ANNUAL REPORT 2021
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
ý
¨
¨
¨
ý
¨
¨
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to § 240.14a-12
Tenable Holdings, Inc.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box)
ý
¨
¨
No fee required.
Fee paid previously with preliminary materials.
Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.
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6100 Merriweather Drive, 12th Floor
Columbia, Maryland 21044
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 25, 2022
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 Wednesday, May 25,
2022 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 folff
lowing purposes:
1. To elect the Board of Directors’ nominees, Amit Yoran, Linda Zecher Higgins, and Niloofarff Razi
until the 2025 Annual Meeting of Stockholders.
Howe, to the Board of Directors to hold officeff
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,
2022.
YY
3. To approve, on a non-binding advisory basis, the compensation of the Company's Named
Executive Officers
ff
as disclosed in this proxy statement.
4. To conduct any other business properly brought beforeff
the meeting.
These items of business are more fully described in the Proxy Statement accompanying this Notice.
The record date forff
the Annual Meeting is March 31, 2022. 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 Secretaryt
Columbia, MD
April 13, 2022
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.
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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
Executive Compensation
Executive Summary
Executive Compensation Philosophy and Objectives
Compensation Elements
Compensation-Setting Process
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
Page
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To Our Stockholders,
The last year has both highlighted the criticality of cybersecurity in every aspect of modern life
and tested the foundational strength of our business. I am particularly proud of the way our
employees have risen to the challenge of navigating this complex world where ransomware, breaches
and nation-state threats regularly make the news. Tenable has been there, at every step along the
way, to help our customers understand and reduce their cybersecurity risk, helping keep their
businesses safer while accelerating their ability to innovate.
Our commitment to our customers
2021 was a year of milestones on many fronts, including a dramatic rise in high-profile cyber
problems. As bad actors evolve from retrieving personal identification to crippling businesses and our
communities, we remain completely focused on enabling our customers to answer the one question
that is most critical to any digital enterprise: “How Secure Am I?” Our customer base has embraced
digital transformation and all that it entails – shifting to the cloud and hyper-distributed modern
applications. These same customers increasingly recognize that every new technology investment,
every computer and asset type is interconnected and introduces risk. Tenable is working hand-in-
glove with more than 40,000 organizations to help them expand their vulnerability management (VM)
discipline to other areas of their infrastructure so they can understand and reduce their exposure to
risk across software, identity and configurations.
During the year we delivered a platform that can provide our customers with the leverage they
need by securing their tech investments so they can accelerate innovation. Tenable.ep brings our
point solutions together to deliver the holistic insights and analytics modern enterprises require. We’re
helping them understand how areas of attack are interconnected with an integrated solution and a
complete picture of cyber risks. We are delivering unified visibility into code, configurations, assets
and workloads. Because cyber risk is business risk, Tenable.ep helps organizations understand
security concerns in the broader context of their business priorities. Tenable.ep combines the best of
our past and present, establishing a better together framework that will serve our customers now as
well as over the long term.
Our commitment to corporr
rate socialii
responsibilityll
In April of 2021, we published our first corporate sustainability report. We outlined our
commitment to the environment, to our people and the investments we've made to foster this goal.
We know that Tenable is stronger because we bring different
ff
table. What’s more, we are 100% focuse
where people can thrive and succeed with meaningful careers. To that end, we instituted a number of
initiatives to enhance the employee experience, including:
d on making Tenable a premier employer -- a company
and inclusive perspectives to the
ff
•
•
•
days annually forff
TwoTT
Enhanced learning opportunities, including diversity, equity and inclusion training,
career development,
Remote work flexibility,
• Offices closed every Friday in August, and
•
Annual equity grants to all eligible employees in good standing.
Nothing has made me more proud than watching the heroic efforts
ff
of our team throughout the last
year. Their dedication to our customers, to our partners and to each other are constant. We will
5
continue to invest in our employees just as surely as we will continue to achieve great results
together.
Our commitmett
nt to finanii
rr
cial perfor
rr man
ce
Going into 2021 we had great confidence in our ability to execute on our key initiatives even with
the great macro uncertainty created by the global pandemic. We are incredibly proud of our results
and the financial performance that reflects the team’s hard work. A few highlights:
•
•
•
Accelerated growth in each of the four quarters,
Achieved Rule of 40 (defined below) for full-year 2021, and
Added a record 1,800+ enterprise platform customers, and 250+ net new 6-figure customers.
Our commitmett
nt to our investo
ii
rs
In December we held our first investor day. We recognize the importance that investors play in
our success and appreciate their diverse views. We pride ourselves on our investor relationships and
will continue to seek out thoughtful ways to deepen our dialog.
And we’re just getting started. Just as we pioneered the vulnerability management market, we are
ff
ront of innovation where technology investments, devices, risks and
once again at the foref
opportunities are profoundly
ff
assess and mitigate risk. We believe foundational cyber can and should accelerate innovation in a
cloud-first world. And we believe every organization must be able to answer the question, “How
secure are we?”
interconnected. We’re helping organizations of all sizes rethink how they
Sincerely,
Amit Yoran
Chairman & CEO
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Business Overview - 2021 Highlights
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.
We have continued to expand and diversify off
ur platform offerings from traditional vulnerability
management (VM) solutions, which include Tenable.sc and Nessus, to our cloud exposure solutions,
which include Tenable.ep, Tenable.io, Tenable.cs, Tenable Web Scanning, or Tenable.io WAS,
Tenable.ad and Tenable.ot. Our platforff m 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,
DevOps environments, Active Directory and Identity 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 offeff
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.
rings integrate and analyze data from our native collectors alongside IT
Our 2021 highlights were as follows:
•
•
•
•
•
•
Launched Tenable.ep, our unified, risk-based vulnerability management exposure platform
designed to provide visibility across Tenable’s solutions and prioritize vulnerabilities using
predictive analytics.
Achieved FedRAMP authorization for Tenable.io and Tenable.io Web App Scanning, allowing
the U.S. federal government to deploy both products across various departments and
agencies.
Acquired Alsid SAS and Accurics, Inc. for $98.5 million and $160.0 million, respectively.
Closed our new credit facility comprised of a $375 million senior secured term loan and a $50
million senior secured revolving credit facility.
Revenue was $541.1 million, a 23% increase year-over-year.
Calculated current billings was $617.2 million, a 25% increase year-over-year.
• GAAP loss from operations was $41.8 million, compared to a loss of $36.4 million in 2020;
Non-GAAP income from operations was $51.0 million, compared to $25.8 million in 2020.
• GAAP net loss per share was $0.44, compared to a loss per share of $0.42 in 2020; Non-
GAAPAA
diluted earnings per share was $0.34, compared to $0.19 in 2020.
•
•
Unlevered free cash flow was $95.2 million, compared to $44.3 million in 2020.
Achieved Rule of 40 for full-year 2021, which we define as the sum of percentages for
revenue growth and unlevered free cash flow margin.
Refer to the appendix for reconciliations of non-GAAP measures to comparable GAAPAA measures.
7
TENABLE HOLDINGS, INC.
6100 Merriweather Drive, 12th Floor
Columbia, Maryland 21044
PROXY STATEMENT
FOR THE 2022 ANNUAL MEETING OF STOCKHOLDERS
May 25, 2022
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
“Company” or “Tenable”)
is soliciting your proxy to vote at the 2022 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.
Holdings, Inc. (sometimes referred
to as the
TT
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ff
We intend to mail the Notice on or about April 13, 2022 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 25, 2022.
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. Upon completing your registration, you will receive further instructions via email,
including a unique link that will allow you access to the Annual Meeting. We recommend that you log
in a fewf minutes beforeff
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 afford
person meeting, however any questions will need to be submitted in advance of the meeting.
ed the same rights and opportunities to participate as they would at an in-
ff
8
Who can vote at the Annual Meeting?
Only stockholders of record at the close of business on March 31, 2022 will be entitled to vote at
there were 110,286,675 shares of common stock
the Annual Meeting. On this record date,
outstanding and entitled to vote.
kk
Stockholde
r of Record: Shares Registered in Your Name
If on March 31, 2022 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.
TT
Beneficial Owner: Srr
hares Registered in the Name of a Broker or Bank
If on March 31, 2022 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. YouYY will receive instructions from your broker, bank or agent
that you must follow in order to submit your voting instructions and have your shares voted at the
Annual Meeting. YouYY 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);
Ratification of selection by the Audit Committee of the Board of Directors of Ernst & Young
LLP as independent registered public accounting firm of the Company for the year ending
December 31, 2022 (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).
YY
ff
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 beforeff
persons named in the accompanying proxy to vote on those matters in accordance with their best
judgment.
the meeting, it is the intention of the
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.ff For Proposals 2 and 3, you may vote “For” or “Against” or "Abstain"
from voting.
9
Stockholder of Record: Shares Registered in Yii
ourYY
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.
•
•
•
•
ote online during the meeting, access the Annual Meeting by visiting
To vTT
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.
ote using the proxy card, simply complete, sign and date the proxy card that may be
To vTT
delivered and return it promptly in the envelope provided. If you return your signed proxy card
to us beforef
the Annual Meeting, we will vote your shares as you direct.
ote over the telephone, dial toll-free 866-230-6244 using a touch-tone phone and follow
To vTT
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, beforeff
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 Owneww r: 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, 2022.
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, 2022,
YY
10
and "For" the approval of, on a non-binding advisory basis, the compensation of our Named
Executive Offff icers. 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.
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 arr
beneficial ownerww
rr
treet
ii hett way youyy would prefer, you must provid
of shares held in sii
rr
e vdd
are voted in t
bank or other agent by the deadlinll e providvv eddd
bank or other agent.
in the material
rr
name, in order
otvv ingtt
rr s yll
ouyy
to ensure your shares
instructions to your
,rr
broker
yy
receive from your broker,
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rr
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
nt accounts. Please follow the voting instructions on the Notice to ensure that all of your shares
differe
ff
are voted.
Can I change my vote after submitting my proxy?
Stockholder of Record:rr Shares Registered in Your Name
Yes. You can revoke your proxy at any time beforeff
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:
YouYY may submit another properly completed proxy card with a later date.
YouYY may grant a subsequent proxy by telephone or through the Internet.
YouYY 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.
YouYY may attend the Annual Meeting and vote online. Simply attending the meeting will not, by
itself, revoke your proxy.
•
11
Your most current proxy card or telephone or Internet proxy is the one that is counted.
Beneficial Owneww r: 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?
ff
the 2023 Annual Meeting of Stockholders, you must deliver your notice to our
To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in
writing by December 14, 2022, to 6100 Merriweather Drive, 12th Floor, Columbia, Maryland 21044. If
election at, or bring business other than through a stockholder
you wish to nominate an individual forff
proposal before,
Corporate Secretary at the address above between January 25, 2023 and February 24, 2023. Your
notice to the Corporate Secretary must set forth informat
ion specified in our bylaws, including your
ff
name and address and the class and number of shares of our stock that you beneficially own. In
addition to satisfying the foregoing requirements under Tenable's bylaws, to comply with the universal
proxy rules (once effect
ive), stockholders who intend to solicit proxies in support of director nominees
other than Tenable's nominees must provide notice that sets forth the informat
14a-19 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no later than
March 26, 2023.
ion required by Rule
ff
ff
If you propose to bring business beforeff
an annual meeting of stockholders other than a director
ff
: (1) a brief
nomination, your notice must also include, as to each matter proposed, the following
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
election as a director, your notice must also
business. If you propose to nominate an individual forff
include, as to each person you propose to nominate forff
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
at the next meeting at which such person would face election or re-election, an irrevocable
resignation effect
informat
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 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
any proposed nominee to furnish other informff
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.
ive upon acceptance of such resignation by the Board of Directors and (6) any other
ion concerning the person as would be required to be disclosed in a proxy statement soliciting
to receive the required vote for election or re-election
ation as we may reasonably require to determine the
as a director if elected. We may require
rr
ff
ff
ff
For more informat
ff
ion, and forff 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.
12
How are votes counted?
Votes will be counted by the inspector of election appointed for the meeting, who will separately
count, forff 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,
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
and 3 will have no effect
ff
expect broker non-votes on Proposal 2.
and will not be counted towards the vote total for those proposals. We do not
as “Against” votes. Broker non-votes on Proposals 1
”For," "Against" and “Abstain” and
ff
ff
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 thereforeff
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.
expect
As a remrr
inder, if you are a b
r shares are voted in t
rr
ouyy
ensure yrr
instructions to your broker,kk
receive from your broker, bank or other
bank or other
tt
tt
agent.
eneficial ownerww
of shares held in sii
ii hett way youyy would prefer, you must provid
agent by the deadlinll e providvv eddd
treet
rr
rr
to
name, in order
rr
e vdd
otvv ingtt
in the material
rr s yll
ouyy
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
.
have no effect
the outcome. Broker non-votes will
ff
ff
To be approved, Proposal 2, ratification of the selection of Ernst & Young
YY
LLP as the Company’s
independent registered public accounting firm for 2022, 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
as an “Against” vote. Since brokers
matter. If you “Abstain” from voting, it will have the same effect
have authority to vote on your behalf with respect to Proposal 2, we do not expect broker non-votes
on this proposal.
ff
For Proposal 3, advisory approval of the compensation of our Named Executive Offiff cers 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
ff
.
non-votes will have no effect
as an “Against” vote on this proposal. Broker
ff
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 110,286,675 shares outstanding
13
and entitled to vote. Thus, the holders of 55,143,338 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.
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, 2022 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, 2022 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, 2022 by following the instructions in your registration
documents on https://www
.proxydocs.com/TENB.
//
To help ensure that we have a productive and efficient
ff
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 difficult
ff
ies 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,
2022.
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.
14
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
YY
expires in 2022. Mr. Yoran
was previously elected by Tenable's stockholders.
whose term of officeff
Mses. Higgins and Howe were recommended to the Board by a member of senior management and
the chief executive officer
would serve until the 2025 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 2021, eight of our then serving directors attended the Annual Meeting.
, respectively. If elected at the Annual Meeting, each of these nominees
ff
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 affirmat
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 forff
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.
ive votes will be elected. Shares represented
that nominee will instead will be voted
ff
The following table includes diversity information regarding our directors:
Board Diversity Matrix (As of March 31, 2022)
Total Number of Directors
Part I: Gender Identity
Directors
Part II: Demographic Background
African American or Black
White
Female
Male
9
3
0
3
6
1
5
CLASS I NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2025
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
15
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
ive functioning of the Board. To provide a
other qualities that the Committee views as critical to effect
mix of experience and perspective on the Board, the Committee also takes into account gender, age,
and ethnic diversity. The brief biographies below include informat
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.
ion, as of the date of this proxy
ff
ff
16
Amit YoraYY
n, age 51
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 Offff icer 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
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.
received a B.S. from the United States Military
YY
Niloofar Razi Howe, age 53
ff
Niloofarff Razi Howe has served as a member of our Board of Directors since
May 2021. Since 2019, Ms. Howe has served as a senior operating partner at
Energy Impact Partners, a venture capital fund. Ms. Howe previously served as
Chief Strategy Officer
and Senior Vice President of Strategy and Operations at
RSA, a global cybersecurity company, from 2015 to 2018. Ms. Howe has served
on the Board of Directors of Composecure, Inc. since December 2021. Ms.
Howe also currently serves on the board of directors of a number of private
technology companies. Ms. Howe received a B.A. degree from Columbia
College and holds a Juris Doctor degree from Harvard Law School. Our Board
of Directors believes that Ms. Howe is qualified as a director based on her
extensive cybersecurity and management experience and her experience as a
director of technology companies.
Lindii
ZZ
a Zdd
echer
Higgi
ins, age 68
ff
ff
Linda Zecher Higgins has served as a member of our Board of Directors since
and Managing Partner
August 2019. Ms. Higgins is the Chief Executive Officer
ive digital
of the Barkley Group, a consulting firm focused on effect
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 Mifflinff
Harcourt Company from September
2011 to September 2016. Ms. Higgins has served as a member of the board of
directors of Hasbro, Inc. since August 2014. Ms. Higgins received a B.S. in
Earth Science from The Ohio State University. Our Board of Directors believes
that Ms. Higgins 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
17
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2023 ANNUAL MEETING
John C. Huffard
, Jdd r.JJ , age 54
ff
ff
served as our Chief Operating Officer from May 2018 through
John C. Huffard, Jr. has served as a member of our Board of Directors since
2002. Mr. Huffard
December 2019. Prior to that, he served as our President and Chief Operating
Offiff cer from November 2008 to May 2018, and he co-founded
our company in
has also served as a member of the board of directors of
2002. Mr. Huffard
Norfolkff
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
a director based on his in-depth knowledge of our company and our products
.
and prior role as our Chief Operating Officer
due to his role as our co-founder
Southern Corporation since February 2020. Mr. Huffard
is qualified to serve as
ff
ff
ff
ff
ff
ff
A. Brooke Seawell, al ge 74
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 September
2020. He previously served on the board of directors of Tableau Software,
Inc.,
a business intelligence software
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
public companies and his experience as a director of public technology
companies.
company, from November 2011 to August 2019.
of two
ff
ff
ff
Raymond Vicks,kk Jr., age 62
Raymond Vicks, Jr. has served as a member of our Board of Directors since
January 2022. Mr. Vicks previously served as Managing Partner at the BMV
Group, a position he held from August 2017 until his retirement in 2019. Mr.
Vicks also served as the Chief Financial Offiff cer of the HSC Health Care System
from 2015 to 2019. Prior to that, Mr. Vicks served in roles of increasing
responsibility at PricewaterhouseCoopers LLP from 1995 to 2014, where at the
time of his departure, he was a Partner. Mr. Vicks is a Certified Public
Accountant and received his B.S. in accounting from Virginia Tech and his
M.P.H. from George Washington University. Our Board of Directors believes that
Mr. Vicks is qualified to serve as a director based on his based on his extensive
public accounting and management experience.
18
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2024 ANNUAL MEETING
Arthur W. Coviello, Jr.rr , age 68
VV
Partner at Rally Ventures, LLC, a position he has held
Arthur W. Coviello, Jr. has served as a member of our Board of Directors since
February 2018 and as our Lead Independent Director since February 2022.
Mr. Coviello is a Venture
since May 2015. Mr. Coviello has served on the boards of directors of
Synchrony Financial since November 2015, Mandiant, Inc. (f/k/a 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.
Kimberlyrr L. Hammondsdd , age 54
ff
of Deutsche
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
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. Ms. Hammonds has served on the boards of directors of
Box, Inc. since October 2018, Zoom Video Communications since September
2018, UiPath Inc since October 2020, 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. Kennellyll
, ayy ge 71
ff
ff
of Scandic
from May 2002 to April 2018. Mr. Kennelly served on the
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
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
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 YorkYY
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.
University. Our
19
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 aff
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
s “independent,” as affirmat
from time to time.
ively
ff
ff
Consistent with these considerations, after
ff
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 registered public accounting firm, the Board has affirmat
ively
determined that the following seven of our current directors are independent directors within the
meaning of the applicable Nasdaq listing standards: Arthur W. Coviello, Jr., Kimberly L. Hammonds,
Jerry M. Kennelly, Niloofar Razi Howe, A. Brooke Seawell, Raymond Vicks, Jr., and Linda Zecher
Higgins. The Board determined that Messrs. Li and Wells, who resigned from the Board of Directors
in May 2021 and January 2022 respectively, were also independent while each served on the Board.
In making this determination, the Board fouff nd that none of these directors or nominees for director
had a material or other disqualifying relationship with the Company.
ff
Board Leadership Structure
YY
Our Board of Directors is currently chaired by Mr. Yoran,
believes that combining the positions of Chief Executive Officer
the Board and management act with a common purpose and 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/B
ion. The Board also
between management and the Board, facilitating the regular flow of informat
believes that it is advantageous to have a Board Chair with significant history with and extensive
knowledge of Tenable
ff
and Board Chair helps to ensure that
oard Chair is better positioned to act as a bridge
(as is the case with Mr. Yoran).
our Chief Executive Officer
. The Board
TT
TT
ff
ff
ff
The Board has also appointed Mr. Coviello as lead independent director in order to help reinforce
ff
ff
ff
YY
tive balance to Mr. Yoran’
s leadership as our combined Chief Executive
and Board Chair. The lead independent director is empowered to, among other duties and
and Board Chair to develop and approve an
ff
the independence of the Board as a whole. The position of lead independent director has been
structured to serve as an effecff
Officer
responsibilities, work with the Chief Executive Officer
appropriate Board meeting schedule and 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 effect
oversight responsibilities.
ive independent functioning of the Board in its
ff
ff
20
Role of the Board in Risk Oversight
One of the Board’s key functions is inforff med 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 forff 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 forff
risk management
at least annually, and the applicable Board committees meet at least annually with the employees
responsible forff
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 forff
responsibility of the committee chairs to report findings regarding material risk exposures to the Board
as quickly as possible.
risk management, as well as incidental reports as matters may arise. It is the
Meetings of the Board of Directors
The Board of Directors met six times during 2021. Each director attended 75% or more of the
aggregate number of meetings of the Board and of each of the committees on which he or she served
during the portion of the last year for which he or she was a director or committee member.
21
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 meeting informat
for 2021 and current membership for each of the Board committees:
ff
ion
Name
Arthur W. Coviello, Jr.
Kimberly L. Hammonds
Jerry M. Kennelly
Niloofarff Razi Howe(2)
A. Brooke Seawell
Linda Zecher Higgins
Raymond Vicks, Jr.(3)
Total meetings in 2021
Audit
X(1)
X
X*
X
8
Compensation
Nominating and
Corporate Governance
X*
X
X*
X
X
5
X
4
___
____
________
__
__
* Committee Chairperson
(1) Mr. Coviello ceased being a member of the Audit Committee in January 2022 in connection with Mr. Vicks' appointment to
the Audit Committee.
(2) Ms. Howe joined the Board in May 2021.
(3) Mr. Vicks joined the Board in January 2022.
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 CCommittee fof the Board off Directors was established byy the Board in accordance with
3(a)(58)(A) o) off the Exch gange Act to oversee the CCompa yny’s corporate account ging and
SSection 3(a)(58)(A
ffinancial report ging processes and audits off its ffinancial statements. For this purpose, the Audit
CCommittee pe frforms several ffunctions. The principal duties and responsibilities fof our audit committee
include, amo gng other th gings:
•
•
•
•
•
•
ff
of the independent registered public
elping to ensure the independence and performance
electing a qualified firm to serve as the independent registered public accounting firm to
s
audit our financial statements;
h
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
ff
of the Company's internal audit function;
22
• meeting in executive session with management and the Company's independent registered
•
•
•
public accountants;
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
ff
be performed
by the independent registered public accounting firm.
The Audit Committee is currently composed of three directors: A. Brooke Seawell, Kimberly L.
Hammonds, and Raymond Vicks, Jr. Arthur Coviello served as a member of the Audit Committee until
January 2022. The Audit Committee met eight times during 2021. 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 Messrs. Vicks and Seawell each qualifies as an
“audit committee financial expert,” as defined in applicable SEC rules. The Board made a qualitative
assessment of Messrs. Vicks and Seawell's level of knowledge and experience based on a number of
factors, including their formal education, Mr. Seawell's experience as a chief financial officer
of public
reporting companies and Mr. Vicks' public accounting experience.
ff
Report of the Audit Committee of the Board of Directors*
The Audit Committee has reviewed and discussed the audited financial statements forff
the year
ended December 31, 2021 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, 2021.
A. Brooke Seawell, Chair
Kimberly L. Hammonds
Raymond Vicks, Jr.
*TheTT material in this report is not "solicit
"
ingtt material," is nii
ot deemed "filed"
ii
with t
tt hett Commission
and is not to be incorporated by reference in any filing of the Company under the Securitiestt
Exchange Act, wt
ctive of any general
incorporationtt
tt
hetww her
language in aii
made beforeff
ii
or after the date hereorr
ny such filing.
f and irresrr pes
Act or the
23
Compensation Committee
The Compensation Committee of the Board of Directors acts on behalf of the Board to review,
modify aff
nd oversee the Company’s compensation strategy, policies, plans and programs, including:
•
•
•
establishment of corporate and individual performance
compensation of our executive officers,
evaluation of performance
in light of these stated objectives;
ff
ff
ff
objectives relevant to the
directors and other senior management and
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
rr
ff
ff
administration of our equity compensation plans, bonus plans, benefit plans and other similar
plans and programs.
The Compensation Committee is currently composed of three directors: Jerry M. Kennelly, Linda
Zecher Higgins, and Niloofarff Razi Howe. 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 2021. 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
ff
ff
ff
ff
and Compensia, Inc.
, Chief People Officer
, our Chief People Officer
and our General Counsel also regularly attend meetings at the
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
("Compensia"), the compensation consultant engaged by the Compensation Committee. The
Compensation Committee meets regularly in executive session. In addition to our Chief Executive
Officer
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
may not participate in,
participate in Compensation Committee meetings. The Chief Executive Officer
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.
ff
ff
24
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:
•
•
evaluate the efficacy
ff
supporting and reinforcing
ff
of the Company’s existing compensation strategy and practices in
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
the Compensation Committee with respect to executive compensation for the year ended December
31, 2021, 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.
and compensation levels for that group. The specific determinations of
ff
Under its charter, the Compensation Committee may forff m, and delegate authority to,
ff
subcommittees as appropriate. In 2021, the Compensation Committee delegated authority to Mr.
and Chairman, to grant, without any further
ff
Yoran, in his capacity as our Chief Executive Officer
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
subject to maximum limits based on a targeted market range of share value and other parameters for
each recipient’s classification as set fort
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.
exercised his authority
to grant a total of 566,582 restricted stock units ("RSUs") to qualifying
awards were granted pursuant to Mr. Yoran’
h in guidelines approved by the Compensation Committee
During 2021, Mr. Yoran
ff
employees. No other equity
s authority during 2021.
are
YY
YY
YY
YY
ff
The Compensation Committee typically makes adjustments to annual compensation, approves
ff
of the Company’s compensation strategy,
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
ff
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
, the evaluation of
Committee by the Chief Executive Officer
his performance
is conducted by the Compensation Committee, which determines any adjustments to
ff
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
ion, tally sheets that
as financial reports and projections, operational data, tax and accounting informat
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,
. In the case of the Chief Executive Officer
ff
ff
ff
25
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.
Compensation Committee Interlocks akk
nd Insider Partitt cipaii
tion
None of the current members of our Compensation Committee has ever been an executive officer
ff
or employee of ours. None of our executive officers
completed year, on the compensation committee or board of directors of any other entity that has one
or more executive officers
Committee.
serving as a member of our Board of Directors or Compensation
currently serve, or has served during the last
ff
ff
Report of the Compensation Committee of the Board orr
f 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 year ended December 31, 2021.
Jerry M. Kennelly, Chair
Niloofarf Razi Howe
Linda Zecher Higgins
*TheTT material in this report is not “so“
ii urnished
to, but not deemed “filed” with,tt
the Commission and is not deemed to be incorporated by reference
under the Securitiestt
10‑K, where it shall be deemed to be “furnished,” whetww her
irrespectivett
tt
language in aii
of any general incorporationtt
EE
Act or the Exchange
ny such filing.
made beforeff
in any filing of the Company
Act, other than the Company’s Annual Report on Form
ff
or after
the date hereof and
licitingtt material,” is f
ff
ff
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
management and the Board, and developing a set of corporate governance principles for the
Company.
of
ff
The Nominating and Corporate Governance Committee is currently composed of three directors:
Arthur W. Coviello, Jr., Kimberly L. Hammonds, and Linda Zecher Higgins. 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 2021. 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
26
ff
ff
ff
advice and guidance to management,
rs of the Company, demonstrated excellence in his or her
possessing relevant expertise upon which to be able to offer
having sufficient
time to devote to the affai
field, having the ability to exercise sound business judgment and having the commitment to rigorously
represent the long-term interests of the Company’s stockholders. However, the Nominating and
ff hese qualifications from time to time.
Corporate Governance Committee retains the right to modify t
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 officeff
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 perforf mance 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-ff
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
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 informat
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.
ion and a description of the proposed nominee's
address:
ff
ff
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
27
communication directed to our non-management directors, please contact our Corporate Secretary or
Legal Department in writing at the address listed below.
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 offenff
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.
sive or otherwise inappropriate material. The
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.
ff
ff
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.
ff
28
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has selected Ernst & Young
YY
LLP as the
the year ending December 31, 2022
Company’s independent registered public accounting firm forff
and has further directed that management submit the selection of its independent registered public
accounting firm forff
audited the Company’s financial statements since 2014. Representatives of Ernst & Young
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.
ratification by the stockholders at the Annual Meeting. Ernst & Young
LLP has
LLP are
YY
YY
Neither the Company’s Bylaws nor other governing documents or law require stockholder
YY
LLP as the Company’s independent registered public
ratification of the selection of Ernst & Young
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 t
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 differe
any time during the year if they determine that such a change would be in the best interests of the
Company and its stockholders.
ff he selection, the Audit Committee of the Board will reconsider whether or
nt independent registered public accounting firm at
ff
The affiff rmative 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.
YY
Fees and Services
The following table represents aggregate fees billed to the Company by Ernst & Young
YY
LLP, tP he
Company’s principal accountant.
(in thousands)
Audit Fees(1)
Tax fees(2)
All Other Fees(3)
Total Fees
Year Ended December 31,
2021
2020
$
$
1,927 $
8
2
1,937 $
1,491
—
56
1,547
____
___
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 related to business combinations in 2021
and fees forff
in connection with our secondary offering
procedures performed
in 2020.
ff
ff
(2)
Tax fees included fees for permissible tax advisory services.
(3)
and tax research software.
All other fees included fees forff
permissible advisory services and access to online accounting
All fees and services described above were pre-approved by the Audit Committee.
29
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 &
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 beforeff
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
The Audit Committee has determined that the rendering of pre-approved services other than audit
services by Ernst & Young
independence.
YY
LLP is compatible with maintaining the principal accountant’s
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
30
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 Offiff cers 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 Offiff cers' compensation as a whole. The vote is not intended to
address any specific item of compensation or any specific Named Executive Offiff cer, but rather the
overall compensation of all our Named Executive Offff icers 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.
ff
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 informat
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 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.
ion to us regarding
ff
The compensation of our Named Executive Offff icers 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
as described in this proxy statement by casting a non-binding advisory
ff
our Named Executive Officers
vote “FOR” the folff
lowing resolution:
“RESOLVED, that the compensation paid to the Company’s named executive officers,
disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and
Analysis, compensation tables and narrative discussion is hereby APPROVED.”
as
ff
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 i
the next scheduled Say-on-Pay vote will be at the 2023 Annual Meeting.
ts policy regarding the frequency of soliciting Say-on-Pay votes,
ff
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
31
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 effoff
rts 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.
ff
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 effect
our oversight of corporate strategy, key risks, and our operations more generally.
ive when we consider environmental and social issues as part of
ff
In 2020, we pooled internal and external resources to assess environmental, social and
f
rs that are material to our business. With the assistance of external ESG
governance ("ESG") facto
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. In
April 2021, we published our first corporate sustainability report and our efforts
ongoing.
in this regard are
ff
Environmental Stewardship
Our Board and management team recognize that we have a role to play in environmental
stewardship. Given that the Company is a softwff are 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.
32
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 (“AWSAA
”).
In 2014, AWS shared its long-term commitment to achieve 100 percent renewable energy usage for
the global AWS infrastructure fooff
tprint. Our new corporate headquarters is a LEED Certified Gold forff
Core Construction.
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 offeff
vulnerability data. As such, we take the overall security of the Company's products and their
supporting infrastructure very seriously.
rings for managing their
The Company aligns its information security and risk management program to the NIST Cyber
ion security management system (“ISMS”) to
Security Framework and has implemented an informat
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 informat
ion security management.
ff
ff
Outside of internal improvements to our platform and customer relationship management, we do
not use customer data forff
any other purposes.
Diversity and Inclusion
We seek to cultivate a diverse and inclusive workforce
ff
rences, we drive more innovation and grow
business results. When we value and celebrate diffeff
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.
and environment to achieve exceptional
ff
We undertake numerous efforts
ff
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 sTT
upport 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.
ff
We, in conjunction with a third party, evaluated our current pay scales, systems and infrastructure
to identify any root causes that impact pay equity. From there, we designed a pay equity action plan
and, in 2021, we executed on our plan and implemented systemic changes that resulted in a program
to drive true and enduring pay equity. We recognize that pay equity requires ongoing analysis and are
committed to regularly evaluating our practices for any inconsistencies.
33
Employee Engagement
The Company promotes and supports employee development and organizational effecti
ff
veness
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.
Our employee engagement program helps us understand employee sentiment on a wide range of
topics throughout the employee lifecycle, providing insights that informf
our decisions about company
initiatives, employee programs, talent risks, management opportunities and more. In 2021, 83.2% of
our eligible employees participated in our annual employee engagement survey.
Community Involvement
in
We're a company built on our “We Care” core value, and we look to make a positive difference
everything that we do – in our work, with our customers and our colleagues, and in our communities.
ff
• 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.
Just as volunteering in our communities is an important aspect of our corporate culture, we
encourage our employees to express their voices in local, state, and national public policy.
Employees are given a total of one day off pff er year to exercise their right to vote.
In addition, we formed a federal
ff
Political Action Committee ("PAC") which allows eligible
employees to pool their resources in order to support elected officials who share our interests on
is registered with the
public policy matters that impact the future of our business. Tenable’s PACPP
Federal Election Commission, and any contributions made by the PACPP
are fully funded by voluntary
employee contributions, not corporate funds. Like other PACs, the Tenable PAC is a means by which
our eligible employees can pool their personal contributions to help provide financial support for
elected offici
ensure public policies promote growth for our business, our employees, and our customers.
als. It does not exist to advance any particular partisan or social agenda, but rather to
ff
Campaign contributions and similar expenditures are regulated by various federal, state and local
laws. A campaign contribution is a donation of something of value to a candidate or a candidate’s
committee, to a ballot measure committee, to a political party, or to a PACPP
purpose of making contributions to candidates or other political committees. The laws regulating
that collects funds for the
34
campaign contributions vary depending on the jurisdiction. The Company’s policy is that it does not
make contributions to any candidates or their committees, political action committees or to party
committees using Tenable resources.
This policy does not apply to or restrict the ability of our employees to participate voluntarily in
political activities with their own funds and on their own time; however, we will not reimburse any
employee for political contributions made from the employee’s personal funds. Our policy strictly
prohibits coercion of our personnel to engage in political activities of any kind.
Additional Information
For additional informat
ff
ion and to view our report on corporate social responsibility, you can visit
our website at www.inveii
stors.tenable.com.
EXECUTIVE OFFICERS
Our executive officers, and their respective ages as of April 13, 2022, are as follows:
Name
Executive Officers
Amit Yoran
Stephen A. Vintz
Stephen A. Riddick
Age
Position(s)
51 Chief Executive Officeff
53 Chief Financial Offiff cer
58 General Counsel and Corporate Secretary
r and Chairman
The biography of Mr. Yoran
YY
is set forth in “Proposal 1: Election of Directors” above.
Stephe
en A. Vintzii
Stephen A. Vintz has served as our Chief Financial Offiff cer since October 2014.
Mr. Vintz previously served as Executive Vice President and Chief Financial
Officeff
University Maryland and is a Certified Public Accountant.
Mr. Vintz received a B.B.A. in Accounting from Loyola
VV
r of Vocus.
Stephe
en A. Riddidd ck
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 has served
on the board of directors of Bowman Consulting Group since May 2021.
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.
35
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The folff
lowing table sets forth certain information regarding the ownership of the Company’s
director; (ii) each of the
common stock as of March 4, 2022 by: (i) each director and nominee forff
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.
named in the Summary Compensation Table; (iii) all executive officers
ff
ff
Beneficial Owner
Number of Shares Percent of Total
Ownership(1)
5% or greater stockholders:
FMR LLC(2)
The Vanguard
VV
BlackRock, Inc.(4)
Group(3)
and directors:
ff
officers
Named executivett
Amit Yoran(5)
Stephen A. Vintz(6)
Stephen A. Riddick(7)
Arthur W. Coviello, Jr.(8)
John C. Huffard, Jr.(9)
Kimberly L. Hammonds
Linda Zecher Higgins(10)
Niloofarff Razi Howe
Jerry M. Kennelly(11)
A. Brooke Seawell(12)
Raymond Vicks, Jr.
11,408,981
9,304,960
7,645,642
3,577,403
855,515
56,719
78,423
477,791
—
6,330
—
118,830
260,000
—
10.4
8.4
6.9
3.2
*
*
*
*
*
*
*
*
*
*
All current executive officers
persons)(13)
ff
and directors as a group (11
5,431,011
4.8%
____
________
__
__
* Represents beneficial ownership of less than 1%.
___
ff
This table is based upon informat
(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 110,194,277 shares
outstanding on March 4, 2022, adjusted as required by rules promulgated by the SEC.
directors and principal stockholders
ion supplied by officers,
ff
(2)
As reported in a Schedule 13G/A filed with the Securities and Exchange Commission on
March 10, 2022, which states that FMR LLC has sole dispositive power with respect to all of the
shares and sole voting power with respect to 11,408,963 of the shares. The principal business
address of FMR LLC is 245 Summer Street, Boston, Massachusetts 02210.
As reported in a Schedule 13G/A filed with the Securities and Exchange Commission on
(3)
February 10, 2022, which states that The Vanguard Group, Inc. has sole dispositive power with
respect to 9,056,770 of the shares, shared dispositive power with respect to 248,190 of the shares
36
and share voting power with respect to 171,503 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 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.
Investments Hong Kong Limited and Vanguard
Investments Canada Inc., Vanguard
VV
VV
As reported in a Schedule 13G/A filed with the Securities and Exchange Commission on
(4)
February 3, 2022, which states that BlackRock, Inc. has sole dispositive power with respect to all of
the shares and sole voting power with respect to 7,436,658 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
shares. The principal business address of BlackRock, Inc. is 55 East 52nd Street, New York, New
York 10055.
Consists of (a) 180,245 shares of common stock held by Mr. Yoran
(5)
shares of common stock held by the Amit Yoran 2020 Family Trust, (c) 361,738 shares of common
stock held by the Amit Yoran Grantor Retained Annuity Trust A and (d) 2,759,473 shares of common
stock issuable upon the exercise of outstanding options exercisable within 60 days of March 4, 2022.
directly, (b) 275,947
YY
Consists of (a) 127,440 shares of common stock and (b) 728,075 shares of common stock
(6)
issuable upon the exercise of outstanding options exercisable within 60 days of March 4, 2022.
Consists of (a) 42,199 shares of common stock and (b) 14,520 shares of common stock
(7)
issuable upon the exercise of outstanding options exercisable within 60 days of March 4, 2022.
(8)
Consists of (a) 20,917 shares of common stock and (b) 57,506 shares of common stock
issuable upon the exercise of outstanding options exercisable within 60 days of March 4, 2022.
Consists of (a) 2,173 shares of common stock held by Mr. Huffaff
s spouse in the Mary Kathryn Braden Huffard
ff
rd directly, (b) 31,847 shares
Revocable Trust
ated March 2, 2012, (c) 390,183 shares of common stock held by Mary Kathryn Braden
and Jonathan M. Forster, as Trustees of The Three Suns 2019 Non-Exempt Irrevocable Trust
ated November 15, 2019, and (d) 53,588 shares of common stock held by Mr. Huffard
as Trustees of The John Cloyd Huffard
and
Jr Revocable Trust U/T/A d//
ated
ff
ff
ff
(9)
of common stock held by Mr. Huffard’
U/T/A d//
Huffard
ff
U/T/A d//
Mary Kathryn Braden Huffard,
March 2, 2012.
ff
(10)
Consists of 6,330 shares of common stock held by Ms. Zecher Higgins directly.
Consists of (a) 6,677 shares of common stock held by Mr. Kennelly directly, (b) 14,153 shares
(11)
of common stock held directly by Kennelly Partners, L.P., an entity controlled by Mr. Kennelly, and (c)
98,000 shares of common stock issuable upon the exercise of outstanding options exercisable within
60 days of March 4, 2022.
Consists of (a) 30,000 shares of common stock and (b) 230,000 shares of common stock
(12)
issuable upon the exercise of outstanding options exercisable within 60 days of March 4, 2022.
37
(13)
stock issuable upon the exercise of outstanding options exercisable within 60 days of March 4, 2022.
Consists of (a) 1,543,437 shares of common stock and (b) 3,887,574 shares of common
38
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis reviews the material elements of our 2021 executive
compensation, philosophy, policies and practices, and discusses compensation earned by our named
which for 2021 were as follows (our “Named Executive Offiff cers”):
executive officers,
ff
Name
Amit Yoran
Position
Chief Executive Officer
ff
and Chairman of the Board of Directors
Stephen A. Vintz
Chief Financial Offiff cer
Stephen A. Riddick
General Counsel and Corporate Secretary
Executive Summary
Who We AWW re
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.
2021 Business Highlight
stt
i
2021 was a very strong year, marked by increased revenue and calculated current bi
gllings ggrowth
and attractive levels fof ffree cash fflow. O. ur 2021 highlights were as follows:
•
•
•
•
•
•
Launched Tenable.ep, our unified, risk-based vulnerability management exposure platform
designed to provide visibility across Tenable’s solutions and prioritize vulnerabilities using
predictive analytics.
Achieved FedRAMP authorization for Tenable.io and Tenable.io Web App Scanning, allowing
the U.S. federal government to deploy both products across various departments and
agencies.
Acquired Alsid SAS and Accurics, Inc. for $98.5 million and $160.0 million, respectively.
Closed our new credit facility comprised of a $375 million senior secured term loan and a $50
million senior secured revolving credit facility.
Revenue was $541.1 million, a 23% increase year-over-year.
Calculated current billings was $617.2 million, a 25% increase year-over-year.
• GAAP loss from operations was $41.8 million, compared to a loss of $36.4 million in 2020;
Non-GAAP income from operations was $51.0 million, compared to $25.8 million in 2020.
• GAAP net loss per share was $0.44, compared to a loss per share of $0.42 in 2020; Non-
•
•
diluted earnings per share was $0.34, compared to $0.19 in 2020.
GAAPAA
Unlevered free cash flow was $95.2 million, compared to $44.3 million in 2020.
Achieved Rule of 40 for full-year 2021, which we define as the sum of percentages for
revenue growth and unlevered free cash flow margin.
Refer to the appendix for reconciliations of non-GAAP measures to comparable GAAPAA measures.
Executive Compensation Highligll hts
We seek to ensure that executive pay is tied to performance
ff
and long-term stockholder value
creation. Based on our success in executing our strategic plan in a challenging environment, including
39
progress by the executive leadership team on our diversity and inclusion and employee engagement
and development initiatives, and continuing a safe working environment during the pandemic, the
Compensation Committee took the following key actions with respect to the compensation of our
Named Executive Offiff cers in 2021:
•
•
•
Base Salaries - We approved salary increases in 2021 for our Named Executive Officers
light of their and the company’s strong performance
relative to our peers. Raises ranged from 4.4% to 9.1%.
and to maintain market competitiveness
in
ff
ff
Cash Bonuses - Our cash bonus structure mirrored that of prior years and incorporated
revenue, unlevered free cash flow and bookings goals. Our target cash bonuses are
expressed as a percentage of base salary paid out based on quarterly and annual attainment,
and remained comparable with 2020. Given our strong performance
bonuses were paid out in accordance with their plan formula above target at 109%.
in these areas, cash
ff
ff
Incentive Compensation - We continue to provide a large percentage of our
Long-TermTT
Named Executive Officers’
compensation program. In 2021, our long-term incentive plan consisted of restricted stock
unit (“RSU”) grants subject
aggregate dollar value of Messrs. Yoran, Vintz and Riddick’s 2021 grants were increased
relative to 2020 by 13.6%, 2.5% and 22.2% respectively.
to service-based vesting. In order to remain competitive, the
compensation opportunity through our long-term incentive
b
We believe the increases in our Named Executive Officers'
ff
consistent with our successful performance
and company growth.
ff
2021 total direct compensation are
2021 Target Total Direct
ii
Compensation Overvi
vv
ew
For 2021, 94% of our CEO’s total reported compensation and an average of 89% of our other
Named Executive Officers’
bonuses earned and equity incentives awarded, as reported in the Summary Compensation Table.
total reported compensation was at-risk through quarterly and annual
ff
CEO Pay Mix
Other Executives Pay Mix
Base Salary 6%
Actual
BB
Bonus
6%
Base Salary
11%
Actual
Bonus 7%
Equity
Awards 88%
Equity
Awards 82%
Listen
ii
ing to Our Stockhokk
ldersdd
At our annual meeting of stockholders in 2021, we conducted our first advisory vote on executive
compensation, or a say-on-pay vote. Approximately 90.4% of the votes cast on the say-on-pay
proposal supported the proposal. In addition to our annual advisory vote on executive compensation,
we are committed to ongoing engagement with our stockholders on executive compensation and
corporate governance issues.
40
Based on the support for last year’s say-on-pay proposal and our commitment to good
governance, we did not adjust our compensation program for 2021, but have incorporated the
following changes in our 2022 compensation programs:
•
Incentive Plan
– Incorporate perfor
rr mance restricted stock units (“PRSUs”) into our
Long-TermTT
g
long-term incentive plan as a portion of our long-term incentive grants which will be earned
based on objective and rigorous performance
vesting.
We believe the introduction of performance
executives’ pay with performance
strategy. For 2022, PRSUs make up 25% of the total grant date fair value of the long-term
incentive grants forff
ff
and incentivize the efficient
criteria is appropriate to continue to align our
our Named Executive Officers.
execution on our growth
goals, and thereafter
service-based
rr
rr
ff
ff
ff
• Good Governance – We implemented pay governance practices including:
◦ We have adopted stock ownership guidelines applicable to our non-employee
directors.
◦ We have in place a compensation recoupment policy under which compensation paid
to or earned by our executives, including our Named Executive Offff icers, may be
recovered in the event of financial restatements and misconduct that contributed to
the financial restatements.
Executive Compensation Policies and Practi
rr
ces
ff
We endeavor to maintain appropriate pay-for-perf
ormance
ff
alignment and sound governance
standards as we review and manage 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 forff
convictions with respect to executive compensation and related policies and practices:
executive talent. The following summarizes our key
41
What We Do
What We Do Not Do
•
•
•
No guaranteed bonuses. No tax
“gross ups” on payments on future
post-employment compensation
arrangements.
No hedging or pledging of our equity
securities.
No mid-year adjustments or
modifications of our cash or equity
incentives in 2021 due to the
COVID-19 pandemic and the recent
volatile market condition.
•
Seek to tie pay to perforr
stockholder value creation, while
retaining top talent.
• Maintain an independent
rmance and
•
•
•
•
•
•
•
red to
Compensation Committee. Retain an
independent compensation advisor.
Annual executive compensation
strategy review. Multi-year vesting
requirements for equity awards.
“Double-trigger” change-in-control
arrangements.
Succession planning by full Board.
Executive retirement & perquisite
benefits are limited to those offeff
employees generally.
Annual Say-on-Pay voting.
Executive compensation “clawback”
policy for our executives, including
our Named Executive Offiff cers, and
our
stock ownership guidelines forff
non-employee directors.
Stock incentive plans and executive
employment agreements that provide
for forfeiture of equity awards and
severance if an executive is
terminated for cause, including due to
misconduct that results in reputational
harm to the Company.
Executive Compensation Philosophy and Objeb ctives
Our executive compensation program is guided by our overarching philosophy of paying for
ff
demonstrable performance.
To achieve these objectives, 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
and compensation to make sure that the compensation provided to our executives
performance
remains competitive relative to compensation paid by companies of similar size operating in our
industry, taking into account our relative performance,
of the individual executive.
our strategic objectives, and the performance
ff
ff
ff
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;
42
•
Align the interests and objectives of our executives with those of our stockholders by linking
our executives’ long-term incentive compensation opportunities to stockholder value creation
and their cash incentives to our annual performance;
and
ff
• Offer
ff
total compensation opportunities to our executives that, while competitive, are internally
consistent.
Executive Compensation Designi
; Pay for Performance
The annual compensation arrangements for our Named Executive Officers
ff
consist of both fixed
and "at risk" compensation elements which have been designed to align pay and performance.
ff
Our fixed base salaries are designed to retain our executives by providing dependable and
competitive annual income. In addition, we emphasize variable compensation through our short-term
incentive cash bonus plan based on our Named Executive Offff icers attainment of pre-established
short-term financial targets as determined from time to time by the Company and reviewed by our
Board of Directors in connection with our annual operating plan, and "at-risk" compensation through
our long-term equity incentive plan, which has historically consisted of service-vesting RSUs.
Given our brief operating history and status as a public company and as a result of the
uncertainty in the macro-economy in 2021 caused by the COVID-19 pandemic, we believe that
service-based RSU awards have been an appropriate long-term incentive compensation vehicle in so
far as they expose our Named Executive Offiff cers to fluctuations in our stock price, thereby aligning
the interests of our Named Executive Offiff cers and stockholders and incentivizing them to build
sustainable long-term value for the benefit of our stockholders while satisfying our retention
objectives. However, in 2022 we have determined to incorporate PRSUs in our long-term incentive
plan as a portion of our long-term incentive grants in order to further tie pay to performance. For 2022,
PRSUs make up 25% of the total grant date fair value of the long-term incentive grants forff
our Named
Executive Offiff cers.
These at-risk 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.
ff
43
Compensation Elements
In 2021, 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
Objecb
tive
Key Features
ff
TT
• Established initially through
arm’s-length negotiation at the
time of hire and then reviewed
annually at beginning of year.
• Factors considered include:
executives position,
qualifications, experience, pre-
hire salary level, the base
salaries of our other executives,
company and individual
performance,
retention
objectives, a competitive market
analysis, and recommendations
of the CEO
• Target
bonus amounts
generally are reviewed annually
at the beginning of year and
determined based on various
factors, including company and
individual performance,
ff
competitive market analysis,
and recommendations of CEO
• Bonus payments earned
determined after each quarter
and the 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
a
Base Salary
Fixed/Cash
Short-TermTT
Incentive
Variable/Cash
Bonus
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
ff
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
44
Long Term
Incentive
At risk/RSUs
ff
align interests
Designed to motivate and
reward executives for
successful long-term
performance,
of executives and
stockholders by motivating
them to create sustainable
long-term stockholder value,
and encourage continued
employment of executives
over the long-term
ff
• Annual award opportunities
generally reviewed and
determined annually at
beginning of the 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, and
recommendations of our CEO.
• 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
ff
requirements or performance
conditions
vesting
ff
Other
Compensation
Retirement and
health and welfare
benefits offeff
red 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
Indirect compensation element
consisting of programs such as
medical, vision, dental, life aff
nd
disability insurance, as well as
the 401(k) Plan with a company
matching contribution and an
ESPP, aP nd other plans and
programs made available to all
eligible employees
Base Salary
In February 2021, 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 (except with respect to the CEO's
own compensation), as well as the other factors described in “Compensation-Setting Process" below.
Following this review, the Compensation Committee determined to adjust the base salaries of our
Named Executive Officers
to reflect current market positioning.
ff
45
The base salaries of our Named Executive Offiff cers were as follows:
Named Executive Officer
Mr. Yoran
YY
Mr. Vintz
Mr. Riddick
$
2020 Base Salary
rr
2
021 Base Salary
450,000 $
375,000
330,000
470,000
400,000
360,000
Percentage Adjustment
4.4 %
6.7 %
9.1 %
The base salaries paid to our Named Executive Offiff cers during 2021 are set forth in the Summary
Compensationtt
Table below.
Cash Bonuses
Cash bonuses are based upon a specific percentage of each participant’s annual base salary and
are paid, subject
and the fifth payment following year-end.
b
to goal attainment, in five equally weighted installments, one following each quarter
We believe that paying bonuses throughout the year is the most effect
ff
ive 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.
2021 Cash Bonus Structure
tt
In February 2021, the Compensation Committee reviewed the target short-term cash incentive
bonus opportunities of our Named Executive Officers
in place for 2021, taking into consideration a
competitive market analysis prepared by its compensation consultant and the recommendations of
our CEO (except with respect to his own bonus opportunity), as well as the other factors described in
“Compensation-Setting" below. Following this review, the Compensation Committee determined to
increase the target short-term cash incentive bonus opportunity of Mr. Vintz from 86.7% to 87.5%.
ff
Accordingly, the target short-term cash incentive bonus opportunities of our Named Executive
Officers
ff
for 2021 were as follows:
Named Executive Officer
Mr. Yoran
YY
Mr. Vintz
Mr. Riddick
2021 Target Cash Bonus Opportunity
470,000
$
350,000
180,000
Target Percentage of Base Salary
100.0 %
87.5 %
50.0 %
Consistent with the prior year, forff
2021, our Board of Directors established anticipated target
rmance metric used in our annual operating plan, with actual bonus payments at
goals for each perforr
each periodic payment interval calculated by multiplying 20% of a participant’s target cash bonus
opportunity by the weighted average percentage attainment level of the applicable goals for each
applicable quarter or full year. No payments are made if attainment is below 75%. Accordingly, forff
46
ff
2021, the target performance
exceeds prior year actual performance:
goals for our Named Executive Offiff cers were as follows, each of which
ff
Performance Metric
Revenue + Unlevered
Free Cash Flow (1)
Bookings
$
Target Performance Level
(in thousands)
Weighting
604,066
(2)
66.67 %
33.33 %
______ ____ ____ ____ ____ ___
(1)
of non-GAAP measures to comparable GAAPAA measures.
Unlevered Free Cash Flow is a non-GAAP measure. Refer to the appendix forff
reconciliations
ff
measure as such information is proprietary in nature, the disclosure of which could result
We have chosen not to disclose the various target performance levels for our bookings
(2)
performance
in competitive harm to the Company. For 2021, the Board of Directors considered the target
performance
achievement levels for the Board Metrics to be challenging but achievable with
significant effort
ff
approximate 20% increase over our actual bookings results from 2020.
requiring circumstances to align as projeo cted. The bookings target goal reflected an
ff
For this purpose, each of the above metrics are defined as follows:
•
•
•
Revenue - to be calculated in accordance with GAAP and as set fort
annual financial statements.
ff
h in our quarterly and
Unlevered Free Cash Flow – to be calculated as free cash flow, defined as GAAPAA
net cash
flows from operating activities reduced by purchases of property and equipment, plus cash
paid for interest and other financing costs.
Bookingsg - 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.
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 effecti
ve
measure of annual contract value, which management uses to measure the growth of our business.
ff
2021 Cash Bonus Attainment
ii
Our actual performance
ff
against the aggregate target level for the various corporate performance
ff
measures for each quarter and for the full year, as applicable, as well as the amounts received by
each Named Executive Offiff cer, were reviewed by the Compensation Committee in February 2021.
47
The folff
lowing tables provides informat
ion 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 2021:
ff
ff
Performance Metric
Revenue + Unlevered Free
Cash Flow
$
Bookings
Actual Performance Level
(in thousands)
Percentage of Target
636,312
(1)
105.3 %
(1)
ff
measure as such information is proprietary in nature, the disclosure of which could result
We have chosen not to disclose the various target performance
______ ____ ____ ____ ____ ___
(1)
performance
in competitive harm to the Company. For 2021, the Board of Directors considered the target
achievement levels for the Board Metrics to be challenging but achievable with
performance
significant effort
requiring circumstances to align as projeo cted. The bookings performance
ff
reflected an approximate 25.1% increase over our actual bookings results from 2020.
levels for our bookings
attainment
ff
ff
ff
Named Executive
Officer
Performance
Period
Target Quarterly/
Annual Bonus
Aggregate
Weighted Average
Achievement/
Payment
Percentage
Actual Quarterly/
Annual Bonus
YY
Mr. Yoran
First Quarter
$
Mr. Vintz
Mr. Riddick
Second Quarter
Third Quarter
Fourth Quarter
Full Year
Total 2021
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full Year
Total 2021
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full Year
$
$
$
$
Total 2021
$
94,000
94,000
94,000
94,000
94,000
470,000
70,000
70,000
70,000
70,000
70,000
350,000
36,000
36,000
36,000
36,000
36,000
180,000
112.8 % $
108.2 %
107.7 %
110.6 %
107.5 %
$
112.8 % $
108.2 %
107.7 %
110.6 %
107.5 %
106,032
101,708
101,238
103,964
101,050
513,992
78,960
75,740
75,390
77,420
75,250
$
382,760
112.8 % $
108.2 %
107.7 %
110.6 %
107.5 %
$
40,608
38,952
38,772
39,817
38,700
196,849
The cash bonus payments made to our Named Executive Offiff cers for 2021 are set forth in the
“Summary Compensationtt
Table” below.
48
Long-Term Incentive Compensationtt
In February 2021, as part of its annual compensation review the Compensation Committee
determined to grant equity awards to our Named Executive Offiff cers in the form of service-based RSU
awards consistent with prior years. 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.
Based upon a review of competitive market practice and the incentive power of these awards, in
February 2021, the Compensation Committee granted RSU awards to our Named Executive Officff ers
in amounts that it considered to be consistent with our compensation philosophy and its desired
market competitiveness as follows:
Named Executive
Officer
YY
Mr. Yoran
Mr. Vintz
Mr. Riddick
Restricted Stock Unit Award
(shares)
171,037
93,500
50,171
Restricted Stock Unit Award
(grant date fair value)
Year-over-Year
Change
$
7,500,000
4,100,000
2,200,000
13.6 %
2.5 %
22.2 %
The RSU awards granted to our Named Executive Offiff cers vest over a four-year
period, with 25%
to the award vesting on the first anniversary of February 17, 2021,
of the total number of units subject
the vesting commencement date, and 1/16th of the total number of units subject
in quarterly installments over the following three years, contingent upon the Named Executive
Officer
’s continued employment by us through each applicable vesting date.
to the award vesting
b
b
ff
ff
The equity awards granted to our Named Executive Officers
in 2021 are set forth in the
“Summary Compensationtt
Table” and the “Grant
rr
s ott
ased Awards Table” below.
ff
f Plan-B
PP
Health and Welfare, Retiremen
ii
t and ESPP Benefits
Our Named Executive Officers
ff
are eligible to receive the same health and welfare benefits that
are generally available to all full-time, salaried employees, subject to the satisfaction of certain
eligibility requirements, including 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 forff mobile phone coverage.
Our Named Executive Officers
ff
are also eligible to participate in our 401(k) retirement plan (the
“Section 401(k) Plan”) that provides eligible employees with an opportunity to save for retirement on a
tax-advantaged basis. For 2021, during each pay period, we made matching contributions to all
participating employees 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.
b
We provide additional long-term equity incentives through the 2018 Employee Stock Purchase
in July 2018.
Plan (the “ESPP”), which became effect
The ESPP is intended to qualify aff
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 offeri
ngs of purchase rights to eligible employees. Each offering
s an “employee stock purchase plan” within the meaning of Section
ive in connection with our initial public offering
will
ff
ff
ff
ff
ff
49
have one or more purchase dates on which our common stock will be purchased for employees
participating in the offeri
ng. 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.
ff
Perqurr
isites and Other
tt
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 offer
perquisites or other personal benefits
to our Named Executive Offiff cers, apart from those 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
and effective, and for recruitment and retention purposes.
duties, to make him or her more efficient
During 2021, none of our Named Executive Officers
received perquisites or other personal benefits
that were, in the aggregate, $10,000 or more for each individual.
ff
ff
ff
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 Offiff cers, including by 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 Offiff cers. In so doing, the Compensation
Committee reviews our Named Executive Offiff cers’ base salary levels, cash bonus targets, and long-
criteria at
term incentive compensation of our Named Executive Officers
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
effecti
ve at the beginning of the year. The Compensation Committee 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.
and all related performance
ff
ff
ff
The Compensation Committee retains a compensation consultant (as described below) to provide
support in its review and assessment of our executive compensation program.
Factors Used in Determini
ii ngii
Executive Compensation
In making decisions about the compensation of our Named Executive Officers,
the members of
the Compensation Committee do not establish a specific target or benchmark against our peers forff
each executive and instead take a holistic approach, relying primarily on their general experience and
lowing:
consideration of various factors, including the folff
ff
•
•
•
•
against the financial, operational, and strategic objectives established by the
our executive compensation program objectives;
our performance
ff
Compensation Committee and our Board of Directors;
each individual Named Executive Officer
tenure relative to other similarly situated executives at the companies in our compensation
peer group;
the scope of each Named Executive Officer
ff
similarly situated executives at the companies in our compensation peer group;
’s role and responsibilities compared to other
’s knowledge, skills, experience, qualifications, and
ff
50
•
•
•
•
•
•
ff
ability to lead his or her
the prior perforff mance of each individual Named Executive Offiff cer, based on a subjective
assessment of his or her contributions to our overall performance,
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 Offff icer to contribute to our long-term
financial, operational, and strategic objectives;
the value of each Named Executive Offiff cer's target total direct compensation opportunity (the
sum of base salary, cash bonus opportunity and equity awards);
our financial performance
the compensation practices of our compensation peer group and the positioning of each
Named Executive Offiff cer’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
Officeff
rs (except with respect to his own compensation).
relative to our peers;
ff
The Compensation Committee does not weigh these factors in any predetermined manner or
formulaically, nor is any single factor determinative in setting compensation levels or making
compensation decisions. In addition, 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 members of
the Compensation Committee consider the above and other informat
experience, knowledge of the Company, knowledge of the competitive market, knowledge of each
Named Executive Offff icer, and business judgment in making their decisions.
ion in light of their individual
ff
ff
Role of Management
In discharging its responsibilities, the Compensation Committee works with members of our
management who provide informat
compensation data, and other compensation related matters.
ion on corporate and individual performance,
ff
ff
market
In addition, our Compensation Committee seeks the CEOs input with respect possible
adjustments to annual cash compensation, long-term incentive compensation opportunities and other
compensation-related matters for our non-CEO Named Executive Officers
based on his evaluation of
for the prior year. Our CEO also attends meetings of
ff
such Named Executive Officers’
our Board of Directors and the Compensation Committee at which executive compensation matters
are addressed, but is not present during discussions involving his own compensation.
performance
ff
ff
Role of Compensation Consultant
The Compensation Committee has retained an independent compensation consultant,
ff
Compensia, to advise on executive compensation matters, including competitive market pay practices
for our Named Executive Officers,
compensation peer group. During 2021, Compensia attended the meetings of the Compensation
Committee (both with and without management present) as requested and provided various services
to assist the committee in carrying out its duties. Under this engagement, Compensia reported directly
to the Compensation Committee chair and also coordinated with our management forff
and job matching for our executives. In 2021, Compensia did not provide any other services to us.
and to assist with the data analysis and development of the
data collection
In 2021, the Compensation Committee evaluated the independence of Compensia and, based on
this review, determined that no conflict of interest was raised as a result of the work performed
Compensia. In reaching this conclusion, the Compensation Committee considered applicable SEC
rules and regulations and the corresponding Nasdaq independence factors regarding compensation
advisor independence.
by
ff
51
Riskii Management
Each year, with the help of our independent compensation consultant, our Compensation
Committee reviews whether our compensation policies and practices encourage executives or other
employees to take unnecessary or unreasonable risks that could threaten the long-term value of the
Company, or that are reasonably likely to have a material adverse effect.
Committee believes that our practices adequately manage this risk in so far as it:
The Compensation
ff
•
•
•
•
•
•
b
ively selected peer group to support decision-making,
adopts an appropriate pay philosophy,
uses an appropriate, object
reflects risk-mitigating design and governance practices in key areas,
incentivizes execution on our business strategy,
is appropriately balanced, with potential for reward based on long term company
performance,
reviews actual pay delivery from performance-based incentives to confirm the rigor of goal
setting and the alignment with perfor
rr mance.
and
ff
Competitivett
Positioningii
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 as well as data drawn from the Radfordff
Compensation Committee reviews our compensation peer group at least annually with the assistance
of Compensia 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.
Global Technology Survey. The
When reviewing the peer group, Compensia and the Compensation Committee use the following
criteria to identify companies reasonably similar to us in terms of revenue, market capitalization, and
industry focus:
•
•
•
•
•
•
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 fouff
r quarters' revenue of approximately $380 million (approximately $130
million to $1.1 billion)
companies with similar market capitalizations - within a range of approximately 0.33x to
approximately 3.0x of our then-projected market capitalization of approximately $3 billion
(approximately $1 billion to approximately $9 billion);
companies in the Internet/network security software
ff
sector; and
companies with revenue growth generally greater than 20%.
52
Using this methodology, the Compensation Committee approved a compensation peer group for
use in 2021 consisting of the following companies:
Anaplan
Blackline
Box
Cloudera
Cornerstone onDemand
Guidewire Software
Hubspot
New Relic
Paylocity
Proofpoint
Mandiant (f/k/
ff a FireEye)
Q2 Holdings
Five9
Qualys
Rapid7
Sailpoint Technologies
Secureworks
Varonis Systems
Zendesk
For 2022, Compensia recommended the folff
lowing changes to our peer group based upon the
objective criteria identified above, which changes were approved by our Compensation Committee:
Remove:
•
•
•
•
Proofpoint
Cloudera
HubSpot
SecureWorks
Employment Arrangements
Add:
•
•
•
• Momentive Global
Blackbaud
Commvault Systems
Elastic N.V.
In February 2019, we entered into amended and restated written employment agreements with
each of our named executive which superseded each offiff cer’s prior employment agreement. These
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.
approach, the post-employment compensation arrangements of our Named Executive Officers
ff
established on a uniform basis and at levels that generally align with current market practice.
Under this
were
ff
For detailed descriptions of the amended and restated employment agreements with our Named
Executive Offff icers, see “Potential
ii Payments utt
ponu
Terminationtt
or Change in Cii
tt
ontrol
” bll
elow.
Post-Employment Compensation
Under their amended and restated employment agreements, our Named Executive Officers
ff
are
eligible forff
certain benefits in the event of their termination of employment by virtue of death or
disability and 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 benefits are representative of market practice and thereforeff
retain our Named Executive Offff icers.
are necessary to motivate and
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 Offiff cer to execute and deliver
an effect
ff
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
ive general release of claims in favor of the Company in a formff
acceptable to us as a
53
Offiff cers 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 Offiff cer (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.
ff
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 Offiff cers. We do believe, however, that these
arrangements are necessary to offer
compensation packages that are competitive.
ff
For detailed descriptions of the post-employment compensation arrangements with our Named
Executive Offiff cers, as well as an estimate of the potential payments and benefits payable under these
arrangements, see “Potential
or Change in Control
ii Payments utt
Terminationtt
elow.
ponu
” bll
tt
Other Compensation Policies
Hedgidd ngii
and Pledgidd ngii
ii
Prohi
bi
rr
tions
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.
Stock Ownerww shi
rr
p Gii
ii
uidelines
The Compensation Committee believes that stock ownership guidelines help align the interests of
our non-employee directors with those of our stockholders and may act as a risk mitigation device. In
February 2022, our Compensation Committee adopted stock ownership guidelines for our non-
employee directors. The Compensation Committee believes that stock ownership guidelines help
align the interests of our non-employee directors with those of our stockholders and may act as a risk
mitigation device. Under these guidelines, the non-employee members of our Board are each
required to beneficially own shares of our common stock with a value equal to at least five times their
annual cash retainer.
Compensation Recoupment Policyll
In February 2022, our Board of Directors adopted a compensation recoupment (or “clawback”)
policy. This policy permits the Compensation Committee, if it determines appropriate and subject to
applicable laws, to seek reimbursement of incentive compensation if we are required to restate
incorrect financial statements and the executive’s (including each Named Executive Officer
misconduct contributed to the noncompliance that results in the obligation to restate the financial
’s)
ff
54
statements. Under this policy, the Compensation Committee may seek recoupment of the followin
incentive compensation received during the three years preceding the date we are required to
prepare the accounting restatement (but after
adoption of the policy):
ff
ff
g
•
•
•
the incremental portion of any cash incentive awards paid based on the financial statements
that were subsequently restated in excess of the lower cash incentive awards that would
have been paid had the financial statements been properly reported;
the incremental portion of any equity incentive awards that were received based on the
financial statements that were subsequently restated in excess of the portion that would have
been earned had the financial statements been property reported; and
if the executive sells any shares acquired pursuant to an equity incentive award after the
release of earnings for any period with respect to which financial statements are
subsequently restated but prior to the announcement of the restatement, the incremental
value of the sales proceeds received form the executive’s sale of those shares over the
aggregate sales proceeds the executive would have received from the sale at a price per
share determined appropriate by the Compensation Committee in its discretion to reflect what
our common stock price would have been if the restatement had occurred prior to the date
sale. Our stock incentive plans and executive employment agreements also provide for
forfeiture of equity awards and severance if an executive is terminated forff
misconduct that results in reputational harm to the Company.
cause, including
Tax and Accounting Considerations
The Compensation Committee takes the applicable tax and accounting requirements into
consideration in designing and overseeing our executive compensation program.
Deductibilityll
of Executive Compensation
In determining executive compensation, the Compensation Committee also considers, among
other factors, the possible tax consequences to the company and to its executives. To maintain
maximum flexibility in designing compensation programs, the Compensation Committee, while
considering company tax deductibility as one of its factors in determining compensation, will not limit
compensation to those levels or types of compensation that are intended to be deductible.
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. However, under a transition rule that applies to companies that become
subject to Section 162(m) by reason of becoming publicly held, certain compensation is exempt from
the deduction limit if it was: granted during a transition period (and, with respect to RSU awards, that
are paid out before the end of the transition period), is paid under a compensation arrangement that
was in existence beforeff
and was disclosed in
the company’s public filings at the time of its initial public offeri
requirements and limitations. We currently expect our transition period to expire at our 2022 annual
meeting.
ive date of a company's initial public offering
ff
ng, subject
to certain other
ff
the effect
b
ff
Accounting forff Stock-Based Compensation
The Compensation Committee takes accounting considerations into account in designing
compensation plans and arrangements for our executives and other employees. Chief among these
is Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic
55
TT
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 executives 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.
SUMMARY COMPENSATION TABLE
EXECUTIVE COMPENSATION
The ffo
llowing table sets fforth i fnformation
g
regarding compensation awarded to, earned yby and
g
g
paid to our Named Executive OfOffficfff ers with respect to the yyears ended December 31, 2019, 2020 and
2021.
Name and Principal
Position
Amit Yoran(3)
Chief Executive
Officer
and Chairman
ff
Stephen A. Vintz
Chief Financial Officer
Stephen A. Riddick
GenGeneraeral Cl Couounsnselel anandd
Corporate Secretary
Year
Salaryrr
Stock
Awards(1)
Non-Equity
Incentive Plan
Compensation(2)
All Other
Compensation(4)
Total
2021
$
466,667
$
7,499,972
$
513,992
$
— $ 8,480,631
2020
2019
2021
2020
2019
2021
2020
2019
441,667
6,599,993
400,000
6,199,989
395,833
4,099,975
370,833
3,999,987
350,000
3,999,988
355,000
2,199,998
328,333
1,799,998
320,000
1,399,974
409,008
423,780
382,760
295,394
238,376
196,84
9
149,969
158,918
300
—
7,450,968
7,023,769
11,600
4,890,168
11,742
4,677,956
11,200
4,599,564
1
1,600
2,763,447
11,717
2,290,017
11,200
1,890,092
TT
______
the requisite service forff
This column reflects the aggregate grant date fair value of RSUs granted during the year
_______
__
__
(1)
measured pursuant to ASC Topic
performff
not reflect the actual economic value that will be realized by the Named Executive Officer
vesting of the RSU or the sale of common stock underlying such RSUs. The assumptions we used in
valuing RSUs 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,
will
the award to vest in full as required by SEC rules. These amounts do
718. This calculation assumes that the Named Executive Officer
2021
upon
ff
ff
.
ff
These amounts reflect the cash awards paid under the short-term cash incentive bonus plan
(2)
for performance
more complete description of how the cash bonuses were determined for the year ended December
31,
during the applicable year. See the Compensation Discussion and Analysis for a
2021
.
(3)
compensation in his capacity as a director.
YY
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 $300 due to the COVID-19
pandemic.
56
Grants of Plan-Based Awards
g
Th fe folff
lowing table provides infformation on cash-based
awards and restricted stock
unit awards in 2021 to our Named Executive OfOfffifff cers. There can be no assurance that the GGrant Date
VV
Fair Value,
Value amounts also are included in the “S“Stock Awards” column fof the SSu
fof th Se Stock Awards will ever be realized. These GGrant Date Fair
mmary CCompensation Table.
as listed in this table,
fperformance
y
ff
Estimated Future Payouts Under Non-Equity
Incentive Plan Awards
Grant
Date
Threshold
($)
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) $
— $
470,000
$
2/17/2021
Stephen A. Vintz
(2)
2/17/2021
Stephen A. Riddick
(2)
2/17/2021
—
—
350,000
180,000
—
—
—
171,037
$
7,499,972
93,500
4,099,975
50,17
1
2
,199,998
____
___
RSUs granted under our 2018 Equity Incentive Plan vest 25% on February 17, 2022, and
________
__
__
(1)
quarterly thereafter
each vesting date, subject to the Named Executive Offiff cer’s continuous service with the company
through the applicable vesting date and subject to accelerated vesting in specified circumstances.
for the following three years. Each award is settled in shares of common stock on
ff
These rows represent possible payouts pursuant to the short-term cash incentive bonus plan
(2)
for
2021 the short-term cash incentive bonus plan included a minimum threshold of 75% of
2021 For
.
each quarterly short-term cash incentive bonus opportunity and did not include maximum values. For
ion about these payments, see the Compensation Discussion & Analysis.
ff
more informat
,
57
OOutstan
gding Equityy Awards
Th fe folff
lowing table sets fforth certain finformff
Named Executive OfOffficfff ers that remain outstan
ation about outst
gding as fof December 31, 2021.
g
g
anding equityy awards ggranted to our
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
2,319,524
353,533
—
—
—
305,500
105,000
317,575
—
—
—
2
1,780
—
—
—
Name
Amit Yoran
Stephen A.
Vintz
Stephen A.
Riddick
Grant Date
1/18/2017
6/21/2018
2/20/2019
2/19/2020
2/17/2021
12/16/2014(6)
6/30/2016
6/21/2018
2/20/2019
2/19/2020
2/17/2021
6/21/201
8
2/20/2019
2/19/2020
2/17/2021
Option Awards(1)
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
—
212,124 (4)
—
—
—
—
—
105,859 (7)
—
—
—
43,562 (4)
—
—
—
Option
Exercise
Price(2)
Option
Expiration
Date
$
4.25
1/18/2027
16.21
6/21/2028
2.36
4.15
12/16/2024
6/30/2026
16.21
6/21/2028
16.21
6/21/2028
Stock Awards
Number of
Shares of
Stock That
Have Not
Vested (#)
Market
Value of
Shares of
Stock That
Have Not
Vested(3)
66,219 (5)
130,953 (8)
171,037 (9)
$3,646,680
7,211,582
9,419,008
42,721 (5)
79,366 (8)
93,500 (9)
2,352,645
4,370,686
5,149,045
14,955 (5)
35,715 (8)
50,171 (9)
823,572
1,966,825
2,762,917
____
___
E
________
__
__
(1(1)
)
Incentive Plan.
xcept as noted, all of the options listed in the table were granted under our 2016 Stock
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.
Represents the market value of the restricted stock award or restricted stock unit based on
(3)
the closing price of our common stock of $55.07 per share on December 31, 20 .21
25% of the shares subject to the option vested in equal monthly installments over the twelve-
(4)
month period beginning on June 21, 2020, and ending on the third anniversary of the grant date, and
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.
ff
Granted under our 2018 Equity Incentive Plan. 25% of the shares subject to the RSU award
(5)
vested on February 20, 2020, and the remainder continue to vest in equal quarterly installments over
three years thereafter
accelerated vesting in specified circumstances.
, in each case subject to the recipient’s continued service, and subject to
ff
(6)
Granted under our 2012 Stock Incentive Plan.
25% of the shares underlying the option vested on June 21, 2019 and continue to vest on
(7)
each twelve-month anniversary thereafter
subject to accelerated vesting in specified circumstances.
ff
, in each case subject to Mr. Vintz’s continued service, and
58
Granted under our 2018 Equity Incentive Plan. 25% of the shares subject to the RSU award
(8)
vested on February 19, 2021, and the remainder continue to vest in equal quarterly installments over
three years thereafter
accelerated vesting in specified circumstances.
, in each case subject to the recipient’s continued service, and subject to
ff
(9)
Granted under our 2018 Equity Incentive Plan. 25% of the shares subject to the RSU award
vested on February 17, 2022, and the remainder continue to vest in equal quarterly installments over
three years thereafter
accelerated vesting in specified circumstances.
, in each case subject to the recipient’s continued service, and subject to
ff
Options Exercised and Stock Vested
g
previously ggranted to our Named Executive OfOfffifff cers
llowing table shows
The ffo
y
informat
ion
g
g
ff
f
during 2021.
g
regarding the exercise fof options and the vesti gng fof stock
Name
Amit Yoran
Stephen A. Vintz
Stephen A. Riddick
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)
255,000
$
10,613,107
154,823
$
200,000
216,140
8,383,419
8,717,447
95,903
39,737
6,917,577
4,284,330
1,776,274
The dollar amounts shown are determined by multiplying the number of options that were
______ ____ ____ ____ ____ ___
(1)(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
Empl yoyment gAgreements with OOur Named Executive OfOfffice
fff
rs
Mr. Yoran
We entered into an offffer letter with Mr. Yoran in OOctober 2016, an addendum thereto in
February
y
2017 and an amended and restated emp yloyment gagreement in Februa yry 2019. Pursuant to the terms
fof his amended and restated emp yloyment gagreement, Mr. Yoran’s emp yloyment is at will and
terminated at
base
connection with ente gring into his amended and restated emp yloyment gagreement, Mr. Yoran also
entered into an intellectual propertyy, non-disclosure and non-solicitation gagreement with us.
ymay be
employment gagreement provided ffor an initial annual
gtarget, each su jbject to increase yby the Board o Cr Compensation CCommittee. In
yany time yby us or Mr. Yoran.
salary and bonus
The
YY
y
y
y
(each as
Under his
employment gagreement current yly in fefffect
fff
fdefined in his amended and restated
, iff Mr. Yoran is terminated without cause or
y
employment gagreement),), or fif
dies or his empl yoyment is terminated due to disabili yty (as(as
re gsigns ffor ggood reason (each
Mr. Yoran
fdefined in his amended and
YY
restated emp yloyment gagreement),), provided he (or(or his estate, as applicable)le) gsigns and does not
revoke a separation aggreement that includes a release off claims, Mr. Yoran
receive 18 months fof continued base
premiums ffor continued ggroup health coveragge ffor up to 12 months ffo
cash
prorated based on the last
previously paid or due ffor the yyear in which the termination occurs, and pro-rated accelerated
s t garget annual bonus ffor th ye year in which the termination occurs,
yerly bonuses
employment and reduced yby the amount
salary, p yayment yby the comp yany fof the
g
YY
ypayment equal to Mr. Yoran’
yday fof
(or(or his estate)e) is
y
employer-portion fof
llowing termination, a lump sum
yany quart
vesting
g
fof
YY
y
y
y
geligible to
59
g
g
YY
is
lowing a changge in control (a(as d fefined in his amended and restated
gding unvested equityy awards based on the applicable vest ging schedule. fIf Mr. Yoran
resigns ffor ggood reason within the three months prior to or 12 months
fof his outstan
terminated without cause or
ffol
provided he gsigns and does not revoke a separation gagreement that includes a release fof claims, Mr.
Yoran is eliggible to receive the same base sa ylary severance and ggroup health plan contributions set
fforth above (provided
ypayment equal to the sum fof (i)(i) 1.5 times Mr. Yoran’
termination occurs, prorated based on the last d yay fof
quart
times Mr. Yoran’
vesti gng in ffull off a yny outstan
is ffurther conditioned upon Mr. Yoran’
gobligations and
fof
previously paid or due ffor the yyear in which the termination occurs, plus (ii)(ii) 1.5
s t garget annual bonus ffor the yyear in which the termination occurs, and accelerated
gding unvested equityy incentive awards held yby Mr. Yoran.
(provided that the base sa ylary severance will be paid in a lump sum),
YY
s compliance with certain non-disclosure and non-solicitation
s t garget annual bonus ffor th ye year in which the
employment and reduced yby the amount
resignation ffrom all positions with us.
yerly bonuses
YY
employment gagreement),),
um), a bonus severance
yany
YY
YY
g
y
y
y
SSuch severance
In addition, pursuant to the terms fof Mr. Yoran'
YY
s outstandingg restricted stock unit awards ggranted
y
mpany's 2018 Equ yity Incentive Plan, iff Mr. Yoran's emp yloyment is terminated due to
under the CCo
death or disabilityity, or iff he remains
restricted stock units are not continued, assumed or substituted ffor yby the acquiror in connection with
the cha gnge in control, the unvested restricted stock units will become fful yly vested.
employed thro gugh the date fof a changge in control and his
y
Mr. Vintii z att
nd Mr. Riddidd
kck
We entered into an offeff
r 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. The emp yloyment gagreement provided ffor an initial annual base
each
his amended and restated employment agreement, Mr. Vintz also entered into an intellectual property,
non-disclosure and non-solicitation agreement with us.
subject to increase yby the Board o Cr Compensation CCommittee. In connection with entering into
salary and bonus
gtarget,
y
j
We entered into an offeff
r letter with Mr. Riddick in May 2016 and an amended and restated
y
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. The
employment gagreement provided ffor an initial annual base
increase yby the Board o Cr Compensation CCommittee. 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.
salary and bonus
gtarget, each
subject to
j
y
Under the employment agreements currently in effect with Mr. Vintz and Mr. Riddick, if the Named
ff
Executive Offff icer is terminated without cause or resigns for good reason (each as defined in the
amended and restated employment agreement), provided the Named Executive Offff icer 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 Offff icer’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 Offiff cer’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
does not revoke a separation agreement that includes a release of claims, the Named Executive
signs and
ff
60
Officff er 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 Offiff cer’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 Offiff cer’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 Offiff cer. 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 Offiff cer’s estate or the Named Executive Offiff cer, as applicable, signs and does not
revoke a separation agreement that includes a release of claims, the Named Executive Officer
dependents and the Named Executive Offiff cer, 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. SSuch severance is ffurther conditioned upon the Named Executive
Officer
all positions with us.
’s compliance with certain non-disclosure and non-solicitation
gobligations and
resignation ffrom
’s
g
ff
ff
ff
In addition, pursuant to the terms fof the outstan
gding restricted stock unit awards ggranted under
y
mpany's 2018 Equ yity Incentive Plan held yby Mr. Vintz and Mr. Riddick, iff his employyment is
the CCo
terminated due to death or disabili yty, or iff he remains emp yloyed
control and his restricted stock units are not continued, assumed or substituted ffor yby the acquiror in
connection with the
change in control, the unvested restricted stock units will become fully
through the date off a ch gange in
fully vested.
g
g
Potential Payments Upon Termination or Change in Control
The table below sets fforth the values that the conti
would derive
fof (i)(i) death or disabili yty, (, (ii) t) termination without cause or res gignation ffor ggood reason not
(iii) termination without cause or
assuming that
in the event
in connection with a cha gnge fof control (“(“
re gsignation ffor ggood reason in connection with a cha gnge fof control (“(“CCICC Terminat
in each case the event occurred on the last business
nuing Named Executive OfOffficers
Non-CICC TermTT
yday fof 2021.
”),”), and (iii)
inationtt
iontt
”),”),
C
TT
g
g
fff
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)
$
894,648
$ 16,630,589
$
894,648
$
8,243,022
$
1,834,648
$ 28,520,408
Stephen A. Vintz
17,421
9,519,731
537,331
2,056,821
887,331
15,986,057
Stephen A. Riddick
9,417
4,729,742
431,085
1,692,74
2
6
11,085
7,246,133
y
For Mr. Vintz and Mr. Riddick, represents the value fof the payyment yby the c
______ ____ ____ ____ ____ ___
(1)(1)
employer-paid portion fof premiums ffor continued ggroup health coveragge ffor 12 months ffo
termination. For Mr. Yoran, represents the value fof 18 months fof continued base
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’
reduced by the amount of the quarterly bonuses paid during 2021.
ompany fof the
y
salary, p yayment yby
llowing
g
s target annual bonus
YY
y
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 $55.07
per share on December 31, 2021.
(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
61
coverage for 12 months following termination, and a lump sum cash payment equal to the Named
Executive Offff icer’s target annual bonus reduced by the amount of the quarterly bonuses paid during
2021.
Represents the value fof a lump sum cash
salary (18(18
y
ran), payyment yby the comp yany fof the emp yloyer-paid portion fof premiums ffor
g
(4)(4)
months ffor Mr. Yoran),
ypayment
continued ggroup health cove grage ffor 12 months ffo
oran)
equal to one times the Named Executive OfOfffifff cer’s ta grget annual bonus ((1.5 times ffor Mr. Yoran)
YY
ypayment
reduced yby the amount
YY
oran).
equal to one times the Named Executive OfOfffifff cer’s ta grget annual bonus ((1.5 times ffor Mr. Yoran).
llowing termination, a lump sum cash
ypayment equal to 12 months fof base
during 2021, and a lump sum cash
yerly bonuses paid
fof the quart
g
CCEOO P yay Ratio
Under the Dodd-Frank Wall Street Reformff
and Consumer Protection Act and SSECC rules, we are
required to provide a reasonable estimate off the ratio fof the annual total compensation fof Mr. Yoran,
YY
y
our C fChief Executive OfOffficer
employees.
fff
fof 1933, as
402(u)
In accordance with Instruction 2 to Item 402(u)
amended, because there has been no c
employee compensation
hange in our
g
arrangements in the last yyear that we reasonablyy believe would result in a s gign fificant cha gnge to our
ypay ratio disclosure, we elected to utilize the same median
employee we had ident fified in 2020 to
calculate our 202 C1 C OEO payy ratio. For our last completed yyear, which ended December 31, 2021:
, to the median fof the annual total compensation fof our other
gRegulation SS-K under the SSecurities Act
employee population or
fof
g
y
y
y
•
The median fof the annual total compensation fof all
includingg employyees fof our consolidated subsidiaries, was approximat yely $$176,067. This
annual total compensation is calculated in accordance with Item 402(c)(2)(x)
402(c)(2)(x)
aggregat
K, and r feflects, amo gng other th gings, sal yary and bonus earned and gg g
during 2021.
g
value”
fof SRSU awards ggranted
ran),
employees (oth(other than Mr. Yoran),
“e “ggrant dat
fof Reggulation SS-
fof our
fe fair
y
• Mr. Yoran'
YY
Table included in this
s annual total compensation ffor 2021, as reported in the SSu
Proxy SStatement, was $$8,480,631.
y
mmary CCompensation
y
•
Based on the above, ffor 2021, the ratio fof Mr. Yoran'
median fof the annual total compensation fof all
YY
employees was approximat yely 48 to 1.
s annual total compensation to the
y
This p yay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u)(u)
fof
je judggment and assumptions. The SSECC rules do not
fof 1933, as amended, and applicabl ge guidance and is based
methodologyy
g
ymay use
ypay ratio.
rdingly, the payy ratio disclosed yby other companies, even companies within the same indust yry as
gRegulation SS-K under the SSecurities Act
upon our reasonabl
ffor ident fification fof the median
assumptions and meth
g
AAcco
g y
us,
odologies that are difffferent ffrom those used yby us in calculat ging their
employee or calculation fof the payy ratio, and other companies
ymay not be comparable to our p yay ratio as disclosed above.
ff
f
specifyy a s
inggle
y
The met
hodologyy, in
g
cluding
g
yany material assumptions, adjjustments and estimates, we used to
calculate identifyify the median
employee and calculate the 2021
y
ypay ratio is described below.
•
y
fof our ffull-time, part-
employees ggloballyy as off December 31, 2020. As permitted yby the SSECC
For purposes fof the payy ratio calculation, we included substant
time and temp
orary
y
rules, we excluded %5% fof our gglobal
y
empl yoyees in ga given jjurisdiction located outside fof the Unite Sd States, start ging with the
jurisdict
jurisdiction that had the lowest number off e
cont
employees as fof such date until %5% fof our total gglobal
employees in jjurisdictions with an inc
y
fof
employee population was excluded.
ymployees as fof December 31, 2020, and
employee population ffrom the calculation yby excludi gng all
reasingly ggreater number
inuing to exclude all
ially all
y
g y
g
y
y
62
fof
ff
aining their compensation f
informat
employees in those jjurisdictions
y
ion. As fof December 31,
fof obt
We excluded these employyees ggiven the small number
and the estimated cost
2020, our wor fkforce consisted fof 1,301
consolidated subsidiaries),
%30% fof our total
outside fof the United SStates,
via the met
hodologyy described above.
g
g
y
y
(includingg individuals empl yoyed yby our
sidiaries), 912 off whom were SU.S. emp yloyees, and 389 (or(or approximat yely
employees located
employee population as fof December 31, 2020)20) were
employees (includin
y
fafter excludi gng 66 empl yoyees located outside the United SStates
•
y
y
g
g
ff he median
using annual base
salary as fof December 31, 2020
using a reasonable estimate off hours worked
y
employee's (s (i)i) annual base
employee ffrom the emp yloyee population described above, we
To iden ftifyy t
determined the sum fof each
(calculated as annual base p yay
(calculat
hourly
employees and
y
y
earned annual cash incentive bonus or commission, as applicable, ffor 2020. Permanent
empl yoyees who jjoined in 2020 were assumed to have worked ffor the entire yyear, and thus we
annualized the payy off such new hires. This compensation measure was consistent yly applied
employees included in the calculation and reasonablyy r feflects the annual compensation
to all
currency was converted to SU.S. dollars
fof our
fof all
using a spot ex
termining the median compensated
g
employee, we did not make
y
employee outside fof the SU.S.
y
y
employees. CCompensation paid in ffore gign
jadjustments to the compensation paid to anyy
change rate on December 31, 2020. In de
remaining employees),
loyees), plus (ii)(ii)
during 2020 ffor
salary ffor our
y
yany cost
living
g
fof
g
g
g
g
y
y
• OOnce we ident fified our median
employee, we calculated the median
y
this purpose the gagg ggregat ge grant dat
compensation in accordance with the requirements fof Item 402(c)(2)(x)
(c)(2)(x)
including fg forff
ymary CCompensation Table)ble) ggranted in 2021,
in accordance wit
s
yielding the median annual total compensation disclosed above. With respect to Mr. Yoran'
y
annual total compensation, we used the amount reported in the ““Total”
column fof our 2021
SSu
fe fair value fof equityy awards (a(as determined
mmary CCompensation Table.
e 1 fof the 2021 SSum
fh footnot
YY
TT
g
y
ff
employee’s annual total
y
gRegulation SS-K,
fof
Director Compensation
DIRECTOR COMPENSATION
This section provides
regarding the compensation fof our non-employyee directors in
2021 O. Our non-employyee directors are also entitled to reimbursement off direct expenses incurred in
connection with attendingg meet gings fof our Board fof Directors or committees t
both cash and equity compensation to our independent directors.
hereof W.
informat
e may provide
ion
g
g
ff
f
f
2021 CCash CCompensation
Except as described in the ffootnotes to the table below, the cash compensation amounts set fforth
ypayable to each non-employyee director ffor their service on the Board fof Directors fof the
below were
y
company ffor the yyear ended December 31, 2021:
AAnnual Board SService Retainer $- $35,000
AAnnual Retainer ffor CChairman fof the Audit CCommittee $- $20,000
AAnnual Retainer ffor CChairman fof the CCompensation CCommittee $- $13,500
AAnnual Retainer ffor CChairman fof the Nominat ging an Cd Corporat Ge Governance CCommittee -
$$8,000
AAnnual Retainer ffor members fof the Audit CCommittee $- $10,000
•
•
•
•
•
•
AAnnual Retainer ffor members fof the CCompensation CCommittee $- $6,000
63
•
AAnnual Retaine fr forff members fof the Nominat ging and CCorporat Ge Governance CCommittee -
$$4,000
2021 Equity Compensation
On May 25, 2021, each director identified in footnote (3) to the table below who was appointed
prior to 2021 was granted 4,962 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. Ms. Howe, who was appointed in May 2021, received 9,925
RSUs, with the shares underlying the RSUs vesting annually over three years, subject to her
continued service as a director through the applicable vesting date and accelerated vesting in
specified circumstances.
2021 Director CCompensation Table
The ffo
llowing table provides
g
informat
ff
f
ion as to the compensation fof our non-employyee directors
ffor the yyear ended December 31, 2021.
Name(1)
Arthur W. Coviello, Jr.
Kimberly L. Hammonds
Niloofarff Razi Howe
John C. Huffard, Jr.
Jerry M. Kennelly
Ping Li (4)
A. Brooke Seawell
Richard M. Wells(4)
Linda Zecher Higgins
Fees Earned or
Paid in Cash
Stock Awards(2)(3)
Total
$
53,000 $
199,969 $
49,000
20,500
35,000
48,500
—
55,000
—
45,000
199,969
399,978
199,969
199,969
—
199,969
—
199,969
252,969
248,969
420,478
234,969
248,469
—
254,969
—
244,969
______ ____ ____ ____ ____ ___
(1)(1)
YY
Mr. Yoran’
YY
Mr. Yoran
did not earn compensation
during 2021 ffor his service on our Board fof Directors.
g
s compensation is fful yly
freflected in the “Summary
“Summary CCompensation Table” above.
The amounts in the SStock Awards column
fe fair value fof each
during the yyear ended December 31, 2021, computed in accordance with ASCSC
(2)(2)
SRSU award ggranted
the award to
Topic 718. This calculation assumes that the director will performff
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.
freflect the gagg ggregat ge grant dat
the requisite service forff
g
As fof December 31, 2021, Messrs. CCoviello, Kennel yly, and SSeawell held options to purchase
((3)3)
76,672 shares, 108,000 shares, and 230,000 shares, respecti
yvely, off our common stock. None off our
other non-employyee directors held options to purchase shares fof our common stock as fof December
31, 2021. As off December 31, 2021, Ms. Hammonds and Messrs. CCoviello, Huffffard, Ke
SSeawell each held 4,962 SRSUs, Ms. Zecher
SRSUs. None fof our other non-employyee directors held stock awards as fof December 31, 2021.
nnelly and
y
ggHiggins held 10,740 SRSUs and Ms. Howe held 9,925
(4)(4)
former majora
Mr. Li and Mr. Wells are affiliaff
ted with Accel and Insight Venture Partners, respectively, each
stockholders of the Company, and accordingly did not receive cash or equity
64
compensation for their service as directors during 2021. Additionally, Mr. Li resigned from the Board
on May 25, 2021 and Mr. Wells resigned from the Board on January 7, 2022.
65
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Th fe folff
ff
2021. I
have
ff
lowing table summarizes our equityy compensation plan f
informat
g
ion as fof December 31,
fnformat
ion is included ffor equityy compensation plans approved yby our stockholders. We do not
yany equityy compensation plans not approved yby 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)
12,693,240 $
—
12,693,240 $
9.88
—
9.88
25,963,039
—
25,963,039
Plan Category
Equity compensation plans
approved by stockholders
Equity compensation plans
not approved by
stockholders
Total
______ ____ ____ ____ ____ ___
(1)(1)
5,780,841 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 forff
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,
2022, the number of shares reserved for issuance under our 2018 Plan and our 2018 ESPP
automatically increased by 5,446,444 shares and 1,633,933 shares, respectively, pursuant to these
provisions. These increases are not reflected in the table above.
66
TRANSACTIONS WITH RELATED PERSONS AND INDEMNIFICATION
Related-Person Transactions Policy and Procedures
We have adopted a related person transaction p
yolicy that sets fforth our procedures ffor the
policy
y
yany series fof similar transactions, arr gangements or relationships, in which we and
ident fification, review, consideration and approval or ra ftification fof related person transactions. For
purposes fof our
yonly, a related person transaction is a transaction,
or
person are, were or will be participants in which the amount involved exceeds $$120,000. Transactions
involving compensation ffor services provided to us as an employyee or director are not covered yby this
policy. A related person is
class fof our voti gng securities, in
or controlled yby such persons.
, director or ben feficial owner
ff
fe f
amily
y
fof more than 5%% off a yny
yany entityy owned
arrangement or relationship,
yany fof their immediat
yany executive foffficer
members and
yany related
cluding
g
g
g
y
fff
Under the po ylicy, iff a transaction has been ident fified as a related person transaction, includi gng
f
g
g
g
yany
goriginal yly consummated or
enefits to us fof the transaction and whether the transaction is on terms that are
ially ident fified as a related person transaction prior to consummation, our
information
yany transaction that was not a related person transaction when
y
transaction that was not init
management must present
regarding the related person transaction to our Audit
CCommittee, or, fif Audit CCommittee approval would be inappropriate, to another independent
body fof
y
our Board fof Directors, ffor review, consideration and approval or rat fification. The presentation must
include a description fof, amo gng other th gings, the material ffacts, the interests, direct and indirect, off the
related persons, the b
comparable to the terms available to or ffrom, as the case
ffrom emp yloyees ggenerallyy. Under the policyy, we will collect infformation that we deem reasonablyy
necessary ffrom each director, executive foffficefff
y
enable us to identifyify
fof the po ylicy. In addition, under our CCode fof Business CConduct and Ethics, our
directors have an affffirmative responsibilityy to disclose
could be expected to ggive rise to a c
AAudit CCommittee, or other independent bodyy off our Board fof Directors, will take into account the
relevant available ffacts and circumstances includingg, but not limited to:
yany exist ging or potential related-person transactions and to fefffect
employees and
y
reasonably
y
fonflict off interest. In consideringg related person transactions, our
r and, to the extent ffeasible, signifgnificant stockholder to
uate the terms
ymay be, an unrelated third partyy or to or
yany transaction or relationship that
f
fff
•
•
•
•
the risks, costs and
benefits to us;
f
the impact on a director's independence in the event that the related person is a director,
immediat
fof a director or an ent yity with which a director is fafffiliat
member
f
fe f
amily
y
ed;
fff
the availabili yty fof other sources ffor comparable services or products; and
the terms available to or ffrom, as the case
employees ggenerallyy.
y
ymay be, unrelated third parties or to or ffrom
The policyy requires that, in de
termining whether to approve, rat fifyy off
g
r r jeject a related person
transaction, our Audi Ct Committee, or other independent bodyy off our Board fof Directors, must consider,
fof known circumstances, whether the transaction is in, or is not inconsistent with, our best
in glight
interests and those fof our stockholders, as our Audit CCommittee, or other independent
body fof our
Board fof Directors, determines in the ggood ffaith exercise fof its discretion.
y
Certain Related Person Transactions
The ffo
llowing includes a summaryy off transactions since
g
January 1, 2021 to which we have been a
y
partyy, in which the amount involved in the transaction exceeded $$120,000, and in which
g
directors, executive foffficers
f
fe f
amily
y
securities or
direct or indirect material interest O. Other than described below, there have not been, nor are there
yany fof our
owledge, be fneficial owners fof more than %5% fof our voti gng
or, to our kn
fof the immediat
regoing persons had or will have a
yany fof the ffo g
yany member
fof
g
fff
67
yany proposed, transactions or series fof similar transactions to which we have been or will be
current yly
a par yty other than compensation
arrangements, which include equityy and other compensation,
termination, cha gnge in control and other arranggements, which are described under ““Executive
CCompensation” and ““Director CCompensation.”
g
EE
Emplo
yyment Arranggements with Messrs. SSchonb gerger and Vintii zztt
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 Offiff cer, as a Senior 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 2021, Mr. Schonberger and Mr.
Frank Vintz each received total cash and equity compensation of approximately $400,000.
Transaction Success Fee to Security Growth
rr
Partners LLC
On February 17, 2022, Security Growth Partners LLC, or SGP, rP eceived a transaction success fee
from Cymptom Labs Ltd., or Cymptom, of $690,000 as consideration for services provided to
Cymptom to facilitate the sale of Cymptom to Tenable. N. Elad Yoran, the brother of Amit Yoran, our
Chief Executive Officer
ed with SGP. The success fee was
paid by Cymptom out of the proceeds we paid to acquire Cymptom. The Board reviewed and
approved the success fee as a related party transaction in connection with its approval of the
acquisition of Cymptom.
and Chairman, is a member of and affiliat
ff
ff
Indemniffication
We provide indemnification for our directors and executive officers so that they will be free from
ur directors and executive officers
undue concern about personal liability in connection with their service to the Company. Under our
Bylaws, we are required to indemnify off
under Delaware law. We have also entered into indemnity agreements with our executive officers
directors. These agreements provide, among other things, that we will indemnify t
director, under the circumstances and to the extent provided forff
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,
officeff
law and our Bylaws.
r or other agent of the Company, and otherwise to the fullest extent permitted under Delaware
to the extent not prohibited
ff
expenses,
in the agreement, forff
ff he officer
ff
or
ff
and
68
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries, such as brokers, to satisfyff
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.
69
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 Secretarytt
Dated: April 13, 2022
A copy of the Company’s Annual Report to the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 2021 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.
70
APPENDIX
RECONCILIATION OF NON-GAAP MEASURES
In this proxy statement, we discuss certain operating metrics and non-GAAP financial measures,
ff
These non-GAAP financial measures, which may be different
as described below, which we think are important to better understand and evaluate our core
operating and financial performance.
ff
than similarly titled measures used by other companies, are presented to enhance the overall
understanding of our financial performance
to, the financial informat
Report on Form 10-K. We believe that these operating metrics and non-GAAP financial measures
provide useful informat
ion about our operating and financial performance,
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.
and should not be considered a substitute for, or superior
ion prepared and presented in accordance with GAAP included in our Annual
enhance the overall
ff
ff
ff
ff
Calculated Current Billill ngii
s
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.
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.
Given that most of our
ff
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,
2021
2020
$
541,130 $
440,221
407,498
328,819
(331,462)
(274,348)
$
617,166 $
494,692
_______ ____ ____ ____ ____ ____ ____
(1)(1)
deferred revenue, which is not included in deferred revenue at December 31, 2020.
Deferred revenue (current), beginning of period for 2021 includes $2.6 million related to acquired
Free Cash Flow, Uww nlU evered Freerr Cash Flow and Unlevered Freerr Cash Flow Margin
We define free cash flow, a non-GAAP financial measure, as net cash provided by 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 as a
liquidity measure because it measures our ability to generate or use cash.
We also use the non-GAAP measure of unlevered free cash flow, which we define as free cash
flow plus cash paid for interest and other financing costs. We believe unlevered free cash flow is
useful as a liquidity measure as it measures the cash that is available to invest in our business and
71
meet our current and future financing needs. Unlevered free cash flow margin is defined as unlevered
free cash flow as a percentage of revenue.
The following table presents a reconciliation of net cash provided by operating activities, the most
directly comparable financial measure calculated in accordance with GAAP, to free cash flow and
unlevered free cash flow:
(in thousands)
Net cash provided by operating activities
Purchases of property and equipment
Free cash flow(1)
Cash paid for interest and other financing costs
Unlevered free cash flow(1)
Unlevered free cash flow margin
Year Ended December 31,
2021
2020
$
96,765
$
64,232
(6,561)
90,204
4,978
(20,277)
43,955
335
$
95,182
$
44,290
18 %
10 %
_______ ____ ____ ____ ____ ____ ____
(1)(1)
Free cash fflow and unlevered ffree cash fflow ffor the periods presented were impacted yby:
(in millions)
Employee stock purchase plan activity
Acquisition-related expenses
Tax payment on intra-entity transfer
Proceeds from lease incentives
Capital expenditures related to new headquarters
Year Ended December 31,
2021
2020
$
(0.3) $
(6.5)
2.8
—
(0.9)
0.9
(0.7)
—
14.2
(17.2)
Free cash flow and unlevered free cash flow in 2021 were reduced by approximately $8 million
due to prepayments of software
approximately $15 million from prepayments of similar items made in 2020. The 2020 prepayments
reduced free cash flow and unlevered free cash flow by approximately $17 million in 2020.
subscription costs, insurance and rent, offset
by a benefit of
ff
ff
Non-GAAPGG
Income from OperO atiorr
ns
We use non-GAAP income from operations as a key indicator of our financial performance.
ff
We
define non-GAAP income from operations as loss from operations, excluding the effects
based compensation, acquisition-related expenses and amortization of acquired intangible assets.
Acquisition-related expenses include transaction expenses and costs related to the intercompany
transfer of acquired intellectual property.
of stock-
ff
72
The folff
lowing table presents a reconciliation of loss from operations, the most directly comparable
financial measure calculated in accordance with GAAP, to non-GAAP income from operations:
(dollars in thousands)
Loss from operations
Stock-based compensation
Acquisition-related expenses
Amortization of acquired intangible assets
Non-GAAPAA
income from operations
Year Ended December 31,
2021
2020
$
(41,768) $
(36,433)
79,405
6,901
6,447
59,573
339
2,314
$
50,985 $
25,793
Non-GAAPGG
Net Income and Non-GAAP Earnings Per Sharerr
We use non-GAAP net income, which excludes the effect
ff
of stock-based compensation,
acquisition-related expenses and amortization of acquired intangible assets, including the applicable
tax impacts, and the tax impact of intra-entity asset transfers resulting from the internal restructuring
of legal entities as well as deferred income tax benefits recognized in connection with acquisitions, to
calculate non-GAAP earnings per share. We believe that these non-GAAP measures provide
important information to management and investors because they facilit
operating results over multiple periods.
ate comparisons of our core
ff
73
The folff
lowing 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 and
non-GAAP earnings per share.
(in thousands, except for per share amounts)
Net loss
Stock-based compensation
Tax impact of stock-based compensation(1)
Acquisition-related expenses(2)
Amortization of acquired intangible assets(3)
Tax impact of acquisitions(4)
Tax impact of intra-entity asset transfer(5)
Non-GAAP net income
Net loss per share, diluted
Stock-based compensation
Tax impact of stock-based compensation(1)
Acquisition-related expenses(2)
Amortization of acquired intangible assets(3)
Tax impact of acquisitions(4)
Tax impact of intra-entity asset transfer(5)
Adjustment to diluted earnings per share(6)
Non-GAAP earnings per share, diluted
Year Ended December 31,
2021
2020
$
(46,677) $
(42,731)
79,405
617
6,901
6,447
(10,560)
2,808
59,573
1,299
339
2,314
—
—
$
$
38,941 $
20,794
(0.44) $
(0.42)
0.75
0.01
0.06
0.06
(0.10)
0.03
(0.03)
$
0.34 $
0.59
0.01
—
0.02
—
—
(0.01)
0.19
Weighted-average shares used to compute GAAP net loss per share,
diluted
106,387
101,009
Weighted-average shares used to compute non-GAAP earnings per
share, diluted
114,825
109,962
_____
The tax impact
fof stock-based compensation is based on the tax treatment ffor applicable tax
The tax impact of acquisitions in 2021 includes a reversal of the $7.9 million income tax
The tax impact of acquisition-related expenses is not material.
The tax impact of the amortization of acquired intangible assets is included in the tax impact
_______ ____ ____ ____ ____ ____
(1)(1)
jurisdictions.
jurisdict
(2)
(3)(3)
of acquisitions.
(4)
benefit recognized for GAAPAA
associated with the Accurics acquisition and a reversal of $2.6 million of deferred tax benefits related
to the Alsid acquisition.
(5)
Indegy, resulting in a current tax payment based on the applicable Israeli tax rate.
(6)
shares, to non-GAAP earnings per share, which includes potentially dilutive shares.
The tax impact of the intra-entity asset transfer is related to the internal restructuring of
purposes related to the partial release of our valuation allowance
net loss per share, which excludes potentially dilutive
An adjustment to reconcile GAAPAA
74
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, 2021
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 offiff ces, 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 subjeb ct 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). YesYY
☒ 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
effeff ctiveness 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, 2021, the aggregate market value of the common stock of the registrant held by non-affiliates was
approximately $3.9 billion.
The number of shares of the Registrant's common stock outstanding as of February 22, 2022 was 109,780,284.
Portions of the registrant's definitive Proxy Statement relating to the 2022 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, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
TENABLE HOLDINGS, INC.
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Cff
omments
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
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers
Item 11.
ff
and Corporate Governance
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
3
Pageg
5
15
49
49
49
49
50
51
53
77
79
115
115
116
116
117
117
117
117
117
118
118
Forwarr
rd-Looking Statements
PART I
This Annual Report on Form 10-K, including the sections entitled "Business," "Risk Factors,"
ff
nt from the information expressed or implied by these forward-looking statements.
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, perforff mance or achievements to be
materially differe
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;
ff
the effect
our market;
s of increased competition as well as innovations by new and existing competitors in
our ability to adapt to technological change, release new products and product features and
effect
ively enhance, innovate and scale our enterprise platform and solutions;
ff
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 platforff m and solutions;
future revenue, hiring plans, expenses, capital expenditures, capital requirements and stock
performance;
ff
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
the future trading prices of our common stock and the impact of securities analysts’ reports on
these prices.
intellectual property infringement and other claims; and
f
These statements represent the beliefs aff
nd assumptions of our management based on
ff
informat
ion 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 diffeff
statements. Factors that could cause or contribute to such diffeff
r materially from future results expressed or implied by such forward-looking
rences 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. YouYY should not rely upon forff warr
rd-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
events or circumstances that occur after the date of this report.
statements to reflect
rr
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 traditional on-premise IT networks,
they have less visibility and control over the security of these assets. Organizations are also
increasingly implementing modern solutions, such as Cloud, DevOps, Infrastructure as Code, or IaC,
Mobility, Internet of Things, or IoT, dTT evices, digital identity, 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, sTT uch as Industrial Control Systems, are now network-connected and must be secured from
cybersecurity threats. As organizations implement these modern solutions, they significantly expand
their cyber attack surface.
ff
While other functions in an organization, such as finance and operations, have systems to help
them manage and measure risk, cybersecurity risk has not historically been adequately measured or
understood. We are building on our deep technology expertise as a pioneer in the vulnerability
assessment and management market to provide broad visibility across the modern attack surfacef
and
deep insights to help security teams, executives and boards of directors prioritize and measure Cyber
Exposure. We believe our Cyber Exposure solutions are transforming how cybersecurity risk is
managed and measured and will help organizations more rapidly embrace digital transformation.
In 2021, 2020 and 2019 our total revenue was $541.1 million, $440.2 million and $354.6 million,
respectively, representing year-over-year growth rates of 23% from 2020 to 2021 and 24% from 2019
to 2020. Our net loss was $46.7 million, $42.7 million and $99.0 million in 2021, 2020 and 2019,
respectively. Our cash flows from operating activities were $96.8 million, $64.2 million and $(10.7)
million in 2021, 2020 and 2019, respectively.
Our EntEE erprise Platform Orr
fferings
Our enterprise platform enables organizations to answer foundational and strategic questions
such as:
• Where are we exposed?
• Where should we prioritize remediation based on risk?
•
•
Are we reducing our exposure over time?
How do we compare to our peers?
5
We have continued to expand and diversify off
ur platform offerings from traditional vulnerability
management (VM) solutions, which include Tenable.sc and Nessus, to our cloud exposure solutions,
which include Tenable.ep, Tenable.io, Tenable.cs, Tenable Web Scanning, or Tenable.io WAS,
Tenable.ad and Tenable.ot. Our platforff m 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,
DevOps environments, Active Directory and Identity 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 offeff
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.
rings integrate and analyze data from our native collectors alongside IT
Tenable.ep is our unified platform that helps organizations identify, assess and accurately
prioritize cyber risks across the entire attack surface. In addition to streamlining risk-based
vulnerability management, Tenable.
calculate, communicate and compare their cyber risk exposure over time with that of their industry
peers. These advanced capabilities enable a better understanding of the overall effecti
security programs and provide a key guide for strategic decision-making. Tenable.ep includes
Tenable.io, Tenable.cs, Tenable.io WAS, Tenable.ad, and Tenable Lumin risk analytics.
ep delivers deep business insights that empower organizations to
veness of
TT
ff
Tenable.io is our cloud-delivered software as a service, or SaaS, offering that provides
organizations with a risk-based view of traditional and modern attack surfaces. Tenable.io is 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. Tenable.
io is available as a standalone solution or as part of Tenable.ep.
TT
Tenable.cs is our cloud-native application platform that enables organizations to
programmatically detect and fix cloud infrastructure misconfigurations in the design, build and runtime
phases of the Software Development Lifecycle to prevent unresolved insecure configuration or
exploitable vulnerabilities from reaching production. Tenable.cs secures IaC beforeff
deployment,
maintains a secure posture in runtime, and controls policy deviations over time by synchronizing
configuration between runtime and IaC. Tenable.
for cloud workloads as well as Container Security to assess cloud hosts and container images for
vulnerabilities without the need to manage scan schedules, credentials or agents. Tenable.cs is
available as a standalone solution, as part of Tenable.io or as part of Tenable.ep.
cs also includes Frictionless or Nessus Assessment
TT
Tenable.io WAS provides easy-to-use, comprehensive and automated vulnerability scanning for
modern web applications, and allows organizations to quickly configure and manage web app scans,
enabling them to identify vulnerabilities and prioritize remediation. Tenable.io WAS is available as part
of Tenable.io or Tenable.ep.
Tenable.ad is our solution to secure Active Directory environments by enabling users to find and
fix existing weaknesses beforeff
time without the need to deploy agents or use privileged accounts. Tenable.
alone solution and integrates with Tenable.io and Tenable.sc.
TT
they are exploited and detect and respond to ongoing attacks in real
ad is sold as a stand-
Tenable.ot is our solution that provides threat detection, 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.
6
Tenable.sc is our on-premise offeff
ring that provides a risk-based view of an organization’s IT,
security and compliance posture so organizations can quickly identify, investigate and prioritize their
assets and vulnerabilities based on risk assessment and predictive analytics, and provide insightful
remediation guidance.
Our enterprise platform offerings
ff
deliver the following capabilities:
•
•
•
ii
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 connectors to identify known
and unknown assets on the network.
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.
ff
rr
tt
to allow for priorit
izat
tt We combine our product, vulnerability data and
ion.
based on the business criticality of the asset and the likelihood
Deep analyticstt
threat intelligence with third-party data to provide business context and enable organizations
to prioritize remediation efforts
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
ff
and data science teams to provide clear guidance on where to focus remediation efforts.
Predictive Prioritization provides a threat-based view of vulnerabilities, which is a critical
component of modern risk-based vulnerability management.
TT
• OpenO
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 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
ion and communicate
tively translate technical informat
help security executives effecff
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 effecti
veness.
ff
ff
Nessus
Nessus is one of the most widely deployed vulnerability assessment solutions in the cybersecurity
industry and 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 affinff
within this user base, which, when combined with our enterprise customers and our Tenable
l network effects
Research team of cybersecurity and data science experts, creates powerfurr
in the
ff
ity
7
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 informff
strategy and innovation priorities. We believe these data and insights will also fuel and strengthen our
benchmarking capabilities over time.
our product
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
as an on-ramp product to our enterprise platform. With broad vulnerability coverage, accurate
analysis and an easy-to-use interface, Nessus Professional offers
solution for security consultants and users with ad-hoc assessment needs.
ff
ff
one-time or ad-hoc assessment as well
a cost-effective and comprehensive
Nessus Essentials is our free version of our Nessus product, which includes vulnerability
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.
Foundational elements of our technology architecture include:
•
•
•
•
•
tructure for agilitll y.t Our use of the public cloud delivers agility and
Public cloud infrasrr
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.
Scalabilitii y.t 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 forff multiple enterprise customers across a variety of industries,
with the ability to process millions of application programming interface, or API, calls daily.
The platformff
IT deployments.
can scale to support IoT deployments that are an order of magnitude larger than
ll
ility.
Our modern architecture, leveraging state-of-the-art
Availabii
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.
ff
the reliability of operation for our customers.
io that promises 99.95% availability to help ensure
public cloud services, offers
TT
ff
ff
ii
liii ty and intii egration. Our open API and softwaff
Extensibi
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.
re development kit, or SDK, enables
ll
rr Our products are built on a unified platform with a unified data model that
m.
Unified Platfor
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.
8
• Widely adopted industry srr
tandardd d f
rr
rr
ilff e forff mat
.tt The “.Nessus” file format forff
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
offeri
ngs, as well as export of our data out to third-party IT systems. Our technology ecosystem
ff
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 platforff m 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.
Our Growth Strategy
b
Our object
ives are to maintain our market leadership in Cyber Exposure and to capture our large
market opportunity. To accomplish these objectives, we intend to:
•
•
•
•
e to Acquireii New EntEE erprise Platform Customers. We believe there is a
Continuii
substantial opportunity to increase adoption of our enterprise platform offeff
experienced growth in new enterprise platform customers due to improved product
capabilities and 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.
rings. We have
vv
Expand Asset Coverag
e WithWW in 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.
ll
mrr
nology Platfor
. We intend to continue to innovate, develop and
Invest in Our TechTT
broaden our exposure and traditional vulnerability management solutions, including
expanding the coverage of emerging attack surfaces and asset types and the addition of
analytical capabilities, to help our customers measure and manage 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.
Explxx ore Acquisition OppO ortuni
or development personnel that will expand and enhance the functionality of our platforff m
offeff
ties. We intend to acquire other businesses, technology and/
rr
rings.
◦
In February 2022, we acquired Cymptom to expand our products' ability to identify,ff
understand and disrupt attack paths in enterprise networks.
◦
◦
In October 2021, we acquired Accurics to expand our cloud strategy and ability to
assess IaC.
In April 2021, we acquired Alsid to expand our product offerings
directory security.
ff
to include active
9
◦
In 2019, we acquired Indegy Ltd., or Indegy, to expand 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 offeff
rings 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
offeri
ff
call customers.
ngs to our distributors, which in turn sell to our resellers, which then sell to end users, which we
Our customers are located in over 170 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, 2021, we had approximately 40,000 customers. At December 31, 2021 our
customers included approximately 60% of the Fortune 500 and approximately 40% of the Global
2000. In 2021, 2020 and 2019, 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
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
ff
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
ngs by developing new features, functionality, and applications. Our engineering
platform offeri
expertise combines extensive security product development experience with individuals who possess
deep cloud and user interface design background.
ff
10
Additionally, our Tenable
TT
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 $116.4 million, $101.7 million and $87.1 million in
2021, 2020 and 2019, 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. At
December 31, 2021 and 2020, we had backlog of $27.7 million and $8.0 million, respectively. We
expect substantially all of the backlog at December 31, 2021 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
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
assessment capabilities, including CrowdStrike; public cloud vendors and companies, such as Palo
Alto Networks, that offer solutions for cloud security (private, public and hybrid cloud); and providers
of point solutions that compete with some of the features present in our solutions. We also compete
against internally-developed effort
and services vendors; endpoint security vendors with nascent vulnerability
use open source solutions.
s that oftenff
ff
ff
We believe that the principal competitive factors affect
ff
ing the market for cybersecurity solutions
flexibility of delivery models, ease of
ff
ff
We believe that our suite of solutions generally competes favorably with respect to
include product functionality, breadth and depth of offerings,
deployment and use, integration capabilities such as open APIs and scalability, uptime and
performance.
these factors and may serve as a complement to the solutions offered
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.
by our competitors in some
ff
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.
11
As of December 31, 2021, we had 23 issued patents and 15 patent applications pending in the
United States. Our issued patents expire between 2027 and 2039 and cover our network scanning,
monitoring and analysis technologies and additional features of our platform offeff
December 31, 2021, we had 15 registered trademarks and 13 trademark applications pending in the
United States. We view our copyrights, trade secrets and know-how as a significant component of our
intellectual property assets.
rings. As of
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 informat
ff
ion
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 effoff
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.
rts to protect our trade secrets and proprietary rights through
Government Regulation
Various federal, state and foreign legislative and regulatory bodies have legislation pending that
could affect
ff
our business.
In the ordinary course of our business, we process personal informat
ff
ion. Accordingly, we are, or
to numerous data privacy and security obligations, including federal, state,
may become, subject
b
local, and foreign
laws, regulations, guidance, and industry standards related to data privacy and
ff
security. Such obligations may include, without limitation, the Federal Trade Commission Act, the
California
ff
Data Protection Act, the European Union’s General Data Protection Regulation 2016/679, or EU
GDPR, the EU GDPR as it forms
European Union (Withdrawal) Act of 2018, or UK GDPR, and the ePrivacy Directive.
part of the United Kingdom law by virtue of section 3 of the
Consumer Privacy Act of 2018, or the CCPA,PP the Colorado Privacy Act, Virginia’s Consumer
ff
The CCPA aPP
nd EU GDPR are examples of the increasingly stringent and evolving regulatory
ff
ff
ion in connection with the offeff
ring of goods or services to individuals in the EEA or
ion. The EU GDPR applies to companies established in the
individuals, and heavier documentation requirements for data protection compliance
frameworks related to personal informat
European Economic Area, or EEA, and to companies established outside the EEA that process
personal informat
the monitoring of the behavior of individuals in the EEA. The EU GDPR includes stringent and
complex obligations on entities that receive or process personal informat
penalties for non-compliance, more robust obligations on data processors and data controllers,
greater rights forff
programs. In addition, the EU GDPR increases the scrutiny of transfers of personal informat
ion 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, the CCPA iPP mposes many obligations on covered businesses, including to provide
specific disclosures related to a business’s collecting, using, and disclosing personal informat
ion and
to respond to certain requests from California
example, requests to know of the business’s personal information processing activities, to delete the
individual’s personal information, and to opt out of certain personal informat
ff
residents related to their personal informat
ion, along with significant
ion disclosures). The
ion (for
ff
ff
ff
ff
ff
12
rovides for civil penalties (up to $7,500 per violation) and has a private cause of action for
CCPA pPP
data breaches.
Like other U.S.-based IT security products, our products are subject
b
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, 2021, we had 1,617 employees, including 635 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:
ff
• One TenTT able: 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
ll
that exceed expectations.
Results: We set high goals, take bold risks, measure honestly and deliver results
• What We Do Matters: The work that we do makes a difference
ff
in the world.
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
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.
ff
ff
and environment to achieve
Compensation, Benefits and Talent Development
We provide robust compensation and benefits packages to attract and retain our talent. We aim
to incentivize our employees by aligning a portion of their compensation with the overall success of
our business. In addition to base salary, our benefits packages include annual bonuses, equity
awards, an employee stock purchase plan, retirement plans, along with health and wellness benefits.
Equity awards of restricted stock units that vest over time are granted to new hires and to employees
on an annual basis. Employees are eligible to participate in our Employee Stock Purchase Plan, in
which employees may contribute a percentage of their compensation to purchase shares of our
common stock at a discount. Our health and welfare benefits include health and life insurance, paid
time off,ff
family leave, and employee assistance programs. We are committed to a hybrid workplace
strategy where employees have the flexibility to define the environment where they can do their best
work.
13
We promote and support employee development and organizational effect
ff
iveness by providing
high-quality learning and development programs as well as tuition assistance 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.
Diversity and Inclusion
We seek to cultivate a diverse and inclusive workforce
ff
business results. When we value and celebrate diffeff
rences, 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 diffeff
rence, and provided opportunities to grow.
and environment to achieve exceptional
We undertake numerous efforts
ff
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 and 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 to our global talent
acquisition team receiving a diversity sourcing and recruiting certification, we have hired a team to
help spearhead these initiatives.
ff
Environrr mental Stewardshipii
Our Board and management team recognize that we have a role to play in environmental
stewardship. We believe 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 (“AWSAA
”).
In 2014, AWS shared its long-term commitment to achieve 100 percent renewable energy usage for
the global AWS infrastructure footprint. Additionally, our corporate headquarters is a LEED Certified
Gold forff Core Construction and we are pursuing an Energy Star rating.
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.
14
ff
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
informat
reference, and you should not consider any informat
through, our website as part of this Annual Report on Form 10-K.
ion contained on, or that can be accessed through, our website is not incorporated by
ion contained on, or that can be accessed
ff
ff
TT
TT
“Tenable,
” “Nessus,” “Tenable.
io," "Lumin" and the Tenable
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.
logo, and other trademarks or service
TT
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 forff
investors.tenable.com after we file them with the Securities and Exchange Commission, or the
SEC. The SEC’s website https://www
and other information regarding issuers that file electronically with the SEC.
download free of charge from our investor relations website https:////
.sec.gov contains reports, proxy and informat
ion statements,
//
ff
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
tt
and financial results att
b
re subject
ff
to signif
icant
i
risksii
and uncertrr ainii
ties including
consider the risksii
ii
t
to other information contained
those described below. You should carefullyff
additiontt
consolidated financial
not the only ones we face. Additional
currentlytt believe are not material,
business. If any of the following risksii
conditiontt
rr may alsoll
and results ott
statett ments att
f operati
tt
nd related notes. The risksii
risks and uncertaint
iestt
t
ant
become import
or others not specifiedff
t
ii
ties described below, in
and uncertrr ainii
ii
iestt
and uncertaint
that we aww re unaware of, or that we
factors that adversely affect our
ii
our
t
below materialize, our business, financial
described below are
rr ons could be materially and adversely affected.
in this Aii
nnual Report on Form 10-K, iKK ncluding
Selected Risks Affecting Our Business
Our business is subject to a number of risks of which you should be aware beforeff
making a
decision to invest in our common stock. These risks are more fully described in this “Risk Factors”
section, including the folff
lowing:
• Our business, operations and financial performance
changes in the evolving COVID-19 pandemic.
ff
may be negatively affect
ff
ed by adverse
• We have a history of losses and may not achieve or maintain profitability in the future.
solutions that
intense competition. If we do not continue to innovate and offer
• We faceff
address the dynamic cybersecurity landscape, we may not remain competitive.
ff
• 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.
15
• Our brand, reputation and ability to attract, retain and serve our customers are dependent in
part upon the reliability and accuracy of our data, solutions, infrastructure and those of third
parties upon which we rely. If our informf
parties upon which we rely, are or were compromised, or if our solutions fail to detect
vulnerabilities or incorrectly detect vulnerabilities, or if they contain undetected errors or
defects, we could experience adverse consequences.
ation technology systems or data, or those of third
• Our future quarterly results of operations are likely to fluctuate significantly due to a wide
range of factors, which makes our future results diffiff cult to predict.
• 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.
ff
• We rely on third parties to maintain and operate certain elements of our network
infrastructure.
• We are subject to stringent and changing obligations related to data privacy and security. Our
failure or perceived failure to comply with such obligations could lead to regulatory
investigations or actions; litigation; fines and penalties; disruptions of our business
operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other
adverse business consequence.
• We rely on our third-party channel partner network of distributors and resellers to generate a
substantial amount of our revenue.
• 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.
Risks Related to Our Business and Industry
Our business, operations and financialii performance may be negatively al
ffected by
adverse changes in the evolving COVID-19
VV
dd
pandemi
c.
As of December 31, 2021, we have not seen a significant adverse impact to our financial position,
ff
The COVID-19
results of operations, cash flows and liquidity as a result of the COVID-19 pandemic. However, the
COVID-19 pandemic is continuing to evolve rapidly, and significant adverse changes in the spread or
severity of COVID-19 infections and the resulting societal impact, and response thereto, could have
material adverse impacts on our business, operations and financial performance.
pandemic resulted in travel and other restrictions, including state and local orders across the United
States and in countries in which we operate that, among other things, directed individuals to follow
social distancing guidelines and or to shelter at their places of residence, directed businesses and
governmental agencies to cease non-essential operations at physical locations, prohibited certain
non-essential gatherings and events and ordered cessation of non-essential travel. In response to
public health directives and orders, we implemented work-from-home policies for our global
workforce,
ff
evolved and as these restrictions have eased or been reinstated in response to COVID-19 variants
such as Delta and Omicron, we have continued to update our employee health and safety policies,
including relating to business travel and in-person officeff
to allow some activities, including limited business travel and in-person work at the option of the
employee at certain of our global officeff
offices
and could create additional risks and operational challenges that require us to make additional
or business travel could expose our employees to health risks, and us to associated liability,
including at our headquarters in Columbia, Maryland. As the COVID-19 pandemic has
locations, including at our headquarters. In-person work at our
work. As conditions permit, we will continue
ff
16
of new workplace and travel health and
ff
investments in the design, implementation and enforcement
safety protocols. We expect to continue our hybrid work policies indefinitely and that many employees
will choose to continue to work remotely or a hybrid of in-person and remote work, which presents
risks, uncertainties and costs that could affect
space needs and heightened vulnerability to
culture challenges, uncertainty regarding officeff
cyberattacks. Further, we anticipate that our revenue growth could be adversely impacted by
developments in the COVID-19 pandemic that negatively impact global economic conditions,
including, for example, as a result of the tightening of health and safety restrictions in the United
States or globally.
including operational and workplace
ff
our performance,
ff
Adverse developments in the COVID-19 pandemic could also impact our partners, customers and
service providers. Health concerns and political or governmental developments in response to
COVID-19 has created or contributed 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 ongoing 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 offeri
may not be fully reflected in our operating results until future periods, and such effects
by temporary decreases in our expenses related to restrictions on the conduct of our business. We
expect to incur additional costs as we resume business-related travel and return to the office, the
timing and extent of which remains subject to ongoing developments in the COVID-19 pandemic.
ngs are primarily sold on a subscription basis, any such adverse effects
ff
may be offset
ff
ff
ff
ff
iveness and widespread adoption of vaccines, both domestically and
tiveness of the travel restrictions, quarantines, social
The full extent to which changes in the COVID-19 pandemic impact our business and operations
will depend on future developments that are highly uncertain and cannot be predicted with confidence
of business
at the time of this Form 10-K, such as the duration of the outbreak, the duration and effect
disruptions, the ongoing effect
globally, the duration and ultimate effecff
distancing requirements and business closures in the United States and other countries to contain
and treat the disease, and the impact of new variants or mutations of the coronavirus, such as the
Delta or Omicron variants. An increase or extended period of global supply chain and economic
disruption as a result of the COVID-19 pandemic could have a material negative impact on our
business, results of operations, access to sources of liquidity and financial condition, though the full
extent and duration of these impacts is uncertain. 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.
ff
In addition, to the extent the ongoing COVID-19 pandemic adversely affect
ff
s our business and
results of operations, it may also have the effect
uncertainties described in this “Risk Factors” section.
ff
of heightening many of the other risks and
We have a history of losses and may not achieve ovv
r maintain profrr
itff abil
tt
ityll
in the future.
We have historically incurred net losses, including net losses of $46.7 million, $42.7 million and
$99.0 million in 2021, 2020 and 2019, respectively. As of December 31, 2021, we had an
accumulated deficit of $654.5 million. Because the market for our offerings
rapidly evolving and these solutions have not yet reached widespread adoption, it is difficult
predict our future results of operations. Further, although 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 as of December 31, 2021, we do not yet know the full effects
pandemic, which increases the difficulty in predicting future results of operations.
is highly competitive and
for us to
ff
of the evolving
ff
ff
17
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
our growth or achieve or maintain profitability in the future. We also expect our costs to increase in
future periods, which could negatively affect
increase at a greater rate. In particular, we expect to continue to expend substantial financial and
other resources on:
our future operating results if our revenue does not
to sustain or increase
ff
ff
•
•
•
•
•
public cloud infrastructure and computing costs;
research and development related to our offerings,
development team;
ff
including investments in our research and
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
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
ies, complications, delays and other unknown factors that may result in
operating expenses, difficult
losses in future periods. If our revenue growth does not meet our expectations in future periods, our
may be harmed, and we may not achieve or maintain profitability in the future.
financial performance
to offsff et the expected increase in our costs, our
ff
ff
ff
ff
We face intense competition. If we do not continue to innovate and offer solutions that
addressrr
yy
the dynami
c cybc
ersecurity landscap
dd
e, we may not remai
rr
n cii
ompetitive.vv
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. 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
assessment capabilities, including CrowdStrike; public cloud vendors and companies, such as Palo
Alto Networks, that offer solutions for cloud security (private, public and hybrid cloud); and providers
of point solutions that compete with some of the features present in our solutions. We also compete
against internally-developed effort
and services vendors; endpoint security vendors with nascent vulnerability
use open source solutions.
s that oftenff
ff
ff
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 Microsoftff
introduced a vulnerability management offeri
Smaller companies could also launch new products and services that we do not offer
gain market acceptance quickly.
ng as part of their existing endpoint security platform.
and that could
ff
ff
In addition, some of our larger competitors have substantially broader product offerings
and can
ngs which customers may choose
bundle competing products and services with other software
even if individual products have more limited functionality than our solutions. These competitors may
and
also offer
their products at a lower price, which could increase pricing pressure on our offerings
ff
offeri
ff
ff
ff
ff
18
ff
ngs to decline. These larger competitors are also often
cause the average sales price for our offeri
better positioned to withstand any significant reduction in capital spending, and will thereforeff
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
exclusively
solutions to access their cloud offeri
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.
ngs. If one or more cloud providers elected to offer
not be
ff
ff
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 tff o employees
working from home or in hybrid environments and the increasing adoption by organizations of cloud
or hybrid cloud architectures 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
on research and development and are unable to generate an adequate
significant time and effort
return on our investment, our business and results of operations may be materially and adversely
affect
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 effect
customer requirements or new or evolving attacks by, or indicators of compromise that identify, cyber
bad actors.
ed. Further, we may not be able to successfully anticipate or adapt to changing technology or
ively than we can to new or changing opportunities, technologies, standards or
ff
ff
ff
ff
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
quickly than we do. For all of these reasons, we may not be able to compete successfully against our
current or future competitors.
more
ff
We may not be able to sustain our reven
rr
rr
ue growth
rate in the futuff
re.
From 2020 to 2021, our revenue grew from $440.2 million to $541.1 million, representing year-
over-year growth of 23%. 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 offeri
continue to develop and expand our enterprise platform;
•
•
• maintain the rate at which customers purchase and renew subscriptions to our enterprise
ngs through research and development;
ff
platform offeff
rings;
19
•
•
continue to successfully expand our business domestically and internationally; and
successfully compete with other companies.
If we are unable to maintain consistent revenue or revenue growth, including as a result of the
ongoing COVID-19 pandemic or related macroeconomic conditions, our stock price could be volatile,
and it may be difficff ult 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 effiff ciently adjust our cost structure in response to significant
revenue declines, which could adversely affect
ff
our operating results.
We recognizeii
substantiallyll all of our revrr enue
and, to a lesser extent, perpetual licenses ratably over an expected
result, downturns in sales may not be immii
xx
ediately reflected in our operatingii
ratably over thett
vv
period of benefit and, add s a
results.
term of our subscripti
ii ons
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 ongoing COVID-19 pandemic or related macroeconomic conditions, may
not be immediately reflected in our revenue results forff
negatively affect
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.
our revenue in future periods. Accordingly, the effect
that period. This decline, however, would
ff
ff
We may not be able to scale our busines
ii
s quickly enough to meet our customers’ growi
rr
ngii
needs.dd
ff
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
our effort
ff
improving and expanding our informf
and improvements to our infrastructure and systems will be fully or effect
timely basis, if at all. These efforts
financial results.
ation technology systems. We cannot be sure that the expansion
ff
s to scale our infrastructure. Moreover, there are inherent risks associated with upgrading,
may reduce revenue and our margins and adversely impact our
ively implemented on a
or operational failures as a result of
ff
ff
20
If our enterpriserr
security infraff structt
servicvv es, our results of operation
tt m orr
for
platll
ture, incii
ff
ffering
s do not interope
rate with ott
luding remote devices, or with t
tt
tt hir
s may be harmed.
rr
-
d-rr par
rr
ur customers’ network arr
tyrr products, websww
ites or
nd
Our enterprise platforff m offerings, Tenable.ep, Tenable.io, Tenable.cs, Tenable.ad, Tenable.ot, 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
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
offeri
ngs to customers with highly complex and customized networks, including remote devices, which
ff
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 and hybrid work during the COVID-19 pandemic, or new industry
standards or protocols are introduced, we may have to update 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.
specifications,
ff
We may not deliver or maintain interoperability quickly or cost-effect
ively, 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.
ff
ff
Our brand, reputation and abilityll
ll
in part upon the relrr
iabi
parties upon which we rww elrr y.l
thirdii
parties upon which we rww elrr y,l are orr
thirdii
vulnerabiliti
rr
defects, we could experi
ll es or incorrectl
ee
y dl
etect vulnerabiliti
ence adverse consequences.
to attract, retain aii
nd serve our customers are dependentdd
liii ty and accuracy of our datdd a,tt solutions, infrastructure and those of
If our infoii
rmation technology systems
yy
r wereww
compromisedii
ll es, or if they contain undetected errors or
, odd r if oii ur solutions faiff
or data, or those of
l tii o detect
In the ordinary course of our business, we may collect, store, use, transmit, disclose or otherwise
ion, intellectual
process proprietary, confidential, and sensitive informat
property, and trade secrets. We rely on third party service providers and technologies to operate
critical business systems, including processing this confidential and sensitive informat
ion, including personal informat
ion.
ff
ff
ff
Threats to information systems and data come from a variety of sources. In addition to computer
“hackers,” threat actors, personnel (such as through theft or misuse), sophisticated nation-states and
nation-state-supported actors now engage in attacks. We and the third parties upon which we rely
may be subject to a variety of evolving threats, including but not limited to: social-engineering attacks
(including through phishing attacks); malicious code (such as viruses and worms); malware (including
attacks (such as credential stuffing);
ff
as a result of persistent threat intrusions); denial-of-service
personnel misconduct or error; ransomware attacks; supply-chain attacks; software bugs; server
malfunctions; software
or hardware failures; loss of data or other inforff mation technology assets;
adware; telecommunications failures, and other similar threats. Ransomware attacks, including those
from organized criminal threat actors, nation-states and nation-state supported actors, are becoming
increasingly prevalent and severe and can lead to significant interruptions, delays, or outages in our
operations, loss of data, loss of income, significant extra expenses to restore data or systems,
ff
ff
21
reputational loss and the diversion of funds. To alleviate the financial, operational and reputational
impact of a ransomware attack, it may be necessary to make extortion payments, but we may be
unable to do so if applicable laws prohibit such payments.
Any of these or similar threats could cause a security incident or other interruption. These
incidents and interruptions can include, but are not limited to, gaining unauthorized access to digital
systems for purposes of misappropriating assets or sensitive informat
ion, corrupting data or causing
operational disruption. Because the techniques used to obtain unauthorized access, insert malicious
code or 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.
ff
If we, or a third party upon which we rely, experience a security incident or interruption, or are
perceived to have experienced a security incident or interruption, we may experience adverse
consequences. These consequences may include: government enforcement actions (for example,
investigations, fines, penalties, audits, and inspections); additional reporting obligations and/or
oversight; restrictions on processing informat
class claims); indemnification obligations; negative publicity; reputational harm; monetary fund
diversions; interruptions of our operations (including availability of data); financial loss; and other
similar harm. We sell cybersecurity products and, as a result, may be at increased risk of being a
target of cyberattacks designed to penetrate our platform or internal systems or to otherwise impede
the performance of our products. We may be required to expend additional, significant resources,
fundamentally change our business activities or practices, or modify our operations or information
technology in an effort
to protect against security incidents or other interruptions.
ion (including personal informat
ion); litigation (including
ff
ff
ff
We have experienced, and may in the future experience, disruptions, outages and other
ff
problems due to a variety of factors, including infrastructure changes, deliberate or
performance
unintentional human or software errors, capacity constraints and fraud or cybersecurity attacks. Any
disruptions or other perforr
and may damage our customers’ businesses, including by interrupting their networking trafficff
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.
rmance problems with our solutions could harm our reputation and business
or
In addition, if our solutions fail to detect vulnerabilities in our customers’ cybersecurity
remote devices, or if our solutions fail to identify new and increasingly
infrastructure, including forff
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 as a result of 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 informat
users who contribute new exploits, attacks and vulnerabilities. If the informat
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
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.
ion provided by an active community of
ion from these third
and
ff
ff
ff
ff
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
the future in new or enhanced solutions after commercial release. In addition, we use third parties to
assist in the development of our products and these third parties could be a source of errors or
defects. Defects may cause our solutions to be vulnerable to attacks, cause them to fail to detect
will be found from time to time in
ff
22
vulnerabilities, or temporarily interrupt customers’ networking traffiff c 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.
Additionally, applicable data protection requirements may require us to implement specific
ff
rent industry-standard measures designed to protect against
agencies and others. Such disclosures are costly, and the disclosures or failure to
security measures or use new or diffeff
security incidents. Data protection requirements may also require us to notify relevant stakeholders of
security incidents, including affected individuals, partners, collaborators, customers, regulators, law
enforcement
comply with such requirements could lead to adverse impacts, including reputational harm or fines
and penalties. There can be no assurance that any limitations or exclusions of liabilities in our
protect us from liabilities or damages
or adequate or would otherwise
contracts would be enforceable
if we fail to comply with data protection requirements related to informat
ion security or security
ff
incidents. We cannot be sure that our insurance coverage, if any, will be adequate or otherwise
protect us from or adequately mitigate liabilities or damages with respect to claims, costs, expenses,
litigation, fines, penalties, business loss, data loss, regulatory actions or other impacts arising out of
security incidents.
rr
rr
ff
l
Our futff ure quarterl
y r
rr
range of factors, which makes our futuff
re results difficult to predict.dd
esrr ults of operations are likely to fluctuate significantly due to a wide
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:
•
•
•
•
•
•
•
•
•
•
•
the potential impact of the evolving 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
competitors;
by us or our
ff
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 difficult
(including security breaches by our service providers or vendors);
changes in the growth rate of the markets in which we compete;
ies or interruptions with our solutions
ff
23
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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;
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 effect
ff
ive tax rate;
general economic and political conditions, both domestically and internationally, as well as
economic conditions specifically affect
ing industries in which our customers operate; and
ff
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
ff
of some of these factors, may result in fluctuations in our revenue and operating
cumulative effect
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
guidance and analyst expectations and may cause our stock price to decline.
and may cause us to miss our
ff
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
the timing of our operating expenses.
our operating results in the future and may reduce our ability to predict cash flow and optimize
ff
Our business and results of operations depedd
tt
nding the number of IT assets or IP addresses
lyll on our customers renewing
rr
nd substantial
under their
ii ons. Any decline in oii
ii ons withww us and expa
their subscripti
subscripti
customers to expand their use of subscripti
operations, and financial conditidd on.
ee
ur customer renewals, terminrr
ii on offeri
ngii
ff
ations or failuii
re to convinvv ce our
s wouww ld harm our business, results of
Our subscription offerings
ff
are term-based and a majority of our subscription contracts are forff
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
24
ff
a variety of reasons, including as a result of changes in their
ngs and related services. Historically, some of our customers have elected not 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 offeri
renew their subscriptions with us forff
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
technology spending in response to economic conditions resulting from the ongoing COVID-19
pandemic or other macroeconomic factors that could lead to decreased spending, 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
effect
services, mergers and acquisitions affect
ing 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.
iveness of our customer support services, our pricing, the prices of competing products or
ff
ff
We must maintain
ii
and enhance our brand.
ff
We believe that developing and maintaining widespread awareness of our brand in a cost-
ive manner is critical to achieving widespread acceptance of our enterprise platform and
effect
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
in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial
expenses, we may fail
ient return on our
ff
brand-building effort
ff
customer adoption of our solutions.
s, or to achieve the widespread brand awareness that is critical for broad
to attract or retain customers necessary to realize a sufficff
ff
the expenses we incur
We rely on third parties to maintain
ii
and operate certain eii
lements of our networkrr
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
availability of our solutions, network infrastructure and website.
rr
ff
the security or
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 AWSAA
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
to terminate the agreement with two years’ written notice and
allows AWSAA
25
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 forff
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 AWSAA
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 AWSAA
systems.
ii
Organizatio
ed due to thett
dd
cloud-bas
ns may be reluctant to purchase our enterprise platform
ll
offerings thatt
t are
actual or percei
rr
ved vulnerabilityll
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
ngs experience security incidents, breaches of customer data,
companies with cloud-based offeri
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.
ff
Our sales cycle is long and unpredictable.
The timing of sales of our offerings
ff
ff
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 ongoing COVID-19 pandemic and related economic uncertainty have also
continued to impact 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
expenses that are not offset
, and as a result, we could lose other sales opportunities or incur
by an increase in revenue, which could harm our business.
ff
ff
ff
We are srr
ff ure or perceived failure to comply with such obligll ations, could lead to regulatory
ubject to strinrr gent and changing obligll ations relrr atell
d to datadd
privacyvv
and security.
Our fail
investigatio
i
operations; reputational harm; loss of revenue or profi
other adverse business consequences.
ns or actions; litigation; fines and penalties; disruii
rr
ll
ptiu ons of our business
ts; loss of customers or sales; and
ff
In the ordinary course of our business, we process personal informat
ff
ion, including proprietary and confidential business informat
informat
property, and sensitive third-party informat
parties upon which we rely, to numerous data privacy and security obligations, such as various laws,
rules, regulations, guidance, industry standards, external and internal privacy policies, contracts, and
other obligations that govern the processing of personal informat
ion, trade secrets, intellectual
ion. Our data processing activities subject us, and third
ion by us and on our behalf.
ion and other sensitive
ff
ff
ff
26
In the United States, federal, state, and local governments have enacted numerous data privacy
ff
ff
ff
ff
ion privacy laws, and
ion. The CCPA aPP
ff
Consumer Privacy Act, or the CCPA,PP imposes
security laws, including data breach notification laws, personal informat
consumer protection laws. For example, the California
obligations on businesses to which it applies including, but not limited to, providing specific
disclosures in privacy notices and affording
informat
Further, the California
CCPA,PP including by expanding certain consumers’ rights. The CPRA also creates a new state agency
e the CPRA, which could increase the risk of
that will be vested with authority to implement and enforcff
an enforcement
passed its Consumer Data Protection Act and Colorado recently passed the Colorado Privacy Act,
both of which differ
respectively.
llows for statutory fines for noncompliance (up to $7,500 per violation).
Privacy Rights Act, or CPRA, effective on January 1, 2023, will expand the
action. Other states have enacted data privacy laws. For example, Virginia recently
from the CPRA and go into effect on January 1, 2023 and July 1, 2023
residents certain rights related to their personal
ff
California
ff
ff
Outside the United States, an increasing number of laws, regulations, and industry standards
apply to data privacy and security. For example, the European Union’s General Data Protection
Regulation, or EU GDPR, and the United Kingdom’s GDPR, or UK GDPR, impose strict requirements
for processing the personal informat
ion of individuals. Violations of these obligations carry significant
potential consequences. For example, under the EU GDPR, government regulators may impose
temporary or definitive bans on processing, as well as fines of up to €20 million or up to 4% of the
annual global revenue, whichever is greater. We have an internal data privacy function that oversees
and supervises our compliance with European and UK data protection regulations but, despite our
ff
effort
s, we may fail, or be perceived to have failed, to comply.
ff
ff
ion transfer laws, which could make it more difficuff
ff
Additionally, certain jurisdictions have enacted data localization laws and cross-border personal
ion across
ff
informat
ion that originates in the EU or UK).
jurisdictions (such as transferring or receiving personal informat
Existing mechanisms that may facilitate cross-border personal informat
ion transfers may change or
ff
be invalidated. For example, absent appropriate safeguards or other circumstances, the EU GDPR
ion to countries outside of the European Economic
generally restricts the transfer of personal informat
Area, such as the United States, which the EU does not consider to provide an adequate level of data
privacy and security, unless certain safeguards are in place. While we have taken steps to lawfully
transfer personal informat
ion, the efficacy and longevity of these mechanisms remains uncertain.
lt to transfer personal informat
ff
ff
Our obligations related to data privacy and security are quickly changing in an increasingly
ff
ive future legal framework. Additionally,
stringent fashion, creating some uncertainty as to the effect
these obligations may be subject to differing applications and interpretations, which may be
inconsistent or in conflict among jurisdictions. Existing and proposed laws and regulations can be
costly to comply with, can delay or impede the development or adoption of our products and services
and require significant management time and attention. Although we endeavor to comply with all data
privacy and security obligations, we may at times fail (or be perceived to have failed) to do so.
Moreover, despite our effoff
with such obligations, which could negatively impact our business operations and compliance
posture. If we fail, or are perceived to have failed, to address or comply with applicable data privacy
and security obligations, we could face significant consequences. These consequences include, but
are not limited to: government enforcement actions (such as investigations, fines, penalties, audits,
inspections); litigation (including class-related claims); additional reporting requirements and/or
oversight. Any of these events could have a material adverse effect
financial condition, including but not limited to: interruptions or stoppages in our business operations,
inability to process personal informat
ion or operate in certain jurisdictions; limited ability to develop or
commercialize our products; expenditure of time and resources to defend any claim or inquiry;
rts, our personnel or third parties upon which we rely may fail to comply
on our reputation, business, or
ff
ff
27
reputational harm; loss of customers; reduction in the use of our products; or revision or restricting of
our operations.
ii
We rely on our thitt
rd-pa
rty channel partner network of distri
ii
buii
tors and resellers
ll
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 offeri
ngs as part of larger purchases in the United States and to grow our business internationally.
ff
In 2021, 2020 and 2019, we derived 92%, 91% and 90%, 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 39%, 43% and 43% of our revenue in 2021, 2020 and 2019, respectively,
and 32% of our accounts receivable as of December 31, 2021 and 41% as of December 31, 2020.
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
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 offer
reasons do not continue to market and sell our solutions in an effect
ive manner or at all, our ability to
grow our business and sell our solutions, particularly in key international markets, may be adversely
affect
sales of our solutions and professional services, including as a result of the ongoing 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.
ed by our competitors or a result of an acquisition, competitive factors or other
to recruit additional channel partners, or any reduction or delay in their
ed. In addition, our failure
competing solutions,
ff
ff
f
ff
ff
A portion of our reven
rr
ue is generated from subscriprr
tions and perpetual licenses sold to
domestic governmental entities, foreff
ii
organizatio
ns, which are subjecb
t to a number of challenges and risks.
ii
ign governvv mental entities and other heavilyii
ll
regulated
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 affect
ing 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.
ff
28
ff
ff
from
its convenience or if we default by failing to perform in accordance with the
Further, governmental and highly regulated entities often require contract terms that differ
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 forff
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
or additional requirements after a contract is signed. If we do not meet applicable
different
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
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,PP 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.
these types of
ff
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.
require pricing that is based on estimated direct and indirect costs, which are subject to change.
Under the FAR, certain types of contracts
FF
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
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.
ff
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 informat
Any failure by us or our channel partners to safeguard and maintain the confidentiality of such
ff
informat
ff
affect
ion could subject us to liability and reputational harm, which could materially and adversely
our results of operations and financial performance.
ff
ff
ion.
29
Our pricing model subjects utt
s to varivv ous challenges thatt
derive expected value fromrr
our pricing model to remain competitive.
tt
our customers and we mww
t could make it difdd fiff cult forff
us to
ce our prices or change
ay need to redurr
Subscriptions and perpetual licenses to our enterprise platform are generally priced based on the
ff
ively internationally. Moreover, mid- to large-size enterprises may demand substantial price
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
effect
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 facef
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
financial condition.
our business, revenue, operating margins and
additional pressure from our
ff
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
ff
to enforce
management and potentially adversely affect
our rights under the agreement or license, which would require us to spend money, distract
our relationship with our customers and users.
ff
If our enterpri
rr
seii
platform
ll
offerings do not achieve sufficient market acceptance, our
results of operations and competititt ve position wilww l sll uffer.
ff
We spend substantial amounts of time and money to research and develop and enhance our
rings to meet our customers’ rapidly evolving demands. In addition, we invest
to continue to add capabilities to our existing products and enable the continued detection of
enterprise platform offeff
in efforts
ff
new network vulnerabilities. We typically incur expenses and expend resources upfront to market,
when we develop and introduce new or
promote and sell our new and enhanced offerings.
enhanced offerings,
ff he 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
ff
Therefore,
they must achieve high levels of market acceptance in order to justify t
ff
ff
ff
Further, we may make enhancements to our offeff
rings 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 forff
any of our features or usage of our offerings.
ff
Our new offerings or enhancements and changes to our existing offerings
ff
could fail to attain
sufficient
ff
market acceptance for many reasons, including:
•
•
•
•
•
ff
that meets this demand in a timely fashion;
failure to predict market demand accurately, including changes in demand as a result of the
ongoing COVID-19 pandemic or related macroeconomic trends, in terms of functionality and
to supply offerings
defects, errors or failures;
negative publicity about their performance
delays in releasing our new offeff
introduction or anticipated introduction of competing products by our competitors;
iveness;
ff
rings or enhancements to our existing offerings
ff
or effect
to the market;
ff
30
•
•
poor business conditions for our customers, including as a result of the ongoing COVID-19
pandemic, causing them to delay or forgo IT purchases; and
reluctance of customers to purchase cloud-based offerings.
ff
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
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.
on our
ff
ff
Our strategy ogg
and deploying our solutions in t
ii hett
cloud, on-premisesii
approa
pp
ch causes us to incur increased expenses and may
environrr ments or using a hybrid
pose challeng
es to our business.
ll
f offeringii
yy
ff
ff
ff
ff
ff
We offer
and selling subscriptions to our
and we have less operating experience offering
We expect that our customers will continue to move to our
Although a substantial majority of our revenue has historically been
and that it will become more central to our distribution model. We expect our gross
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,
ff
solutions via our cloud offering.
generated from customers using our solutions on an on-premises basis, our customers are
increasingly adopting our cloud offering.
cloud offering
ff
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
and hybrid installation,
must engineer our software for an on-premises environment, cloud offering
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
but even if we continue to make these investments, we may be unsuccessful in growing or
implementing our cloud offeri
competitors and our business, results of operations and financial condition could be harmed.
ng in a way that competes successfully against our current and future
for our customers,
ff
ff
ff
ff
Our customers’ increased usage of our cloud-bdd ased offeri
improve
rr
system performance.
ff
our computer network and infrastructure to avoid service interruptiu ons or slower
ngii
s reqrr uiresii
us to continuallyl
As usage of our cloud-based offerings
ff
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
Any failure or delays in our computer systems could cause
the performance of our cloud offering.
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.
ff
ff
ff
31
A component of our growth strateg
epend
omplexity to our operatiorr
dd
y igg s dii
entdd
ns.
rr
expansion, which adds cdd
on our continued international
We market and sell our solutions and professional services throughout the world and have
personnel in many parts of the world. International operations generated 42% and 39% of our
revenue in 2021 and 2020, 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
solutions and professional services outside of the United States or in effeff ctively 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:
into international markets will be successful in creating further demand for our
ff
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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;
economic or political instability in foreign
Kingdom’s recent exit from the European Union and the corresponding impact on its ongoing
legal, political, and economic relationship with the European Union and heightened levels of
inflation;
markets, including instability related to the United
ff
travel restrictions resulting from the COVID-19 pandemic, including restrictions on U.S.
travelers entering some foreign countries;
greater difficult
periods;
ff
y in enforcing contracts, accounts receivable collection and longer collection
changes in regulatory requirements, including, but not limited to data privacy, data protection
and data security regulations;
ff
ff
ies and costs of staffing,
difficult
including increased employee recruitment, training and retention costs related to global
employment turnover trends and inflationary pressures in the labor market stemming from the
COVID-19 pandemic;
managing and potentially reorganizing foreign operations,
the uncertainty and limitation of protection for intellectual property rights in some countries;
costs of compliance with forff eign laws and regulations and the risks and costs of non-
compliance with such laws and regulations;
ff
labor regulations in foreign jurisdictions where labor laws are generally more
differing
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,PP import and export control laws, tariffs,
trade barriers, economic sanctions and other
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;
ff
ff
requirements to comply with foreign
and regulations and the risks and costs of noncompliance;
privacy, data protection and informat
ff
ion security laws
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;
32
• management communication and integration problems resulting from cultural differences
ff
and
geographic dispersion;
•
•
costs associated with language localization of our solutions; and
costs of compliance with multiple and possibly overlapping tax structures and regimes.
Our business, including the sales of our solutions and professional services by us and our
ff
b
to foreign governmental regulations, which vary substantially from
channel partners, may be subject
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
manage the challenges of international expansion and operations, our business and operating results
could be adversely affect
on our business and results of operations. If we are unable to successfully
ed.
ff
ff
We rely on the performance of highi
ludingii
rr
inrr g, professional services, sales and technology professi
ly skillii ed personrr
nel, ill ncii
ii
senior management and
onals, and our abiliii ty to
epend to a significant extent on our abilityll
to expand our
our engineer
increase our customer base wilww l dll
sales and marketingii
operatiorr
ns.
We believe our success has depended, and continues to depend, on the efforts
ff
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 officeff
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.
rs or key employees. Our senior management and key employees are
ff
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. The recent move by companies to offer
may increase competition for such employees outside of our traditional officeff
employee turnover rates in the broader global economy and inflationary pressures in the labor market
have increased during the ongoing COVID-19 pandemic and may continue to be elevated, which has
led, and could continue to lead. to increased recruiting, training and retention costs. If we do not
succeed in attracting well-qualified employees, retaining and motivating existing employees or
maintaining our corporate culture in a hybrid or remote work environment, our business would be
adversely affect
a remote or hybrid work environment
locations. In addition,
ed.
ff
ff
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
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
33
sales and marketing programs, including through electronic marketing campaigns and, when deemed
safe to do so, trade event sponsorship and participation. All of these effoff
significant financial and other resources and our business will be harmed if our effort
a correspondingly significant increase in revenue.
rts will require us to invest
s do not generate
ff
We must offer highi
-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 effect
ff
software to existing and new customers would suffer
customers would be harmed.
and our reputation with existing or potential
ive ongoing support, our ability to sell new
ff
Our growth dtt
epends idd n pii
parties.
art on the success of our strategic relationships witww h t
tt hitt
rdii
In order to grow our business, we anticipate that we will continue to depend on relationships with
competing solutions. Our competitors may be effecti
or to prevent or reduce
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 platforff m. 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
ve in
ff
providing incentives to third parties to favor their products or services
subscriptions to our services. If our partners choose to place greater emphasis on products of their
vely market and sell our product, our ability to
own or those offer
grow our business and sell software and professional services may be adversely affecte
d. 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 offeri
ngs until equivalent data is either developed by us, or, if available, is identified, obtained and
ff
integrated, which could harm our business.
ed by our competitors or do not effecti
rr
ff
ff
ff
ff
ff
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 disruii
ptu our busines
ii
s.
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 forff
development, marketing, operational support, hosted services and sales activities.
our
While we have begun to initiate hybrid remote and in-person work policies, substantially all of our
employees have been working remotely due to the COVID-19 pandemic, which may pose additional
security risks. Our business operations are subject to interruption by natural disasters, including those
34
ff
s of climate change, and other catastrophic events such as fire, floods,
related to the long-term effect
power loss, telecommunications failure, cyberattack, war or terrorist attack, or epidemic or pandemic,
such as the COVID-19 pandemic. To the extent such events impact 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.
ff
ff
Recent and future acquisitio
business operations and financialii
ii
results.
ns could disrdd uprr
t our business and adversely al
ffect our
We have in the past acquired products, technologies and businesses from other parties, such as
our 2021 acquisitions of Alsid and Accurics, and we expect to expand our current business by
acquiring additional businesses or technologies in the future. Acquisitions involve many risks,
including the following:
•
•
•
•
•
•
•
•
ff
an acquisition may negatively affect
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
return to offsff et additional costs and expenses related to the acquisition;
our financial results because it may require us to incur
financial
ff
we may encounter difficult
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;
expenditures in integrating the business,
ff
ies or unforeseen
ff
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 effecff
from either company;
tiveness of service
we may encounter difficult
solutions;
ff
ies in, or may be unable to, successfully sell any acquired
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
ff
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
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.
to unforeseen
b
We may reqrr uire arr
dditidd onal capital to suppopp rt business growth, and this capital might not
be availvv able
ll
on acceptable terms, if at all.ll
We expect that our existing cash and cash equivalents will be sufficient
ff
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
35
ff
significant dilution, and any new equity securities we issue could have
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
rights, preferences and privileges superior to those of holders of our common stock. Our current loan
agreement includes, and we expect that any future agreements governing our indebtedness will
include, restrictive covenants relating to our capital raising activities and other financial and
operational matters, which may make it more diffiff cult for us to obtain additional capital and to pursue
business opportunities, including potential acquisitions. 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 affect
ed.
ff
If we do not generate sufficient cash flows,ww we may be unable to service all of our
indebtedness.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate
cash, make scheduled payments or to refinance our debt obligations depends on our successful
which may be affected
financial and operating performance,
business factors, many of which are outside of our control and some of which are described
elsewhere in the “Risk Factors” section of this report.
by a range of economic, competitive and
ff
ff
ff
If our cash flows and capital resources are insufficient
to fund our debt service obligations, or to
repay the term loan when it matures, we may have to undertake alternative financing plans, such as
refinancing or restructuring our debt, selling assets or operations, reducing or delaying capital
investments, or seeking to raise additional capital. We may not be able to refinance our debt, or any
refinancing of our debt could be at higher interest rates and may require us to comply with more
restrictive covenants that could further restrict our business operations. Our ability to implement
successfully any such alternative financing plans will depend on a range of factors, including general
economic conditions, the level of activity in capital markets generally, and the terms of our various
.
debt instruments then in effect
ff
Covenants under our Credit Agreement may restri
anage our covena
ways,yy and if we do not effectively ml
of operations could be adversvv
ely affecff
ted.
rr
vv
ct our business
and operations in mii
nts, our finff ancialii conditdd iott ns and resurr
any
lts
ii
Our Credit Agreement imposes various covenants that limit our ability and/or our restricted
subsidiaries’ ability to, among other things:
•
pay dividends or distributions, repurchase equity, prepay, redeem or repurchase certain debt,
and make certain investments;
incur liens on assets;
incur additional debt and issue certain preferred stock;
provide guarantees in respect of obligations of other persons;
•
•
•
•
• merge, consolidate with, or sell all or substantially all our assets to another person;
•
engage in certain asset sales, including capital stock of our subsidiaries;
enter into transactions with affiliates;
36
•
•
•
enter into agreements that restrict distributions from our subsidiaries;
designate subsidiaries as unrestricted subsidiaries; and
prohibit certain restrictions on the ability of restricted subsidiaries to pay dividends or make
other payments to us.
These covenants may:
•
limit our ability to borrow additional funds for working capital, capital expenditures,
acquisitions, or other general business purposes;
•
•
•
•
•
limit our ability to use our cash flow or obtain additional financing for future working capital,
capital expenditures, acquisitions, or other general business purposes;
require us to use a substantial portion of our cash flow from operations to make debt service
payments;
limit our flexibility to plan for, or react to, changes in our business and industry;
place us at a competitive disadvantage compared to less leveraged competitors; and
increase our vulnerability to the impact of adverse economic and industry conditions.
If we are unable to successfully manage the limitations and decreased flexibility on our business
due to our significant debt obligations, we may not be able to capitalize on strategic opportunities or
grow our business to the extent we would be able to without these limitations.
Our failure to comply with any of the covenants could result in a default
f
under the Credit
Agreement, which could permit the administrative agent or the lenders to cause the administrative
agent to declare all or part of any of our outstanding senior secured term loans or revolving loans to
be immediately due and payable or to exercise any remedies provided to the administrative agent,
including, proceeding against the collateral granted to secure our obligations under the Credit
Agreement. An event of default under the Credit Agreement could also lead to an event of default
under the terms of certain of our other agreements. Any such event of default or any exercise of rights
and remedies by our creditors could seriously harm our business.
The LIBOR calculation method may change, and LIBOR
II
is expected
xx
to be phased out after
2021.
the calculation of LIBOR after 2021. However, the
Loans under the Credit Agreement bear interest at a rate based on the London Interbank Offered
Rate, or LIBOR. On July 27, 2017, the U.K. Financial Conduct Authority, or the FCA, announced that
it will no longer require banks to submit rates forff
cessation date has been deferred to June 30, 2023 for the most commonly used tenors in U.S. dollar
LIBOR (i.e., overnight and one, three and six months). This extension to 2023 means that many
legacy U.S. dollar LIBOR contracts would terminate beforf e related LIBOR rates cease to be
published. In the meantime, actions by the FCA, other regulators, or law enforcement
result in changes to the method by which LIBOR is calculated. If changes to LIBOR result in an
increase in rates, our interest expense under the Credit Agreement would increase. Further, if LIBOR
is no longer available, our Credit Agreement provides a process to determine a substitute rate, and if
such substitute rate is higher than LIBOR, our interest expense under the Credit Agreement would
increase.
agencies may
ff
ff
The nature of our busines
regulation
ll
or interpretations, or if our estimates
tt
ii
s reqrr uiresrr
s. If there are significant changes in current principles, financ
ial reporting standardsdd
the applicat
ll
iott n of complex accounting rulerr
ii
s and
or judgments relating
ll
to our critical accounting policll
ies
37
provrr
results ott
e tvv o be incii orrecrr
f operations could be adverserr
ee
t, we may experierr nce unexpe
ffected.
ly al
cted finaff
ncialii
e
repor
tirr ngii
fluctuations and our
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,
f
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 affecte
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.
d if our
ff
ff
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
business, financial position and profit, or cause an adverse deviation from our revenue and operating
profit target, which may negatively impact our financial results.
on our reputation,
ff
Risks Related to Government Regulation, Data Collection and Intellectual Property
Our business could be adversel
vv
security clearances or we cannot establishii
ffecff
y al
ted if our employees cannot obtain and maintain
ii
faciliii ty security
and maintain a requi
rr
redii
requiredii
clearance.
f
Certain U.S. government contracts may require our employees to maintain various levels of
y security clearance, to comply with
security clearances, and may require us to maintain a facilit
Department of Defense, or DoD, requirements. The DoD has strict security clearance requirements
for personnel who performff
work in support of classified programs. Obtaining and maintaining a facility
clearance and security clearances for employees can be a difficff ult, 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 facilit
ff
on or win new classified contracts, and existing contracts requiring a facility security clearance could
be terminated.
y security clearance, we may not be able to bid
38
Any failuff
rr
re to protect
substantiallyll harm orr
ur busines
ii
s and operatingtt
results.
our proprietary technology and intellecll
tual property rights could
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.
ff
ff
software patents in the United States is becoming increasingly challenging. Any patents we
As of December 31, 2021, we had 23 issued patents and 15 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 sufficient
ly
broad protection and may not be enforceable
in actions against alleged infringers. Obtaining and
enforcing
have obtained or may obtain in the future may be found to be invalid or unenforceable
recent and future changes in the law. We have registered the “Tenable,
io” and
TT
"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
our proprietary rights. While we have copyrights in our software, we do not typically register such
copyrights with the Copyright Offiff ce. 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,
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.
or provide adequate protection of
including open source software
” “Nessus,” “Tenable.
in light of
TT
ff
ff
ff
ff
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 effoff
rts 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
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 informat
ff
determine the extent of any unauthorized use or infringement of our solutions, technologies or
intellectual property rights.
ion may increase. We may be unable to
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, effect
ive trademark, patent,
ff
39
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 efforff
intellectual property rights may be met with defenses, counterclaims and countersuits attacking the
validity and enforcff
our intellectual property rights could seriously adversely affect
business.
eability of our intellectual property rights. Our failure to secure, protect and enforce
our brand and adversely impact our
ts to enforce our
ff
ff
We may be subjeb ct to intellectual property rights claimll
extremely cl
abiliii ty to use certain t
ii
rr
echnologies.
ostly to defend, could requi
reii us to pay signi
s by thitt
dd
ificant damag
rdii
parties, which are
es and could limll
it our
Companies in the software and technology industries, including some of our current and potential
ff
claims that may be
their intellectual property rights and to defendff
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
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 thereforeff
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 faceff
risk of being the subject
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 informat
ion 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 aff
indemnity provisions often 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.
increasing competition and as we acquire more companies, we face a higher
of intellectual property infringement claims, which is not uncommon with
nd defend such customers from those claims. The term of our contractual
b
ff
There may be third-party intellectual property rights, including issued or pending patents that
cover significant aspects of our technologies or business methods, including those relating to
companies we acquire. 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 forff
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
legal fees, settlement payments, and other costs or damages, potentially
ff
40
intellectual property, including on reasonable terms. As a result, we may be required to develop
alternative non-infringing technology, which could require significant effort
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 effecti
affect
our business, results of operations, financial condition and cash flows.
vely. Any of these results would adversely
and expense. If a third
ff
ff
ff
Portions of our solutions utiliii zeii
open source software,rr and any faiff
terms of one or more of these open source licenses could negatively al
luii
re to comply with the
ffect 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
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 softwaff
manner.
re which may be difficff ult to accomplish in a timely
programs that are subject to the license be made
ff
Although we monitor our use of open source software in an effort
ff
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
make our proprietary software available under open source licenses, if we combine or distribute our
software with open source software in a certain manner. In the event that portions of our software
determined to be subject to an open source license, we could be required to publicly release the
affect
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
ed portions of our source code, re-engineer all, or a portion of, that software or otherwise be
our business, results of operations and financial condition.
and to
are
ff
ff
ff
ff
Risks Related to An Investment in Our Common Stock
Our stock price may be volatile, and the value of our common stock may declinll e.
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.
market price of our common stock include the following:
Factors that could cause fluctuations in the
ff
•
actual or anticipated changes or fluctuations in our operating results;
41
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the financial projections we may provide to the public, any changes in these projeo ctions 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
companies generally, or those in our industry in particular;
ff
and stock market valuations of other technology
failure to comply with the terms of the Credit Agreement;
sales of shares of our common stock by us or our stockholders;
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 or proposed laws or regulations or new interpretations of existing laws or regulations
applicable to our business, including proposed changes to the U.S. corporate income tax rate
and capital gains tax rates;
any majora
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
ff
ff
ed and continue to affect
the market prices of equity securities of many companies, including in
affect
connection with the COVID-19 pandemic. These fluctuations have often been unrelated or
disproportionate to the operating performance
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.
of those companies. Broad market and industry
ff
If securities or indii ustry analystsyy
do not publishii
research or reports about our business, or
publishll
ii
decline.
negative reports about our busines
ii
s, our stock pricerr
and tradindd g voluvv me could
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
42
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
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.
to meet, or exceed, our announced guidance or the
f
Future sales of substantt
tiatt
our stockholders,rr or the perception such sales might occur, could reduce the pricerr
common stock might otherwiseww
l amounts of our common stock in the public markets by us or
that our
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, 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 diffiff cult 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 forff
issuance each
year, are available forff
options and the restrictions of Rule 144 under the Securities Act in the case of our affiliates.
to vesting arrangements and exercise of
sale in the public market subject
b
We do not intend
ii
to pay divdd idvv enddd
return on your investment wilww l dll
s fdd orff
the foreseeable future and, as a resurr
pricerr
epend on appreciatioii
ii hett
n in t
lt, your abiliii ty
of our common
to achieve avv
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 afteff
r price appreciation, which may
never occur, as the only way to realize any future gains on their investments. In addition, our Credit
Agreement contains restrictive covenants that prohibit us, subject
to certain exceptions, from paying
dividends on our common stock.
b
Anti-takeover provisivv ons in oii
ur charter documents and under Delaware
ii
on of us more difficult, limit
ll
acquisiti
ii
members of our Board of Directors and our currenrr
the market price of our common stock.
attempts by our stockholders to replace or remove
t management and could negatively i
l mpii
act
law could make an
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 difficuff
lt for stockholders to elect directors that are not nominated by the current members
43
of our Board of Directors or take other corporate actions, including effecting changes in our
management. These provisions include:
•
•
•
•
•
•
•
•
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 a majority vote of our Board of Directors, which could delay the ability of
executive officer)
our stockholders to force consideration of a proposal or to take action, including the removal
of directors;
or president (in the absence of a chief
ff
ff
the affirmative vote of holders of at least 66 2/3% of the voting power of
the requirement forff
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
unsolicited takeover attempt;
such amendments to facilitate an
ff
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
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 forff
a certain period of time.
Our amended and restattt ed certiftt icff ate of incorporatiott n providesdd
ff
of the State of Delawareww
substantiallyll all dispii utes between us and our stockholders,
rable judicial foruff m forff
stockholders’
officers or other employees.
to obtain a favoff
or the U.S. fede
rr
ral distr
ict
ii
abilityll
dd
dd
courts willii be the excee lusive forums for
that the Court of Chancery
which could limll
dispii utes with us or our directo
it our
dd
rs,
Our amended and restated certificate of incorporation provides that the Court of Chancery of the
State of Delaware is the sole and exclusive forum forff
under Delaware statutory or common law:
the folff
lowing types of actions or proceedings
•
•
any derivative action or proceeding brought on our behalf;
any action asserting a breach of fiduciary duty owed by any of our directors, officers
employees to us or our stockholders;
ff
or other
44
•
•
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
ff
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 diffeff
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 enforcff
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
eability of the exclusive forum provisions of our amended and
rent courts, among other considerations, our
by a court in those other jurisdictions.
ff
These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial
forff um that it finds favorable for disputes with us or our directors, officers
ff
may discourage such lawsuits against us and our directors, officers
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.
or other employees. If a court
or other employees, which
ff
General Risks
We are subjecb
t to anti-cott
domestic and internationa
criminii
al and/odd r civilvv liabilityll
tt
l operatiorr
ii
rruptiu on laws, anti-bri
ber
y arr
ii
ns, and non-complianll
ii
lly harm our busines
laws with r
nd similar
ce with such laws can subject
tt on.
ati
s and reput
ct to our
b
esrr pes
e
and materiarr
tt
ii
us to
We are subject to the anti-bribery laws of the jurisdictions in which we operate. These include the
ff
or
FCPA,PP 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,
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
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,
actions, disgorgement of profits, significant fines, damages, other civil
ff
ff
45
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
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.PP These provisions require us to maintain accurate books and records and a
system of internal controls sufficient
ff
provisions may have an adverse effect
to detect and prevent corrupt conduct. Failure to abide by these
on our business, operations or financial condition.
fees. Enforcement
ff
ff
We are srr
ubject to governmental expoxx
sanctions thatt
subject us to liabi
t could impair oii
ii
liii ty if we are nrr
ur abilityll
ii
rt and impo
nd economic and tradedd
to conduct business in international markets and
rt controls all
ot in compliance
ii
with applicab
ll
le laws and regulation
ll
s.
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 Officff e 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
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
operations.
our business, financial condition, and results of
ff
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.
ff
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.
46
ii
es in the interp
ii
Uncertainti
i
could materiall
ii y al
negatively affected if we are r
redii
rr
equi
value addedd
all or a portion of past or future sales.
t our tax obligatio
ffecff
rr
retation and application of existi
xx
ns and effective tax rate. Our operatingii
, ngg ew and proposed tax laws
results may be
ngii
tax, or other transaction taxes, and we could be subjeb ct to liabil
to pay additional taxes, includingii
sales and use tax,
ii
ityll with respect to
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 adopting a modified territorial system. Many
countries in the European Union, as well as a number of other countries and organizations such as
the Organization for Economic Cooperation and Development and the European Commission, are
actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in
countries where we do business. These proposals include changes to the existing framework to
calculate income tax, as well as proposals to change or impose new types of non-income taxes,
including taxes based on a percentage of revenue. The issuance of additional regulatory or
accounting guidance related to existing or future laws, or changes proposed or implemented by the
current or a future U.S. presidential administration, Congress, taxing authorities outside of the United
States or otherwise, could materially affect
our tax obligations and effecti
ve tax rate.
ff
ff
In addition, forecasts of our income tax position and effect
ff
ive tax rate for financial accounting
ff
of a mix of profits earned and losses incurred by us in
purposes are complex and subject to significant judgment and uncertainty because our income tax
position for each year combines the effects
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 tax laws (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 and tax expense by jurisdiction. If the mix of
profits and losses, our ability to use tax assets and attributes, our assessment of the need for
valuation allowances, effect
than those
ff
than forecasted, which could have a
estimated, our actual tax rate could be materially different
material impact on our business, financial condition and results of operations.
ive tax rates by jurisdiction or other factors are different
ff
ff
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 or the interpretation of existing laws and regulations requiring the payment
of additional taxes, would result in increased costs and administrative burdens for us. If we are
subject to additional taxes and determine to offseff
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 or future sales or otherwise harm our business and operating results.
t such increased costs by collecting and remitting
47
Our ability t
imll
t o use net operating
tt
itattt
ions
rr
.
certaitt n l
ii
losses to offset
ff
future taxabxx
le income may be subject to
As of December 31, 2021 we had U.S. federal, state and forff eign NOLs, of $398.5 million, $226.1
million, and $289.9 million, respectively, available to offsff et 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, 2021, is subject to certain limitations. A lack of future taxable income would
adversely affect
our ability to utilize these NOLs before they expire.
ff
taxable income. Section 382 of the Internal
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
ff
NOLs that can be utilized annually in the future to offset
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.
ff
ff
We are orr
and any failure t
tor confideff
invesvv
bligated to maintain proper and effecff
rr o maintii aintt
the adequacy of these internal
tive internal controlsrr
e
repor
controlsrr may adversely affeff ct
ii
over financi
ii
al
rr
ii
tirr ng,
nce in our company and, add s 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.
ff
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 effecti
ve. 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 effecti
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
effect
ive control systems required of public companies, could also restrict our future access to the
capital markets.
ve, or if our independent registered public
ff
ff
48
Item 1B.
Unresolved Staff Cff
omments
None.
Item 2.
Properties
Our corporate headquarters in Columbia, Maryland 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.
ff
Item 3.
Legal Proceedings
b
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
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
ty and validity of third-party proprietary rights, or to
customers by determining the scope, enforceabili
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.
on our business, results of
ff
ff
Item 4.
Mine Safety Disclosures
Not applicable.
49
Item 5.
Issuer Purchases of Equity Securities
Market for Registrant's Common Equity, Related Stockholder Matters and
PART II
Market Informati
rr
on for Common Stock
Our common stock trades on the Nasdaq Global Select Market under the ticker symbol "TENB."
Holdersdd
of Record
At December 31, 2021, we had 18 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.
Dividenddd
Policy
We have never declared or paid any dividends on our common stock. In addition, our credit
agreement with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, contains
restrictive covenants that limit our ability to pay 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.
Issuer Purchases
rr
of Equity Securities
None.
50
Item 6.
Selected Financial Data
The following selected consolidated statements of operations data for the years ended December
31, 2021, 2020 and 2019 and the selected consolidated balance sheet data as of December 31, 2021
and 2020 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, 2018 and 2017 and consolidated balance sheet data as of December 31, 2019, 2018 and 2017
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.
Data:
Statements of Operations
Year Ended December 31,
(in thousands, except per share data)
2021
2020
2019
2018
2017
Revenue
Cost of revenue(1)
Gross profit
Operating expenses:
Sales and marketing(1)
Research and development(1)
General and administrative(1)
$ 541,130 $ 440,221 $ 354,586 $ 267,360 $ 187,727
106,396
434,734
270,158
116,432
89,912
77,554
60,818
43,167
25,588
362,667
293,768
224,193
162,139
224,277
101,687
73,136
228,035
173,344
116,299
87,064
69,468
76,698
46,732
57,673
28,927
Total operating expenses
Loss from operations
476,502
399,100
384,567
296,774
202,899
(41,768)
(36,433)
(90,799)
(72,581)
(40,760)
Interest (expense) income, net
Other expense, net
(6,896)
(1,965)
1,244
(1,885)
5,830
(680)
2,355
(931)
(75)
(16)
Loss beforeff
income taxes
(50,629)
(37,074)
(85,649)
(71,157)
(40,851)
(Benefit) provision for income taxes
(3,952)
5,657
13,364
2,364
171
Net loss
Accretion of Series A and B
redeemable convertible preferred
stock
Net loss attributable to common
stockholders
Net loss per share attributable to
common stockholders, basic and
diluted(2)
Weighted-average shares used to
compute net loss per share
attributable to common stockholders,
basic and diluted
(46,677)
(42,731)
(99,013)
(73,521)
(41,022)
—
—
—
(434)
(763)
)
$ (46,677) $ (42,731) $ (99,013) $ (73,955) $ (41,785)
)
(
(
)
)
)
)
)
)
(
(
)
)
(
(
(
(
(
(
$
(0.44) $
(0.42) $
(1.03) $
(1.38) $
(1.88)
106,387
101,009
96,014
53,669
22,211
51
_________
__
__
)
(1(1)
____
______
Includes stock-based compensation expense as ffollows:
I
(in thousands)
Cost of revenue
Sales and marketing
Research and development
General and administrative
Total stock-based compensation
expense
Year Ended December 31,
2021
2020
2019
2018
2017
$
4,446 $
3,158 $
2,817 $
1,707 $
29,410
20,593
24,956
19,842
14,794
21,779
16,032
8,911
15,683
6,911
5,804
8,453
281
1,579
1,782
4,118
$ 79,405 $ 59,573 $ 43,443 $ 22,875 $
7,760
See Note 12 to our consolidated financial statements in this Annual Report on Form 10-K for
(2)
details on the calculation of basic and diluted net loss per share attributable to common stockholders.
Consolidated Balance Sheet Data:
December 31,
(in thousands)
2021
2020
2019
2018
2017
Cash and cash equivalents
Working capital (deficit)(1)
Total assets
Deferred revenue, current and non-
current
Term loan, net of issuance costs (net
of current portion)
Redeemable convertible preferred
stock
$ 278,000 $ 178,223 $ 74,363 $ 165,116 $ 27,210
265,556
108,891
35,319
142,484
(69,091)
1,248,819
690,589
558,612
460,612
164,337
530,885
434,510
363,127
289,903
225,818
364,728
—
—
—
—
—
—
—
— 277,735
Accumulated deficit
(654,529)
(607,852)
(565,121)
(466,108)
(392,587)
Total stockholders' equity (deficit)
215,313
150,665
98,905
121,763
(371,665)
_______ ____ ____ ____ ____ ____ ____
(1)(1)
consolidated financial statements in this Annual Report on Form 10-K forff
current assets and current liabilities.
We define working capital (deficit) as total current assets less total current liabilities. See our
further details regarding our
52
Item 7.
Operations
Management's Discussion and Analysis of Financial Condition and Results of
ii
tt
tt
tt
ii
” “esti
itww hintt
with ott
should
“ mate,”
ur consolidated financial
The following discussion and analysis of our financial conditiontt
statet ments att
and results ott
f operations
nd related notes included
Form 10-K contains
forward-
Act of 1933, as amended, or
Act and Section 21E of the Securitiestt
re ofteff n identified
Exchange Act of 1934, as amended, or the
by the use of words such as “anticipat
e statements att
“
” “could,
or plural of these worww dsrr
re subject to a number of risks, uncertainties,
be read in conjunctiontt
elsewhere in this Annual Report on Form 10-K, or this Form 10-K. TKK hisTT
looking statements wtt
the meaning of Section 27A of the Securitiestt
the Securitiestt
Exchange Act. ThesTT
ii
“believe,” “conti
nue,
“
the negativett
statements att
tt o diffdd erff materially from future results ett
of certain events t
cause actual results att
tt
nd the timing
e to such
could cause or contribut
tt
statements.tt Factors t
rr hat
or implied by the forward-looki
se discussed in the section
differences
herein, and thott
tt
include, but are not limited to, those identified
titled “Risk Factors,” set forth in Part I, Item 1A of this Form 10-K and in oii
ur othett
Such risksii
our business and the global economy. You should not rely ul
tt
predictions
of this r
statements t
e,”
““
“will,” “wou
“
“plan,” “project
Such forward-lookingii
tt
inties may be amplified by thett COVID-19
ponu
assumptions and other factors that could
xpressed
or similar expressions or variations.
tt
pandemic and its potential impact
forward-lookingii
of future events.tt Furthermore, such forward-looking statements stt
statements att
pes ak only as of the date
ii eprr ort. Except as required by law, ww e uww ndertaket
after the date of such statements.tt
to update any forward-lookingii
r circumstances
“intend,” “may,”
rr ect events ott
no obligationtt
and uncertarr
“expect,”t
tt o refl
ll
r filff ings
tt hett
with t
ld” or
ngii
,”t
VV
s
rr
“
ff
ff
tt
tt
ii
SEC.
on
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.
We have continued to expand and diversify off
ur platfof rm offeri
ff
ngs from traditional vulnerability
management (VM) solutions, which include Tenable.sc and Nessus, to our cloud exposure solutions,
which include Tenable.ep, Tenable.io, Tenable.cs, Tenable Web Scanning, or Tenable.io WAS,
Tenable.ad and Tenable.ot. Our platforff m 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,
DevOps environments, Active Directory and Identity 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 offeff
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.
rings integrate and analyze data from our native collectors alongside IT
Our platforff m 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
advance. To a lesser extent, we recognize revenue ratably from perpetual licenses and from the
related ongoing maintenance.
are typically prepaid in
ff
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 offeff
our distributors, which in turn sell to our resellers, which then sell to end users, which we call
customers.
rings to
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.
Nessus, which is sold on a stand-alone basis and is the technology that underpins our enterprise
53
ff
ngs, is designed to quickly and accurately identify sff
platform offeri
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 a significant number of users to continue to use Nessus Essentials.
ecurity vulnerabilities, configuration
Revenue in 2021, 2020 and 2019 was $541.1 million, $440.2 million and $354.6 million,
representing year-over-year growth of 23% and 24%, respectively. Our recurring revenue, which
includes revenue from subscription arrangements for software and cloud-based solutions and
maintenance associated with perpetual licenses, represented 94.6%, 93.6% and 91.8% of revenue in
2021, 2020 and 2019, respectively. Our net loss in 2021, 2020 and 2019 was $46.7 million, $42.7
million and $99.0 million, respectively, as we continue to invest in our business and market
opportunity. Our cash flows from operating activities were $96.8 million, $64.2 million and $(10.7)
million in 2021, 2020 and 2019, respectively.
VV
COVID-19
Update
While we have not seen a significant adverse impact on our business from the pandemic as of
December 31, 2021, the extent to which it will impact our business and operations will depend on
future developments that are uncertain. We continue to monitor the impact of the COVID-19
pandemic on our customers, partners, employees and service providers. We have resumed limited
business travel and adopted a hybrid work environment, which we expect will lead to additional costs.
For additional informat
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.
s of the COVID-19 pandemic on our business,
ion on the potential effect
ff
ff
Financ
ii
ial Highligll hts
Below are our key financial results:
(in thousands, except per share data)
2021
2020
2019
Year Ended December 31,
Revenue
Loss from operations
Net loss
Net loss per share, basic and diluted
Net cash provided by (used in) operating activities
Purchases of property and equipment
Factors Affecting Our Performance
Prodrr uct Leadership
$
541,130 $
440,221 $
354,586
(41,768)
(46,677)
(0.44)
96,765
(6,561)
(36,433)
(42,731)
(0.42)
64,232
(20,277)
(90,799)
(99,013)
(1.03)
(10,744)
(20,674)
Our enterprise platform offeri
ff
ngs provide visibility into the broadest range of traditional and
modern IT assets across cloud and on-premises environments. We are intensely focused
continued innovation and ongoing development of our enterprise platform offeff
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.
rings that empower
on
ff
54
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 Enterpri
rr
seii
Platfor
m Crr
ll
ustomer Acquisiti
ii
on
We believe that our customer base provides a significant opportunity to expand sales of our
enterprise platform offeri
customers will increase future opportunities for renewals and follow-on sales. We believe that we
have significant room to increase our market share.
ngs and that our ability to continue to grow the number of enterprise platform
ff
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.
Retaini
ii ngii
and ExpaEE
nding Revenue from Existin
xx
g Customers
ff
Our enterprise platform offerings
utilize IT asset-based or IP address-based pricing models. Once
enterprise customers have licensed our platform offff erings, 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
applications, containers, IoT and OT, tTT hey often increase the scope of their subscriptions and/or add
additional perpetual licenses to our enterprise platforms.
We are also focused
ff
on upselling customers from Nessus Professional to our enterprise platform
ff
Nessus Professional customers are typically organizations or independent security
offerings.
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,
visibility and insights into their attack surface, as their needs develop.
which provide continuous
ff
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 have historically calculated 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-
55
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 2021 exceeded 110% on an LTM basis. Our dollar-based
net expansion rate may 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.
We also utilize an alternative dollar-based net expansion rate to assess our ability to expand
ff
sales with existing customers and evaluate the performance
based net expansion rate is based on the methodology described above, but excludes the annual
contract value of prior period multi-year sales from ARR in the numerator and the denominator of the
calculation. We believe this methodology more closely aligns with the renewal and expansion goals
established for our sales team because it measures net expansion by customers with contracts up for
renewal during the period. Applying this methodology would have increased the dollar-based net
expansion rate by two to five percentage points in 2020 and 2021.
of our sales team. This alternative dollar-
Investingii
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 diffiff cult for us to determine if we are efficff
areas. We expect to acquire businesses, technology and/or development personnel that will expand
and enhance the functionality of our platfoff rm offer
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.
ings. These investment activities could increase our
iently allocating resources in those
ff
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 differe
nt than similarly titled measures used by
ff
other companies, are presented to enhance the overall understanding of our financial performance
and should not be considered a substitute forff
ion prepared and
presented in accordance with GAAP.
, or superior to, the financial informat
ff
ff
ff
We believe that these operating metrics and non-GAAP financial measures provide useful
ff
informat
past performance and future prospects and allow for greater transparency with respect to important
ion about our operating and financial performance,
enhance the overall understanding of our
ff
56
metrics used by management for financial and operational decision-making. We include these
operating metrics and non-GAAP financial measures to present our operating and financial
performance
additional comparison of our core operating and financial performance
other companies in our industry.
using a management view and because we believe that these measures provide an
over multiple periods with
ff
ff
ll
Calculated
Currenrr
t Billill ngii
s
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.
ff
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.
has a number of limitations as a quarter-to-quarter or year-over-year
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 thereforeff
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
from other companies that report similar financial
calculated current billings may be different
measures. Because of these and other limitations, you should consider calculated current billings
financial results.
along with revenue and our other GAAPAA
ff
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,
2021
2020
541,130 $
407,498
440,221 $
328,819
2019
354,586
274,348
(331,462)
617,166 $
(274,348)
494,692 $
(214,069)
414,865
$
$
_______ ____ ____ ____ ____ ____ ____
(1)(1)
million, respectively, related to acquired deferred revenue.
Deferred revenue (current), beginning of period for 2021 and 2019 includes $2.6 million and $0.4
Free Cash Flow and Unlevered
vv
Freerr Cash Flow
We use the non-GAAP measure of free cash flow, which we define as GAAPAA
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
57
equipment, for investment in our business and to make acquisitions. We believe that free cash flow is
useful as a liquidity measure because it measures our ability to generate or use cash.
We also use the non-GAAP measure of unlevered free cash flow, which we define as free cash
flow plus cash paid for interest and other financing costs. We believe unlevered free cash flow is
useful as a liquidity measure as it measures the cash that is available to invest in our business and
meet our current and future financing needs.
Our use of free cash flow and unlevered free cash flow has limitations as an analytical tool and
you should not consider them in isolation or as a substitute for an analysis of our results under GAAPAA .
First, free cash flow and unlevered free cash flow are not substitutes for net cash flows from operating
activities. Second, other companies may calculate free cash flow, unlevered free cash flow or similarly
titled non-GAAP financial measures differe
performance,
as tools for comparison. Additionally, the utility of free cash flow and unlevered 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 and unlevered free cash flow along with net cash
provided by (used in) operating activities and our other GAAPAA
all of which could reduce the usefulness of free cash flow and unlevered free cash flow
ntly or may use other measures to evaluate their
financial measures.
ff
ff
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
and unlevered cash flow:
(in thousands)
Year Ended December 31,
2021
2020
2019
Net cash provided by (used in) operating activities
$
96,765 $
64,232 $
Purchases of property and equipment
Free cash flow(1)
Cash paid for interest and other financing costs
(6,561)
90,204
4,978
(20,277)
43,955
335
(10,744)
(20,674)
(31,418)
96
Unlevered free cash flow(1)
$
95,182 $
44,290 $
)
(31,322)
(
)
(
_______ ____ ____ ____ ____ ____ ____
(1)
Free cash fflow and unlevered ffree cash fflow ffor the periods presented were impacted yby:
(in millions)
Year Ended December 31,
2021
2020
2019
Employee stock purchase plan activity
$
(0.3) $
0.9 $
Acquisition-related expenses
Tax payment on intra-entity asset transfer
Proceeds from lease incentives
Capital expenditures related to new headquarters
(6.5)
2.8
—
(0.9)
(0.7)
—
14.2
(17.2)
(0.9)
(13.1)
—
—
(11.4)
Free cash flow and unlevered free cash flow in 2021 were reduced by approximately $8 million due to
by a benefit of approximately $15 million
prepayments of software subscription costs, insurance and rent, offset
from prepayments of similar items made in 2020. The 2020 prepayments reduced free cash flow and unlevered
free cash flow by approximately $17 million in 2020.
ff
58
rr
Enterpri
seii
Platformff
Customers
We believe that our customer base provides a significant opportunity to expand sales of our
enterprise platform offeri
ff
ngs. The following tables summarize key components of our customer base:
Number of new enterprise platform customers added
in period(1)(2)
Year Ended December 31,
2021
1,882
2020
1,455
2019
1,511
____
______
W
_________
__
__
(1(1)
e define an enterprise platform customer as a customer that has licensed Tenable.ep, Tenable.io,
)
Tenable.cs, Tenable.ad, Tenable.ot 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.
(2)
acquisitions.
The number of new enterprise platform customers added in 2021 includes 95 legacy customers of our
Number of customers with $100,000 and greater in
annual contract value at end of period
At December 31,
2021
1,095
2020
837
2019
641
Non-GAAPGG
Income (Loss) from OperO atiorr
ns and Non-GAAPGG
Operatinrr
g MargMM in
We use non-GAAP income (loss) from operations along with non-GAAP operating margin as key
indicators of our financial performance.
respective GAAPAA measures, excluding the effect
expenses and amortization of acquired intangible assets. Acquisition-related expenses include
transaction expenses and costs related to the intercompany transfer of acquired intellectual property.
We define these non-GAAP financial measures as their
s of stock-based compensation, acquisition-related
ff
ff
We believe that these non-GAAP financial measures provide useful informat
ff
ion 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 GAAPAA
loss from operations and operating margin,
income (loss) from operations and non-GAAP operating margin exclude
including that non-GAAPAA
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,
59
and operating margin, the most directly comparable financial measure calculated in accordance with
GAAPAA , tPP o 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,
2021
2020
2019
$ (41,768)
$ (36,433)
$ (90,799)
79,405
6,901
6,447
59,573
339
2,314
43,443
3,970
620
Non-GAAPAA
income (loss) from operations
$
50,985
$
25,793
)
$ (42,766)
)
(
(
Operating margin
Non-GAAP operating margin
(8)%
9 %
(8)%
6 %
(26)%
(12)%
Non-GAAPGG
Net Income (Loss) and Non-GAAP Earnings (Loss) Per Sharerr
We use non-GAAP net income (loss), which excludes stock-based compensation, acquisition-
related expenses and amortization of acquired intangible assets, as well as the related tax impacts,
and the tax impact of intra-entity asset transfers resulting from the internal restructuring of legal
entities as well as deferred income tax benefits recognized in connection with acquisitions, to
calculate non-GAAP earnings (loss) per share. We believe that these non-GAAP measures provide
important information because they facilit
ate comparisons of our core operating results over multiple
periods.
ff
60
The folff
lowing 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)
2021
2020
2019
Net loss
$
(46,677) $
(42,731) $
(99,013)
Year Ended December 31,
Stock-based compensation
Tax impact of stock-based compensation(1)
Acquisition-related expenses(2)
Amortization of acquired intangible assets(3)
Tax impact of acquisitions(4)
Tax impact of intra-entity asset transfer(5)
Non-GAAP net income (loss)
Net loss per share, diluted
Stock-based compensation
Tax impact of stock-based compensation(1)
Acquisition-related expenses(2)
Amortization of acquired intangible assets(3)
Tax impact of acquisitions(4)
Tax impact of intra-entity asset transfer(5)
Adjustment to diluted earnings per share(6)
79,405
617
6,901
6,447
(10,560)
2,808
59,573
1,299
339
2,314
—
—
43,443
(95)
3,970
620
10,582
—
38,941 $
20,794 $
)
(40,493)
(
)
(
(0.44) $
(0.42) $
(1.03)
$
$
0.75
0.01
0.06
0.06
(0.10)
0.03
(0.03)
0.59
0.01
—
0.02
—
—
(0.01)
0.45
—
0.04
0.01
0.11
—
—
Non-GAAP earnings (loss) per share, diluted
$
0.34 $
0.19 $
)
(0.42)
(
)
(
Weighted-average shares used to compute GAAP net
loss per share, diluted
106,387
101,009
96,014
Weighted-average shares used to compute non-GAAP
earnings (loss) per share, diluted(7)
114,825
109,962
96,014
_____
_______ ____ ____ ____ ____ ____
(1)
jurisdictions.
The tax impact of stock-based compensation is based on the tax treatment for applicable tax
(2)
The tax impact of acquisition-related expenses is not material.
(3)(3)
acquisitions.
The tax impact of the amortization of acquired intangible assets is included in the tax impact of
The tax impact of acquisitions in 2021 includes a reversal of the $7.9 million income tax benefit
(4)(4)
recognized for GAAP purposes related to the partial release of our valuation allowance associated with the
Accurics acquisition and a reversal of $2.6 million of deferred tax benefits related to the Alsid acquisition. The tax
impact
Indegy acquisition in 2019 includes $$6.3 million fof current tax expense an $d $4.2 million fof deferred
tax expense related to the transfer of acquired intellectual property.
fof the
gy
(5)(5)
in a current tax payment based on the applicable Israeli tax rate.
The tax impact of the intra-entity asset transfer is related to the internal restructuring of Indegy, resulting
(6)
GAAP earnings per share, which includes potentially dilutive shares.
An adjustment to reconcile GAAP net loss per share, which excludes potentially dilutive shares, to non-
(7)
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
61
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.
For software subscriptions that are dependent on 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 through the contract period. When
the critical utility of our software does not depend on ongoing updates, we recognize revenue
attributable to the license at the time of delivery and the revenue attributable to the maintenance and
support ratably over the contract period.
ff
Our perpetual licenses are generally sold with one or more years of maintenance, which includes
ff
obligation. Perpetual license arrangements
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
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 forff
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
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.
obligation over the initial contractual period, which is
ff
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
ff
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.
62
Cost of Revenue, Gross
rr
rr
Profit
and Gross
rr
Marginii
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, hardware costs and allocated overhead costs, which consist of informat
ion technology
and facilities.
ff
We intend to continue to invest additional resources in our cloud-based platforff m and customer
support team as we grow our business. The level and timing of investment in these areas could affect
ff
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 affect
acquisition of new customers and our renewals of and follow-on sales to existing customers, the costs
associated with operating our cloud-based platforff m, the extent to which we expand our customer
support team and the extent to which we can increase the efficiency
infrastructure through technological improvements.
ed by various factors, including the timing of our
of our technology and
ff
ff
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. However, 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.
Operatingii
Expense
xx
s
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 Marketingtt
Sales and marketing expense consists of personnel costs, sales commissions, marketing
programs, travel and entertainment, expenses for conferences, meetings 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 increase
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
63
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 forff
third-party development
resources as well as allocated overhead. Our research and development expense supports our
ff
effort
new network vulnerabilities.
s to continue to add capabilities to our existing products and enable the continued detection of
We expect our research and development expense to continue to increase annually in absolute
seeable future as we continue to invest in research and development effoff
However, we expect our research and
dollars for the foreff
enhance the functionality of our cloud-based platform.
ff
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.
rts to
General and Administrative
tt
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 (Expense) Income, Net
Interest (expense) income, net consists primarily of interest expense in connection with our senior
secured term loan facility, or Term Loan, unused commitment fees on our senior secured revolving
credit facility, or Revolving Credit Facility, and letter of credit fees. Interest (expense) income, net also
includes interest income earned on cash and cash equivalents and short-term investments.
Other Expense, Net
Other expense, net consists primarily of foreign currency remeasurement and transaction gains
and losses.
ii
(Benefit) Provi
sion
rr
for IncII ome Taxes
(Benefit) provision for income taxes has historically consisted of income taxes in certain foreign
jurisdictions in which we conduct business and the related withholding taxes on sales to foreign
customers. We typically maintain a valuation allowance on our deferred tax assets, including net
operating loss carryforwards and tax credits, and expect this to continue for the foreseeable
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.
ff
future as
64
In 2021, the income tax benefit resulted from a partial release of our valuation allowance
associated with the Accurics acquisition and a deferred tax benefit related to post-acquisition activities
of Alsid, which were partially offset
development operations in Israel as well as income taxes in certain foreign jurisdictions in which we
conduct business and the related withholding taxes on sales to foreign customers.
by tax expense from the restructuring of our research and
ff
In 2019, the provision for income taxes also included the tax impact related to the intercompany
transfer of acquired intellectual property.
Results of Operations
The following tables set forth our consolidated results of operations forff
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 (expense) income, net
Other expense, net
Loss beforeff
income taxes
(Benefit) provision for income taxes
Net loss
Year Ended December 31,
2021
2020
2019
$
541,130 $
440,221 $
354,586
106,396
434,734
270,158
116,432
89,912
476,502
77,554
362,667
224,277
101,687
73,136
399,100
(41,768)
(36,433)
(6,896)
(1,965)
(50,629)
(3,952)
1,244
(1,885)
(37,074)
5,657
60,818
293,768
228,035
87,064
69,468
384,567
(90,799)
5,830
(680)
(85,649)
13,364
$
(
(46,677) $
(
)
)
(
(42,731) $
(
)
)
)
(99,013)
(
)
(
_______ ____ ____ ____ ____ ____ ____
(1)(1)
Includes stock-based compensation expense as ffollows:
(in thousands)
Cost of revenue
Sales and marketing
Research and development
General and administrative
Total stock-based compensation expense
Year Ended December 31,
2021
2020
2019
$
$
4,446 $
29,410
20,593
24,956
79,405 $
3,158 $
19,842
14,794
21,779
59,573 $
2,817
16,032
8,911
15,683
43,443
65
Comparison of 2021 and 2020
Revenue
The following table presents the increase in revenue:
Year Ended December 31,
Change
(dollars in thousands)
2021
2020
($)
(%)
Subscription revenue
Perpetual license and maintenance
revenue
Professional services and other
revenue
$
476,023 $
377,354 $
98,669
50,333
50,594
(261)
14,774
12,273
2,501
Revenue
$
541,130 $
440,221 $
100,909
26 %
(1)%
20 %
23 %
U.S. revenue increased $46.3 million, or 17%. International revenue increased $54.6 million, or
32%.
Cost of Revenue, Gross
rr
rr
Profi
t and Gross Margin
Year Ended December 31,
Change
(dollars in thousands)
2021
2020
Cost of revenue
Gross profit
Gross margin
$ 106,396
$
77,554
$
434,734
362,667
80 %
82 %
($)
28,842
72,067
(%)
37 %
20 %
The increase in cost of revenue of $28.8 million was primarily due to:
•
•
•
•
•
•
a $17.8 million increase in third-party cloud infrastructure costs;
a $4.1 million increase in the amortization of acquired intangible assets;
a $4.0 million increase in personnel costs, primarily due to support for cloud-based products
and an increase in headcount, including a $1.3 million increase in stock-based compensation;
a $1.2 million increase in professional fees; and
a $1.1 million increase in hardware costs; partially offset
ff
by
a $0.6 million decrease in allocated overhead expenses.
Operatingii
Expenxx
Sales and Marketingtt
ses
(dollars in thousands)
Sales and marketing
Year Ended December 31,
Change
2021
2020
($)
(%)
$
270,158 $
224,277 $
45,881
20 %
The increase in sales and marketing expense of $45.9 million was primarily due to:
•
•
•
a $23.3 million increase in personnel costs, related to an increase in headcount, including a
$9.6 million increase in stock-based compensation;
a $10.5 million increase in expenses for demand generation programs, including advertising,
sponsorships, and brand awareness efforts;
ff
a $10.0 million increase in sales commissions; and
66
•
•
a $3.8 million increase in selling expenses, including softwff are subscriptions and training
programs; partially offset
by
ff
a $1.9 million decrease in meeting and travel costs.
Research and Development
(dollars in thousands)
2021
2020
($)
(%)
Research and development
$
116,432 $
101,687 $
14,745
15 %
Year Ended December 31,
Change
The increase in research and development expense of $14.7 million was primarily due to:
•
•
•
•
•
•
a $13.5 million increase in personnel costs, largely associated with an increase in headcount,
including a $5.8 million increase in stock-based compensation;
a $2.1 million increase in third-party cloud infrastructure costs; and
a $0.6 million increase in software subscriptions; partially offset
ff
by
a $1.0 million decrease in travel and meeting costs;
a $0.5 million decrease in allocated overhead; and
a $0.5 million decrease in depreciation.
General and Administrative
tt
(dollars in thousands)
2021
2020
($)
(%)
General and administrative
$
89,912 $
73,136 $
16,776
23 %
Year Ended December 31,
Change
The increase in general and administrative expense of $16.8 million was primarily due to:
•
•
•
•
a $7.5 million increase in personnel costs, largely associated with an increase in headcount,
including a $3.2 million increase in stock-based compensation;
a $6.3 million increase in acquisition-related expenses;
a $2.0 million increase in professional fees; and
a $1.0 million increase in depreciation and amortization.
67
Comparison of 2020 and 2019
Revenue
The following table presents the increase in revenue:
Year Ended December 31,
Change
(dollars in thousands)
2020
2019
($)
(%)
Subscription revenue
Perpetual license and maintenance
revenue
Professional services and other
revenue
Revenue
$
377,354 $
290,549 $
86,805
50,594
54,173
(3,579)
12,273
9,864
$
440,221 $
354,586 $
2,409
85,635
30 %
(7)%
24 %
24 %
U.S. revenue increased $43.0 million, or 19%. International revenue increased $42.6 million, or
33%.
Cost of Revenue, Gross
rr
rr
Profi
t and Gross Margin
Year Ended December 31,
Change
(dollars in thousands)
2020
2019
Cost of revenue
Gross profit
Gross margin
$
77,554
$
60,818
$
362,667
293,768
82 %
83 %
($)
16,736
68,899
(%)
28 %
23 %
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
ff
by
a $1.1 million decrease in travel and meeting expenses.
Operatingii
Expense
xx
s
Sales and Marketingtt
(dollars in thousands)
Sales and marketing
Year Ended December 31,
Change
2020
2019
($)
(%)
$
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
68
•
•
•
•
a $6.4 million decrease in expenses for demand generation programs, including advertising,
sponsorships, and brand awareness effort
s; partially offset
by
ff
ff
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 $0.7 million increase in depreciation.
Research and Development
(dollars in thousands)
2020
2019
($)
(%)
Research and development
$
101,687 $
87,064 $
14,623
17 %
Year Ended December 31,
Change
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
$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
ff
by
a $1.6 million decrease in travel and meeting costs; and
a $0.9 million decrease in third-party cloud infrastructure costs.
General and Administrative
tt
(dollars in thousands)
2020
2019
($)
(%)
General and administrative
$
73,136 $
69,468 $
3,668
5 %
Year Ended December 31,
Change
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
ff
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.
Liquidity and Capital Resources
At December 31, 2021, we had $278.0 million of cash and cash equivalents, which consisted of
bank deposits and money market funds, and $234.3 million short-term investments, which consisted
of commercial paper, asset backed securities, certificates of deposit, U.S. Treasury and agency
obligations, and corporate and supranational bonds.
Since our inception, we have primarily financed our operations through cash provided by
operations, including payments received from customers using our software products and services.
Prior to our IPO, we did not raise any primary institutional capital, and the proceeds of our Series A
69
and Series B redeemable convertible preferred stock financings were used to repurchase shares of
capital stock from former stockholders. We have generated significant operating losses, as reflected
by our accumulated deficit of $654.5 million at December 31, 2021.
We typically invoice our customers annually in advance and, to a lesser extent, multi-year in
ff
a substantial source of our cash is from such prepayments, which are included in
advance. Therefore,
deferred revenue on our consolidated balance sheets. 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, 2021, we
had deferred revenue of $530.9 million, of which $407.5 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. In
April 2021, we paid $98.5 million in cash to acquire Alsid, and in October 2021, we acquired Accurics
for $160.0 million in cash. In February 2022, we acquired Cymptom for approximately $23 million in
cash. We may in the future enter into arrangements to acquire or invest in other complementary
businesses, services and technologies, including intellectual property rights.
We expect to continue incurring operating losses in the near term. Even though we generated
ff
to fund our operating and capital needs for at least the next 12
positive cash flows from operations and unlevered free cash flow in 2021 and 2020, we may not be
able to sustain these cash flows. We believe that our existing cash and cash equivalents and short-
term investments will be sufficient
months. Our future capital requirements will depend on many factors, including our revenue growth
rate, subscription renewal activity, the timing and extent of spending to support further infrastructure
and research and development effort
invest in new and existing officeff
operating activities, any acquisitions of complementary businesses and technologies, the timing of our
introduction of new product capabilities and enhancements of our platform and the continuing market
acceptance of our platform. It may be necessary to seek additional equity or debt financing to fund
our operating and capital needs. 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 affecte
ff
s, the timing and extent of additional capital expenditures to
spaces, the expansion of sales and marketing and international
d.
ff
ff
While we have not seen a significant adverse impact on our business from the pandemic as of
December 31, 2021, the extent to which it will impact our business and operations will depend on
future developments that are uncertain. 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.
Term Loan and Revolvingii
Creditdd Facilityll
In July 2021, we entered into a credit agreement, or the Credit Agreement, which is comprised of
a $375.0 million Term Loan and a $50.0 million Revolving Credit Facility, with a $15.0 million letter of
credit sublimit. The Term Loan bears interest at a rate of 2.75% per annum over LIBOR, subject to a
0.50% floor. The Term Loan will amortize at 1% per annum in equal quarterly installments, starting in
March 2022 until the final maturity date on July 7, 2028. We may be subject to mandatory Term Loan
prepayments related to the excess cash provisions in the Credit Agreement beginning in 2023. The
70
Revolving Credit Facility bears interest at a rate, depending on first lien net leverage, ranging from
2.00% to 2.50% over LIBOR and matures on July 7, 2026. We will pay a commitment fee during the
term ranging from 0.25% to 0.375% per annum of the average daily undrawn portion of the revolving
commitments based on the first lien net leverage ratio. The Credit Agreement contains customary
ive and negative covenants. Additionally, if at least 35% of
representations and warranties and affirmat
the Revolving Credit Facility is drawn on the last day of the quarter, the total net leverage ratio cannot
be greater than 5.50 to 1.00.
ff
At December 31, 2021, we were in compliance with the covenants and there have been no
amounts outstanding under the Revolving Credit Facility.
In connection with the Credit Agreement, we terminated our $45.0 million senior secured credit
facility, or the 2020 Credit Facility, with Silicon Valley Bank, including the release of all related
guarantees and liens. Prior to its termination, there were no amounts outstanding under our 2020
Credit Facility.
Cash Flowsww
The following table summarizes our cash flows for the periods presented:
(in thousands)
Year Ended December 31,
2021
2020
2019
Net cash provided by (used in) operating activities
$
96,765 $
64,232 $
(10,744)
Net cash (used in) provided by investing activities
of exchange rate changes on cash and cash
Net cash provided by financing activities
Effect
ff
equivalents and restricted cash
Net increase (decrease) in cash and cash equivalents and
restricted cash
(391,590)
397,646
4,079
36,403
(113,050)
34,161
(3,013)
(916)
(1,080)
$
99,808 $
103,798 $
)
(90,713)
(
)
(
Operatingii
tt
Activit
iestt
Our largest source of cash provided by operating activities is cash collections from sales of our
products and services, as we typically invoice our customers in advance. Our primary uses of cash
are employee compensation costs, third-party cloud infrastructure and other software subscription
costs, demand generation expenditures and general corporate costs.
Investing Activit
tt
iestt
From 2020 to 2021, net cash used in investing activities increased by $395.7 million, primarily
due to an increase of cash paid for acquisitions of $258.2 million, a net increase in short-term
investments of $146.2 million, and a $5.0 million simple agreement for future equity investment in
2021, partially offset
by a decrease in purchases of property and equipment of $13.7 million.
ff
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.
Financing
ii
tt
Activit
iestt
From 2020 to 2021, net cash provided by financing activities increased by $361.2 million,
primarily due to net proceeds from our Credit Facility of $365.7 million. This increase was partially
71
ff
by a decrease of $3.4 million in the proceeds from the exercise of stock options and $2.0 million
offset
of loan proceeds that we received from the state of Maryland in 2020.
From 2019 to 2020, net cash provided by financing activities increased by $2.2 million, primarily
due to $2.0 million of proceeds from a loan agreement from the state of Maryland and an increase in
proceeds from the exercise of stock options of $2.7 million, which was partially offset
ff
stock issued in connection with the employee stock purchase plan of $2.1 million.
by a decrease in
Contractual Obligations
We have certain contractual obligations for future payments. Refer to Note 7 to our consolidated
financial statements in this Annual Report on Form 10-K for our required operating lease payments
and Note 9 for our required payments to Amazon Web Services, Inc. for cloud services.
At December 31, 2021, we had other non-cancellable purchase obligations of $8.1 million due in
ff
the next twelve months and $11.3 million due thereafter
unrecognized tax benefits and $1.2 million of asset retirement obligations, the timing of payments forff
which is uncertain.
. Additionally, we had $7.6 million of
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.
ff
The critical accounting estimates, assumptions and judgments that we believe have the most
significant impact on our consolidated financial statements are described below.
Revenue Recognition
We recognize revenue to depict the transferf
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.
72
Subscriptiontt
Revenue
ff
Our subscription arrangements generally have annual or multi-year contractual terms and allow
customers to use our software or cloud solutions. For our software subscriptions that are dependent
on ongoing software
is recognized ratably over the subscription term given the critical utility provided by the ongoing
updates that are released throughout the contract period. When the critical utility of our software does
not depend on ongoing updates, we recognize revenue attributable to the license at the time of
delivery and the revenue attributable to the maintenance and support ratably over the contract period.
updates and the ability to identify the latest cybersecurity vulnerabilities, revenue
Perpetual License and Maintenance Revenue
Our perpetual licenses are generally sold with one or more years of maintenance, which include
ff
ff
ff
updates and updated ability to identifyff
updates and the ongoing ability to identify the latest cybersecurity vulnerabilities.
expected maintenance renewals based on the estimated economic life of the perpetual
ongoing software
Given the critical utility provided by the ongoing software
network vulnerabilities included in maintenance, we combine the perpetual license and the
obligation. Perpetual license arrangements generally contain
maintenance into a single performance
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 forff
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
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
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
estimates could materially impact our reported financial results.
obligation over the initial contractual period, which is generally one year.
assumptions and
years. We have
ff
ff
ff
Professional Services and Other
tt
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
ff
are performed.
tt
Contracts
with Multiplett
Performance
ff
Obligations
tt
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.
ff
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.
rr
73
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
are deferred over an estimated period of
incremental costs of obtaining a contract, and thereforeff
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
kk
Compensation
Stock-based compensation expense related to stock options, restricted stock, restricted stock
units, or RSUs, and purchase rights issued under our 2018 Employee Stock Purchase Plan, or the
2018 ESPP, iP s 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
d vesting conditions are expensed using the accelerated attribution
include performance-base
rr
feit
method. We account for forff
ures as they occur.
ff
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
significantly, stock-based compensation for future awards may differ
awards granted previously.
significantly compared with the
ff
The assumptions and estimates are as follows:
•
•
•
•
•
Fair Value of Common Stock. See “Valuat
VV
ions” 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.
VolatVV
tt y.t This is a measure of the amount by which a financial variable, such as a share
ilit
price, has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during
a period. In 2021, we began using the volatility of our common stock to calculate expected
volatility. Prior to 2021, we identified several public entities of similar size, complexity and
stage of development and estimated our volatility based on the volatility of the common stock
of these companies.
Risk-FreeFF
resembles the expected life of the stock option.
Dividend Yield. We have not and do not expect to pay dividends on our common stock.
Interest Rate. This is the U.S. Treasury rate, having a term that most closely
Valuations
Following our IPO, we use the market price of our common stock at the date of grant as the fair
74
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 Privarr
. Factors considered in connection with
Company Equity St
estimating the fair value of our common stock underlying our award of restricted stock and stock
option awards when performing
included:
the fair value calculations with the Black Scholes option-pricing model
Issued as Compensationtt
tely-Held
ecuritiestt
ff
•
•
•
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.
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 the 2018 ESPP purchase rights were estimated on the offering
ff
or modification
dates based on the following assumptions:
Year Ended December 31,
2021
2020
2019
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
0.5 — 2.0
0.5 — 2.0
37.2% — 59.4% 41.6% — 60.1% 34.4% — 44.6%
0.1% — 0.9%
—
1.5% — 2.5%
—
0.1% — 0.2%
—
0.5 — 2.0
Business Combinati
ii
ons
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
75
recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, a
non-recurring Level 3 fair value measurement, we make estimates and assumptions, especially with
respect to intangible assets such as identified acquired technology and trade names. We determine
the fair value of acquired technology using the multi-period excess earnings method, a formff
of the
income approach. Estimates in valuing 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
ff
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 offseff
the measurement period will be reflected in the consolidated statements of operations. Acquisition-
related transaction costs are expensed as incurred.
tting adjustments to goodwill. Any adjustments made after
Goodwillii
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
goodwill. The qualitative assessment includes an evaluation of relevant events and circumstances,
including macroeconomic, industry and market conditions, our overall financial performance,
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.
and
ff
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.
ff
We record a provision for income taxes under the asset and liability method, which requires
ff
nces between the financial statement carrying amounts and the tax basis of existing
recognition of deferred tax assets and liabilities for the expected future tax consequences of
temporary differe
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.
ff
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 connection with the 2021 acquisition of Accurics, we elected to first offsff et our existing deferred
tax assets with acquired deferred tax liabilities. This resulted in releasing $7.9 million of the federal
and state valuation allowance, which was recorded as a component of our deferred tax benefit.
76
In December 2019, subsequent to our acquisition of Indegy, we transferred the acquired
intellectual property from Israel to the U.S. and Ireland through an intercompany transaction. The sale
of Indegy’s intellectual property forff
$4.2 million of deferred tax expense in Israel. In January 2021, we transferred Indegy’s R&D business
to another wholly owned Israeli entity through an intercompany transaction. The sale of Indegy’s R&D
business resulted in $2.8 million of current tax expense in Israel. The valuation of the intellectual
property and R&D business for tax purposes required significant judgment and assumptions with
respect to forecasted operating results and discount rates.
tax purposes resulted in $6.3 million of current tax expense and
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
ff
more informat
ion 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.
Interest Rate Risk
At December 31, 2021, we had $278.0 million of cash and cash equivalents, which consisted of
cash deposits and money market funds. We also had $234.3 million of short-term investments, which
consisted of commercial paper, asset backed securities, certificates of deposit, U.S. treasury and
agency securities and corporate and supranational bonds. Our investments are carried at their fair
market values with cumulative unrealized gains or losses recorded as a component of accumulated
other comprehensive (loss) 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.
In July 2021, we entered into the Credit Agreement comprised of a $375.0 million Term Loan and
Loan
a $50.0 million Revolving Credit Facility. Prior to January 31, 2022, the interest rate on the TermTT
was 3.25% (2.75% plus 0.50% LIBOR floor). Effeff ctive January 31, 2022 through July 29, 2022, the
Term Loan has a variable interest rate of 3.27%. A one-half percentage point increase in the rate
would increase 2022 interest expense by $0.8 million. No amounts are outstanding under the
Revolving Credit Facility.
Because the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced
the desire to phase out the use of LIBOR by the middle of 2023, future borrowings under our Term
Loan and Revolving Credit Facility could be subject to reference rates other than LIBOR.
77
Foreirr gni
Currenrr
cy 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, Israeli New Shekel and Indian Rupee. 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
ff
on our business, results of operations, or
financial condition. Nonetheless, if our costs, specifically employee-related and third-party cloud
infrastructure costs, were to become subject to significant inflationary pressures, we may not be able
to fully offset
operations, or financial condition.
such higher costs. Our inability or failure to do so could harm our business, results of
ff
78
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 Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
1. Business and Summary of Significant Accounting Policies
2. Revenue
3. Cash Equivalents and Short-TermTT
Investments
4. Fair Value Measurements
5. Property and Equipment, Net
6. Acquisitions, Goodwill and Intangible Assets
7. Leases
8. Debt
9. Commitments and Contingencies
10. Stock-Based Compensation
11. Income Taxes
12. Net Loss Per Share
13. Geographic Information
14. Benefit Plans
15. Subsequent Events
Pageg
80
85
86
87
88
89
90
90
97
98
99
101
101
103
104
106
106
110
113
114
114
114
79
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, 2021 and 2020, the related consolidated statements of operations,
comprehensive loss, stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2021, in conforff mity with U.S.
generally accepted accounting principles.
TT
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, 2021, 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 25, 2022 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.
ff
We conducted our audits in accordance with the standards of the PCAOB. Those standards require
that we plan and performff
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
procedures to assess the risks of material misstatement of the financial statements,
performing
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.
ff
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the
financial statements that were communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material to the 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 matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition – Identification and Evaluation of Contracts
Non-Standard Terms and Conditidd ons.
rr
with
80
Descriptiontt
the Matter
of
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.
How We
dd
Addressed
Matter in Oii
Auditdd
the
ur
Descriptiontt
the Matter
of
Performing procedures relating to the identification and evaluation of non-
standard terms and conditions in contracts is a critical audit matter because
there is a significant amount of judgment required by management in
identifying and evaluating non-standard terms and conditions and determining
the impact of such terms and conditions on the amount and timing of revenue
recognition. Accordingly, there is significant 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.
ff
We obtained an understanding, evaluated the design and tested the operating
effect
iveness 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.
II
gibl
ii e Assetstt
Developed Technology Igg ntan
Valuation of Acquiredii
As described in Note 6 to the consolidated financial statements, during the
year ended December 31, 2021, the Company completed the acquisitions of
Alsid SAS (“Alsid”) and Accurics, Inc. (“Accurics”) for $98.5 million and $160.0
million in cash, respectively. The Company’s accounting for the acquisitions
included determining the fair value of the acquired intangible assets including
developed technology of $31.3 million for Alsid and a preliminary value of
$33.3 million for Accurics.
Auditing the accounting for the acquired developed technology intangible
assets involved complex auditor judgment due to the estimation required in
management’s determination of fair value. The estimation was significant
primarily due to the sensitivity of the fair value of the developed technology to
the underlying assumptions, including the discount rate, projected revenue
growth rates, future expected operating expenses, and the obsolescence
projections. These significant assumptions are forward-looking and could be
affecte
d by future economic and market conditions.
ff
81
How We
Addressed the
Matter in Our
Audit
ff
iveness of controls over the Company’s process for accounting for the
We obtained an understanding, evaluated the design and tested the operating
effect
acquired developed technology intangible assets. For example, we tested
controls over management’s review of the valuation model and significant
assumptions used in the valuation as well as controls over the completeness
and accuracy of the data used in the model and assumptions.
ff
To test the fair value of the acquired developed technology, our audit
procedures included, among others, evaluating the Company's use of
valuation methodologies, evaluating the significant assumptions, evaluating
the prospective financial informat
accuracy of underlying data. We involved our valuation specialist to assist in
testing certain significant assumptions used to value the acquired intangible
assets. For example, we compared the significant assumptions to current
industry and market trends, to assumptions used to value similar assets in
other acquisitions and to other relevant factors. We also perforr
analyses of the significant assumptions to evaluate the change in the fair
value resulting from changes in the assumptions.
ion and testing the completeness and
rmed sensitivity
/s/ Ernst & Young
YY
LLP
We have served as the Company’s auditor since 2014
Baltimore, Maryland
February 25, 2022
82
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Tenable Holdings, Inc.
inion on Internal Control Over Financial Reporting
TT
Holdings, Inc.’s internal control over financial reporting as of December 31,
We have audited Tenable
2021, 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
effect
criteria.
ive internal control over financial reporting as of December 31, 2021, based on the COSO
Holdings, Inc. (the Company) maintained, in all material respects,
TT
ff
As indicated in the accompanying Management's Report on Internal Control Over Financial
Reporting, management's assessment of and conclusion on the effectiveness of internal control over
financial reporting did not include the internal controls of Accurics, Inc. acquired on October 1, 2021,
which is included in the 2021 consolidated financial statements of Tenable
constituted less than 3% of total assets as of December 31, 2021 and less than 1% of total revenue
and operating expenses for the year then ended. Our audit of internal control over financial reporting
of Tenable Holdings, Inc. also did not include an evaluation of the internal control over financial
reporting of Accurics, Inc.
Holdings, Inc. and
TT
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Holdings, Inc. as of
Board (United States) (PCAOB), the consolidated balance sheets of Tenable
December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive
loss, stockholders' equity and cash flows for each of the three years in the period ended December
31, 2021, 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 25, 2022 expressed an unqualified opinion thereon.
TT
Basis for Opinion
The Company’s management is responsible for maintaining effecti
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.
ve internal control over financial
ff
We conducted our audit in accordance with the standards of the PCAOB. Those standards require
that we plan and performff
ve internal
control over financial reporting was maintained in all material respects.
the audit to obtain reasonable assurance about whether effecti
ff
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
effect
iveness 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.
ff
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 forff
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
83
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.
ff
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effecti
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
veness to future periods are subject to the
ff
/s/ Ernst & Young
YY
LLP
Baltimore, Maryland
February 25, 2022
84
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 $524
$
and $261 at December 31, 2021 and 2020, 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)
Term loan, net of issuance costs (net of current portion)
Operating lease liabilities (net of current portion)
Other liabilities
Total liabilities
$
$
December 31,
2021
2020
278,000 $
234,292
178,223
113,623
136,601
40,311
60,234
749,438
36,833
59,638
38,530
71,536
261,614
31,230
1,248,819 $
16,254 $
54,051
407,498
2,320
3,759
483,882
123,387
364,728
55,046
6,463
1,033,506
115,342
32,143
44,462
483,793
38,920
46,733
39,426
13,193
54,414
14,110
690,589
5,731
35,509
328,819
3,815
1,028
374,902
105,691
—
54,529
4,802
539,924
Stockholders’ equity:
Common stock (par value: $0.01; 500,000 shares authorized,
108,929 and 103,715 shares issued and outstanding at December
31, 2021 and 2020, respectively)
Additional paid-in capital
Accumulated other comprehensive (loss) income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
1,089
869,059
(306)
(654,529)
215,313
1,248,819 $
1,037
757,470
10
(607,852)
150,665
690,589
$
The accompanying notes are an integral part of these consolidated financial statements.
85
TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
2021
2020
2019
Year Ended December 31,
Revenue
Cost of revenue
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Loss from operations
Interest (expense) income, net
Other expense, net
Loss beforeff
income taxes
(Benefit) provision for income taxes
Net loss
Net loss per share, basic and diluted
Weighted-average shares used to compute net loss
per share, basic and diluted
$
541,130 $
440,221 $
354,586
106,396
434,734
270,158
116,432
89,912
476,502
77,554
362,667
224,277
101,687
73,136
399,100
(41,768)
(36,433)
(6,896)
(1,965)
(50,629)
(3,952)
1,244
(1,885)
(37,074)
5,657
60,818
293,768
228,035
87,064
69,468
384,567
(90,799)
5,830
(680)
(85,649)
13,364
$
$
(
(46,677) $
(
)
)
(
(42,731) $
(
)
)
)
(99,013)
(
)
(
(
(0.44) $
(
)
)
(
(0.42) $
(
)
)
)
(1.03)
(
)
(
106,387
101,009
96,014
The accompanying notes are an integral part of these consolidated financial statements.
86
TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Net loss
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on available-for-sale
securities
Other comprehensive (loss) income
Comprehensive loss
Year Ended December 31,
2021
2020
2019
$
(46,677) $
(42,731) $
(99,013)
(316)
(316)
(40)
(40)
50
50
$
(
(46,993) $
(
)
)
(
(42,771) $
(
)
)
)
(98,963)
(
)
(
The accompanying notes are an integral part of these consolidated financial statements.
87
TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Total
Comprehensive Accumulated Stockholders'
Deficit
(Loss) Income
Equity
93,126 $
931
$ 586,940
$
— $
(466,108) $
121,763
(in thousands)
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
Balance at
December 31, 2020
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
Balance at
December 31, 2021
4,205
479
777
—
—
—
42
5
8
—
—
—
19,006
(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
—
—
103,715
1,037
757,470
2,671
1,872
671
—
—
—
26
19
7
—
—
—
18,242
(19)
13,729
79,637
—
—
—
—
—
—
50
—
50
—
—
—
—
10
—
—
—
—
—
—
—
—
—
(99,013)
19,048
—
15,129
41,928
50
(99,013)
(565,121)
98,905
—
—
—
—
—
—
—
—
21,709
—
13,040
59,782
(40)
(42,731)
18,268
—
13,736
79,637
(316)
(46,677)
(40)
—
—
(42,731)
(607,852)
150,665
108,929
$ 1,089
$ 869,059
$
)
(306) $
(
)
(
(
(654,529) $
(
)
)
215,313
(316)
—
—
(46,677)
The accompanying notes are an integral part of these consolidated financial statements.
88
TENABLE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2020
2019
2021
$
(46,677) $
(42,731) $
(99,013)
(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
Purchase of other investments
Business combinations, net of cash acquired
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from term loan
Credit facility issuance costs
Proceeds from loan agreement
Proceeds from stock issued in connection with the employee
stock purchase plan
Proceeds from the exercise of stock options
Other financing activities
Net cash provided by financing activities
of exchange rate changes on cash and cash
Effect
ff
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, net of refunds
Supplemental cash flow information related to leases:
Cash payments for operating leases
$
$
$
(10,468)
16,170
79,405
3,915
(17,228)
(46,207)
24,330
92,486
1,039
96,765
(6,561)
(282,438)
160,874
(5,000)
(258,465)
(391,590)
375,000
(9,348)
—
13,736
18,268
(10)
397,646
161
10,633
59,573
1,071
(20,012)
(19,372)
(5,282)
71,383
8,808
64,232
(20,277)
(184,516)
209,148
—
(276)
4,079
—
(333)
2,000
13,040
21,709
(13)
36,403
4,243
6,880
41,610
(784)
(25,941)
(16,954)
10,513
72,799
(4,097)
(10,744)
(20,674)
(242,059)
224,594
—
(74,911)
(113,050)
—
—
—
15,129
19,048
(16)
34,161
(3,013)
(916)
(1,080)
99,808
103,798
(90,713)
178,463
74,665
165,378
278,271
$
178,463
$
74,665
$
4,978
6,481
$
335
5,729
96
8,530
7,657
$
8,807
$
4,452
The accompanying notes are an integral part of these consolidated financial statements.
89
TENABLE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Summary of Significant Accounting Policies
ii
Business
Descript
rr
iontt
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 platforff m 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, Active Directory
and industrial internet of things and operational technology environments.
Basis oii
f Presen
PP
tation
The accompanying consolidated financial statements include the accounts of Tenable
TT
Holdings,
Inc. and our wholly owned subsidiaries and have been prepared in conformit
generally accepted accounting principles (“GAAP”). All intercompany accounts and transactions have
been eliminated in consolidation.
y with United States
ff
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 and deferred revenue, the valuation of stock-based
value of our common stock prior to our IPO, the
ff
compensation, including the estimated underlying fair
incremental borrowing rate forff
these estimates on historical experience and on various other assumptions that we believe to be
reasonable. Actual results could differ
operating leases, and the valuation of deferred tax assets. We base
significantly from these estimates.
ff
Foreigni
Currenrr
cy
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 $1.9 million, $1.7 million and $1.1 million in 2021, 2020 and 2019,
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
90
•
•
•
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognize revenue when or as performance
rr
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
to the customer, which for sales made through distributors is concurrent with the transfer to the end
user.
or services is transferred
ff
Subscriptiontt
Revenue
ff
Subscription arrangements generally have annual or multi-year contractual terms and allow
customers to use our software or cloud solutions. For our software subscriptions that are dependent
on ongoing software
is recognized ratably over the subscription term given the critical utility provided by the ongoing
updates that are released throughout the contract period. When the critical utility of our software does
not depend on ongoing updates, we recognize revenue attributable to the license at the time of
delivery and the revenue attributable to the maintenance and support ratably over the contract period.
updates and the ability to identify the latest cybersecurity vulnerabilities, revenue
Perpetual License and Maintenance Revenue
Our perpetual licenses are generally sold with one or more years of maintenance, which include
ff
ff
ff
updates and updated ability to identifyff
updates and the ongoing ability to identify the latest cybersecurity vulnerabilities.
expected maintenance renewals based on the estimated economic life of the perpetual
ongoing software
Given the critical utility provided by the ongoing software
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 forff
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
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
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
estimates could materially impact our reported financial results.
obligation over the initial contractual period, which is generally one year.
assumptions and
years. We have
ff
ff
ff
Professional Services and Other
tt
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
91
customization of our products. Professional services and other revenue is recognized as the services
ff
are performed.
tt
Contracts
with Mtt
ultiptt
rr
le Perforff mance
tt
Obligat
ions
ll
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.
ff
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 limited circumstances, refunds, if service
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.
level commitments are not met. We
rr
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, 2021, cash and cash equivalents included $5.8 million of restricted cash
primarily related to collateral for our outstanding letters of credit. At December 31, 2020, cash and
cash equivalents included $0.4 million of restricted cash primarily related to collateral for a lease and
credit card deposits. At December 31, 2021 and 2020, cash and cash equivalents excluded $0.3
million and $0.2 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 Vii
aluVV
e of FinFF ancial 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
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
using the carrying amounts forff
their short-term nature.
accounts receivable, accounts payable and accrued expenses due to
value hierarchy of inputs. We approximate fair value by
value using a fair
f
ff
Investments
We currently invest in asset backed securities, certificates of deposit, commercial paper,
corporate and supranational bonds, and U.S. treasury and agency obligations. Our investments are
classified as available-forff
accumulated other comprehensive (loss) income within stockholders’ equity.
-sale and recorded at fair value, with unrealized gains and losses reported in
We classify investments with original maturities of less than 90 days as cash and cash
equivalents. Investments with original maturities greater than 90 days, including those we do not
92
currently intend on selling within the next twelve months, are classified as short-term investments as
they are available for use in our operations.
We evaluate potential impairments of available-for-sale
ff
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.
In November 2021, we entered into a simple agreement for future equity ("SAFE") agreement for
$5.0 million in exchange for a right to participate in a future equity financing. Alternatively, upon a
change in control or an initial public offering,
we have the option to redeem the SAFE for $5.0 million,
or convert the SAFE into shares of common stock. The number of shares of common stock would be
determined by dividing the SAFE purchase amount by the liquidity price in the SAFE agreement. The
$5.0 million value of the SAFE is included in other assets on our consolidated balance sheet at
December 31, 2021.
ff
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
ient to cover the risk of collecting less than full payment of the receivables. At
estimated to be sufficff
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 tff
rends.
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, 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.
ff
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 at
nd Equipment, ntt
et
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 forff
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
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
93
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 officeff
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.
spaces and other facilities, and have determined that these arrangements do not
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 forff
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.
each lease using our current
ff
Lease expense for lease payments is recognized on a straight-line basis over the term of the
lease.
rr
Impairmen
t 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 2021, 2020 or 2019.
ii
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, a
non-recurring Level 3 fair value measurement, we make estimates and assumptions, especially with
respect to intangible assets such as identified acquired technology and trade names. We determine
the fair value of acquired technology using the multi-period excess earnings method, a formff
of the
income approach. Estimates in valuing identifiable intangible assets include, but are not limited to,
projected revenue growth rates, future expected operating expenses, obsolescence projections and
value is based upon assumptions we believe to be
an appropriate discount rate. Our estimate of fair
ff
94
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 offset
the measurement period will be reflected in the consolidated statements of operations. Acquisition-
related transaction costs are expensed as incurred.
ting adjustments to goodwill. Any adjustments made after
ff
Goodwillii
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,
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.
and
ff
Common Stock
Our Amended and Restated Certificate of Incorporation authorized 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, 2021 or 2020. 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.
b
Advertisinii
g
Advertising costs are expensed as they are incurred. We incurred advertising costs of $13.6
million, $8.2 million and $5.3 million in 2021, 2020 and 2019, respectively, which are included in sales
and marketing expense in the consolidated statements of operations.
Softwareww
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 forff
have not capitalized development costs for software
ff
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.
to be sold, leased or marketed to date, as the
the related software product. We
ff
Softwar
e developed forff
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 projeo ct are expensed as incurred. Costs incurred during the application
development stage of the project are capitalized. In 2021, 2020 and 2019, we capitalized $2.9 million,
$1.6 million and $4.2 million, respectively, of development costs related to internal use software.
95
Stock-Based Compensationtt
Stock-based compensation expense related to 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-base
account for forfe
d vesting conditions are expensed using the accelerated attribution method. We
itures as they occur.
ff
ff
The fair value of RSUs is based on the market price 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 judgments,
including the expected term, expected volatility, and risk-free interest rates. Following our IPO, we use
the market price of our common stock at the date of grant. Prior to our IPO, we estimated the fair
value of our common stock at the date of grant.
Net Loss per Sharerr
We calculate basic net loss per share by dividing the net loss by the weighted-average number of
shares of common stock outstanding during the period.
Diluted earnings per share is computed by giving effect
to all potentially dilutive common stock
equivalents in the period, including unvested RSUs, stock options, unvested restricted shares 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 as
their effect
would be antidilutive.
ff
ff
Segment Information
We operate as one operating segment as our chief executive officer
ff
ion on a consolidated basis for purposes of making
, who is our chief operating
decision maker, reviews financial informat
operating decisions, allocating resources, and evaluating financial performance.
ff
ff
Income Taxes
Income taxes are accounted for under the asset and liability method. This method requires
ff
recognition of deferred tax assets and liabilities for the expected future tax consequences of
temporary differences
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.
between the financial statement carrying amounts and the tax basis of existing
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 ProPP nouncements
inyy g thett
We adopted Accounting Standards Update ("ASU") No. 2019-12 - Income Taxes (Topic
Simplifyll
ive January 1, 2021. The adoption of this
ff
effect
guidance did not have a material impact on our condensed consolidated financial statements. This
ASU eliminated previously allowed exceptions and clarified existing guidance in the accounting for
for Income Taxes,
Accountingii
740):
TT
TT
96
income taxes, including in the areas of franchise taxes, the tax basis of goodwill and interim period
effect
s of changes in tax laws.
ff
Recently Issued Accounting Prono
PP
uncements
In March 2020, the Financial Accounting Standards Board ("FASFF B") issued ASU No. 2020-04 -
ff
TT
848): Facilitati
Rate Reform (Topic
Rate Reform on Financial
. This ASU provides optional expedients and exceptions to contract modification guidance to
Reference
Reportingtt
ease the financial reporting burden of the transition from the London Interbank Offered
("LIBOR") to alternative reference rates. The ASU was effect
be adopted prospectively through December 31, 2022. We are currently evaluating the impact of this
accounting standard on our consolidated financial statements.
ff
ive beginning on March 12, 2020 and can
t on of the Effeff cts of Reference
Rate
ff
ff
ii
In October 2021, the FASBFF
issued ASU No. 2021-08 - Business Combinations
tt
(Topic 805):
tt
for Contract Assets and Contract
Accountingtt
Liabilit
requires companies to measure contract assets and contract liabilities from contracts acquired in a
business combination in accordance with Accounting Standards Codification Topic 606 on the
acquisition date. We early adopted the ASU as of January 1, 2022 and will apply it prospectively to
future acquisitions. The impact of this accounting standard will depend on the contract assets and
liabilities acquired in future business combinations.
from Contracts with Customers. This ASU
iestt
ii
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
Concentratiorr
ns
Year Ended December 31,
2021
2020
2019
$
476,023 $
377,354 $
290,549
50,333
14,774
50,594
12,273
54,173
9,864
$
541,130 $
440,221 $
354,586
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 92%, 91% and
90% of revenue through our channel network in 2021, 2020 and 2019, respectively. One of our
distributors accounted for 39%, 43% and 43% of revenue in 2021, 2020 and 2019, respectively. That
same distributor accounted for 32% and 41% of accounts receivable at December 31, 2021 and
2020, respectively.
rr
Contract
Balances
ll
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 2021, 2020 and
ff
97
2019, we recognized revenue of $329.0 million, $274.3 million and $214.0 million, respectively, that
was included in the deferred revenue balance at the beginning of each of the respective periods.
Remaini
ii ngii
Performance Obligatio
i
ns
At December 31, 2021, the future estimated revenue related to unsatisfied performance
ff
obligations was $559.0 million, of which approximately 76% is expected to be recognized as revenue
over the succeeding twelve months, and the remainder expected to be recognized over the four years
.
thereafter
ff
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
3. Cash Equivalents and Short-Term Investments
Year Ended December 31,
2021
2020
$
$
78,876 $
58,196
(37,123)
99,949 $
72,265
38,756
(32,145)
78,876
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
Total cash equivalents
Short-term investments:
Commercial paper
Corporate bonds
Asset backed securities
Certificates of deposit
Supranational bonds
U.S. Treasury and agency obligations
December 31, 2021
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value
$
$
178,518 $
178,518 $
— $
— $
— $
— $
178,518
178,518
$
134,165 $
— $
(47) $
134,118
27,169
27,464
10,000
8,632
27,168
—
—
—
—
—
(41)
(53)
(8)
(33)
(124)
27,128
27,411
9,992
8,599
27,044
Total short-term investments
$
234,598 $
— $
)
(306) $
(
)
(
234,292
98
(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
$
$
$
December 31, 2020
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value
44,153 $
4,500
48,653 $
— $
—
— $
— $
—
— $
44,153
4,500
48,653
71,425 $
— $
— $
4,502
37,686
3
7
—
—
71,425
4,505
37,693
Total short-term investments
$
113,613 $
10 $
— $
113,623
Gross unrealized losses were not material at December 31, 2021. We considered the extent to
which any unrealized losses on our short-term investments were driven by credit risk and other
factors, including market risk, and if it is more-likely-than-not that we would have to sell the security
beforeff
unrealized losses represent credit losses at December 31, 2021.
the recovery of the amortized cost basis. Based on our assessment, we do not believe any
The contractual maturities of our short-term investments are as follows:
(in thousands)
Due within one year
Due between one and four years
Total short-term investments
4. Fair Value Measurements
December 31, 2021
December 31, 2020
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
$
$
195,579 $
195,453 $
113,613 $
113,623
39,019
38,839
—
—
234,598 $
234,292 $
113,613 $
113,623
We measure certain financial instruments at fair
f
hierarchy, assets are classified based on the lowest level inputs used in valuation into the following
categories:
value hierarchy. In the
value using a fair
ff
•
•
•
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
Level 3 — Unobservable inputs.
market data; and
r
99
The folff
lowing tables summarize assets that are measured at fair value on a recurring basis:
(in thousands)
Cash equivalents
Money market funds
Total cash equivalents
Short-term investments
Commercial paper
Corporate bonds
Asset backed securities
Certificates of deposit
Supranational bonds
U.S. Treasury and agency obligations
Total 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, 2021
Level 1
Level 2
Level 3
Total
178,518 $
178,518 $
— $
— $
— $
— $
178,518
178,518
— $
134,118 $
— $
134,118
—
—
—
—
—
27,128
27,411
9,992
8,599
27,044
—
—
—
—
—
27,128
27,411
9,992
8,599
27,044
— $
234,292 $
— $
234,292
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 $
— $
—
—
4,505
37,693
—
—
71,425
4,505
37,693
— $
113,623 $
— $
113,623
We did not have any liabilities measured and recorded at fair value on a recurring basis at
December 31, 2021 and 2020.
100
5. Property and Equipment, Net
Property and equipment, net consisted of the following:
(in thousands)
December 31,
2021
2020
Computer software and equipment
$
29,203 $
Furniture and fixtures
Leasehold improvements
Right-of-use assets under finance leases
Total
Less: accumulated depreciation and amortization
5,944
26,713
1,343
63,203
(26,370)
Property and equipment, net
$
36,833 $
22,930
6,011
26,210
1,571
56,722
(17,802)
38,920
Depreciation and amortization related to property and equipment was $9.5 million, $8.1 million
and $6.3 million in 2021, 2020 and 2019, respectively.
6. Acquisitions, Goodwill and Intangible Assets
Business Combinati
ii
ons
In October 2021, we acquired Accurics. Accurics delivers cloud-native security forff DevOps and
security teams. This acquisition expanded our broader cloud strategy to include the holistic
assessment and automated remediation of policy violations and breach paths beforef
infrastructure is provisioned and throughout its lifecycle. We acquired 100% of the equity in exchange
for cash consideration of $160.0 million, net of cash acquired of $9.6 million.
the
In April 2021, we acquired Alsid, which expanded our product offerings
ff
to include active directory
security. Active directory is the basis for managing user permissions across on-premises and hybrid
cloud deployments and is foundational to the security of cloud workloads, security remote work, and
adopting zero trust architectures. Through a share purchase agreement, we acquired 100% of Alsid's
equity in exchange for cash consideration of $98.5 million, net of cash acquired of $3.3 million.
Cash consideration, net of cash acquired, was preliminarily allocated as follows:
(in thousands)
Accounts receivable
Prepaid expenses and other assets
Intangible assets
Goodwill
Accounts payable, accrued expenses and accrued compensation
Deferred revenue
Deferred tax liabilities, net
Total purchase price allocation
Accurics
Alsid
$
180 $
341
33,390
134,909
(719)
(188)
(7,937)
4,105
2,304
31,400
72,291
(3,794)
(3,699)
(4,118)
$
159,976 $
98,489
We are still finalizing the allocations of the purchase price, which may change as additional
information becomes available related to acquired intangible assets, working capital and income
taxes forff Accurics and income taxes forff Alsid.
101
Acquired intangible assets and their estimated useful lives at the date of acquisition are as
follows:
Accurics
Alsid
(dollars in thousands)
Acquired technology
Trade name
Acquired intangible assets
Cost
Estimated
Useful Life
33,300
10 years
90
2 years
33,390
$
$
Cost
31,300
100
31,400
$
$
Estimated
Useful Life
7 years
1 year
The results of operations of Accurics and Alsid are included in our consolidated statements of
operations from the acquisition date and were not material. Pro forff ma results of operations are not
presented as they are not material to the consolidated statements of operations.
In 2021 and 2020, we recognized acquisition-related transaction costs, primarily in general and
administrative expense, of $6.9 million and $0.3 million, respectively. In 2019, we recognized
acquisition-related transaction costs of $4.0 million, including $2.1 million of expense related to the
intercompany transfer of intellectual property.
Goodwill all nd Acquired IntII antt gible Assets
The changes in the carrying amount of goodwill are as follows:
(in thousands)
Balance at December 31, 2020
Acquired goodwill
Balance at December 31, 2021
$
$
54,414
207,200
261,614
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 marketing and
selling these new capabilities from Accurics and Alsid to our customers. The acquired goodwill is not
tax deductible.
Acquired intangible assets subject to amortization are as follows:
December 31, 2021
December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Acquired
technology
Trade name
$
$
81,924 $
(10,499) $
71,425 $
17,325 $
(4,224) $
13,101
390
(279)
111
200
(108)
92
82,314 $
(
(10,778) $
(
)
)
71,536 $
17,525 $
(
(4,332) $
(
)
)
13,193
Amortization of acquired intangible assets was $6.4 million, $2.3 million, and $0.6 million in 2021,
2020 and 2019, respectively. At December 31, 2021, our acquired intangible assets are expected to
be amortized over an estimated weighted average period of 7.7 years.
102
At December 31, 2021, estimated future amortization of intangible assets is as follows:
(in thousands)
Year ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total
7. Leases
$
$
9,907
10,049
10,016
10,016
9,831
21,717
71,536
We have operating leases forff
equipment. Our leases
have remaining terms of less than one year to just over ten 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, 2021
assume we exercise the option to early terminate one of our leases in 2025.
officff e facilities and finance leases for officeff
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,
2021
2020
2019
7,634 $
9,870 $
6,045
7 $
5
12 $
242 $
6
248 $
607
7
614
$
$
$
Rent expense for short-term leases in 2021, 2020 and 2019 was not material.
Supplemental informat
ff
ion related to leases was as follows:
Operating leases
Weighted average remaining lease term
Weighted average discount rate
December 31,
2021
December 31,
2020
9.2 years
5.5%
10.0 years
5.6%
(in thousands)
ROU assets obtained in exchange for lease obligations
Year Ended December 31,
2021
2020
2019
Operating leases
Finance leases
$
3,137 $
—
3,188 $
—
39,170
11
103
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, 2021 were as follows:
(in thousands)
Year ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: Imputed interest
Total
8. Debt
Creditdd Agreement
$
$
5,446
8,260
8,396
8,221
7,421
37,423
75,167
(17,801)
57,366
In July 2021, we entered into a credit agreement ("Credit Agreement") which is comprised of:
•
•
a $375.0 million senior secured term loan facility ("TermTT
Loan"); and
a $50.0 million senior secured revolving credit facility ("Revolving Credit Facility").
The table below summarizes the carrying value of the Term Loan:
(in thousands)
Term loan
Less: Unamortized debt discount and issuance costs
Term loan, net of issuance costs
Less: Term loan, net, current (1)
December 31,
2021
$
375,000
(7,616)
367,384
(2,656)
Term loan, net of issuance costs (net of current portion)
$
364,728
_______ ____ ____ ____ ____ ____ ____
(1)(1)
Term loan, net, current is included in other current liabilities on our consolidated balance sheets.
The Term Loan bears interest at a rate of 2.75% per annum over LIBOR, subject to a 0.50% floor.
The Term Loan will amortize at 1% per annum in equal quarterly installments, starting in March 2022
until the final maturity date on July 7, 2028.
Our Term Loan is recorded at its carrying value. At December 31, 2021, the carrying value of our
Term Loan approximated the fair value of our Term Loan as the terms and interest rate approximate
market rates. In the fair value hierarchy, our Term Loan is classified as Level 2 as it is traded in less
active markets.
104
The maturities of the TermTT
Loan at December 31, 2021 were as follows:
(in thousands)
Year ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total
$
$
3,750
3,750
3,750
3,750
3,750
356,250
375,000
We may be subject to mandatory Term Loan prepayments related to the excess cash flow
provisions beginning in 2023.
The Revolving Credit Facility bears interest at a rate, depending on first lien net leverage, ranging
from 2.00% to 2.50% over LIBOR and matures on July 7, 2026. Additionally, we will pay a
commitment fee during the term ranging from 0.25% to 0.375% per annum of the average daily
undrawn portion of the revolving commitments based on the first lien net leverage ratio. The
Revolving Credit Facility contains a $15.0 million letter of credit sublimit.
The Credit Agreement contains certain customary events of default, which include failure to make
certain covenants, cross-defaults, bankruptcy and insolvency-related events, certain
payments when due, the material inaccuracy of representations or warranties, failure to observe or
performff
judgments, certain ERISA-related events, failure of any lien created under the Security Documents
(as defined in the Credit Agreement) to be valid and perfected (subject to certain exceptions), failure
of any material guarantee of the Loan Document Obligations (as defined in the Credit Agreement) to
be in full force and effect
and a Change of Control (as defined in the Credit Agreement).
ff
The Credit Agreement is guaranteed by the Company and Tenable Public Sector LLC, a
subsidiary of the Company, as guarantors, and is supported by a security interest in substantially all
of the assets of Tenable, Inc. and the guarantors.
The Credit Agreement contains certain customary representations and warranties and affirmat
ff
and negative covenants, including certain restrictions on incurring additional indebtedness or
guaranteeing indebtedness of others, creating liens on properties or assets, making certain
investments, loans, advances and guarantees, selling assets, making certain restricted payments and
entering into certain sale and leaseback transactions, affiliat
e transactions, restrictive agreements and
asset and stock-based transactions. Additionally, if at least 35% of the Revolving Credit Facility is
drawn on the last day of the quarter, the total net leverage ratio cannot be greater than 5.50 to 1.00.
At December 31, 2021, we were in compliance with the covenants and there have been no amounts
outstanding under the Revolving Credit Facility.
ive
ff
2020 Creditdd Facilityll
In connection with the Credit Agreement, we terminated our $45.0 million senior secured credit
facility ("2020 Credit Facility") with Silicon Valley Bank, including the release of all related guarantees
and liens. Prior to its termination, there were no amounts outstanding under our 2020 Credit Facility.
105
9. Commitments and Contingencies
Commitments
In July 2021, we entered into a contract with Amazon Web Services, Inc. ("AWSAA
") for cloud
services from August 2021 through July 2024. Under the terms of the contract, we committed to
spend $43.7 million, $46.8 million and $50.1 million in contract years one, two and three, respectively,
for a total of $140.6 million. If we do not meet the minimum purchase obligation during any of those
years, we will be required to pay the difference. At December 31, 2021, we have spent $37.8 million
under our contract with AWS.
AA
Letters orr
f Credit
At December 31, 2021, we had $5.7 million of standby letters of credit related to our grant
agreements with the State of Maryland and our operating leases. Collateral for our letters of credit
was classified as restricted cash in cash and cash equivalents.
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 2021 we
reserved an additional 5,185,762 shares of our common stock. At December 31, 2021, there were
19,828,070 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
Year Ended December 31,
2020
2019
2021
$
4,446 $
3,158 $
29,410
20,593
24,956
19,842
14,794
21,779
2,817
16,032
8,911
15,683
43,443
Total stock-based compensation expense
$
79,405 $
59,573 $
At December 31, 2021, the unrecognized stock-based compensation expense related to
unvested RSUs was $186.3 million, which is expected to be recognized over an estimated weighted
average remaining period of 2.8 years.
At December 31, 2021, the unrecognized stock-based compensation expense related to
outstanding stock options was $2.5 million, which is expected to be recognized over an estimated
remaining weighted average period of 0.5 years.
At December 31, 2021, the unrecognized stock-based compensation expense related to our
2018 ESPP was $8.1 million, which is expected to be recognized over an estimated weighted
average period of 0.9 years.
106
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, 2018
Granted
Vested
Forfeited
Unvested balance at December 31, 2019
Granted
Vested
Forfeited
Unvested balance at December 31, 2020
Granted
Vested
Forfeited
Unvested balance at December 31, 2021
Number
of Shares
Weighted
Average
Grant Date
Fair Value
4.25
—
4.25
—
4.25
—
4.25
—
4.25
—
4.25
—
—
890 $
—
(395)
—
495
—
(396)
—
99
—
(99)
—
—
Number
of Shares
Weighted
Average
Grant Date
Fair Value
18.90
27.81
18.28
25.21
26.34
28.23
25.37
26.68
28.13
43.57
28.14
33.64
37.74
1,129 $
2,715
(479)
(471)
2,894
3,570
(1,504)
(470)
4,490
3,842
(1,872)
(679)
5,781
RSUs granted under our stock incentive plans generally vest over a period of two to fouff
r years.
Our outstanding RSUs vest upon the satisfaction of a service-based vesting condition.
107
Stock OptO ions
tt
A summary of our stock option activity is below:
(in thousands, except for per share
data and years)
Number
of Shares
Outstanding at December 31, 2018
19,219
$
Granted
Exercised
Forfeited/canceled
Outstanding at December 31, 2019
Granted
Exercised
Forfeited/canceled
Outstanding at December 31, 2020
Granted
Exercised
Forfeited/canceled
Outstanding at December 31, 2021
Exercisable at December 31, 2021
—
(4,205)
(2,075)
12,939
—
(2,956)
(542)
9,441
—
(2,671)
(39)
6,731
5,851
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (in
years)
Aggregate
Intrinsic
Value
7.78
—
4.53
10.63
8.38
—
7.34
10.80
8.56
—
6.84
14.96
9.21
8.30
8.0
$
277,114
98,378
201,608
73,277
412,547
111,256
308,677
273,642
7.1
6.4
5.5
5.4
At December 31, 2021, there were 6.7 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
market value on the date of grant.
ff
years, and the exercise price cannot be less than the fair
Estimating the fair value of stock options and ESPP purchase rights using the Black-Scholes
option-pricing model requires assumptions as to the fair value of common stock, expected term,
expected volatility, the risk-free interest rate and the expected dividend yield.
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
assumptions of the technical practice-aid issued by the American Institute of Certified Public
Accountants Practice Aid entitled Valuation of Privatvv ely-Held
Compensation.
in accordance with applicable methodologies, approaches and
Company Equity St
Issued as
ecuritiestt
ff
tt
l
Expected Term.
TT
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.
108
Expexx
cted Volatilit
tt y.t 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. In 2021, we began using the volatility of our common stock to calculate expected volatility.
Prior to 2021, we identified several public entities of similar size, complexity, and stage of
development and estimated our volatility based on the volatility of the common stock of these
companies.
Risk-FreeFF
Interest Rate. This is the U.S. Treasury rate, having a term that most closely resembles
the expected life of the stock option.
xx
Expec
ted Divivv dend Yield. We have never declared or paid dividends and have no plans to do so
in the foreseeable future.
2018 Empl yoye Se Stock Purchase Planll
In 2018, our board of directors adopted, and our stockholders approved, our 2018 ESPP. Under
an additional 1,555,728 shares of our common
the evergreen provision, in January 2021 we reservedr
stock for issuance. At December 31, 2021, there were 6,316,370 shares reserved for issuance under
the 2018 ESPP.
Under our 2018 ESPP, eP mployees 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
market value of a share of our common stock at the beginning of the offering, that offering
terminated and participants will be automatically enrolled in a new offeri
duration and purchase periods every six months.
will be
ff
ng with a new 24-month
is less than or equal to the fair
ff
ff
ff
ff
In 2021, employees purchased 670,534 shares of our common stock at a weighted average price
of $20.48 per share, resulting in $13.7 million of cash proceeds.
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 per share resulting in $15.1 million of cash proceeds.
At December 31, 2021 and 2020 there was $6.0 million and $6.5 million, respectively, of
employee contributions to the 2018 ESPP included in accrued compensation.
The fair value of the 2018 ESPP purchase rights was estimated on the offering
ff
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,
2021
2020
2019
0.5 — 2.0
37.2% — 59.4%
0.1% — 0.2%
0.5 — 2.0
41.6% — 60.1%
0.1% — 0.9%
0.5 — 2.0
34.4% — 44.6%
1.5% — 2.5%
—
—
—
109
11. Income Taxes
U.S. and foreign
ff
components of the loss beforeff
income taxes were as follows:
(in thousands)
U.S. loss
Foreign loss
Total loss beforff e income taxes
Year Ended December 31,
2020
2019
2021
$
$
(3,319) $
(6,719) $
(47,310)
(30,355)
(
(50,629) $
(
)
)
(
(37,074) $
(
)
)
(21,644)
(64,005)
)
(85,649)
(
)
(
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
Total deferred tax (benefit) expense
Year Ended December 31,
2020
2019
2021
$
3 $
3 $
100
6,413
6,516
(7,016)
(827)
(2,625)
(10,468)
17
5,476
5,496
102
59
—
161
(224)
100
9,245
9,121
—
—
4,243
4,243
Total (benefit) provision forff
income taxes
$
(
(3,952) $
(
)
)
5,657 $
13,364
In connection with the 2021 acquisition of Accurics, we elected to first offset
ff
our existing deferred
tax assets with acquired deferred tax liabilities. This resulted in releasing $7.9 million of the federal
and state valuation allowance, which was recorded as a component of our deferred tax benefit.
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. In January 2021, we restructured the research and development operations in Israel through
an intercompany transaction, which resulted in $2.8 million of current tax expense.
110
The items accounting for the difference between income taxes computed at the federal statutory
rate and our effeff ctive 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 intercompany sale
Foreign withholding tax
Transaction costs
Other
Effective
ff
tax rate
Year Ended December 31,
2020
2019
2021
21.0 %
21.0 %
21.0 %
2.6
4.5
49.5
(0.1)
(1.2)
(55.7)
(5.1)
(2.0)
(1.6)
(4.1)
10.8
11.1
34.4
0.1
(10.6)
(81.2)
—
(3.3)
—
2.4
4.8
3.1
19.0
(0.5)
(7.9)
(40.8)
(12.3)
(1.4)
—
(0.6)
7.8 %
(
(15.3)%
(
)
)
(
(15.6)%
(
)
)
We maintain a valuation allowance on U.S. federal, state and foreign
ff
f
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.
111
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
Interest expense
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
2021
31,
2020
$
134,503 $
13,598
14,157
15,142
12,929
1,600
2,013
231
89,053
13,454
11,846
11,565
15,238
1,271
—
379
194,173
142,806
(147,040)
(112,363)
47,133
30,443
(19,423)
(13,720)
(15,253)
(486)
(15,987)
(13,257)
(962)
(398)
(48,882)
(30,604)
$
(
(1,749) $
(
)
)
)
(161)
(
)
(
At December 31, 2021, we had net operating loss (“NOL”) carryforwards for federal, state and
foreign tax purposes of $398.5 million, $226.1 million, and $289.9 million, respectively, which will
begin to expire in 2030, as well as $17.9 million of federal, state and forff eign 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
the state job creation tax credits will begin to expire in 2022.
tax credits will begin to expire in 2032 and
ff
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
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.
and tax credits but may
ff
At December 31, 2021 and 2020, the total amount of gross unrecognized tax benefits was $7.6
million and $7.1 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 2021, 2020 and 2019.
112
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
Year Ended December 31,
2020
2019
2021
$
7,123 $
7,163 $
194
64
(48)
242
232
62
(334)
—
4,814
2,306
90
(89)
42
Unrecognized tax benefits at the end of the period
$
7,575 $
7,123 $
7,163
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, 2021,
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 foreign earnings.
12. Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per share:
(in thousands, except per share data)
2021
2020
2019
Net loss
$
(
(46,677) $
(
)
)
(
(42,731) $
(
)
)
)
(99,013)
(
)
(
Year Ended December 31,
Weighted-average shares used to compute net loss
per share, basic and diluted
106,387
101,009
Net loss per share, basic and diluted
$
(
(0.44) $
(
)
)
(
(0.42) $
(
)
)
96,014
)
(1.03)
(
)
(
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
Shares to be issued under the 2018 ESPP
Restricted stock
Total
Year Ended December 31,
2021
2020
2019
6,731
5,781
181
—
12,693
9,441
4,490
321
99
14,351
12,939
2,894
278
495
16,606
113
13. Geographic Information
We operate as one operating segment. Our Chief Executive Officeff
r, who is our chief operating
decision maker, reviews financial informat
operating decisions, allocating resources, and evaluating financial performance.
ion on a consolidated basis for purposes of making
ff
ff
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,
2020
2019
2021
$
347,724 $
293,734 $
243,616
135,176
58,230
102,155
44,332
77,676
33,294
$
541,130 $
440,221 $
354,586
Customers located in the United States accounted for 58%, 61% and 63% of revenue in 2021,
2020 and 2019, respectively. No other country accounted for 10% or more of revenue in the periods
presented.
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,
2021
2020
$
$
33,579 $
3,254
36,833 $
35,406
3,514
38,920
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 forff
million, $6.5 million and $6.2 million in 2021, 2020 and 2019, respectively.
such plans was $7.6
15. Subsequent Events
In February 2022, we acquired Cymptom, a platform that proactively measures, maps and
prioritizes probable attack paths. When added to our products, this acquisition will enable security
teams to preemptively focus response ahead of and during breaches. We acquired Cymptom for a
total purchase price of approximately $23 million in cash.
114
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Control
tt
s all
nd Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule
ion required to be
15d-15(e) under the Exchange Act, that are designed to ensure that informat
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,
required disclosure.
as appropriate to allow timely decisions regarding
ff
ff
Our management, with the participation of our Chief Executive Officer
ff
and Chief Financial Offiff cer,
ff
iveness of our disclosure controls and procedures (as defined in Rules
has evaluated the effect
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 Offiff cer have
concluded that as of December 31, 2021, our disclosure controls and procedures were effecti
ve 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 Officeff
to allow timely decisions regarding any required disclosure.
r and Chief Financial Offiff cer,
ff
Management's R'
eport on Interntt
al Control Overvv
Finanii
cial Reportintt g
Our management is responsible forff
establishing and maintaining adequate internal control over
ff
financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our management evaluated the
iveness of our internal control over financial reporting based on the framework in Internal
effect
ntegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Control—I
tt
Treadway Commission, and concluded that our internal control over financial reporting was effecti
ve
at December 31, 2021. We completed our acquisition of Accurics on October 1, 2021. Since we have
not yet fully incorporated the internal controls and procedures of Accurics into our internal control over
financial reporting, management excluded Accurics from its assessment of the effecti
internal controls at December 31, 2021. Accurics represented approximately 3% of our total assets at
December 31, 2021 and less than 1% of our revenue and operating expenses in 2021.
veness of our
ff
ff
Our independent registered public accounting firm, Ernst & Young
YY
LLP (PCAOB ID: 42), has
issued an audit report with respect to our internal control over financial reporting as of December 31,
2021, which is included in Part II, Item 8 of this Annual Report on Form 10-K.
Changes in Internal Controlrr Overvv
Financ
ii
ial 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
our
ended December 31, 2021 that materially affecte
internal control over financial reporting.
d, or are reasonably likely to materially affect,
ff
ff
115
tt
Inherent Limitattt
ions
on Effeff ctivtt envv
ess of IntII ernarr
l Control
tt
sll
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
Financial Officer
financial reporting are designed to provide reasonable assurance of achieving their objectives and are
effect
ive 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.
, believes that our disclosure controls and procedures and internal control over
and Chief
ff
ff
ff
Item 9B.
Other Information
None.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
116
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Executive Offiff cers 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 2022 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, 2021, under the captions "Information Regarding the Board of Directors and Corporate
Governance," "Election of Directors" and "Executive Officers"
reference.
and is incorporated in this report by
ff
Item 11.
Executive Compensation
The information required by this item will be set forth in the Proxy Statement under the captions
"Executive Compensation" and "Director Compensation" and is incorporated herein by reference.
ff
Item 12.
Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management and Related
ff
The informat
ion 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.
ff
Item 13.
Certain Relationships and Related Transactions and Director Independence
ff
The informat
ion required by this item will be set forth in the Proxy Statement under the captions
"Transactions with Related Persons and Indemnification" and "Independence of the Board of
Directors" and is incorporated herein by reference.
f
Item 14.
Principal Accountant Fees and Services
ff
The informat
ion 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.
117
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
Balance at
Beginning of
Year
Additions
Charged to
Costs and
Expenses
Deductions(1)
Balance at
End of Year
Year Ended December 31, 2021
$
261 $
349 $
(86) $
Year Ended December 31, 2020
Year Ended December 31, 2019
764
188
336
967
(839)
(391)
524
261
764
_______ ____ ____ ____ ____ ____ ____
(1)(1)
CConsists fof
write-offfsfff
f
fof uncollectible accounts, net
fof recoveries.
All other schedules have been omitted because they are not required, not applicable, or the
required informat
ff
ion is included in the financial statements or the notes to the financial statements.
Item 16.
Form 10-K Summary
None.
118
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.
SIGNATURES
Date: February 25, 2022
TENABLE HOLDINGS, INC.
By:
/s/ Amit Yoran
Amit Yoran
Chairman and Chief Executive Officer
ff
Date: February 25, 2022
By:
/s/ Stephen A. Vintz
Stephen A. Vintz
Chief Financial Offiff cer
119
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
and agents, with full power of substitution and
ff
severally, as his or her true and lawful attorneys-in-fact
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 performff
about the premises hereby ratifying and confirming all that said attorneys-in-fact
her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to
each and every act and thing requisite or necessary to be done in and
and agents, or his,
ff
120
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
YY
Amit Yoran
/s/ Stephen A. Vintz
Stephen A. Vintz
r
Chairman and Chief Executive Officeff
February 25, 2022
(Principal
rr
Executive Offiff cer)
Chief Financial Offiff cer
(Principal
ii
rr
Princrr
ipii al Accountingtt
Financial
Officeff
Officeff
r and
r)
February 25, 2022
/s/ Arthur W. Coviello, Jr.
Director
February 25, 2022
Arthur W. Coviello, Jr.
/s/ Kimberly L. Hammonds
Director
February 25, 2022
Kimberly L. Hammonds
/s/ Linda Zecher Higgins
Director
February 25, 2022
Linda Zecher Higgins
/s/ Niloofar Razi Howe
Niloofarff Razi Howe
/s/ John C. Huffard
ff
, Jr.
John C. Huffard
ff
, Jr.
/s/ Jerry M. Kennelly
Jerry M. Kennelly
/s/ A. Brooke Seawell
A. Brooke Seawell
/s/ Raymond Vicks, Jr.
Raymond Vicks, Jr.
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
February 25, 2022
Director
Director
Director
Director
Director
121
Stock Perforr
rmance 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, 2021 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 forff
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
the S&P 500 Index and Nasdaq
of our common stock.
ff
Comparison of Cumulative Total Return
$280
$240
$200
$160
$120
$80
$40
7/26/18
12/31/18
6/30/19
12/31/19
6/30/20
12/31/20
6/30/21
12/31/21
Tenable Holdings, Inc.
S&P 500
NASDAQ Computer
Company/Index
7/26/2018(1)
12/31/2018
6/30/2019
12/31/2019
6/30/2020
12/31/2020
6/30/2021
12/31/2021
Tenable Holdings, Inc.
$
100.00
$
73.36
$
94.35
$
79.21
$
98.55
$
172.76
$
136.69
$
182.05
S&P 500 Index
100.00
88.35
103.68
113.86
109.26
132.38
151.46
167.97
NASDAQ Computer
Index
_______ ____ ____ ____ ____ ____ ____
(1)(1)
Base period
100.00
83.01
102.35
124.80
146.62
187.18
220.44
258.04
CORPOR(cid:2)TE EXECU(cid:3)IVES
Amit Voran
Chief Executive Officer and
Chairman of the Board of Directors
Nico Popp
Chief Product Officer
Stephen A. (cid:2)intz
Chief F(cid:3)nancial Officer
BOARD OF DIREC(cid:3)ORS
Amit Voran
Chief Executive Officer and
Chairman of the Board of Directors
John C. Huffard, Jr.
Co-Founde(cid:4), Tenable
A. Brooke Seawell
Venture Partne(cid:4), New Enterprise Associates
Raymond (cid:2)ick(cid:4), J(cid:5).
Certified Public Accountant
Arthur W. Coviello, J(cid:5).
Venture Partne(cid:4), Rally Ventures
CORPOR(cid:2)TE INFORMA(cid:3)ION
Common Stock Listing
Listed: Nasdaq Global Select Market
Symbol: TENB
Annual Meeting
Wednesday, May 25, 2022
at 1:00 p.m. local time
Registrar and Transfer (cid:6)gent
American Stock (cid:6)ransfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
(cid:6): (800) 937-5449
Mark Thurmond
Chief Operating Officer
Bridgett (cid:8). Paradise
Chief People Officer
Stephen A. Riddick
General Counsel and Corporate Secretary
Linda Zecher Hi(cid:9)(cid:9)ins
Chief Executive Officer, Barkley Group
Jerry M. Kennel(cid:10)y
Chief Executive Office(cid:4), Scandic Capital
Kimberl(cid:11) L. Hammonds
Founde(cid:4), Mangrove Digital Group
Ni(cid:12)oofar Razi Howe
S(cid:4). Operating Partne(cid:4), Energy Impact Partners
Legal Counsel
Cooley LLP
1299 Pennsylvania Ave NW, Suite 700
Washington, D.C. 20004
Independent Registered Public Accounting Firm
Ernst & Young LLP
1201 Wills Street, Suite 310
Baltimore, Maryland 21231
Investor Relations
investors@tenable.com