Tenable Holdings Inc

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 2023 we reserved an additional 5.7 million shares of our common stock. At December 31, 2023, there were 23.4 million shares available for grant.

Stock-based compensation expense included in the consolidated statements of operations was as follows:

At December 31, 2023, the unrecognized stock-based compensation expense related to unvested RSUs was $275.7 million, which is expected to be recognized over an estimated weighted average remaining period of 2.7 years.

At December 31, 2023, the unrecognized stock-based compensation expense related to unvested PSUs was $4.8 million, which is expected to be recognized over an estimated remaining weighted average period of 2.8 years.

At December 31, 2023, the unrecognized stock-based compensation expense related to unvested restricted share awards was $12.8 million, which is expected to be recognized over an estimated remaining period of 2.3 years.

At December 31, 2023, the unrecognized stock-based compensation expense related to our 2018 ESPP was $4.9 million, which is expected to be recognized over an estimated weighted average period of 0.6 years.

Restricted Stock, RSUs and PSUs

A summary of our restricted stock, RSU and PSU activity is presented below:

(1) Represents adjustments due to the achievement of predefined financial performance targets.

As part of the acquisition of Ermetic we issued replacement equity awards, of which $0.5 million was attributable to services performed prior to the acquisition date and allocated to purchase consideration. The remaining fair value was allocated to future services and will be expensed over the remaining service periods as stock-based compensation.

Stock Options

A summary of our stock option activity is presented below:

At December 31, 2023, there were 5.1 million stock options outstanding that were vested and expected to vest.

Stock options were last granted in 2018. Stock options granted under our stock incentive plans have a maximum term often years, generally vest over a period ofthree tofour years, and the exercise price cannot be less than the fair market value on the date of grant.

Estimating the fair value of 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. We use the market price of our common stock at the date of grant.

Expected Term. We use the actual purchase periods as the expected term in the 2018 ESPP.

Expected Volatility. Volatility is a measure of the amount by which a financial variable, such as a share price, has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. 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-Free Interest Rate. This is the U.S. Treasury rate, having a term that most closely resembles the expected life of the stock option.

Expected Dividend Yield. We have never declared or paid dividends and have no plans to do so in the foreseeable future.

2018 Employee Stock Purchase Plan

In 2018, our Board of Directors adopted, and our stockholders approved our 2018 ESPP. Under the evergreen provision, in January 2023 we reserved an additional 1.7 million shares of our common stock for issuance. At December 31, 2023, there were 8.7 million shares reserved for issuance under the 2018 ESPP.

Under our 2018 ESPP, employees may set aside up to 15% of their gross earnings, on an after-tax basis, to purchase our common stock at a discounted price, which is calculated at 85% of the lower of the fair market value of our common stock on the first day of an offering or on the date of purchase. The 2018 ESPP permits offerings up to 27 months in duration, with one or more purchase periods in each offering. Additionally, in cases where the fair market value of a share of our common stock on the first day of a new purchase period within an offering is less than or equal to the fair market value of a share of our common stock at the beginning of the offering, that offering will be terminated and participants will be automatically enrolled in a new offering with a new 24-month duration and purchase periods everysix months.

In 2023, employees purchased 506,390 shares of our common stock at a weighted average price of $32.04 per share, resulting in $16.2 million of cash proceeds.

In 2022, employees purchased 442,629 shares of our common stock at a weighted average price of $33.42 per share resulting in $14.8 million of cash proceeds.

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.

At December 31, 2023 and 2022 there were $7.9 million and $6.8 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 or modification dates using a Black-Scholes option-pricing model and the following assumptions: