market our products and services through our field sales force that works closely with
our channel partners, which includes a network of distributors and resellers, in developing sales
opportunities. We use a two-tiered channel model whereby we sell our enterprise platform offerings to
our distributors, which in turn sell to our resellers, which then sell to end users, which we call
customers.
Many of our enterprise platform customers initially use either our free or paid version of Nessus,
one of the most widely deployed vulnerability assessment solutions in the cybersecurity industry.
49
Nessus, which is the technology that underpins our enterprise platform offerings, is designed to
quickly and accurately identify security vulnerabilities, configuration issues and malware. Our free
version of Nessus, Nessus Essentials, allows for vulnerability assessment over a limited number of IP
addresses. We believe many of our Nessus customers begin with Nessus Essentials and
subsequently upgrade to Nessus Professional, the paid version of Nessus; however, we expect many
users to continue to use Nessus Essentials.
There have been more than 2.5 million cumulative unique downloads, which refers to an
individual email address utilized to register for the use of Nessus Essentials. We believe that the
cumulative number of unique downloads of the free version of Nessus is representative of our brand
recognition among cybersecurity professionals and that continued growth in this number suggests
broader awareness among potential customers. While we believe that the cumulative number of
unique downloads may provide an indication of the growth and scale of our thought leadership and
brand awareness, we do not expect this metric to necessarily correlate to future revenue growth
opportunities, and we do not consider this metric a measure of our operating performance.
Revenue in 2020, 2019 and 2018 was $440.2 million, $354.6 million and $267.4 million,
respectively, representing year-over-year growth of 24% and 33%, respectively. Our recurring
revenue, which includes revenue from subscription arrangements for software and cloud-based
solutions and maintenance associated with perpetual licenses, represented 93.6%, 91.8% and 89.4%
of revenue in 2020, 2019 and 2018, respectively. Our net loss in 2020, 2019 and 2018 was $42.7
million, $99.0 million and $73.5 million, respectively, as we continue to invest in our business and
market opportunity. Our cash flows from operating activities were $64.2 million, $(10.7) million and
$(2.6) million in 2020, 2019 and 2018, respectively.
COVID-19 Update
We continue to monitor the impact of the COVID-19 pandemic on our customers, partners,
employees and service providers. While in the near term we may experience reductions in our billing
and revenue growth rates, we are proactively managing our expenditures, including reductions of
non-critical and discretionary expenses such as travel, meeting and facility usage costs, while
preserving strategic investments in sales capacity and research and development. This has and may
continue to result in improved leverage related to gross margins as well as sales and marketing,
research and development, and general and administrative expenses as a percent of revenue. The
full extent to which the COVID-19 pandemic will impact our business and operations will depend on
future developments that are highly uncertain. We may incur additional costs when we resume
business-related travel and return to the office, the timing and extent of which remains unknown. For
additional information on the potential effects of the COVID-19 pandemic on our business, financial
condition and results of operations, see the "Liquidity and Capital Resources" section below and “Risk
Factors” in Part I, Item 1A of this Form 10-K.
50
Financial Highlights
Below are our key financial results:
(in thousands, except per share data)
Revenue
Loss from operations
Net loss
Net loss per share attributable to common stockholders, basic
and diluted
Net cash provided by (used in) operating activities
Purchases of property and equipment
Year Ended December 31,
2020
2019
2018
$ 440,221 $ 354,586 $ 267,360
(36,433)
(42,731)
(0.42)
64,232
(20,277)
(90,799)
(99,013)
(1.03)
(10,744)
(20,674)
(72,581)
(73,521)
(1.38)
(2,559)
(5,733)
Factors Affecting Our Performance
Product Leadership
Our enterprise platform offerings provide visibility into the broadest range of traditional and
modern IT assets across cloud and on-premises environments. We are intensely focused on
continued innovation and ongoing development of our enterprise platform offerings that empower
organizations to understand and reduce their cyber exposure. Additionally, we continue to expand the
capabilities of our Nessus products, specifically as they relate to the ability to scan for and detect the
rapidly expanding volume of vulnerabilities.
We intend to continue to invest in our engineering capabilities and marketing activities to maintain
our position in the highly-competitive market for cybersecurity solutions. Our results of operations may
fluctuate as we make these investments to drive increased customer adoption and usage.
New Enterprise Platform Customer Acquisition
We believe that our customer base provides a significant opportunity to expand sales of our
enterprise platform offerings and that our ability to continue to grow the number of enterprise platform
customers will increase future opportunities for renewals and follow-on sales. We believe that we
have significant room to increase our market share.
We expect to grow our enterprise platform customers by continuing to expand our sales
organization and leveraging our channel partner network, which we believe will allow us to identify
new enterprise customers, enter new markets, including internationally, as well as to convert more of
our existing Nessus Professional customers to enterprise platform customers.
We will continue to invest in our partner network and sales and marketing capability in order to
grow domestically and internationally.
Retaining and Expanding Revenue from Existing Customers
Our enterprise platform offerings utilize IT asset-based or IP address-based pricing models. Once
enterprise customers have licensed our platform offerings, they typically seek broader coverage over
their traditional IT assets, including networking infrastructure, desktops and on-premises servers. As
customers launch new applications or migrate existing applications to the cloud and deploy web
51
applications, containers, IoT and OT, they often increase the scope of their subscriptions and/or add
additional perpetual licenses to our enterprise platforms.
We are also focused on upselling customers from Nessus Professional to our enterprise platform
offerings. Nessus Professional customers are typically organizations or independent security
consultants that use Nessus Professional for a single vulnerability assessment at a point in time. We
seek to convert these customers to our enterprise platform offerings, which provide continuous
visibility and insights into their attack surface, as their needs develop.
Further, we plan to expand existing platform capabilities and launch new products, which we
believe will drive new product purchases and follow-on purchases over time, thereby contributing to
customer renewals. We believe that there is a significant opportunity to drive additional sales to
existing customers, and we expect to invest in sales and marketing and customer success personnel
and activities to achieve additional revenue growth from existing customers. However, our ability to
increase sales to existing customers will depend on a number of factors, including satisfaction or
dissatisfaction with our products and services, competition, pricing, current economic conditions or
overall changes in our and our clients' spending levels.
We evaluate our ability to expand sales with existing customers by assessing our dollar-based
net expansion rate on a last twelve months, or LTM, basis. We calculate our dollar-based net
expansion rate as follows:
•
•
Denominator: To calculate our dollar-based net expansion rate as of the end of a reporting
period, we first determine the annual recurring revenue, or ARR, from all active subscriptions
and maintenance from perpetual licenses as of the last day of the same reporting period in
the prior year. This represents recurring payments that we expect to receive in the next 12-
month period from the cohort of customers that existed on the last day of the same reporting
period in the prior year.
Numerator: We measure the ARR for that same cohort of customers representing all
subscriptions and maintenance from perpetual licenses based on customer orders as of the
end of the reporting period.
We calculate dollar-based net expansion rate by dividing the numerator by the denominator.
Our dollar-based net expansion rate for 2020 was approximately 110% on an LTM basis, which
was a decline from prior years and was impacted by a more moderate pace of IT asset and IP
address expansion in the current economic environment. Our dollar-based net expansion rate may
further decline or fluctuate from quarter to quarter if our existing customers choose to reduce or delay
technology spending in response to economic conditions resulting from the COVID-19 pandemic, or
as a result of a number of other factors, including our existing customers' satisfaction with our
solutions, the pricing of our solutions and the ability of competing solutions and the pricing thereof.
Investing in Business Growth
Since our founding, we have invested significantly in growing our business. We intend to continue
to invest in sales and marketing to grow our sales team, expand brand and Cyber Exposure
awareness and optimize our channel partner network. We also intend to continue to invest in our
research and development team to further our technological leadership position in Cyber Exposure
and enhance the functionality of our solutions. Any investments we make in our sales and marketing
and research and development teams will occur in advance of experiencing the benefits from such
investments, so it may be difficult for us to determine if we are efficiently allocating resources in those
52
areas. We may also explore acquisitions of businesses, technology and/or development personnel
that will expand and enhance the functionality of our platform offerings. These investment activities
could increase our net losses over the short term if our revenue growth does not increase at higher
rates. However, we expect that these investments will ultimately benefit our results of operations.
Key Operating and Financial Metrics
To supplement our consolidated financial statements, which are prepared and presented in
accordance with GAAP, we use certain operating metrics and non-GAAP financial measures, as
described below, to understand and evaluate our core operating and financial performance.
These non-GAAP financial measures, which may be different than similarly titled measures used by
other companies, are presented to enhance investors’ overall understanding of our financial
performance and should not be considered a substitute for, or superior to, the financial information
prepared and presented in accordance with GAAP.
We believe that these operating metrics and non-GAAP financial measures provide useful
information about our operating and financial performance, enhance the overall understanding of our
past performance and future prospects and allow for greater transparency with respect to important
metrics used by management for financial and operational decision-making. We present these
operating metrics and non-GAAP financial measures to assist investors in seeing our operating and
financial performance using a management view and because we believe that these measures
provide an additional tool for investors to use in comparing our core operating and financial
performance over multiple periods with other companies in our industry.
Calculated Current Billings
We use the non-GAAP measure of calculated current billings, which we believe is a key metric to
measure our periodic performance. Given that most of our customers pay in advance, we typically
recognize a majority of the related revenue ratably over time. We use calculated current billings to
measure and monitor our ability to provide our business with the working capital generated by upfront
payments from our customers.
Calculated current billings consists of revenue recognized in a period plus the change in current
deferred revenue in the corresponding period. We believe that calculated current billings, which
excludes deferred revenue for periods beyond twelve months in a customer’s contractual term, more
closely correlates with annual contract value. Variability in total billings, depending on the timing of
large multi-year contracts and the preference for annual billing versus multi-year upfront billing, may
distort growth in one period over another.
While we believe that calculated current billings provides valuable insight into the cash that will be
generated from sales of our subscriptions, this metric may vary from period-to-period for a number of
reasons, and therefore has a number of limitations as a quarter-to-quarter or year-over-year
comparative measure. Calculated current billings in any one period may be impacted by the overall
timing of sales, including early renewals, as well as the timing and amount of multi-year prepaid
contracts, which could favorably or unfavorably impact year-over-year comparisons. For example, an
increasing number of large sales transactions, for which the timing has and will continue to vary, may
occur in quarters subsequent to or in advance of those that we anticipate. Our calculation of
calculated current billings may be different from other companies that report similar financial
measures. Because of these and other limitations, you should consider calculated current billings
along with revenue and our other GAAP financial results.
53
The adoption of Accounting Standards Codification Topic 606, Revenue From Contracts With
Customers at January 1, 2017 resulted in a $55.0 million increase in deferred revenue primarily
related to the deferral of perpetual license revenue. This cumulative adjustment to deferred revenue
at January 1, 2017 increased calculated current billings by $1.9 million, $5.6 million, $11.8 million and
$16.7 million in 2020, 2019, 2018 and 2017, respectively.
The following table presents a reconciliation of revenue, the most directly comparable financial
measure calculated in accordance with GAAP, to calculated current billings:
(in thousands)
Revenue
Deferred revenue (current), end of period
Deferred revenue (current), beginning of period(1)
Calculated current billings
Year Ended December 31,
2020
2019
2018
$ 440,221 $ 354,586 $ 267,360
213,644
274,348
328,819
(274,348)
(214,069)
(154,898)
$ 494,692 $ 414,865 $ 326,106
_______________
(1)
deferred revenue.
Deferred revenue (current), beginning of period for 2019 includes $0.4 million related to acquired
Free Cash Flow
We use the non-GAAP measure of free cash flow, which we define as GAAP net cash flows from
operating activities reduced by purchases of property and equipment. We believe free cash flow is an
important liquidity measure of the cash (if any) that is available, after purchases of property and
equipment, for investment in our business and to make acquisitions. We believe that free cash flow is
useful to investors as a liquidity measure because it measures our ability to generate or use cash.
Our use of free cash flow has limitations as an analytical tool and you should not consider it in
isolation or as a substitute for an analysis of our results under GAAP. First, free cash flow is not a
substitute for net cash flows from operating activities. Second, other companies may calculate free
cash flow or similarly titled non-GAAP financial measures differently or may use other measures to
evaluate their performance, all of which could reduce the usefulness of free cash flow as a tool for
comparison. Additionally, the utility of free cash flow is further limited as it does not reflect our future
contractual commitments and does not represent the total increase or decrease in our cash balance
for a given period. Because of these and other limitations, you should consider free cash flow along
with net cash provided by (used in) operating activities and our other GAAP financial measures.
The following table presents a reconciliation of net cash provided by (used in) operating activities,
the most directly comparable financial measure calculated in accordance with GAAP, to free cash
flow:
(in thousands)
Net cash provided by (used in) operating activities
Purchases of property and equipment
Free cash flow(1)
Year Ended December 31,
2020
2019
2018
$
$
64,232 $ (10,744) $
(2,559)
(20,277)
(20,674)
(5,733)
(
43,955 $ (31,418) $
)
)
(8,292)
(
_______________
(1)
Our employee stock purchase plan impacted free cash flow by $0.9 million, $(0.9) million and $6.3
million in 2020, 2019 and 2018, respectively. Proceeds from lease incentives were $14.2 million in 2020 and
capital expenditures related to our new headquarters were $17.2 million and $11.4 million in 2020 and 2019,
respectively. Cash payments associated with the Indegy acquisition were $0.7 million and $13.1 million in 2020
54
and 2019, respectively. Free cash flow for 2020 was reduced by approximately $17 million as a result of the
accelerated timing of payments for cloud software subscriptions, insurance and rent.
Enterprise Platform Customers
We believe that our customer base provides a significant opportunity to expand sales of our
enterprise platform offerings. The following tables summarize key components of our customer base:
Number of new enterprise platform customers added in
period(1)
Year Ended December 31,
2020
2019
2018
1,455
1,511
1,178
_______________
(1)
We define an enterprise platform customer as a customer that has licensed Tenable.io or Tenable.sc for
an annual amount of $5,000 or greater. New enterprise platform customers represent new customer logos during
the periods presented and do not include customer conversions from Nessus Professional to enterprise
platforms.
Number of customers with $100,000 and greater in annual
contract value at end of period
At December 31,
2020
837
2019
641
2018
453
Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin
We use non-GAAP income (loss) from operations along with non-GAAP operating margin as key
indicators of our financial performance. We define these non-GAAP financial measures as their
respective GAAP measures, excluding the effects of stock-based compensation, acquisition-related
expenses and amortization of acquired intangible assets. Acquisition-related expenses include
transaction expenses and costs related to the transfer of acquired intellectual property.
We believe that these non-GAAP financial measures provide useful information about our core
operating results over multiple periods. There are a number of limitations related to the use of the
non-GAAP financial measures as compared to GAAP loss from operations and operating margin,
including that non-GAAP income (loss) from operations and non-GAAP operating margin exclude
stock-based compensation expense, which has been, and will continue to be, a significant recurring
expense in our business and an important part of our compensation strategy.
The following table presents a reconciliation of loss from operations, the most directly comparable
financial measure calculated in accordance with GAAP, to non-GAAP income (loss) from operations,
55
and operating margin, the most directly comparable financial measure calculated in accordance with
GAAP, to non-GAAP operating margin:
(dollars in thousands)
Loss from operations
Stock-based compensation
Acquisition-related expenses
Amortization of acquired intangible assets
Year Ended December 31,
2020
2019
2018
$(36,433)
59,573
$(90,799)
43,443
$(72,581)
22,875
339
2,314
3,970
620
—
603
Non-GAAP income (loss) from operations
$ 25,793
)
$(42,766)
(
)
$(49,103)
(
Operating margin
Non-GAAP operating margin
(8)%
6 %
(26)%
(12)%
(27)%
(18)%
Non-GAAP Net Income (Loss), Non-GAAP Earnings (Loss) Per Share and Pro Forma Non-
GAAP Earnings (Loss) Per Share
We use non-GAAP net income (loss), which excludes the effect of the accretion of Series A and B
redeemable convertible preferred stock, stock-based compensation, acquisition-related expenses and
amortization of acquired intangible assets, as well as the related tax impact, to calculate non-GAAP
earnings (loss) per share and pro forma non-GAAP earnings (loss) per share. Pro forma non-GAAP
earnings (loss) per share is calculated by giving effect to the conversion of our redeemable
convertible preferred stock into common stock as though the conversion occurred at the beginning of
2018. We believe that these non-GAAP measures provide important information to management and
investors because they facilitate comparisons of our core operating results over multiple periods.
The following table presents a reconciliation of net loss and net loss per share attributable to
common stockholders, the most comparable financial measures calculated in accordance with GAAP,
56
to non-GAAP net income (loss), non-GAAP earnings (loss) per share and pro forma non-GAAP
earnings (loss) per share:
(in thousands, except for per share amounts)
2020
2019
2018
Year Ended December 31,
Net loss attributable to common stockholders
Accretion of Series A and B redeemable convertible preferred
stock
Stock-based compensation
Tax impact of stock-based compensation(1)
Acquisition-related expenses
Tax impact of acquisition(2)
Amortization of acquired intangible assets(3)
Non-GAAP net income (loss)
Net loss per share attributable to common stockholders,
diluted
Accretion of Series A and B redeemable convertible preferred
stock
Stock-based compensation
Tax impact of stock-based compensation(1)
Acquisition-related expenses
Tax impact of acquisition(2)
Amortization of acquired intangible assets(3)
Adjustment to diluted earnings per share(4)
Non-GAAP earnings (loss) per share, diluted
$ (42,731) $ (99,013) $ (73,955)
—
59,573
1,299
339
—
2,314
—
43,443
(95)
3,970
10,582
620
434
22,875
(218)
—
—
603
$
$
$
)
20,794 $ (40,493) $ (50,261)
)
(
(
(0.42) $
(1.03) $
(1.38)
—
0.59
0.01
—
—
0.02
(0.01)
0.19 $
—
0.45
—
0.04
0.11
0.01
—
(
(0.42) $
)
0.01
0.42
—
—
—
0.01
—
)
(
(0.94)
Weighted-average shares used to compute net loss per share
attributable to common stockholders, diluted
101,009
96,014
53,669
Weighted-average shares used to compute non-GAAP
earnings (loss) per share, diluted(5)
Pro forma adjustment to reflect the assumed conversion of
our convertible redeemable preferred stock as of the
beginning of the period
Weighted-average shares used to compute pro forma non-
GAAP earnings (loss) per share, diluted
109,962
96,014
53,669
—
—
31,107
109,962
96,014
84,776
Pro forma non-GAAP earnings (loss) per share, diluted
$
0.19 $
(
(0.42) $
)
)
(0.59)
(
________________
(1)
jurisdictions.
The tax impact of stock-based compensation is based on the tax treatment for applicable tax
(2)
million of deferred tax expense related to the transfer of acquired intellectual property.
The tax impact of the Indegy acquisition in 2019 includes $6.3 million of current tax expense and $4.2
(3)
The tax impact of amortization of acquired intangible assets is not material.
(4)
potentially dilutive shares, to non-GAAP earnings per share, which includes potentially dilutive shares.
Adjustment to reconcile GAAP net loss per share attributable to common stockholders, which excludes
(5)
outstanding are the same, as potentially dilutive shares would be antidilutive.
In periods in which there is a non-GAAP net loss, basic and diluted weighted average shares
57
Components of Our Results of Operations
Revenue
We generate revenue from subscription arrangements for our software and cloud-based
solutions, perpetual licenses, maintenance associated with perpetual licenses and professional
services.
Our subscription arrangements generally have annual or multi-year contractual terms to use our
software or cloud-based solutions, including ongoing software updates during the contractual period.
Revenue is recognized ratably over the subscription term given the critical utility provided by the
ongoing updates that are released throughout the contract period.
Our perpetual licenses are generally sold with one or more years of maintenance, which includes
ongoing software updates. Given the critical utility provided by the ongoing software updates and
updated ability to identify network vulnerabilities included in maintenance, we combine the perpetual
license and the maintenance into a single performance obligation. Perpetual license arrangements
generally contain a material right related to the customer’s ability to renew maintenance at a price that
is less than the initial license fee. We apply a practical alternative to allocating a portion of the
transaction price to the material right performance obligation and estimate a hypothetical transaction
price which includes fees for expected maintenance renewals based on the estimated economic life
of perpetual license contracts. We allocate the transaction price between the cybersecurity
subscription provided in the initial contract and the material right related to expected contract
renewals based on the hypothetical transaction price. We recognize the amount allocated to the
combined license and maintenance performance obligation over the initial contractual period, which is
generally one year. We recognize the amount allocated to the material right over the expected
maintenance renewal period, which begins at the end of the initial contractual term and is generally
four years. We have estimated the five-year economic life of perpetual license contracts based on
historical contract attrition, expected renewal periods, the lifecycle of our technology and other
factors. This estimate may change over time.
Professional services and other revenue is primarily comprised of advisory services and training
related to the deployment and optimization of our products. These services do not result in significant
customization of our products. Professional services and other revenue is recognized as the services
are performed.
We have historically experienced, and expect in the future to experience, seasonality in entering
into agreements with customers. We typically enter into a significantly higher percentage of
agreements with new customers, as well as renewal agreements with existing customers, in the third
and fourth quarters of the year. The increase in customer agreements in the third quarter is primarily
attributable to U.S. government and related agencies, and the increase in the fourth quarter is
primarily attributable to large enterprise account buying patterns typical in the software industry. The
ratable nature of our subscription revenue makes this seasonality less apparent in our overall
financial results.
Cost of Revenue, Gross Profit and Gross Margin
Cost of revenue includes personnel costs related to our technical support group that provides
assistance to customers, including salaries, benefits, bonuses, payroll taxes, stock-based
compensation and any severance. Cost of revenue also includes cloud infrastructure costs, the costs
related to professional services and training, depreciation, amortization of acquired and developed
technology and allocated overhead costs, which consist of information technology and facilities.
58
We intend to continue to invest additional resources in our cloud-based platform and customer
support team as we grow our business. The level and timing of investment in these areas could affect
our cost of revenue in the future.
Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of
revenue, have been and will continue to be affected by various factors, including the timing of our
acquisition of new customers and our renewals of and follow-on sales to existing customers, the costs
associated with operating our cloud-based platform, the extent to which we expand our customer
support team and the extent to which we can increase the efficiency of our technology and
infrastructure through technological improvements.
We expect our gross profit to increase in absolute dollars but our gross margin to decrease over
time, as we expect revenue from our cloud-based subscriptions to increase as a percentage of
revenue. Our gross margin could fluctuate from period to period depending on the interplay of all of
these factors, particularly as it relates to cloud infrastructure costs.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development and general
and administrative expenses. Personnel costs are the most significant component of operating
expenses and consist of salaries, benefits, bonuses, payroll taxes, stock-based compensation and
any severance. Operating expenses also include depreciation and amortization as well as allocated
overhead costs, including IT and facilities costs.
Sales and Marketing
Sales and marketing expense consists of personnel costs, sales commissions, marketing
programs, travel and entertainment, expenses for conferences and events and allocated overhead
costs. We capitalize sales commissions, including related fringe benefit costs, and recognize the
expense over an estimated period of benefit, which ranges between three and four years for
subscription arrangements and five years for perpetual license arrangements. Sales commissions on
contract renewals are capitalized and amortized ratably over the contract term, with the exception of
contracts with renewal periods that are one year or less, in which case the incremental costs are
expensed as incurred. Sales commissions on professional services arrangements are expensed as
incurred as the contractual periods of these arrangements are generally less than one year.
We intend to continue to make investments in our sales and marketing teams to grow revenue,
further penetrate the market and expand our global customer base. We expect our sales and
marketing expense to increase in absolute dollars annually and to be our largest operating expense
category for the foreseeable future. However, as our revenue increases, we expect our sales and
marketing expense to decrease as a percentage of our revenue over the long term. Our sales and
marketing expense may fluctuate from period to period due to the timing and extent of these
expenses, including sales commissions, which may fluctuate depending on the mix of sales and
related expense recognition.
Research and Development
Research and development expense consists of personnel costs, software used to develop our
products, travel and entertainment, consulting and professional fees for third-party development
resources as well as allocated overhead. Our research and development expense supports our
efforts to continue to add capabilities to our existing products and enable the continued detection of
new network vulnerabilities.
59
We expect our research and development expense to continue to increase annually in absolute
dollars for the foreseeable future as we continue to invest in research and development efforts to
enhance the functionality of our cloud-based platform. However, we expect our research and
development expense to decrease as a percentage of our revenue over the long term, although our
research and development expense may fluctuate from period to period due to the timing and extent
of these expenses.
General and Administrative
General and administrative expense consists of personnel costs for our executive, finance, legal,
human resources and administrative departments. Additional expenses include travel and
entertainment, professional fees, insurance, allocated overhead, and acquisition-related costs.
We expect our general and administrative expense to continue to increase annually in absolute
dollars for the foreseeable future due to additional costs associated with accounting, compliance,
insurance and investor relations as a public company. However, we expect our general and
administrative expense to decrease as a percentage of our revenue over the long term, although our
general and administrative expense may fluctuate from period to period due to the timing and extent
of these expenses.
Interest Income, Net
Interest income, net consists primarily of interest income earned on cash and cash equivalents
and short-term investments and interest expense in connection with our credit facility, including
unused and letter of credit fees.
Other Expense, Net
Other expense, net consists primarily of foreign currency remeasurement and transaction gains
and losses.
Provision for Income Taxes
Provision for income taxes consists of income taxes in certain foreign jurisdictions in which we
conduct business and the related withholding taxes on sales with customers. We have recorded
deferred tax assets for which a full valuation allowance has been provided, including net operating
loss carryforwards and tax credits. We expect to maintain this full valuation allowance for the
foreseeable future as it is more likely than not that some or all of those deferred tax assets may not
be realized based on our history of losses. In 2019, the provision for income taxes included the tax
impact related to the transfer of acquired intellectual property.
60
Results of Operations
The following tables set forth our consolidated results of operations for the periods presented:
(in thousands)
Revenue
Cost of revenue(1)
Gross profit
Operating expenses:
Sales and marketing(1)
Research and development(1)
General and administrative(1)
Total operating expenses
Loss from operations
Interest income, net
Other expense, net
Loss before income taxes
Provision for income taxes
Net loss
Year Ended December 31,
2020
2019
2018
$ 440,221 $ 354,586 $ 267,360
43,167
60,818
77,554
362,667
293,768
224,193
224,277
101,687
73,136
399,100
228,035
87,064
69,468
384,567
173,344
76,698
46,732
296,774
(36,433)
(90,799)
(72,581)
1,244
(1,885)
(37,074)
5,657
2,355
(931)
(71,157)
2,364
)
$ (42,731) $ (99,013) $ (73,521)
5,830
(680)
(85,649)
13,364
(
)
(
)
(
_______________
(1)
Includes stock-based compensation expense as follows:
(in thousands)
Cost of revenue
Sales and marketing
Research and development
General and administrative
Total stock-based compensation expense
$
Comparison of 2020 and 2019
Revenue
The following table presents the increase in revenue:
Year Ended December 31,
2020
2019
2018
$
3,158 $
2,817 $
19,842
14,794
21,779
59,573 $
16,032
8,911
15,683
43,443 $
1,707
6,911
5,804
8,453
22,875
(dollars in thousands)
Subscription revenue
Year Ended December 31,
Change
2020
2019
($)
(%)
$ 377,354 $ 290,549 $
86,805
Perpetual license and maintenance revenue
Professional services and other revenue
50,594
12,273
54,173
9,864
(3,579)
2,409
Revenue
$ 440,221 $ 354,586 $
85,635
U.S. revenue increased $43.0 million, or 19%. International revenue increased $42.6 million, or
33%.
61
30 %
(7)%
24 %
24 %
Cost of Revenue, Gross Profit and Gross Margin
(dollars in thousands)
Cost of revenue
Gross profit
Gross margin
Year Ended December 31,
Change
2020
2019
$ 77,554
362,667
$ 60,818
293,768
$
($)
16,736
68,899
(%)
28 %
23 %
82 %
83 %
The increase in cost of revenue of $16.7 million was primarily due to:
•
•
•
•
•
•
a $7.0 million increase in personnel costs, primarily due to support for cloud-based products,
including a $0.3 million increase in stock-based compensation;
a $6.7 million increase in third-party cloud infrastructure costs;
a $1.7 million increase in the amortization of acquired intangible assets;
a $1.0 million increase in the amortization of internal use software; and
a $0.7 million increase in allocated overhead costs driven by both the increase in average
headcount and the overall increase in such costs on a year-over-year basis; partially offset by
a $1.1 million decrease in travel and meeting expenses.
Operating Expenses
Sales and Marketing
(dollars in thousands)
Sales and marketing
Year Ended December 31,
Change
2020
2019
($)
(%)
$ 224,277 $ 228,035 $
(3,758)
(2)%
The decrease in sales and marketing expense of $3.8 million was primarily due to:
•
•
•
•
•
a $7.7 million decrease in selling expenses, including travel and meeting costs and software
subscriptions; and
a $6.4 million decrease in expenses for demand generation programs, including advertising,
sponsorships, and brand awareness efforts; partially offset by
a $8.9 million increase in personnel costs, primarily due to an increase in average headcount,
including a $3.8 million increase in stock-based compensation;
a $1.0 million increase in allocated overhead costs; and
a $0.7 million increase in depreciation.
Research and Development
(dollars in thousands)
Research and development
Year Ended December 31,
Change
2020
2019
($)
(%)
$ 101,687 $
87,064 $
14,623
17 %
The increase in research and development expense of $14.6 million was primarily due to:
•
a $14.8 million increase in personnel costs, largely associated with an increase in average
headcount, including a $5.9 million increase in stock-based compensation and a decrease of
62
$2.6 million of development costs and stock-based compensation capitalized related to
internal use software;
a $2.0 million increase in allocated overhead; and
a $0.5 million increase in software subscriptions; partially offset by
a $1.6 million decrease in travel and meeting costs; and
a $0.9 million decrease in third-party cloud infrastructure costs.
•
•
•
•
General and Administrative
(dollars in thousands)
General and administrative
Year Ended December 31,
Change
2020
2019
($)
(%)
$
73,136 $
69,468 $
3,668
5 %
The increase in general and administrative expense of $3.7 million was primarily due to:
•
•
•
•
•
an $8.7 million increase in personnel costs, including a $6.1 million increase in stock-based
compensation; and
a $1.3 million increase in allocated overhead; partially offset by
a $3.6 million decrease in acquisition-related expenses;
a $2.3 million decrease in professional fees; and
a $1.5 million decrease in travel and meeting costs.
Comparison of 2019 and 2018
Revenue
The following table presents the increase in revenue:
(dollars in thousands)
Subscription revenue
Year Ended December 31,
Change
2019
2018
($)
(%)
$ 290,549 $ 205,827 $
84,722
Perpetual license and maintenance revenue
Professional services and other revenue
54,173
9,864
54,622
6,911
Revenue
$ 354,586 $ 267,360 $
(449)
2,953
87,226
41 %
(1)%
43 %
33 %
U.S. revenue increased $46.8 million, or 26%. International revenue increased $40.4 million, or
45%.
Cost of Revenue, Gross Profit and Gross Margin
(dollars in thousands)
2019
2018
($)
(%)
Year Ended December 31,
Change
Cost of revenue
Gross profit
Gross margin
$ 60,818
$ 43,167
$
17,651
293,768
224,193
69,575
41 %
31 %
83 %
84 %
63
The increase in cost of revenue of $17.7 million was primarily due to:
•
•
•
•
•
•
a $7.3 million increase in personnel costs, primarily due to increased headcount, including a
$1.1 million increase in stock-based compensation;
a $7.0 million increase in third-party cloud infrastructure costs, largely associated with the
increased adoption of Tenable.io, as well as the launch of Tenable Lumin;
a $0.9 million increase in allocated overhead costs driven by both the increase in headcount
and the overall increase in such costs on a year-over-year basis;
a $0.6 million increase in professional fees;
a $0.6 million increase in depreciation and amortization; and
a $0.5 million increase in software subscriptions.
Operating Expenses
Sales and Marketing
(dollars in thousands)
Sales and marketing
Year Ended December 31,
Change
2019
2018
($)
(%)
$ 228,035 $ 173,344 $
54,691
32 %
The increase in sales and marketing expense of $54.7 million was primarily due to:
•
•
•
•
•
a $32.1 million increase in personnel costs, largely associated with an increase in headcount,
including a $9.1 million increase in stock-based compensation;
a $10.0 million increase in sales commissions, including sales commission draws, due to
increased sales and the amortization of deferred commissions;
a $5.7 million increase in selling expenses, including travel and meeting costs and software
subscriptions;
a $3.4 million increase in allocated overhead costs driven by both the increase in headcount
and the overall increase in such costs on a year-over-year basis; and
a $3.2 million increase in expenses for demand generation programs, including advertising,
sponsorships, and brand awareness efforts aimed at acquiring new customers.
Research and Development
(dollars in thousands)
Research and development
Year Ended December 31,
Change
2019
2018
($)
(%)
$
87,064 $
76,698 $
10,366
14 %
The increase in research and development expense of $10.4 million was primarily due to:
•
•
•
•
an $8.1 million increase in personnel costs, largely associated with an increase in headcount,
including a $3.3 million increase in stock-based compensation, and net of $1.7 million of
development costs and stock-based compensation capitalized related to internal use
software;
a $2.0 million increase in third-party cloud infrastructure costs related to the development of
new and future offerings;
a $0.9 million increase in software subscriptions; and
a $0.7 million increase in allocated overhead driven by both the increase in headcount and
the overall increase in such costs on a year-over-year basis; partially offset by
64
•
a $0.9 million decrease in travel and meeting costs.
General and Administrative
(dollars in thousands)
General and administrative
Year Ended December 31,
Change
2019
2018
($)
(%)
$
69,468 $
46,732 $
22,736
49 %
The increase in general and administrative expense of $22.7 million was primarily due to:
•
•
•
•
a $12.3 million increase in personnel costs, largely associated with an increase in headcount,
including a $6.4 million increase in stock-based compensation;
a $4.0 million increase in acquisition-related expenses, including $2.1 million related to the
transfer of acquired intellectual property;
a $3.7 million increase in professional fees, which includes costs associated with being a
public company; and
a $1.1 million increase in allocated overhead driven by both the increase in headcount and
the overall increase in such costs on a year-over-year basis.
Liquidity and Capital Resources
At December 31, 2020, we had $178.2 million of cash and cash equivalents, which consisted of
bank deposits, money market funds and commercial paper, and $113.6 million short-term
investments, which consisted of commercial paper, U.S. Treasury and agency obligations and
corporate bonds.
Since our inception and prior to our IPO, we financed our operations through cash provided by
operations, including payments received from customers using our software products and services,
and we did not raise any primary institutional capital. The proceeds of our Series A and Series B
redeemable convertible preferred stock financings were used to repurchase shares of capital stock
from former stockholders. Upon the completion of our IPO in July 2018, we received net proceeds of
$264.6 million. We have generated significant operating losses, as reflected by our accumulated
deficit of $607.9 million at December 31, 2020.
We typically invoice our customers annually in advance and, to a lesser extent, multi-year in
advance. Therefore, a substantial source of our cash is from such prepayments, which are included
on our consolidated balance sheets as deferred revenue. Deferred revenue consists primarily of the
unearned portion of billed fees for our subscriptions and perpetual licenses, which is subsequently
recognized as revenue in accordance with our revenue recognition policy. At December 31, 2020, we
had deferred revenue of $434.5 million, of which $328.8 million was recorded as a current liability and
is expected to be recognized as revenue in the next 12 months, provided all other revenue
recognition criteria are met.
Our principal uses of cash in recent periods have been funding our operations, expansion of our
sales and marketing and research and development activities, investments in infrastructure, including
the build-out of our new headquarters, and acquiring complementary businesses and technology. We
expect to continue incurring operating losses in the near term. Even though we generated positive
cash flows from operations and free cash flow in 2020, we may not be able to sustain these cash
flows in the near term. We believe that our existing cash and cash equivalents and short-term
investments will be sufficient to fund our operating and capital needs for at least the next 12 months.
Our future capital requirements will depend on many factors, including our revenue growth rate,
65
subscription renewal activity, the timing and extent of spending to support further infrastructure and
research and development efforts, the timing and extent of additional capital expenditures to invest in
new and existing office spaces, the expansion of sales and marketing and international operating
activities, the timing of our introduction of new product capabilities and enhancements of our platform
and the continuing market acceptance of our platform. In addition, on February 10, 2021, we
announced our agreement to acquire Alsid SAS, a leader in active directory security, for a total
purchase price of $98 million in cash, subject to customary purchase price adjustments. The
acquisition is expected to close early in the second quarter of 2021, subject to regulatory approvals
and the satisfaction of customary closing conditions.
The full extent to which the COVID-19 pandemic impacts our business and operations will
depend on future developments that are highly uncertain and cannot be predicted with confidence,
such as the duration of the outbreak, the duration and effect of business disruptions, the ultimate
effectiveness of the travel restrictions, quarantines, social distancing requirements and business
closures in the United States and other countries to contain and treat the disease, and the availability,
timing and effectiveness of a vaccine, both domestically and globally. We also do not yet know the full
extent of potential impacts on our business and operations, or those of our partners and customers,
or the global economy as a whole. Accordingly, the current results and financial conditions discussed
herein may not be indicative of our future operating results and trends. See the section titled “Risk
Factors” in Part I, Item 1A of this Form 10-K.
We may in the future enter into arrangements to acquire or invest in complementary businesses,
services and technologies, including intellectual property rights. We may be required to seek equity or
debt financing. In the event that financing is required from outside sources, we may not be able to
raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or
if we cannot expand our operations or otherwise capitalize on our business opportunities because we
lack sufficient capital, our business, operating results and financial condition would be adversely
affected.
Credit Facility
In July 2020, we entered into a new $45.0 million senior secured credit facility, or the 2020 Credit
Facility, with Silicon Valley Bank in connection with the expiration of our $25.0 million revolving credit
facility, or the 2017 Credit Facility. The 2020 Credit Facility bears interest at either LIBOR plus 2%,
with a 1% LIBOR floor, or the base rate plus 1%, and terminates on July 24, 2022. A commitment fee
of 0.35% per annum is payable quarterly in arrears based on the unused portion. The obligations
under 2020 Credit Facility are secured by a lien on our tangible and intangible property except
intellectual property and certain subsidiaries and by a pledge of all of the equity interests of our
material direct and indirect domestic subsidiaries and 65% of each class of capital stock of any
material first-tier foreign subsidiaries, subject to limited exceptions. The 2020 Credit Facility includes a
$45.0 million uncommitted expansion, as well as a $10.0 million sublimit for the issuance of letters of
credit and a swingline sub-facility of up to $10.0 million, and has a financial covenant requiring a
minimum consolidated quick ratio of at least 1.5:1.0 on the last day of each quarter.
In 2020 and 2019, there were no amounts outstanding under our 2020 Credit Facility or, prior to
its expiration, the 2017 Credit Facility. At December 31, 2020, we were in compliance with the
financial covenant and our borrowing capacity was reduced by $5.5 million related to standby letters
of credit. We do not currently intend to draw on the 2020 Credit Facility.
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Cash Flows
The following table summarizes our cash flows for the periods presented:
(in thousands)
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents and
restricted cash
Net increase (decrease) in cash and cash equivalents and restricted
cash
Operating Activities
Year Ended December 31,
2020
2019
2018
$
64,232 $ (10,744) $
4,079
(113,050)
(2,559)
(123,221)
36,403
34,161
264,749
(916)
(1,080)
(1,063)
$ 103,798 $ (90,713) $ 137,906
)
(
In 2020, net cash provided by operating activities was $64.2 million, which primarily consisted of
our $42.7 million net loss, adjusted for stock-based compensation expense of $59.6 million and
depreciation and amortization of $10.6 million, as well as a net cash inflow of $35.5 million from
changes in operating assets and liabilities. The net inflow from changes in operating assets and
liabilities was primarily due to a $71.4 million increase in deferred revenue primarily due to increased
subscription sales, as a majority of our customers are invoiced in advance, and a $8.9 million
increase in operating lease liabilities due to $14.2 million of proceeds in lease incentives net of
operating lease payments, partially offset by a $20.0 million increase in accounts receivable, an
increase of approximately $17 million in accelerated payments for cloud software subscriptions,
insurance and rent, and a $6.6 million increase in deferred commissions.
In 2019, net cash used in operating activities was $10.7 million, which primarily consisted of our
$99.0 million net loss, adjusted for stock-based compensation expense of $41.6 million and
depreciation and amortization of $6.9 million, as well as a net cash inflow of $36.3 million from
changes in operating assets and liabilities. The net inflow from changes in operating assets and
liabilities was primarily due to a $72.8 million increase in deferred revenue, primarily due to increased
subscription sales, as a majority of our customers are invoiced in advance, partially offset by a $25.9
million increase in accounts receivable and a $12.8 million increase in deferred commissions.
In 2018, net cash used in operating activities was $2.6 million, which primarily consisted of our
$73.5 million net loss, adjusted for stock-based compensation expense of $22.9 million and
depreciation and amortization of $6.2 million, as well as a net cash inflow of $41.4 million from
changes in operating assets and liabilities. The net inflow from changes in operating assets and
liabilities was primarily due to an increase of $64.1 million in deferred revenue, primarily due to
increased subscription sales as a majority of our customers are invoiced in advance, partially offset
by a $17.4 million increase in accounts receivable.
Investing Activities
From 2019 to 2020, cash flows from investing activities increased by $117.1 million, primarily due
to a decrease in cash paid for acquisitions of $74.6 million and an increase in our sales, net of
purchases, of investments of $42.1 million.
From 2018 to 2019, net cash used in investing activities decreased by $10.2 million, primarily due
to a decrease in our purchases, net of sales, of short-term investments of $100.0 million, partially
67
offset by cash paid for acquisitions of $74.9 million and capital expenditures for our new corporate
headquarters of $11.4 million.
Financing Activities
From 2019 to 2020, net cash provided by financing activities increased by $2.2 million, primarily
due to proceeds from a loan agreement of $2.0 million and an increase in proceeds from the exercise
of stock options of $2.7 million, which was partially offset by a decrease in stock issued in connection
with the employee stock purchase plan of $2.1 million.
From 2018 to 2019, net cash provided by financing activities decreased by $230.6 million,
primarily due to proceeds from our IPO, net of underwriting discounts and commissions, of $268.5
million, less payments of offering costs related to our IPO of $3.9 million in 2018, partially offset by
proceeds from the exercise of stock options of $19.0 million and stock issued in connection with the
employee stock purchase plan of $15.1 million in 2019.
Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2020:
(in thousands)
Total
Less than
1 year
1 - 3 years
3 - 5 years
More than
5 years
Operating lease commitments
Non-cancellable purchase obligations
Total contractual obligations
$ 79,478 $
4,821
$ 84,299 $
3,891 $ 15,761 $ 15,301 $ 44,525
3,596
—
7,487 $ 16,986 $ 15,301 $ 44,525
1,225
—
Not included in the table above is $7.1 million of unrecognized tax benefits and $1.2 million of
asset retirement obligations because the timing of future cash outflows is uncertain.
Off-Balance Sheet Arrangements
At December 31, 2020, we did not have any relationships with unconsolidated organizations or
financial partnerships, such as structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. GAAP. The preparation of these
financial statements requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue and expenses, as well as related disclosures. We evaluate our estimates
and assumptions on an ongoing basis. Our estimates are based on historical experience and various
other assumptions that we believe to be reasonable under the circumstances. Our actual results
could differ from these estimates.
The critical accounting estimates, assumptions and judgments that we believe have the most
significant impact on our consolidated financial statements are described below.
68
Revenue Recognition
We recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which we expect to be entitled to in exchange for those
goods or services. In recognizing revenue, we apply the following steps:
•
•
•
•
•
Identify the contract with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognize revenue when or as performance obligations are satisfied
In situations where we enter into a contractual arrangement that includes non-standard terms and
conditions, such as acceptance provisions and options to purchase additional products and services,
as well as contract modifications, we apply judgment in identifying and assessing the impact on
revenue recognition.
We generate revenue from subscription arrangements for our software and cloud-based
solutions, perpetual licenses, maintenance associated with perpetual licenses and professional
services and other revenue.
Subscription Revenue
Our subscription arrangements generally have annual or multi-year contractual terms and allow
customers to use our software or cloud solutions, including ongoing software updates and the ability
to identify the latest cybersecurity vulnerabilities. Revenue is recognized ratably over the subscription
term given the critical utility provided by the ongoing updates that are released throughout the
contract period.
Perpetual License and Maintenance Revenue
Our perpetual licenses are generally sold with one or more years of maintenance, which include
ongoing software updates and the ongoing ability to identify the latest cybersecurity vulnerabilities.
Given the critical utility provided by the ongoing software updates and updated ability to identify
network vulnerabilities included in maintenance, we combine the perpetual license and the
maintenance into a single performance obligation. Perpetual license arrangements generally contain
a material right related to the customer’s ability to renew maintenance at a price that is less than the
initial license fee. We apply a practical alternative to allocating a portion of the transaction price to the
material right performance obligation and estimate a hypothetical transaction price which includes
fees for expected maintenance renewals based on the estimated economic life of the perpetual
license contracts. We allocate the transaction price between the cybersecurity subscription provided
in the initial contract and the material right related to expected contract renewals based on the
hypothetical transaction price. We recognize the amount allocated to the combined license and
maintenance performance obligation over the initial contractual period, which is generally one year.
We recognize the amount allocated to the material right over the expected maintenance renewal
period, which begins at the end of the initial contractual term and is generally four years. We have
estimated the five-year economic life of perpetual license contracts based on historical contract
attrition, expected renewal periods, the lifecycle of the our technology and other factors. While we
believe that the estimates we have made are reasonable and appropriate, different assumptions and
estimates could materially impact our reported financial results.
69
Professional Services and Other Revenue
Professional services and other revenue is primarily comprised of advisory services and training
related to the deployment and optimization of our products. These services do not result in significant
customization of our products. Professional services and other revenue is recognized as the services
are performed.
Contracts with Multiple Performance Obligations
In cases where our contracts with customers contain multiple performance obligations, the
contract transaction price is allocated on a relative standalone selling price basis. We typically
determine standalone selling price based on observable selling prices of our products and services.
Variable Consideration
We record revenue from sales at the net sales price, which is the transaction price, including
estimates of variable consideration when applicable. Certain of our customers may be entitled to
receive credits and in certain circumstances, refunds, if service level commitments are not met. We
have not historically experienced significant incidents affecting the ability to meet these service level
commitments and any estimated refunds related to these agreements have not been material.
Sales through our channel partner network of distributors and resellers are generally discounted
as compared to the price that we would sell to an end user. Revenue for sales through our channel
network, which is fixed, is recorded net of any distributor or reseller margin.
Deferred Commissions
Sales commissions, including related incremental fringe benefit costs, are considered to be
incremental costs of obtaining a contract, and therefore are deferred over an estimated period of
benefit, which ranges between three and four years for subscription arrangements and five years for
perpetual license arrangements. We have estimated the period of benefit based on the expected
contract term including renewal periods, the lifecycle of our technology and other factors. Sales
commissions on contract renewals are capitalized and amortized ratably over the contract term, with
the exception of contracts with renewal periods that are one year or less, in which case the
incremental costs are expensed as incurred. While we believe that the estimates we have made are
reasonable and appropriate, different assumptions and estimates could materially impact our reported
financial results.
Stock-Based Compensation
Stock-based compensation expense related to our stock options, restricted stock, restricted stock
units, or RSUs, and purchase rights issued under our 2018 Employee Stock Purchase Plan, or the
2018 ESPP, is calculated based on the fair value of the awards granted and is recognized on a
straight-line basis over the requisite service period, which is generally two to four years. RSUs that
include performance-based vesting conditions and are expensed using the accelerated attribution
method. We account for forfeitures as they occur.
Estimating the fair value of stock options and purchase rights under the 2018 ESPP using the
Black-Scholes option-pricing model requires assumptions as to the fair value of our underlying
common stock, the estimated term of the option, the risk free interest rates, the expected volatility of
the price of our common stock and the expected dividend yield. The assumptions used to estimate
the fair value of the option awards reflect our best estimates. If any of the assumptions change
70
significantly, stock-based compensation for future awards may differ significantly compared with the
awards granted previously.
The assumptions and estimates are as follows:
•
•
•
•
•
Fair Value of Common Stock. See “Valuations” discussion below.
Expected Term. This is the period of time that the options granted are expected to remain
unexercised. We employ the simplified method to calculate the average expected term.
Volatility. This is a measure of the amount by which a financial variable, such as a share
price, has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during
a period. We have identified several public entities of similar size, complexity and stage of
development and estimate our volatility based on the volatility of the common stock of these
companies. In 2021, we intend to use the volatility of Tenable stock when calculating the fair
value of purchase rights under the 2018 ESPP.
Risk-Free Interest Rate. This is the U.S. Treasury rate, having a term that most closely
resembles the expected life of the stock option.
Dividend Yield. We have not and do not expect to pay dividends on our common stock.
Valuations
Following our IPO, we use the market price of our common stock at the date of grant as the fair
value. Prior to our IPO, the lack of an active public market for our common stock required our board of
directors to exercise reasonable judgment and consider a number of factors in order to make the best
estimate of fair value of our common stock, in accordance with the technical practice-aid issued by
the American Institute of Certified Public Accountants Practice Aid entitled Valuation of Privately-Held
Company Equity Securities Issued as Compensation. Factors considered in connection with
estimating the fair value of our common stock underlying our award of restricted stock and stock
option awards when performing the fair value calculations with the Black Scholes option-pricing model
included:
•
•
•
The results of independent third-party valuations of our common stock
Recent arm’s length transactions involving the sale or transfer of our common stock
The rights, preferences and privileges of our Series A and Series B redeemable convertible
preferred stock relative to those of our common stock
• Our historical financial results and future financial projections
•
The market value of equity interests in substantially similar businesses, which equity interests
can be valued through nondiscretionary, objective means
The lack of marketability of our common stock
The likelihood of achieving a liquidity event, such as an IPO given prevailing market
conditions
Industry outlook
• General economic outlook including economic growth, inflation and unemployment, interest
rate environment and global economic trends
As described above, the exercise price of our stock option awards was determined by our board
of directors, with input from management, taking into account the factors described above, using a
combination of valuation methodologies with varying weighting applied to each methodology as of the
grant date.
71
•
•
•
Application of these approaches involved the use of estimates, judgment and assumptions that
were highly complex and subjective, such as those regarding our expected future revenue, expenses
and future cash flows, discount rates, market multiples, the selection of comparable companies and
the probability of possible future events. Changes in any or all of these estimates and assumptions or
the relationships between those assumptions would have impacted our valuations as of each
valuation date and may have had a material impact on the valuation of our common stock.
The fair value of each stock option was estimated on the grant date based on the following
assumptions:
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Expected forfeiture rate
Year Ended December 31,
2018
6.3
41.3% — 43.3%
2.7% — 2.9%
—
—
The fair value of each 2018 ESPP purchase right was estimated on the offering or modification
dates based on the following assumptions:
Year Ended December 31,
2020
2019
2018
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Business Combinations
0.5 — 2.0
0.5 — 2.0
41.6% — 60.1% 34.4% — 44.6% 31.9% — 33.5%
1.5% — 2.5%
—
0.1% — 0.9%
—
2.3% — 2.7%
—
0.6 — 2.1
We account for business combinations by recognizing the fair value of acquired assets and
liabilities. The excess purchase consideration over the fair value of acquired assets and liabilities is
recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, we
make estimates and assumptions, especially with respect to intangible assets. Estimates in valuing
certain identifiable intangible assets require significant judgment and include, but are not limited to,
expected long-term market growth, future expected operating expenses, costs of capital, and
appropriate discount rates. Our estimate of fair value is based upon assumptions we believe to be
reasonable, but which are inherently uncertain and, as a result, actual results may differ from
estimates. During the measurement period, we may make adjustments to the fair value of assets
acquired and liabilities assumed, with offsetting adjustments to goodwill. Any adjustments made after
the measurement period will be reflected in the consolidated statements of operations. Acquisition-
related transaction costs are expensed as incurred.
Goodwill
The excess purchase consideration over the fair value of acquired assets and liabilities is
recorded as goodwill. We perform our annual impairment assessment on October 1, or more
frequently, when events or circumstances indicate impairment may have occurred. We operate as
one reporting unit and have elected to first assess qualitative factors to determine whether it is more
likely than not that the fair value of the Company as a whole is less than its carrying amount, including
72
goodwill. The qualitative assessment includes an evaluation of relevant events and circumstances,
including macroeconomic, industry and market conditions, our overall financial performance, and
trends in the value of our common stock. During the periods presented, there were no indications of
impairment and it was not more likely than not that goodwill was impaired.
Income Taxes
We are subject to federal, state and local taxes in the United States as well as numerous
international jurisdictions. These foreign jurisdictions have different statutory tax rates than the United
States. Earnings generated by our international entities are related to transfer pricing requirements as
applicable under local jurisdiction tax laws.
We record a provision for income taxes under the asset and liability method, which requires
recognition of deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the tax basis of existing
assets and liabilities, net operating loss carryforwards and tax credit carryforwards. Deferred tax
assets and liabilities are measured using the tax rates that are expected to apply to taxable income
for the years in which those tax assets and liabilities are expected to be realized or settled. A
valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets
will not be realized. We have valuation allowances in all jurisdictions against deferred tax assets net
of deferred tax liabilities that will reverse and provide a source of taxable income. Our evaluation of
valuation allowances could change in the future and the impact could have a material impact on our
financial statements.
We recognize tax benefits from an uncertain tax position if it is more likely than not to be
sustained upon audit by the relevant taxing authority. Interest and penalties associated with such
uncertain tax positions are classified as a component of income tax expense.
In December 2019, subsequent to our acquisition of Indegy Ltd. we transferred the acquired
Indegy intellectual property from Israel to the U.S. and Ireland through an intercompany transaction.
The sale of Indegy's intellectual property for tax purposes resulted in $6.3 million of current tax
expense and $4.2 million of deferred tax expense in Israel. The valuation of the intellectual property
for tax purposes required significant judgment and assumptions with respect to forecasted operating
results and discount rates.
Depending on the jurisdiction, distributions of earnings could be subject to withholding taxes at
rates applicable to the distributing jurisdiction. As we intend to continue to reinvest the earnings of
foreign subsidiaries indefinitely, we have not provided for a U.S. income tax liability and foreign
withholding taxes on undistributed foreign earnings of foreign subsidiaries.
Recently Issued Accounting Pronouncements
Refer to Note 1 to our consolidated financial statements in this Annual Report on Form 10-K for
more information regarding recently issued accounting pronouncements.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our business, including interest rate,
foreign currency exchange and inflation risks.
73
Interest Rate Risk
At December 31, 2020, we had $178.2 million of cash and cash equivalents, which consisted of
cash deposits, money market funds and commercial paper. We also had $113.6 million of short-term
investments, which consisted of commercial paper, U.S. treasury and agency securities and corporate
bonds. Our investments are carried at their fair market values with cumulative unrealized gains or
losses recorded as a component of accumulated other comprehensive income within stockholders'
equity. The primary objectives of our investment activities are the preservation of capital, the
fulfillment of liquidity needs and the fiduciary control of cash and investments. We do not enter into
investments for trading or speculative purposes. Interest-earning instruments carry a degree of
interest rate risk; however, a hypothetical 10% change in interest rates during any of the periods
presented would not have had a material impact on our financial statements.
We have not had any borrowings under our $45.0 million 2020 Credit Facility since it was
established in July 2020. Any borrowings under the 2020 Credit Facility would bear interest at a
variable rate. We do not have any other long-term debt or financial liabilities with floating interest rates
that would subject us to interest rate fluctuations.
Foreign Currency Exchange Risk
Substantially all of our sales contracts are denominated in U.S. dollars, with a limited number of
contracts denominated in foreign currencies, including foreign denominated leases. A portion of our
operating expenses are incurred outside the United States, denominated in foreign currencies and
subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the
Euro, British Pound, Australian dollar and Israeli New Shekel. Additionally, fluctuations in foreign
currency exchange rates may cause us to recognize remeasurement and transaction gains (losses)
in our consolidated statements of operations. As the impact of foreign currency exchange rates has
not been material to our historical operating results, we have not entered into derivative or hedging
transactions, but we may do so in the future if our exposure to foreign currency becomes more
significant.
Inflation Risk
We do not believe that inflation has had a material effect on our business, results of operations, or
financial condition. Nonetheless, if our costs were to become subject to significant inflationary
pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could
harm our business, results of operations, or financial condition.
74
Item 8.
Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders'
Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
1. Business and Summary of Significant Accounting Policies
2. Revenue
3. Cash and Cash Equivalents and Short-Term Investments
4. Fair Value Measurements
5. Property and Equipment, Net
6. Acquisition, Goodwill and Intangible Assets
7. Leases
8. Debt
9. Redeemable Convertible Preferred Stock and Common Stock
10. Stock-Based Compensation
11. Net Loss Per Share Attributable to Common Stockholders
12. Income Taxes
13. Geographic Information
14. Benefit Plans
15. Subsequent Events
16. Quarterly Results (unaudited)
Page
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75
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Tenable Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tenable Holdings, Inc. (the
Company) as of December 31, 2020 and 2019, the related consolidated statements of operations,
comprehensive loss, redeemable convertible preferred stock and stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 2020, and the related notes
and the financial statement schedule listed in the Index at item 15(a)(2) (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, 2020 and 2019,
and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2020, 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, 2020, 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 22, 2021 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 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.
76
Description of
the Matter
Revenue Recognition – Identification and Evaluation of Contracts with Non-
Standard Terms and Conditions.
As described in Note 1 to the consolidated financial statements, management
enters into certain contracts with customers, including software subscription
arrangements and perpetual licenses with related maintenance, with non-standard
terms and conditions.
The principal consideration for our determination that performing procedures
relating to the identification and evaluation of non-standard terms and conditions in
contracts is a critical audit matter is the significant amount of judgment required by
management in identifying and evaluating non-standard terms and conditions and
the impact on the amount and timing of revenue recognition. This in turn led to a
high degree of auditor judgment and significant audit effort in performing our audit
procedures to evaluate whether non-standard terms and conditions in contracts
were appropriately identified and evaluated by management.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls over the Company’s process for identifying and evaluating
contracts with non-standard terms and conditions. These procedures also included,
among others, on a sample basis (i) testing the completeness and accuracy of
management’s identification of contracts with non-standard terms and conditions
and (ii) testing management’s determination of the impact of non-standard terms
and conditions on the amount and timing of revenue recognition.
How We
Addressed the
Matter in Our
Audit
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2014
Tysons, Virginia
February 22, 2021
77
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Tenable Holdings, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Tenable Holdings, Inc.’s internal control over financial reporting as of December 31,
2020, 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, Tenable Holdings, Inc. (the Company) maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2020, 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 Tenable Holdings, Inc. as of
December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive
loss, redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 2020, and the related notes and the financial
statement schedule listed in the Index at item 15(a)(2) (collectively referred to as the “consolidated
financial statements”) and our report dated February 22, 2021 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 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
78
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tysons, Virginia
February 22, 2021
79
TENABLE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable (net of allowance for doubtful accounts of $261
and $764 at December 31, 2020 and 2019, respectively)
Deferred commissions
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Deferred commissions (net of current portion)
Operating lease right-of-use assets
Acquired intangible assets, net
Goodwill
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses
Accrued compensation
Deferred revenue
Operating lease liabilities
Other current liabilities
Total current liabilities
Deferred revenue (net of current portion)
Operating lease liabilities (net of current portion)
Other liabilities
Total liabilities
December 31,
2020
2019
$ 178,223 $
113,623
74,363
137,904
115,342
32,143
44,462
483,793
38,920
46,733
39,426
13,193
54,414
14,110
94,827
28,499
27,369
362,962
26,847
43,766
42,847
15,508
54,138
12,544
$ 690,589 $ 558,612
$
5,731 $
35,509
328,819
3,815
1,028
374,902
105,691
54,529
4,802
539,924
10,168
36,634
274,348
5,209
1,284
327,643
88,779
40,663
2,622
459,707
Stockholders’ equity:
Common stock (par value: $0.01; 500,000 shares authorized, 103,715
and 98,587 shares issued and outstanding at December 31, 2020 and
2019, respectively)
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
1,037
757,470
10
(607,852)
150,665
986
662,990
50
(565,121)
98,905
$ 690,589 $ 558,612
The accompanying notes are an integral part of these consolidated financial statements.
80
TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Revenue
Cost of revenue
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest income, net
Other expense, net
Loss before income taxes
Provision for income taxes
Net loss
Accretion of Series A and B redeemable convertible preferred
stock
Net loss attributable to common stockholders
Year Ended December 31,
2020
2019
2018
$ 440,221 $ 354,586 $ 267,360
77,554
362,667
60,818
293,768
43,167
224,193
224,277
101,687
73,136
399,100
(36,433)
1,244
(1,885)
(37,074)
5,657
(42,731)
228,035
173,344
87,064
69,468
384,567
(90,799)
5,830
(680)
(85,649)
13,364
(99,013)
76,698
46,732
296,774
(72,581)
2,355
(931)
(71,157)
2,364
(73,521)
—
(434)
)
$ (42,731) $ (99,013) $ (73,955)
—
)
(
)
(
(
Net loss per share attributable to common stockholders, basic
and diluted
Weighted-average shares used to compute net loss per share
attributable to common stockholders, basic and diluted
$
(
(0.42) $
)
(
(1.03) $
)
)
(1.38)
(
101,009
96,014
53,669
The accompanying notes are an integral part of these consolidated financial statements.
81
TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Net loss
Other comprehensive (loss) income, net of tax:
Year Ended December 31,
2020
2019
2018
$ (42,731) $ (99,013) $ (73,521)
Unrealized (loss) gain on available-for-sale securities
(40)
50
—
Other comprehensive (loss) income
Comprehensive loss
—
)
$ (42,771) $ (98,963) $ (73,521)
(40)
)
50
)
(
(
(
The accompanying notes are an integral part of these consolidated financial statements.
82
TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Redeemable Convertible Preferred Stock
Additional
Other
Accumulated
Total
Stockholders'
Series A
Series B
Common Stock
Paid-in
Comprehensive
Accumulated
Equity
Shares
Amount
Shares
Amount
Shares
Amount
Capital
Income
Deficit
(Deficit)
15,848
$ 49,935
39,538
$227,800
24,472
$
246
$
20,676
$
— $
(392,587)
$
(371,665)
(in thousands)
Balance at
December 31, 2017
Accretion of Series A
and B redeemable
convertible preferred
stock
Exercise of stock
options
Repurchase of common
stock
Stock-based
compensation
Issuance of common
stock in connection
with initial public
offering, net of
underwriting discounts
and commissions and
other offering
expenses
Conversion of
redeemable
convertible preferred
stock to common stock
upon initial public
offering
Net loss
Balance at
December 31, 2018
Exercise of stock
options
Vesting of restricted
stock units
Issuance of common
stock under employee
stock purchase plan
Stock-based
compensation
Other comprehensive
income
Net loss
Balance at
December 31, 2019
Exercise of stock
options
Vesting of restricted
stock units
Issuance of common
stock under employee
stock purchase plan
Stock-based
compensation
Other comprehensive
loss
Net loss
—
—
—
—
13
—
—
—
—
—
—
—
421
—
—
—
—
740
(7)
—
—
7
(1)
—
(434)
1,661
(74)
23,022
—
—
—
—
12,535
125
264,474
(15,848)
(49,948)
(39,538)
(228,221)
55,386
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
554
—
277,615
—
—
93,126
931
586,940
4,205
42
19,006
479
777
—
—
—
5
8
—
—
—
(5)
15,121
41,928
—
—
98,587
986
662,990
2,956
1,504
668
—
—
—
29
15
7
—
—
—
21,680
(15)
13,033
59,782
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
50
—
50
—
—
—
—
(40)
—
—
—
—
—
(434)
1,668
(75)
23,022
—
264,599
—
(73,521)
278,169
(73,521)
(466,108)
121,763
—
—
—
—
—
19,048
—
15,129
41,928
50
(99,013)
(99,013)
(565,121)
98,905
—
—
—
—
—
21,709
—
13,040
59,782
(40)
(42,731)
(42,731)
Balance at December
31, 2020
— $
103,715
$ 1,037
$ 757,470
$
10
$
)
(607,852)
(
$
150,665
The accompanying notes are an integral part of these consolidated financial statements.
83
TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Deferred income taxes
Depreciation and amortization
Stock-based compensation
Other
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Accounts payable, accrued expenses and accrued compensation
Deferred revenue
Other current and noncurrent liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of short-term investments
Sales and maturities of short-term investments
Business combination, net of cash acquired
Net cash provided by (used in) investing activities
Year Ended December 31,
2019
2018
2020
$
(42,731) $
(99,013) $
(73,521)
161
10,633
59,573
1,071
(20,012)
(19,372)
(5,282)
71,383
8,808
64,232
4,243
6,880
41,610
(784)
(25,941)
(16,954)
10,513
72,799
(4,097)
(10,744)
—
6,192
22,875
533
(17,408)
(15,231)
11,406
64,085
(1,490)
(2,559)
(20,277)
(184,516)
209,148
(276)
4,079
(20,674)
(242,059)
224,594
(74,911)
(113,050)
(5,733)
(117,488)
—
—
(123,221)
Cash flows from financing activities:
Proceeds from loan agreement
Proceeds from stock issued in connection with the employee stock
purchase plan
Proceeds from the exercise of stock options
Repurchases of common stock
Proceeds from initial public offering, net of underwriting discounts
and commissions
Payments of costs related to initial public offering
Other financing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents and
restricted cash
Net increase (decrease) in cash and cash equivalents and restricted
cash
Cash and cash equivalents and restricted cash at beginning of year
Cash and cash equivalents and restricted cash at end of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for income taxes
Supplemental cash flow information related to leases:
Cash payments for operating leases
2,000
13,040
21,709
—
—
—
(346)
36,403
—
—
15,129
19,048
—
—
—
(16)
34,161
—
1,668
(75)
268,531
(3,932)
(1,443)
264,749
(916)
(1,080)
(1,063)
103,798
74,665
178,463
335
5,729
$
$
(90,713)
165,378
74,665
96
8,530
137,906
27,472
165,378
111
1,207
$
$
8,807
$
4,452
$
4,313
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
84
TENABLE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Summary of Significant Accounting Policies
Business Description
Tenable Holdings, Inc. (the “Company,” “we,” "us," or “our”) is a provider of Cyber Exposure
solutions, which is a discipline for managing, measuring and comparing cybersecurity risk in the
digital era. Our platform offerings provide broad visibility into security issues such as vulnerabilities,
misconfigurations, internal and regulatory compliance violations and other indicators of the state of an
organization’s security across IT infrastructure and applications, cloud environments and industrial
internet of things and operational technology environments.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Tenable Holdings,
Inc. and our wholly owned subsidiaries and have been prepared in conformity with United States
generally accepted accounting principles (“GAAP”). All intercompany accounts and transactions have
been eliminated in consolidation.
Initial Public Offering
On July 30, 2018, we completed our initial public offering ("IPO"), in which we issued and sold
12,535,000 shares of common stock at a price to the public of $23.00 per share, including 1,635,000
shares of common stock purchased by our underwriters from the full exercise of their over-allotment
option. All of the shares sold in the IPO were sold by the Company. We received net proceeds
of $264.6 million after deducting underwriting discounts and commissions and other offering
expenses.
Upon the completion of our IPO, all 15,847,500 shares of our Series A Redeemable Convertible
Preferred Stock ("Series A") and 39,538,354 shares of our Series B Redeemable Convertible
Preferred Stock ("Series B") automatically converted into an aggregate of 55,385,854 shares of our
common stock. Our Amended and Restated Certificate of Incorporation adopted in connection with
the IPO authorizes a total of 500,000,000 shares of common stock and 10,000,000 shares of
preferred stock.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. These estimates include, but are not
limited to, the determination of the estimated economic life of perpetual licenses for revenue
recognition, the estimated period of benefit for deferred commissions, the useful lives of long-lived
assets, the fair value of acquired intangible assets, the valuation of stock-based compensation,
including the estimated underlying fair value of our common stock prior to our IPO, the incremental
borrowing rate for operating leases, and the valuation of deferred tax assets. We base these
estimates on historical experience and on various other assumptions that we believe to be
reasonable. Actual results could differ significantly from these estimates.
85
Foreign Currency
The functional currency for all of our foreign subsidiaries is the U.S. dollar. Assets and liabilities
denominated in other currencies are remeasured into U.S. dollars at current exchange rates for
monetary assets and liabilities and at historical exchange rates for non-monetary assets and
liabilities. We bill our customers in U.S. dollars. Expenses incurred in non U.S. dollar currencies are
remeasured into U.S. dollars when incurred. Remeasurement losses in currencies other than the
functional currency were $1.7 million, $1.1 million and $1.0 million in 2020, 2019 and 2018,
respectively, and are included as a component of other expense, net in the consolidated statements
of operations.
Revenue Recognition
We recognize revenue in order to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration we expect to be entitled in exchange for those goods or
services. To achieve this, we apply the following steps:
•
•
•
•
•
Identify the contract with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognize revenue when or as performance obligations are satisfied
In situations where we enter into a contractual arrangement that includes non-standard terms and
conditions, such as acceptance provisions or options to purchase additional products and services,
as well as contract modifications, we apply judgment in identifying and assessing the impact on
revenue recognition.
We generate revenue from subscription arrangements for software and cloud-based solutions,
perpetual licenses, maintenance associated with perpetual licenses, and professional services and
other revenue. We begin to recognize revenue when control of our software or services is transferred
to the customer, which for sales made through distributors is concurrent with the transfer to the end
user.
Subscription Revenue
Subscription arrangements generally have annual or multi-year contractual terms and allow
customers to use our software or cloud solutions, including ongoing software updates and the ability
to identify the latest cybersecurity vulnerabilities. Revenue is recognized ratably over the subscription
term given the critical utility provided by the ongoing updates that are released throughout the
contract period.
Perpetual License and Maintenance Revenue
Our perpetual licenses are generally sold with one or more years of maintenance, which include
ongoing software updates and the ongoing ability to identify the latest cybersecurity vulnerabilities.
Given the critical utility provided by the ongoing software updates and updated ability to identify
network vulnerabilities included in maintenance, we combine the perpetual license and the
maintenance into a single performance obligation. Perpetual license arrangements generally contain
a material right related to the customer’s ability to renew maintenance at a price that is less than the
initial license fee. We apply a practical alternative to allocating a portion of the transaction price to the
material right performance obligation and estimate a hypothetical transaction price which includes
86
fees for expected maintenance renewals based on the estimated economic life of the perpetual
license contracts. We allocate the transaction price between the cybersecurity subscription provided
in the initial contract and the material right related to expected contract renewals based on the
hypothetical transaction price. We recognize the amount allocated to the combined license and
maintenance performance obligation over the initial contractual period, which is generally one year.
We recognize the amount allocated to the material right over the expected maintenance renewal
period, which begins at the end of the initial contractual term and is generally four years. We have
estimated the five-year economic life of perpetual license contracts based on historical contract
attrition, expected renewal periods, the lifecycle of the our technology and other factors. While we
believe that the estimates we have made are reasonable and appropriate, different assumptions and
estimates could materially impact our reported financial results.
Professional Services and Other Revenue
Professional services and other revenue is primarily comprised of advisory services and training
related to the deployment and optimization of our products. These services do not result in significant
customization of our products. Professional services and other revenue is recognized as the services
are performed.
Contracts with Multiple Performance Obligations
In cases where our contracts with customers contain multiple performance obligations, the
contract transaction price is allocated on a relative standalone selling price basis. We typically
determine standalone selling price based on observable selling prices of our products and services.
Variable Consideration
We record revenue from sales at the net sales price, which is the transaction price, including
estimates of variable consideration when applicable. Certain of our customers may be entitled to
receive credits and in certain circumstances, refunds, if service level commitments are not met. We
have not historically experienced significant incidents affecting the ability to meet these service level
commitments and any estimated refunds related to these agreements have not been material.
Sales through our channel network of distributors and resellers are generally discounted as
compared to the price that we would sell to an end user. Revenue for sales through our channel
network is recorded net of any distributor or reseller margin.
Cash and Cash Equivalents
We consider all highly liquid financial instruments with an original maturity of three months or less
when purchased to be cash equivalents.
At December 31, 2020 and 2019, cash and cash equivalents included $0.4 million of restricted
cash, which is related to collateral for a lease and credit card deposits. At December 31, 2020 and
2019, cash and cash equivalents excluded $0.2 million and $0.3 million, respectively, of restricted
cash, which is related to an account established as collateral for a lease arrangement and is included
in other assets on the consolidated balance sheets.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received from selling an asset, or paid to transfer
a liability, in an orderly transaction between market participants at the measurement date. We apply
87
fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value
in the financial statements on a recurring basis. We measure cash and cash equivalents and short-
term investments at fair value using a fair value hierarchy of inputs. We approximate fair value by
using the carrying amounts for accounts receivable, accounts payable and accrued expenses due to
their short-term nature.
Investments
We currently invest in commercial paper, corporate bonds, and U.S. treasury and agency
obligations. Our investments are classified as available-for-sale and recorded at fair value, with
unrealized gains and losses reported in accumulated other comprehensive income within
stockholders’ equity (deficit).
We evaluate potential impairments of available-for-sale debt securities due to credit-related and
non-credit-related factors, including market risk, and if it is more-likely-than-not that we would have to
sell the security before the recovery of the amortized cost basis. Identified credit-related impairments
would be recognized as a charge in the statement of operations.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount, less an allowance for doubtful
accounts, and do not bear interest. We maintain an allowance for doubtful accounts at an amount
estimated to be sufficient to cover the risk of collecting less than full payment of the receivables. At
each balance sheet date, we evaluate our receivables and assess the allowance for doubtful
accounts based on specific customer collection issues and historical write-off trends.
Our allowance for doubtful accounts reflects our best estimate of expected future credit losses.
We consider various factors that may impact our ability to collect on accounts receivable, including
our historical collection experience, age of accounts receivable balances, current conditions,
reasonable and supportable forecasts of future economic conditions, as well as other factors.
However, given the uncertainty caused by the COVID-19 pandemic and other factors, these estimates
may change and future credit losses may differ from our estimates. Expected credit losses from
accounts receivable are recognized as expense in our statement of operations.
Deferred Commissions
Sales commissions, including related fringe benefit costs, are considered to be incremental costs
of obtaining a contract. Sales commissions on initial sales are not commensurate with sales
commissions on contract renewals and therefore are recognized over an estimated period of benefit,
which ranges between three and four years for subscription arrangements and five years for
perpetual license arrangements. We estimated the period of benefit based on the expected contract
term including renewal periods, the lifecycle of our technology, and other factors. Sales commissions
on contract renewals are capitalized and amortized ratably over the contract term as part of sales and
marketing expense, with the exception of contracts with renewal periods that are one year or less, in
which case the incremental costs are expensed as incurred.
Property and Equipment, net
Property and equipment, net is stated at historical cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets:
three years for computer software and equipment and five years for furniture and fixtures. Leasehold
improvements are amortized using the straight-line method over the shorter of the estimated useful
88
lives of the assets or the terms of the respective leases. Property and equipment, net includes right-
of-use assets acquired under finance leases. Amortization of assets acquired under finance leases is
included in depreciation expense. Repairs and maintenance costs are expensed as incurred.
Leases
We determine if an arrangement contains a lease and the classification of that lease, if applicable,
at inception. We have elected to not recognize a lease liability or right-of-use ("ROU") asset for short-
term leases (leases with a term of twelve months or less). For contracts with lease and non-lease
components, we have elected to not allocate the contract consideration, and account for the lease
and non-lease components as a single lease component. Additionally, we enter into arrangements to
use shared office spaces and other facilities, and have determined that these arrangements do not
contain leases as we do not have the right to use an identified asset. Operating leases are included in
operating lease ROU assets, operating lease liabilities and operating lease liabilities (net of current
portion) in our consolidated balance sheets. Finance leases are included in property and equipment,
other current liabilities and other liabilities in our consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities
represent our obligation to make lease payments under the lease. Operating lease ROU assets and
liabilities are recognized at the lease commencement date based on the present value of lease
payments over the lease term. The implicit rate within our operating leases are generally not
determinable and we use our incremental borrowing rate at the lease commencement date to
determine the present value of lease payments. The determination of our incremental borrowing rate
requires judgment. We determine our incremental borrowing rate for each lease using our current
borrowing rate, adjusted for various factors including level of collateralization, term and currency to
align with the terms of the lease. The operating lease ROU asset also includes any lease
prepayments, offset by lease incentives. Certain of our leases include options to extend or terminate
the lease. An option to extend the lease is considered in connection with determining the ROU asset
and lease liability when it is reasonably certain we will exercise that option. An option to terminate is
considered unless it is reasonably certain we will not exercise the option.
Lease expense for lease payments is recognized on a straight-line basis over the term of the
lease.
Impairment of Long-Lived Assets
We evaluate our long-lived assets for impairment whenever events or changes in circumstance
indicate that the carrying amount may not be fully recoverable. Recoverability of the long-lived assets
is measured by a comparison of the carrying amount of the assets to future undiscounted net cash
flows expected to be generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured as the excess of the carrying amount over the fair value.
There was no impairment of long-lived assets in 2020, 2019 or 2018.
Business Combinations
We account for business combinations by recognizing the fair value of acquired assets and
liabilities. The excess purchase consideration over the fair value of acquired assets and liabilities is
recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, we
make estimates and assumptions, especially with respect to intangible assets. Estimates in valuing
certain identifiable intangible assets include, but are not limited to, projected revenue growth rates,
future expected operating expenses, obsolescence projections and an appropriate discount rate. Our
estimate of fair value is based upon assumptions we believe to be reasonable, but which are
89
inherently uncertain and, as a result, actual results may differ from estimates. During the
measurement period, we may make adjustments to the fair value of assets acquired and liabilities
assumed, with offsetting adjustments to goodwill. Any adjustments made after the measurement
period will be reflected in the consolidated statements of operations. Acquisition-related transaction
costs are expensed as incurred.
Goodwill
The excess of the purchase consideration over the fair value of acquired assets and liabilities is
recorded as goodwill. We perform our annual impairment assessment on October 1, or more
frequently, when events or circumstances indicate impairment may have occurred. We operate as
one reporting unit and have elected to first assess qualitative factors to determine whether it is more
likely than not that the fair value of the Company as a whole is less than its carrying amount, including
goodwill. The qualitative assessment includes an evaluation of relevant events and circumstances,
including macroeconomic, industry and market conditions, our overall financial performance, and
trends in the value of our common stock. During the periods presented, there were no indications of
impairment and it was not more likely than not that goodwill was impaired.
Advertising
Advertising costs are expensed as they are incurred. We incurred advertising costs of $8.2
million, $5.3 million and $3.3 million in 2020, 2019 and 2018, respectively, which are included in sales
and marketing expense in the consolidated statements of operations.
Software Development Costs
Research and development costs to develop software to be sold, leased or marketed are
expensed as incurred up to the point of technological feasibility for the related software product. We
have not capitalized development costs for software to be sold, leased or marketed to date, as the
software development process is essentially completed concurrent with the establishment of
technological feasibility. As such, these costs are expensed as incurred and recognized in research
and development costs in the consolidated statements of operations.
Software developed for internal use, with no substantive plans to market such software at the
time of development, are capitalized and included in property and equipment, net in the consolidated
balance sheets. Costs incurred during the preliminary planning and evaluation and post
implementation stages of the project are expensed as incurred. Costs incurred during the application
development stage of the project are capitalized. In 2020, 2019 and 2018, we capitalized $1.6 million,
$4.2 million and $2.4 million, respectively, of development costs related to internal use software.
Stock-Based Compensation
Stock-based compensation expense related to our restricted stock units ("RSUs"), purchase
rights issued under our 2018 Employee Stock Purchase Plan ("2018 ESPP"), stock options and
restricted stock is calculated based on the fair value of the awards granted and is recognized on a
straight-line basis over the requisite service period, which is generally two to four years. RSUs that
include performance-based vesting conditions and are expensed using the accelerated attribution
method. We account for forfeitures as they occur.
The fair value of RSUs is based on the estimated fair value of our common stock on the date of
grant. The fair value of stock options and 2018 ESPP purchase rights is estimated on the grant date
using the Black-Scholes option pricing model, which requires us to make assumptions and
90
judgments, including the expected term, expected volatility, and risk-free interest rates. Prior to our
IPO, we estimated the fair value of our common stock at the date of grant. Following our IPO, we use
the market price of our common stock at the date of grant.
Net Loss per Share
We calculate basic and diluted net loss per share attributable to common stockholders in
conformity with the two-class method required for participating securities. Under the two-
class method, the net loss attributable to common stockholders is not allocated to the redeemable
convertible preferred stock as the holders of our redeemable convertible preferred stock do not have
a contractual obligation to share in losses.
Under the two-class method, basic net loss per share attributable to common stockholders is
computed by dividing the net loss attributable to common stockholders by the weighted-average
number of shares of common stock outstanding during the period. Net loss attributable to common
stockholders is calculated by adjusting net loss by the current period accretion of redeemable
convertible preferred stock.
Upon the completion of our IPO, all of our Series A and Series B redeemable convertible
preferred stock automatically converted into shares of our common stock.
Diluted earnings per share attributable to common stockholders is computed by giving effect to all
potentially dilutive common stock equivalents in the period, including unvested RSUs, stock options,
unvested restricted shares, redeemable convertible preferred stock and shares to be issued under
our 2018 ESPP. As we have reported losses for all periods presented, all potentially dilutive securities
have been excluded from the calculation of diluted net loss per share attributable to common
stockholders as their effect would be antidilutive.
Segment Information
We operate as one operating segment as our chief executive officer, who is our chief operating
decision maker, reviews financial information on a consolidated basis for purposes of making
operating decisions, allocating resources, and evaluating financial performance.
Income Taxes
Income taxes are accounted for under the asset and liability method. This method requires
recognition of deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the tax basis of existing
assets and liabilities, net operating loss carryforwards, and tax credit carryforwards. A valuation
allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be
realized.
We recognize tax benefits from an uncertain tax position if it is more likely than not to be
sustained upon audit by the relevant taxing authority. Interest and penalties associated with such
uncertain tax positions are classified as a component of income tax expense.
Recently Adopted Accounting Pronouncements
We adopted Accounting Standards Update ("ASU") No. 2016-13 — Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1,
2020 using the modified retrospective approach. The new standard replaces the previous incurred
91
loss impairment methodology with a methodology that reflects current expected credit losses for
financial assets, including trade receivables, which are not measured at fair value, through net
income. The adoption of this guidance did not have a material impact on our condensed consolidated
financial statements.
Recently Issued Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU No. 2019-12
- Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU eliminates
previously allowed exceptions and clarifies existing guidance in the accounting for income taxes,
including in the areas of franchise taxes, the tax basis of goodwill and interim period effects of
changes in tax laws. This guidance was effective for us beginning January 1, 2021. We do not expect
the impact of adopting this standard to be material for our consolidated financial statements.
2. Revenue
Disaggregation of Revenue
The following table presents a summary of revenue:
(in thousands)
Subscription revenue
Perpetual license and maintenance revenue
Professional services and other revenue
Revenue
Concentrations
Year Ended December 31,
2020
2019
2018
$ 377,354 $ 290,549 $ 205,827
54,622
6,911
$ 440,221 $ 354,586 $ 267,360
50,594
12,273
54,173
9,864
We sell and market our products and services through our field sales force that works closely with
our channel partners, which includes a network of distributors and resellers, in developing sales
opportunities. We use a two-tiered channel model whereby we sell our products and services to our
distributors, which in turn sell to resellers, which then sell to end users. We derived 91%, 90% and
88% of revenue through our channel network in 2020, 2019 and 2018, respectively. One of our
distributors accounted for 43%, 43% and 46% of revenue in 2020, 2019 and 2018, respectively. That
same distributor accounted for 41% and 40% of accounts receivable at December 31, 2020 and
2019, respectively.
Contract Balances
We generally bill our customers in advance and accounts receivable are recorded when we have
the right to invoice the customer. Contract liabilities consist of deferred revenue and include customer
billings and payments received in advance of performance under the contract. In 2020, 2019 and
2018, we recognized revenue of $274.3 million, $214.0 million and $154.9 million, respectively, that
was included in the deferred revenue balance at the beginning of each of the respective periods.
Remaining Performance Obligations
At December 31, 2020, the future estimated revenue related to unsatisfied performance
obligations was $443.2 million, of which approximately 76% is expected to be recognized as revenue
92
over the succeeding twelve months, and the remainder expected to be recognized over the four years
thereafter.
Deferred Commissions
The following summarizes the activity of deferred incremental costs of obtaining a contract:
(in thousands)
Beginning balance
Capitalization of contract acquisition costs
Amortization of deferred contract acquisition costs
Ending balance
Year Ended December 31,
2020
2019
$
$
72,265 $
38,756
59,434
40,172
(32,145)
78,876 $
(27,341)
72,265
3. Cash and Cash Equivalents and Short-Term Investments
The following tables summarize the amortized cost, unrealized gain and loss and estimated fair
value of cash equivalents and short-term investments:
(in thousands)
Cash equivalents:
Money market funds
Commercial paper
Total cash equivalents
Short-term investments:
Commercial paper
Corporate bonds
U.S. Treasury and agency obligations
Total short-term investments
December 31, 2020
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value
$
$
44,153 $
4,500
48,653 $
$
71,425 $
4,502
37,686
$ 113,613 $
— $
—
— $
— $
3
7
10 $
— $
—
— $
44,153
4,500
48,653
— $
71,425
—
4,505
37,693
—
— $ 113,623
93
(in thousands)
Cash equivalents:
Money market funds
Commercial paper
Total cash equivalents
Short-term investments:
Commercial paper
Corporate bonds
December 31, 2019
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value
$
$
$
13,588 $
8,987
22,575 $
61,371 $
23,856
— $
—
— $
— $
14
38
52 $
— $
—
— $
13,588
8,987
22,575
— $
(1)
61,371
23,869
52,664
(1)
( )
(2) $ 137,904
U.S. Treasury and agency obligations
Total short-term investments
52,627
$ 137,854 $
At December 31, 2020, all of our short-term investments had maturities within the next twelve
months.
4. Fair Value Measurements
We measure certain financial instruments at fair value using a fair value hierarchy. In the
hierarchy, assets are classified based on the lowest level inputs used in valuation into the following
categories:
•
•
•
Level 1 — Quoted prices in active markets for identical assets and liabilities;
Level 2 — Observable inputs including quoted market prices for similar assets and liabilities
in active markets, quoted prices for identical assets and liabilities in inactive markets, or
inputs that are corroborated by observable market data; and
Level 3 — Unobservable inputs.
The following tables summarize assets that are measured at fair value on a recurring basis:
(in thousands)
Cash and cash equivalents
Money market funds
Commercial paper
Short-term investments
Commercial paper
Corporate bonds
U.S. Treasury and agency obligations
December 31, 2020
Level 1
Level 2
Level 3
Total
44,153 $
—
— $
4,500
44,153 $
4,500 $
— $
—
— $
44,153
4,500
48,653
— $
71,425 $
— $
71,425
—
—
4,505
37,693
—
—
4,505
37,693
— $ 113,623 $
— $ 113,623
$
$
$
$
94
(in thousands)
Cash and cash equivalents
Money market funds
Commercial paper
Short-term investments
Commercial paper
Corporate bonds
U.S. Treasury and agency obligations
$
$
$
$
December 31, 2019
Level 1
Level 2
Level 3
Total
13,588 $
—
13,588 $
— $
8,987
8,987 $
— $
—
— $
13,588
8,987
22,575
— $
61,371 $
— $
61,371
—
—
23,869
52,664
—
—
23,869
52,664
— $ 137,904 $
— $ 137,904
We did not have any liabilities measured and recorded at fair value at December 31, 2020 and
2019.
5. Property and Equipment, Net
Property and equipment, net consisted of the following:
(in thousands)
Computer software and equipment
Furniture and fixtures
Leasehold improvements
Right-of-use assets under finance leases
Total
Less: accumulated depreciation and amortization
Property and equipment, net
December 31,
2020
2019
$
22,930 $
21,234
6,011
26,210
1,571
56,722
(17,802)
38,920 $
4,504
16,953
1,866
44,557
(17,710)
26,847
$
Depreciation and amortization related to property and equipment was $8.1 million, $6.3 million
and $5.6 million in 2020, 2019 and 2018, respectively.
6. Acquisition, Goodwill and Intangible Assets
Business Combination
On December 2, 2019, we acquired Indegy Ltd. (“Indegy”) to expand our OT-specific capabilities.
Through a share purchase agreement, we acquired 100% of Indegy's equity in exchange for total
cash consideration of $80.3 million, including cash acquired of $5.5 million and a working capital
adjustment of $0.3 million paid in November 2020. As part of the acquisition, all unvested options to
acquire ordinary shares of Indegy vested immediately, and all options to acquire ordinary shares of
Indegy were canceled in exchange for a right to receive a portion of the cash consideration. We paid
$1.8 million for unvested options, which is included in post-acquisition stock-based compensation
expense in our consolidated statements of operations.
95
The cash consideration was allocated as follows:
(in thousands)
Cash acquired
Other net tangible assets acquired
Deferred tax assets, net
Intangible assets
Goodwill
Total purchase price allocation
$
$
5,500
735
4,243
15,700
54,149
80,327
Acquired intangible assets and their estimated useful lives at the date of acquisition are as
follows:
(dollars in thousands)
Acquired technology
Trade name
Acquired intangible assets
Intangible Assets
Weighted
Average
Useful Life
7 years
2 years
Cost
15,500
200
15,700
$
$
The Indegy results of operations and pro forma results were not material to the consolidated
statement of operations in 2019.
In general and administrative expense, we recognized $0.3 million of acquisition-related
transaction costs in 2020. In 2019, we recognized $4.0 million of acquisition-related transaction costs,
including $2.1 million of expense related to the intercompany transfer of intellectual property.
Goodwill and Acquired Intangible Assets
The changes in the carrying amount of goodwill are as follows:
(in thousands)
Balance at December 31, 2019
Working capital adjustment
Balance at December 31, 2020
$
$
54,138
276
54,414
The excess purchase consideration over the fair value of acquired assets and liabilities is
recorded as goodwill. The acquired goodwill reflects the synergies we expect from integrating
Indegy's capabilities into our enterprise platform offerings and from marketing and selling these new
capabilities to our customers. None of the acquired goodwill is tax deductible.
96
Acquired intangible assets subject to amortization are as follows:
December 31, 2020
December 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Acquired
technology
Trade name
$
$
17,325 $
200
(4,224) $
(108)
13,101 $
92
17,325 $
200
(2,009) $
(8)
17,525 $
(
(4,332) $
)
13,193 $
17,525 $
(
(2,017) $
)
15,316
192
15,508
Amortization of acquired intangible assets was $2.3 million, $0.6 million, and $0.6 million in 2020,
2019 and 2018, respectively.
At December 31, 2020, estimated future amortization of intangible assets is as follows:
(in thousands)
Year ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total
7. Leases
$
$
2,306
2,214
2,214
2,214
2,214
2,031
13,193
We have operating leases for office facilities and finance leases for computer and office
equipment. Our leases have remaining terms of less than one year to just over eleven years, some of
which include one or more options to renew, with renewal terms up to five years and some of which
include options to terminate the leases within the next one to four years. The ROU assets and
liabilities at December 31, 2020 assume we exercise the option to early terminate one of our leases in
2025.
The components of lease expense were as follows:
(in thousands)
Operating lease cost
Finance lease cost
Amortization of ROU assets
Interest on lease liabilities
Total finance lease cost
Year Ended December 31,
2020
2019
2018
$
9,870 $
6,045 $
3,694
$
$
242 $
6
248 $
607 $
7
614 $
614
35
649
Rent expense for short-term leases in 2020, 2019 and 2018 was not material.
97
Supplemental information related to leases was as follows:
Operating leases
Weighted average remaining lease term
Weighted average discount rate
(in thousands)
ROU assets obtained in exchange for lease obligations
Operating leases
Finance leases
December 31,
2020
December 31,
2019
10.0 years
5.6%
10.0 years
5.8%
Year Ended December 31,
2020
2019
2018
$
3,188 $
—
39,170 $
11
1,525
15
In 2020, we received proceeds from lease incentives of $14.2 million. The proceeds from lease
incentives received are included with the change in the lease liabilities under the other current and
noncurrent liabilities caption in the operating activities section of the statement of cash flows.
Maturities of operating lease liabilities at December 31, 2020 were as follows:
(in thousands)
Year ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: Imputed interest
Total
8. Debt
$
$
3,891
8,050
7,711
7,866
7,435
44,525
79,478
(21,134)
58,344
In July 2020, we entered into a new $45.0 million senior secured credit facility ("2020 Credit
Facility") with Silicon Valley Bank in connection with the expiration of our $25.0 million revolving credit
facility ("2017 Credit Facility"). The 2020 Credit Facility bears interest at either LIBOR plus 2%, with a
1% LIBOR floor, or the base rate plus 1%, and terminates on July 24, 2022. A commitment fee of
0.35% per annum is payable quarterly in arrears based on the unused portion. The obligations under
2020 Credit Facility are secured by a lien on our tangible and intangible property except intellectual
property and certain subsidiaries and by a pledge of all of the equity interests of the Company's
material direct and indirect domestic subsidiaries and 65% of each class of capital stock of any
material first-tier foreign subsidiaries, subject to limited exceptions. The 2020 Credit Facility includes a
$45.0 million uncommitted expansion, as well as a $10.0 million sublimit for the issuance of letters of
credit and a swingline sub-facility of up to $10.0 million, and has a financial covenant requiring a
minimum consolidated quick ratio of at least 1.5:1.0 on the last day of each quarter.
In 2020 and 2019, there were no amounts outstanding under our 2020 Credit Facility or, prior to
its expiration, the 2017 Credit Facility. At December 31, 2020, we were in compliance with the
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financial covenant and our borrowing capacity was reduced by $5.5 million related to standby letters
of credit.
9. Redeemable Convertible Preferred Stock and Common Stock
Redeemable Convertible Preferred Stock
In October 2012, Tenable, Inc. (now a wholly owned subsidiary of Tenable Holdings, Inc.) issued
15,847,500 shares of Series A redeemable convertible preferred stock. In December 2015, we issued
15,847,500 shares, par value of $0.01, of Series A redeemable convertible preferred stock ("Series
A") in exchange for Series A redeemable convertible preferred stock of Tenable, Inc. in connection
with a recapitalization. This exchange was made on a one for one basis. In addition, we authorized
42,000,000 shares and issued 39,538,354 shares, par value of $0.01, of Series B redeemable
convertible preferred stock ("Series B"). Upon completion of our IPO, Series A and Series B (together,
the “Redeemable Convertible Preferred Stock”) automatically converted into an aggregate
of 55,385,854 shares of our common stock.
We accreted the Redeemable Convertible Preferred Stock to the redemption price at the
redemption date using the effective interest method. Upon completion of our IPO, the accretion rights
of the Redeemable Convertible Preferred Stock were terminated.
Upon the completion of our IPO, we filed an Amended and Restated Certificate of Incorporation,
authorizing a total of 500,000,000 shares of common stock and 10,000,000 shares of preferred stock.
There were no shares of preferred stock issued or outstanding at December 31, 2020 or 2019.
Common Stock
The voting, dividend, and liquidation rights of common stockholders are subject to, and qualified
by, the rights of preferred stockholders. The common stockholders are entitled to receive dividends
when, as and if, declared by the Board of Directors, subject to preferential dividend rights of preferred
stockholders. Upon dissolution or liquidation, our common stockholders will be entitled to receive all
assets available for distribution to stockholders, subject to any preferential rights of preferred
stockholders.
10. Stock-Based Compensation
In 2018, our Board of Directors adopted, and our stockholders approved, our 2018 Equity
Incentive Plan ("2018 Plan"). Under the evergreen provision in the 2018 Plan, in January 2020 we
reserved an additional 4,929,361 shares of our common stock. At December 31, 2020, there were
17,766,262 shares available for grant.
Stock-based compensation expense included in the consolidated statements of operations was
as follows:
(in thousands)
Cost of revenue
Sales and marketing
Research and development
General and administrative
Total stock-based compensation expense
99
Year Ended December 31,
2019
2018
2020
$
3,158 $
2,817 $
19,842
16,032
14,794
21,779
59,573 $
8,911
15,683
43,443 $
$
1,707
6,911
5,804
8,453
22,875
At December 31, 2020, the unrecognized stock-based compensation expense related to
unvested RSUs was $107.5 million, which is expected to be recognized over an estimated weighted
average remaining period of 2.8 years.
At December 31, 2020, the unrecognized stock-based compensation expense related to
outstanding stock options was $10.4 million, which is expected to be recognized over an estimated
remaining weighted average period of 1.3 years.
At December 31, 2020, the unrecognized stock-based compensation expense related to
unvested awards of restricted stock was immaterial.
Restricted Stock and RSUs
A summary of our restricted stock and RSU activity is presented below:
Restricted Stock
RSUs
(in thousands, except for per share data)
Unvested balance at December 31, 2017
Granted
Vested
Forfeited
Unvested balance at December 31, 2018
Granted
Vested
Forfeited
Unvested balance at December 31, 2019
Granted
Vested
Forfeited
Unvested balance at December 31, 2020
Number
of Shares
Weighted
Average
Grant Date
Fair Value
4.25
—
4.25
—
4.25
—
4.25
—
4.25
1,583 $
—
(693)
—
890
—
(395)
—
495
—
(396)
—
99
—
4.25
—
4.25
Number
of Shares
— $
Weighted
Average
Grant Date
Fair Value
—
18.75
—
16.27
18.90
27.81
18.28
25.21
26.34
28.23
25.37
26.68
28.13
1,200
—
(71)
1,129
2,715
(479)
(471)
2,894
3,570
(1,504)
(470)
4,490
RSUs granted under our stock incentive plans generally vest over a period of two to four years.
RSUs granted before July 30, 2018 vest upon the satisfaction of both service-based and
performance-based vesting conditions. The performance-based condition was satisfied upon the
completion of our IPO. RSUs granted after July 30, 2018 vest upon the satisfaction of a service-based
vesting condition.
100
Stock Options
A summary of our stock option activity is below:
(in thousands, except for per share data and
years)
Number
of Shares
Weighted
Average
Exercise
Price
Outstanding at December 31, 2017
Granted
Exercised
Forfeited/canceled
Outstanding at December 31, 2018
Granted
Exercised
Forfeited/canceled
Outstanding at December 31, 2019
Granted
Exercised
Forfeited/canceled
Outstanding at December 31, 2020
Exercisable at December 31, 2020
$
14,573
6,108
(740)
(722)
19,219
—
(4,205)
(2,075)
12,939
—
(2,956)
(542)
9,441
6,189
4.38
15.17
2.26
7.23
7.78
—
4.53
10.63
8.38
—
7.34
10.80
8.56
6.53
Weighted-
Average
Remaining
Contractual
Term (in
years)
8.2
Aggregate
Intrinsic
Value
$
77,020
9,902
8.0
277,114
98,378
7.1
201,608
73,277
412,547
283,024
6.4
6.1
At December 31, 2020, there were 9.4 million stock options outstanding that were vested and
expected to vest.
Stock options granted under our stock incentive plans have a maximum term of ten years,
generally vest over a period of three to four years, and the exercise price cannot be less than the fair
market value on the date of grant. In 2018, we granted stock options to employees that had a per
share weighted average grant date fair value of $6.84. Estimating the fair value of stock options using
the Black-Scholes option-pricing model requires assumptions as to the estimated term of the option,
the risk-free interest rate, the expected volatility of the price of our common stock, the expected
dividend yield, and the fair value of our underlying common stock prior to our IPO.
Fair Value of Common Stock. Following our IPO, we use the market price of our common stock at
the date of grant. Prior to our IPO, the lack of an active public market for our common stock required
an estimate of the fair value of the common stock for granting stock options and restricted shares,
and for determining stock-based compensation expense. Contemporaneous third-party valuations
were obtained to assist in determining the fair value of our common stock. The contemporaneous
valuations were performed in accordance with applicable methodologies, approaches and
assumptions of the technical practice-aid issued by the American Institute of Certified Public
Accountants Practice Aid entitled Valuation of Privately-Held Company Equity Securities Issued as
Compensation.
Expected Term. This is the period of time that the options granted are expected to remain
unexercised. We employ the simplified method to calculate the average expected term.
101
Expected Volatility. Volatility is a measure of the amount by which a financial variable, such as a
share price, has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a
period. We have identified several public entities of similar size, complexity, and stage of development
and estimate our volatility based on the volatility of the common stock of these companies.
Risk-Free Interest Rate. This is the U.S. Treasury rate, having a term that most closely resembles
the expected life of the stock option.
Expected Dividend Yield. We have never declared or paid dividends and have no plans to do so
in the foreseeable future.
The fair value of each stock option was estimated on the grant date based on the following
assumptions:
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Expected forfeiture rate
Year Ended December 31, 2018
6.3
41.3% — 43.3%
2.7% — 2.9%
—
—
2018 Employee Stock Purchase Plan
In 2018, our board of directors adopted, and our stockholders approved, our 2018 ESPP. Under
the evergreen provision, in January 2020 we reserved an additional 1,478,808 shares of our common
stock for issuance. At December 31, 2020, there were 5,431,176 shares reserved for issuance under
the 2018 ESPP.
Under our 2018 ESPP, employees may set aside up to 15% of their gross earnings, on an after-
tax basis, to purchase our common stock at a discounted price, which is calculated at 85% of the
lower of the fair market value of our common stock on the first day of an offering or on the date of
purchase. The 2018 ESPP permits offerings up to 27 months in duration, with one or more purchase
periods in each offering. Additionally, in cases where the fair market value of a share of our common
stock on the first day of a new purchase period within an offering is less than or equal to the fair
market value of a share of our common stock at the beginning of the offering, that offering will be
terminated and participants will be automatically enrolled in a new offering with a new 24-month
duration with purchase periods every six months.
In 2020, employees purchased 667,719 shares of our common stock at a weighted average price
of $19.53 per share, resulting in $13.0 million of cash proceeds.
In 2019, employees purchased 776,809 shares of our common stock at a weighted average price
of $19.48 resulting in $15.1 million of cash proceeds.
At December 31, 2020 and 2019 there was $6.5 million and $5.4 million, respectively, of
employee contributions to the 2018 ESPP included in accrued compensation. At December 31, 2020,
the unrecognized stock-based compensation expense related to our 2018 ESPP was $4.1 million,
which is expected to be recognized over the remaining weighted average period of 0.6 years.
102
The fair value of the 2018 ESPP purchase rights was estimated on the offering or modification
dates using a Black-Scholes option-pricing model and the following assumptions:
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Year Ended December 31,
2020
0.5 — 2.0
2019
0.5 — 2.0
2018
0.6 — 2.1
41.6% — 60.1% 34.4% — 44.6% 31.9% — 33.5%
1.5% — 2.5%
0.1% — 0.9%
2.3% — 2.7%
—
—
—
In 2021, we intend to use the volatility of Tenable stock when calculating the fair value of
purchase rights under the 2018 ESPP.
11. Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable
to common stockholders:
(in thousands, except per share data)
Net loss attributable to common stockholders
Year Ended December 31,
2020
2019
2018
)
$ (42,731) $ (99,013) $ (73,955)
)
(
)
(
(
Weighted-average shares used to compute net loss per share
attributable to common stockholders, basic and diluted
Net loss per share attributable to common stockholders, basic
and diluted
101,009
96,014
53,669
$
(
(0.42) $
)
(
(1.03) $
)
)
(1.38)
(
The following potentially dilutive securities have been excluded from the diluted per share
calculations because they would have been antidilutive:
(in thousands)
Stock options
RSUs
Restricted stock
Shares to be issued under the 2018 ESPP
Total
12. Income Taxes
Year Ended December 31,
2020
2019
2018
9,441
4,490
99
321
14,351
12,939
2,894
495
278
16,606
19,219
1,129
890
320
21,558
U.S. and international components of the loss before income taxes were as follows:
Year Ended December 31,
2020
2019
2018
$
(6,719) $ (21,644) $
1,429
(72,586)
)
(
$ (37,074) $ (85,649) $ (71,157)
(64,005)
)
(
(30,355)
)
(
(in thousands)
U.S. (loss) income
Foreign loss
Total loss before income taxes
103
The components of the provision for income taxes were as follows:
(in thousands)
Current
Federal
State
Foreign
Total current tax expense
Deferred
Federal
State
Foreign
Year Ended December 31,
2020
2019
2018
$
3 $
17
5,476
5,496
102
59
—
(224) $
100
9,245
9,121
—
—
4,243
4,243
13,364 $
—
58
2,306
2,364
—
—
—
—
2,364
Total deferred tax expense
Total provision for income taxes
161
5,657 $
$
The items accounting for the difference between income taxes computed at the federal statutory
rate and our effective tax rate were as follows:
U.S. federal statutory tax rate
State and local taxes
Research and development tax credit
Stock-based compensation
Uncertain tax positions
Foreign tax rate differential
Change in valuation allowance
Gain on sale of intellectual property
Foreign withholding tax
Other
Effective tax rate
Year Ended December 31,
2020
2019
2018
21.0 %
10.8
11.1
34.4
0.1
(10.6)
(81.2)
—
(3.3)
2.4
)
(
(15.3)%
21.0 %
4.8
3.1
19.0
(0.5)
(7.9)
(40.8)
(12.3)
(1.4)
(0.6)
)
(
(15.6)%
21.0 %
(1.5)
1.9
0.5
(1.0)
(9.4)
(12.6)
—
(1.1)
(1.1)
)
(
(3.3)%
We maintain a valuation allowance on U.S. federal, state and foreign net deferred tax assets as
the realization of our deferred tax assets is dependent upon future earnings, if any, the timing and
amount of which are uncertain.
104
The components of the deferred tax assets and liabilities were as follows:
(in thousands)
Deferred tax assets:
Net operating losses
Deferred revenue
Stock-based compensation
Tax credits
Leases
Accrued compensation
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Deferred commissions
Property and equipment
Intangible assets
Other
Total deferred tax liabilities
Net deferred tax liabilities
December 31,
2020
2019
$
89,053 $
65,494
13,454
11,846
11,565
15,238
1,271
379
13,891
10,032
7,585
10,451
918
263
142,806
(112,363)
30,443
108,634
(82,237)
26,397
(15,987)
(13,257)
(962)
(398)
(30,604)
)
(
(161) $
(15,003)
(10,086)
(919)
(389)
(26,397)
—
$
At December 31, 2020, we had net operating loss (“NOL”) carryforwards for federal, state and
foreign tax purposes of $254.7 million, $188.5 million, and $209.8 million, respectively, which will
begin to expire in 2030, as well as $13.9 million of federal, state and foreign research and
development tax credits, foreign tax credits, minimum tax credits and certain states’ job creation tax
credits. The federal research and development and foreign tax credits will begin to expire in 2032 and
the state job creation tax credits will begin to expire in 2021.
In December 2019, we sold acquired intellectual property through an intercompany transaction,
which resulted in $6.3 million of current tax expense and $4.2 million of deferred tax expense in
Israel.
We are currently subject to the annual limitation under Sections 382 and 383 of the Internal
Revenue Code. We will not be precluded from realizing the NOL carryforward and tax credits but may
be limited in the amount we could utilize in any given tax year in the event that the federal and state
taxable income will exceed the limitation imposed by Section 382. The amount of the annual limitation
is determined based on our value immediately prior to the ownership change. Subsequent ownership
changes may further affect the limitation in future years.
At December 31, 2020 and 2019, the total amount of gross unrecognized tax benefits was $7.1
million and $7.2 million, respectively, which, if recognized, would impact our effective tax rate by less
than $0.1 million in each year. Interest and penalties associated with uncertain tax positions
recognized as a component of income tax expense were immaterial in 2020, 2019 and 2018.
105
The change in gross unrecognized tax benefits, excluding accrued interest, were as follows:
(in thousands)
Unrecognized tax benefits at the beginning of the period
Additions for tax positions in the current year
Increase in prior year positions
Decrease in prior year positions
Acquisitions
Unrecognized tax benefits at the end of the period
Year Ended December 31,
2020
2019
2018
$
$
7,163 $
232
4,814 $
2,306
1,199
3,571
62
(334)
90
(89)
102
(58)
—
7,123 $
42
7,163 $
—
4,814
We file income tax returns in the United States, including various state jurisdictions. Our
subsidiaries file income tax returns in various foreign jurisdictions. Tax years after 2014 remain open
to examination by the major taxing jurisdictions in which we are subject to tax. At December 31, 2020,
we were not under examination for income tax audits by the Internal Revenue Service or any state or
foreign tax jurisdiction.
Depending on the jurisdiction, distributions of earnings could be subject to withholding taxes at
rates applicable to the distributing jurisdiction. As we intend to continue to reinvest the earnings of
foreign subsidiaries indefinitely, we have not provided for a U.S. income tax liability and foreign
withholding taxes on undistributed foreign earnings of foreign subsidiaries. It is not practicable for us
to determine the amount of unrecognized tax expense on these reinvested international earnings.
13. Geographic Information
We operate as one operating segment. Our Chief Executive Officer, who is our chief operating
decision maker, reviews financial information on a consolidated basis for purposes of making
operating decisions, allocating resources, and evaluating financial performance.
Revenue by region, based on the address of the end user as specified in our subscription, license
or service agreements, was as follows:
(in thousands)
The Americas
Europe, Middle East and Africa
Asia Pacific
Revenue
Year Ended December 31,
2019
2018
2020
$ 293,734 $ 243,616 $ 191,204
53,839
22,317
102,155
44,332
77,676
33,294
$ 440,221 $ 354,586 $ 267,360
Customers located in the United States accounted for 61%, 63% and 67% of revenue in 2020,
2019 and 2018, respectively. No other country accounted for 10% or more of revenue in the periods
presented.
106
Our property and equipment, net by geographic area is summarized as follows:
(in thousands)
United States
International
Property and equipment, net
14. Benefit Plans
December 31,
2020
2019
$
$
35,406 $
3,514
21,464
5,383
38,920 $
26,847
We maintain a contributory defined contribution 401(k) plan for our U.S. employees, where
company-matched contributions are fully vested. Additional contributory plans are in effect
internationally, including in the U.K. and Ireland. Our contribution expense for such plans was $6.5
million, $6.2 million and $4.8 million in 2020, 2019 and 2018, respectively.
15. Subsequent Events
On February 10, 2021, we entered into a share purchase agreement to acquire Alsid SAS for a
total purchase price of $98 million in cash, subject to customary purchase price adjustments. The
acquisition is expected to close early in the second quarter of 2021, subject to regulatory approvals
and the satisfaction of customary closing conditions.
16. Quarterly Results (unaudited)
The following tables summarize our unaudited quarterly consolidated statements of operations
data for each of the eight quarters through the period ended December 31, 2020. The information for
each of these quarters has been prepared on the same basis as our audited annual consolidated
financial statements and reflect, in the opinion of management, all adjustments of a normal, recurring
nature that are necessary for the fair presentation of the results of operations for these periods. This
data should be read in conjunction with our consolidated financial statements included elsewhere in
this Annual Report on Form 10-K. Historical results are not necessarily indicative of the results that
may be expected in the future, and the quarterly results are not necessarily indicative of the results
that may be expected for the full year or any other period.
107
(in thousands, except per share
amounts)
March 31,
2020
June 30,
2020
September 30,
2020
December 31,
2020
Three Months Ended
$
102,648 $
107,209 $
112,282 $
118,082
Revenue
Cost of revenue
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest income (expense), net
Other expense, net
Loss before income taxes
Provision for income taxes
Revenue
Cost of revenue
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest income, net
Other expense, net
Loss before income taxes
Provision for income taxes
18,701
83,947
59,855
26,831
18,933
105,619
(21,672)
734
(960)
(21,898)
1,079
19,142
88,067
55,443
25,310
17,879
98,632
(10,565)
455
(298)
(10,408)
1,552
19,394
92,888
53,045
25,128
18,180
96,353
(3,465)
(12)
(561)
(4,038)
1,820
52,689
21,935
15,136
89,760
(22,685)
1,556
(214)
56,015
21,698
15,987
93,700
(22,234)
1,594
(122)
56,699
20,763
17,472
94,934
(18,327)
1,527
(240)
(21,343)
(20,762)
(17,040)
97
866
600
20,317
97,765
55,934
24,418
18,144
98,496
(731)
67
(66)
(730)
1,206
(1,936)
)
(
)
(
(0.02)
62,632
22,668
20,873
106,173
(27,553)
1,153
(104)
(26,504)
11,801
(38,305)
)
(
)
(
(0.39)
Net loss
Net loss per share, basic and diluted $
(22,977)
)
(
)
(
(0.23) $
(11,960)
)
(
)
(
(0.12) $
(5,858)
)
(
)
(
(0.06) $
(in thousands, except per share
amounts)
March 31,
2019
June 30,
2019
September 30,
2019
December 31,
2019
Three Months Ended
$
80,301 $
13,226
67,075
85,384 $
13,918
71,466
91,852 $
15,245
76,607
97,049
18,429
78,620
Net loss
Net loss per share, basic and diluted $
(21,440)
)
(
)
(
(0.23) $
(21,628)
)
(
)
(
(0.23) $
(17,640)
)
(
)
(
(0.18) $
108
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule
15d-15(e) under the Exchange Act, that are designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to our management, including our
principal executive and principal financial officers, as appropriate to allow timely decisions regarding
required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act ), as of the end of the period covered by this Form
10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that as of December 31, 2020, our disclosure controls and procedures were effective to
provide reasonable assurance that the information required to be disclosed by us in this Form 10-K
was (a) reported within the time periods specified by SEC rules and regulations and (b)
communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding any required disclosure.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our management evaluated the
effectiveness of our internal control over financial reporting based on the framework in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission, and concluded that our internal control over financial reporting was effective
at December 31, 2020.
Our independent registered public accounting firm, Ernst & Young LLP, has issued an audit report
with respect to our internal control over financial reporting as of December 31, 2020, which is included
in Part II, Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s
evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the three months
ended December 31, 2020 that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
109
Inherent Limitations on Effectiveness of Internal Controls
In designing and evaluating the disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the
design of disclosure controls and procedures must reflect the fact that there are resource constraints
and that management is required to apply judgment in evaluating the benefits of possible controls and
procedures relative to their costs. Our management, including our Chief Executive Officer and Chief
Financial Officer, believes that our disclosure controls and procedures and internal control over
financial reporting are designed to provide reasonable assurance of achieving their objectives and are
effective at the reasonable assurance level. However, our management does not expect that our
disclosure controls and procedures or our internal control over financial reporting will prevent all
errors and all fraud.
Item 9B.
Other Information
None.
110
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Executive Officers and Directors
The information required by this item will be contained in our definitive proxy statement to be filed
with the SEC in connection with our 2021 annual meeting of stockholders, or the Proxy Statement,
which is expected to be filed not later than 120 days after the end of our fiscal year ended December
31, 2020, under the captions "Information Regarding the Board of Directors and Corporate
Governance," "Election of Directors" and "Executive Officers" and is incorporated in this report by
reference.
Item 11.
Executive Compensation
The information required by this item will be set forth in the Proxy Statement under the captions
"Executive Compensation" and "Non-Employee Director Compensation" and is incorporated herein by
reference.
Item 12.
Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management and Related
The information required by this item will be set forth in the Proxy Statement under the captions
"Security Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for
Issuance under Equity Compensation Plans" and is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions and Director Independence
The information required by this item will be set forth in the Proxy Statement under the captions
"Transactions with Related Persons" and "Independence of the Board of Directors" and is
incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information required by this item will be set forth in the Proxy Statement under the caption
"Ratification of Selection of Independent Registered Public Accounting Firm" and is incorporated
herein by reference.
111
PART IV
Item 15.
Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
See the Index to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-
K.
(a)(2) Financial Statement Schedules
SCHEDULE II
SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Allowance for Doubtful Accounts
Year Ended December 31, 2020
Year Ended December 31, 2019
Year Ended December 31, 2018
Balance at
Beginning of
Year
Additions
Charged to
Costs and
Expenses
Deductions(1)
Balance at
End of Year
$
764 $
188
160
336 $
967
149
(839) $
(391)
(121)
261
764
188
_______________
(1)
Consists of write-offs of uncollectible accounts, net of recoveries.
All other schedules have been omitted because they are not required, not applicable, or the
required information is included in the financial statements or the notes to the financial statements.
Item 16.
Form 10-K Summary
None.
112
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TENABLE HOLDINGS, INC.
Date: February 22, 2021
By:
/s/ Amit Yoran
Amit Yoran
Chairman and Chief Executive Officer
Date: February 22, 2021
By:
/s/ Stephen A. Vintz
Stephen A. Vintz
Chief Financial Officer
113
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Amit Yoran, Stephen A. Vintz and Stephen A. Riddick, jointly and
severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign
this Annual Report on Form 10-K of Tenable Holdings, Inc., and any or all amendments thereto, and
to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite or necessary to be done in and
about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or his,
her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to
114
the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Amit Yoran
Amit Yoran
/s/ Stephen A. Vintz
Stephen A. Vintz
Chairman and Chief Executive Officer
February 22, 2021
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
February 22, 2021
/s/ Arthur W. Coviello, Jr.
Arthur W. Coviello, Jr.
Director
/s/ Kimberly L. Hammonds
Director
Kimberly L. Hammonds
/s/ John C. Huffard, Jr.
John C. Huffard, Jr.
/s/ Jerry M. Kennelly
Jerry M. Kennelly
/s/ Ping Li
Ping Li
/s/ A. Brooke Seawell
A. Brooke Seawell
/s/ Richard M. Wells
Richard M. Wells
Director
Director
Director
Director
Director
/s/ Linda K. Zecher
Director
Linda K. Zecher
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
February 22, 2021
115
Stock Performance Graph
We have presented below the cumulative total return to our stockholders between July 26, 2018 (the date our
common stock began trading on the Nasdaq Global Select Market) through December 31, 2020 in comparison to the
Standard & Poor’s, or the S&P, 500 Index and the Nasdaq Computer Index. All values assume a $100 initial investment,
and data for the S&P 500 Index and Nasdaq Computer Index assume reinvestment of dividends. The comparisons are
based on historical data and are not indicative of, nor intended to forecast, the future performance of our common stock.
Comparison of 10 Quarter Total Return
$200
$180
$160
$140
$120
$100
$80
$60
7/26/18
9/30/18
12/31/18
3/31/19
6/30/19
9/30/19
12/31/19
3/31/20
6/30/20
9/30/20
12/31/20
Tenable Holdings, Inc.
S&P 500
NASDAQ Computer
Company/
Index
Tenable
Holdings,
Inc.
S&P 500
Index
NASDAQ
Computer
Index
7/26/2018(1)
9/30/2018
12/31/2018
3/31/2019
6/30/2019
9/30/2019
12/31/2019
3/31/2020
6/30/2020
9/30/2020
12/31/2020
$ 100.00
$ 128.53
$ 73.36
$ 104.66
$ 94.35
$ 73.98
$ 79.21 $ 72.26 $ 98.55 $124.79 $ 172.76
100.00
102.70
88.35
99.89
103.68
104.91
113.86
91.09
109.26
118.52
132.38
100.00
101.92
83.01
98.54
102.35
106.88
124.80
110.52
146.62
164.81
187.18
_______________
(1)
Base period
ANNUAL REPORT 2020