0001725579false2020FYP1Y0.0258023P3YP1YP2Y00017255792020-01-012020-12-31iso4217:USD00017255792020-06-30xbrli:shares0001725579us-gaap:CommonStockMember2021-02-110001725579us-gaap:CommonClassAMember2021-02-110001725579us-gaap:CommonClassBMember2021-02-110001725579us-gaap:CommonClassCMember2021-02-1100017255792020-12-3100017255792019-12-31iso4217:USDxbrli:shares0001725579us-gaap:CommonClassAMember2020-12-310001725579us-gaap:CommonClassAMember2019-12-310001725579us-gaap:CommonClassBMember2019-12-310001725579us-gaap:CommonClassBMember2020-12-310001725579us-gaap:CommonClassCMember2019-12-310001725579us-gaap:CommonClassCMember2020-12-3100017255792019-01-012019-12-3100017255792018-01-012018-12-3100017255792017-12-310001725579us-gaap:MemberUnitsMember2017-12-310001725579us-gaap:CommonStockMemberus-gaap:CommonClassAMember2017-12-310001725579us-gaap:CommonClassBMemberus-gaap:CommonStockMember2017-12-310001725579us-gaap:CommonClassCMemberus-gaap:CommonStockMember2017-12-310001725579us-gaap:AdditionalPaidInCapitalMember2017-12-310001725579us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2017-12-310001725579us-gaap:RetainedEarningsMember2017-12-310001725579us-gaap:NoncontrollingInterestMember2017-12-310001725579us-gaap:MemberUnitsMember2018-01-012018-05-1500017255792018-01-012018-05-150001725579us-gaap:RetainedEarningsMember2018-01-012018-05-150001725579us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2018-01-012018-05-1500017255792018-05-162018-12-310001725579us-gaap:MemberUnitsMember2018-05-162018-12-310001725579us-gaap:CommonStockMemberus-gaap:CommonClassAMember2018-05-162018-12-310001725579us-gaap:CommonClassBMemberus-gaap:CommonStockMember2018-05-162018-12-310001725579us-gaap:CommonClassCMemberus-gaap:CommonStockMember2018-05-162018-12-310001725579us-gaap:AdditionalPaidInCapitalMember2018-05-162018-12-310001725579us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2018-05-162018-12-310001725579us-gaap:RetainedEarningsMember2018-05-162018-12-310001725579us-gaap:NoncontrollingInterestMember2018-05-162018-12-3100017255792018-12-310001725579us-gaap:MemberUnitsMember2018-12-310001725579us-gaap:CommonStockMemberus-gaap:CommonClassAMember2018-12-310001725579us-gaap:CommonClassBMemberus-gaap:CommonStockMember2018-12-310001725579us-gaap:CommonClassCMemberus-gaap:CommonStockMember2018-12-310001725579us-gaap:AdditionalPaidInCapitalMember2018-12-310001725579us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2018-12-310001725579us-gaap:RetainedEarningsMember2018-12-310001725579us-gaap:NoncontrollingInterestMember2018-12-310001725579us-gaap:RetainedEarningsMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2018-12-310001725579us-gaap:NoncontrollingInterestMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2018-12-310001725579srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2018-12-310001725579us-gaap:CommonStockMemberus-gaap:CommonClassAMember2019-01-012019-12-310001725579us-gaap:CommonClassBMemberus-gaap:CommonStockMember2019-01-012019-12-310001725579us-gaap:CommonClassCMemberus-gaap:CommonStockMember2019-01-012019-12-310001725579us-gaap:AdditionalPaidInCapitalMember2019-01-012019-12-310001725579us-gaap:NoncontrollingInterestMember2019-01-012019-12-310001725579us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2019-01-012019-12-310001725579us-gaap:RetainedEarningsMember2019-01-012019-12-310001725579us-gaap:MemberUnitsMember2019-12-310001725579us-gaap:CommonStockMemberus-gaap:CommonClassAMember2019-12-310001725579us-gaap:CommonClassBMemberus-gaap:CommonStockMember2019-12-310001725579us-gaap:CommonClassCMemberus-gaap:CommonStockMember2019-12-310001725579us-gaap:AdditionalPaidInCapitalMember2019-12-310001725579us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2019-12-310001725579us-gaap:RetainedEarningsMember2019-12-310001725579us-gaap:NoncontrollingInterestMember2019-12-310001725579us-gaap:CommonStockMemberus-gaap:CommonClassAMember2020-01-012020-12-310001725579us-gaap:CommonClassBMemberus-gaap:CommonStockMember2020-01-012020-12-310001725579us-gaap:CommonClassCMemberus-gaap:CommonStockMember2020-01-012020-12-310001725579us-gaap:AdditionalPaidInCapitalMember2020-01-012020-12-310001725579us-gaap:NoncontrollingInterestMember2020-01-012020-12-310001725579us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-01-012020-12-310001725579us-gaap:RetainedEarningsMember2020-01-012020-12-310001725579us-gaap:MemberUnitsMember2020-12-310001725579us-gaap:CommonStockMemberus-gaap:CommonClassAMember2020-12-310001725579us-gaap:CommonClassBMemberus-gaap:CommonStockMember2020-12-310001725579us-gaap:CommonClassCMemberus-gaap:CommonStockMember2020-12-310001725579us-gaap:AdditionalPaidInCapitalMember2020-12-310001725579us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2020-12-310001725579us-gaap:RetainedEarningsMember2020-12-310001725579us-gaap:NoncontrollingInterestMember2020-12-310001725579us-gaap:IPOMember2018-05-162018-05-160001725579us-gaap:IPOMember2018-05-16ps:class0001725579us-gaap:CommonStockMember2020-01-012020-12-310001725579us-gaap:PreferredStockMember2020-01-012020-12-31xbrli:pure0001725579ps:LLCUnitsConvertedIntoClassBAndClassCCommonStockMember2020-01-012020-12-310001725579ps:PluralsightInc.Memberps:PluralsightHoldingsMember2020-01-012020-12-310001725579ps:ContinuingMembersMemberps:PluralsightHoldingsMember2020-01-012020-12-310001725579ps:SecondaryOfferingMember2020-06-012020-06-300001725579ps:SecondaryOfferingMember2020-06-300001725579us-gaap:CommonClassAMember2020-12-112020-12-110001725579us-gaap:CommonClassBMember2020-12-112020-12-110001725579us-gaap:ComputerEquipmentMembersrt:MinimumMember2020-01-012020-12-310001725579us-gaap:ComputerEquipmentMembersrt:MaximumMember2020-01-012020-12-310001725579ps:SoftwareMembersrt:MinimumMember2020-01-012020-12-310001725579ps:SoftwareMembersrt:MaximumMember2020-01-012020-12-310001725579us-gaap:SoftwareDevelopmentMembersrt:MinimumMember2020-01-012020-12-310001725579us-gaap:SoftwareDevelopmentMembersrt:MaximumMember2020-01-012020-12-310001725579srt:MinimumMemberus-gaap:FurnitureAndFixturesMember2020-01-012020-12-310001725579us-gaap:FurnitureAndFixturesMembersrt:MaximumMember2020-01-012020-12-310001725579ps:ContentLibraryMember2020-01-012020-12-310001725579srt:MinimumMember2020-01-012020-12-310001725579srt:MaximumMember2020-01-012020-12-310001725579ps:CapitalizedInternalUseSoftwareCostsMembersrt:MinimumMember2020-01-012020-12-310001725579ps:CapitalizedInternalUseSoftwareCostsMembersrt:MaximumMember2020-01-012020-12-3100017255792018-11-012018-11-300001725579ps:SubscriptionAccountsMemberus-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2020-01-012020-12-310001725579ps:SubscriptionAccountsMemberus-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2019-01-012019-12-310001725579country:US2020-01-012020-12-310001725579country:USus-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2020-01-012020-12-310001725579country:US2019-01-012019-12-310001725579country:USus-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2019-01-012019-12-310001725579country:US2018-01-012018-12-310001725579country:USus-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2018-01-012018-12-310001725579us-gaap:EMEAMember2020-01-012020-12-310001725579us-gaap:EMEAMemberus-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2020-01-012020-12-310001725579us-gaap:EMEAMember2019-01-012019-12-310001725579us-gaap:EMEAMemberus-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2019-01-012019-12-310001725579us-gaap:EMEAMember2018-01-012018-12-310001725579us-gaap:EMEAMemberus-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2018-01-012018-12-310001725579ps:OtherForeignLocationsMember2020-01-012020-12-310001725579ps:OtherForeignLocationsMemberus-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2020-01-012020-12-310001725579ps:OtherForeignLocationsMember2019-01-012019-12-310001725579ps:OtherForeignLocationsMemberus-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2019-01-012019-12-310001725579ps:OtherForeignLocationsMember2018-01-012018-12-310001725579ps:OtherForeignLocationsMemberus-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2018-01-012018-12-310001725579us-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2020-01-012020-12-310001725579us-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2019-01-012019-12-310001725579us-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2018-01-012018-12-310001725579country:GB2020-01-012020-12-310001725579country:GB2019-01-012019-12-310001725579country:GB2018-01-012018-12-310001725579ps:BusinessCustomersMember2020-01-012020-12-310001725579ps:BusinessCustomersMember2019-01-012019-12-310001725579ps:IndividualCustomersMember2020-01-012020-12-310001725579ps:IndividualCustomersMember2019-01-012019-12-310001725579ps:DevelopIntelligenceLLCMember2020-12-3100017255792021-01-012020-12-310001725579us-gaap:CashAndCashEquivalentsMemberus-gaap:MoneyMarketFundsMember2020-12-310001725579us-gaap:CommercialPaperMemberus-gaap:ShortTermInvestmentsMember2020-12-310001725579us-gaap:ShortTermInvestmentsMemberus-gaap:USTreasurySecuritiesMember2020-12-310001725579us-gaap:CorporateDebtSecuritiesMemberus-gaap:ShortTermInvestmentsMember2020-12-310001725579us-gaap:ShortTermInvestmentsMemberus-gaap:ForeignGovernmentDebtSecuritiesMember2020-12-310001725579us-gaap:CertificatesOfDepositMemberus-gaap:ShortTermInvestmentsMember2020-12-310001725579us-gaap:ShortTermInvestmentsMember2020-12-310001725579ps:RestrictedCashEquivalentsMemberus-gaap:MoneyMarketFundsMember2020-12-310001725579ps:LongTermInvestmentsMemberus-gaap:CorporateDebtSecuritiesMember2020-12-310001725579us-gaap:CashAndCashEquivalentsMemberus-gaap:MoneyMarketFundsMember2019-12-310001725579us-gaap:CommercialPaperMemberus-gaap:CashAndCashEquivalentsMember2019-12-310001725579us-gaap:CashAndCashEquivalentsMember2019-12-310001725579us-gaap:CommercialPaperMemberus-gaap:ShortTermInvestmentsMember2019-12-310001725579us-gaap:ShortTermInvestmentsMemberus-gaap:USTreasurySecuritiesMember2019-12-310001725579us-gaap:CorporateDebtSecuritiesMemberus-gaap:ShortTermInvestmentsMember2019-12-310001725579us-gaap:ShortTermInvestmentsMember2019-12-310001725579ps:RestrictedCashEquivalentsMemberus-gaap:MoneyMarketFundsMember2019-12-310001725579ps:LongTermInvestmentsMemberus-gaap:CorporateDebtSecuritiesMember2019-12-310001725579us-gaap:USGovernmentAgenciesDebtSecuritiesMemberps:LongTermInvestmentsMember2019-12-310001725579us-gaap:CertificatesOfDepositMemberps:LongTermInvestmentsMember2019-12-310001725579ps:LongTermInvestmentsMember2019-12-310001725579us-gaap:InvestmentsMember2020-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:MoneyMarketFundsMember2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2020-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001725579us-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-12-310001725579us-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001725579us-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:USTreasurySecuritiesMember2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2020-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMember2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:ForeignGovernmentDebtSecuritiesMember2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:ForeignGovernmentDebtSecuritiesMember2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMember2020-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001725579us-gaap:CertificatesOfDepositMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-12-310001725579us-gaap:CertificatesOfDepositMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001725579us-gaap:CertificatesOfDepositMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001725579us-gaap:FairValueMeasurementsRecurringMember2020-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2019-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:MoneyMarketFundsMember2019-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2019-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2019-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001725579us-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2019-12-310001725579us-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2019-12-310001725579us-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2019-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2019-12-310001725579us-gaap:FairValueMeasurementsRecurringMember2019-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2019-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2019-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:USTreasurySecuritiesMember2019-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2019-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2019-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2019-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2019-12-310001725579us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2019-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001725579us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2019-12-310001725579us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2019-12-310001725579us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001725579us-gaap:FairValueInputsLevel1Memberus-gaap:CertificatesOfDepositMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001725579us-gaap:CertificatesOfDepositMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2019-12-310001725579us-gaap:CertificatesOfDepositMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2019-12-310001725579us-gaap:CertificatesOfDepositMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001725579us-gaap:ConvertibleDebtMemberps:SeniorNotesDueIn2024Member2020-12-310001725579us-gaap:FairValueInputsLevel2Member2020-12-310001725579us-gaap:ComputerEquipmentMember2020-12-310001725579us-gaap:ComputerEquipmentMember2019-12-310001725579ps:SoftwareMember2020-12-310001725579ps:SoftwareMember2019-12-310001725579us-gaap:SoftwareDevelopmentMember2020-12-310001725579us-gaap:SoftwareDevelopmentMember2019-12-310001725579us-gaap:FurnitureAndFixturesMember2020-12-310001725579us-gaap:FurnitureAndFixturesMember2019-12-310001725579us-gaap:LeaseholdImprovementsMember2020-12-310001725579us-gaap:LeaseholdImprovementsMember2019-12-310001725579us-gaap:ConstructionInProgressMember2020-12-310001725579us-gaap:ConstructionInProgressMember2019-12-310001725579ps:DevelopIntelligenceLLCMember2020-10-092020-10-090001725579ps:DevelopIntelligenceLLCMember2020-10-090001725579us-gaap:DevelopedTechnologyRightsMemberps:DevelopIntelligenceLLCMember2020-10-092020-10-090001725579us-gaap:CustomerRelationshipsMemberps:DevelopIntelligenceLLCMember2020-10-092020-10-090001725579us-gaap:TrademarksMemberps:DevelopIntelligenceLLCMember2020-10-092020-10-090001725579ps:DevelopIntelligenceLLCMember2020-01-012020-12-310001725579ps:GitPrimeInc.Member2019-05-092019-05-090001725579ps:GitPrimeInc.Member2019-05-090001725579us-gaap:DevelopedTechnologyRightsMemberps:GitPrimeInc.Member2019-05-092019-05-090001725579ps:GitPrimeInc.Memberus-gaap:CustomerRelationshipsMember2019-05-092019-05-090001725579ps:GitPrimeInc.Member2019-01-012019-12-310001725579ps:GitPrimeInc.Member2019-12-310001725579ps:GitPrimeInc.Member2020-01-012020-12-310001725579ps:GitPrimeInc.Member2018-01-012018-12-310001725579ps:AcquiredContentLibraryMember2020-01-012020-12-310001725579ps:AcquiredContentLibraryMember2020-12-310001725579ps:CourseCreationCostsMember2020-01-012020-12-310001725579ps:CourseCreationCostsMember2020-12-310001725579ps:ContentLibraryMember2020-12-310001725579us-gaap:DevelopedTechnologyRightsMember2020-01-012020-12-310001725579us-gaap:DevelopedTechnologyRightsMember2020-12-310001725579us-gaap:TrademarksMember2020-01-012020-12-310001725579us-gaap:TrademarksMember2020-12-310001725579us-gaap:NoncompeteAgreementsMember2020-12-310001725579us-gaap:CustomerRelationshipsMember2020-01-012020-12-310001725579us-gaap:CustomerRelationshipsMember2020-12-310001725579us-gaap:InternetDomainNamesMember2020-12-310001725579us-gaap:OtherIntangibleAssetsMember2020-12-310001725579ps:AcquiredContentLibraryMember2019-01-012019-12-310001725579ps:AcquiredContentLibraryMember2019-12-310001725579ps:CourseCreationCostsMember2019-01-012019-12-310001725579ps:CourseCreationCostsMember2019-12-310001725579ps:ContentLibraryMember2019-12-310001725579us-gaap:DevelopedTechnologyRightsMember2019-01-012019-12-310001725579us-gaap:DevelopedTechnologyRightsMember2019-12-310001725579us-gaap:TrademarksMember2019-12-310001725579us-gaap:NoncompeteAgreementsMember2019-12-310001725579us-gaap:CustomerRelationshipsMember2019-12-310001725579us-gaap:DatabasesMember2019-12-310001725579us-gaap:InternetDomainNamesMember2019-12-310001725579us-gaap:OtherIntangibleAssetsMember2019-12-310001725579us-gaap:OtherIntangibleAssetsMember2020-01-012020-12-310001725579us-gaap:OtherIntangibleAssetsMember2019-01-012019-12-310001725579us-gaap:OtherIntangibleAssetsMember2018-01-012018-12-310001725579ps:CourseCreationCostsMember2018-01-012018-12-310001725579us-gaap:ConvertibleDebtMemberps:SeniorNotesDueIn2024Member2019-03-310001725579us-gaap:ConvertibleDebtMemberps:SeniorNotesDueIn2024Member2019-03-012019-03-310001725579us-gaap:ConvertibleDebtMemberus-gaap:CommonStockMemberps:SeniorNotesDueIn2024Memberus-gaap:CommonClassAMember2019-03-310001725579us-gaap:DebtInstrumentRedemptionPeriodOneMemberus-gaap:ConvertibleDebtMemberps:SeniorNotesDueIn2024Member2019-03-012019-03-31ps:day0001725579us-gaap:ConvertibleDebtMembersrt:MinimumMemberps:ConversionInstance130Memberps:SeniorNotesDueIn2024Member2019-03-012019-03-310001725579us-gaap:ConvertibleDebtMemberps:ConversionInstance130Memberps:SeniorNotesDueIn2024Member2019-03-012019-03-310001725579us-gaap:ConvertibleDebtMembersrt:MinimumMemberps:ConversionInstance98Memberps:SeniorNotesDueIn2024Member2019-03-012019-03-310001725579us-gaap:ConvertibleDebtMemberps:ConversionInstance98Memberps:SeniorNotesDueIn2024Membersrt:MaximumMember2019-03-012019-03-310001725579us-gaap:ConvertibleDebtMemberps:SeniorNotesDueIn2024Member2020-09-300001725579us-gaap:ConvertibleDebtMemberps:SeniorNotesDueIn2024Member2019-09-012019-09-300001725579us-gaap:ConvertibleDebtMemberps:SeniorNotesDueIn2024Member2019-12-310001725579us-gaap:ConvertibleDebtMemberps:SeniorNotesDueIn2024Member2020-01-012020-12-310001725579us-gaap:ConvertibleDebtMemberps:SeniorNotesDueIn2024Member2019-01-012019-12-310001725579ps:SeniorNotesDueIn2024Member2019-03-310001725579ps:SeniorNotesDueIn2024Member2019-03-012019-03-3100017255792019-03-012019-03-310001725579us-gaap:ConvertibleDebtMemberus-gaap:CommonStockMemberps:SeniorNotesDueIn2024Memberus-gaap:CommonClassAMember2019-03-012019-03-310001725579srt:MinimumMember2020-12-310001725579srt:MaximumMember2020-12-310001725579ps:DraperUtahOfficeSpace2018Member2018-08-310001725579ps:DraperUtahOfficeSpace2018Member2020-12-31ps:extension0001725579ps:DraperUtahOfficeSpace2018Member2020-01-012020-12-310001725579us-gaap:LetterOfCreditMember2020-12-310001725579us-gaap:LetterOfCreditMember2019-12-310001725579us-gaap:CommonClassAMember2018-05-160001725579us-gaap:CommonClassBMember2018-05-160001725579us-gaap:CommonClassCMember2018-05-1600017255792018-05-1600017255792018-05-162018-05-16ps:vote0001725579us-gaap:CommonClassAMember2018-05-162018-05-160001725579us-gaap:CommonClassBMember2018-05-162018-05-160001725579us-gaap:CommonClassCMember2018-05-162018-05-160001725579ps:LLCUnitsConvertedIntoClassBAndClassCCommonStockMember2018-05-162018-05-160001725579ps:RequiredLLCUnitRatioForEachShareOfClassACommonStockIssuedMember2018-05-162018-05-160001725579ps:CommonUnitsOfPluralsightHoldingsConvertedIntoLLCUnitsMember2018-05-162018-05-160001725579ps:RedeemableConvertiblePreferredUnitsConvertedIntoLLCUnitsMember2018-05-162018-05-160001725579ps:IncentiveUnitsOfPluralsightHoldingsConvertedIntoLLCUnitsMember2018-05-162018-05-160001725579ps:ClassBIncentiveUnitsOfPluralsightHoldingsConvertedIntoLLCUnitsMember2018-05-162018-05-160001725579ps:LLCUnitsExchangedForSharesOfClassACommonStockMember2018-05-162018-05-160001725579us-gaap:CommonClassBMemberps:LLCUnitsConvertedIntoClassBAndClassCCommonStockMember2018-05-162018-05-160001725579ps:LLCUnitsConvertedIntoClassBAndClassCCommonStockMemberus-gaap:CommonClassCMember2018-05-162018-05-160001725579us-gaap:CommonClassAMember2018-09-300001725579ps:LLCIncentiveUnitsMember2018-09-300001725579us-gaap:CommonClassBMember2018-09-300001725579us-gaap:CommonClassCMember2018-09-300001725579ps:SecondaryOfferingMember2019-03-012019-03-310001725579ps:SecondaryOfferingMember2019-03-310001725579us-gaap:CommonStockMemberus-gaap:CommonClassAMember2018-01-012018-12-310001725579ps:ClassACommonStockWarrantsMemberps:February2018GuggenheimAmendmentMember2018-02-280001725579ps:ClassACommonStockWarrantsMemberps:February2018GuggenheimAmendmentMember2018-10-012018-10-310001725579ps:PluralsightInc.Memberps:PluralsightHoldingsMember2020-12-310001725579ps:PluralsightInc.Memberps:PluralsightHoldingsMember2019-12-310001725579ps:PluralsightInc.Memberps:PluralsightHoldingsMember2019-01-012019-12-310001725579ps:ContinuingMembersMemberps:PluralsightHoldingsMember2020-12-310001725579ps:ContinuingMembersMemberps:PluralsightHoldingsMember2019-12-310001725579ps:ContinuingMembersMemberps:PluralsightHoldingsMember2019-01-012019-12-310001725579ps:PluralsightHoldingsMember2020-12-310001725579ps:PluralsightHoldingsMember2020-01-012020-12-310001725579ps:PluralsightHoldingsMember2019-12-310001725579ps:PluralsightHoldingsMember2019-01-012019-12-310001725579ps:PluralsightHoldingsMemberps:LLCIncentiveUnitsMember2020-12-310001725579ps:PluralsightHoldingsMemberps:LLCIncentiveUnitsMember2019-12-310001725579ps:A2018EquityIncentivePlanMemberus-gaap:StockCompensationPlanMember2018-05-160001725579ps:A2018EquityIncentivePlanMemberus-gaap:StockCompensationPlanMember2018-05-162018-05-160001725579ps:A2018EquityIncentivePlanMemberus-gaap:StockCompensationPlanMember2020-12-310001725579us-gaap:EmployeeStockOptionMember2020-01-012020-12-310001725579ps:GitPrimeInc.Membersrt:MinimumMemberus-gaap:EmployeeStockOptionMember2020-01-012020-12-310001725579ps:GitPrimeInc.Memberus-gaap:EmployeeStockOptionMembersrt:MaximumMember2020-01-012020-12-310001725579us-gaap:EmployeeStockOptionMember2019-01-012019-12-310001725579srt:MinimumMemberus-gaap:EmployeeStockOptionMember2019-01-012019-12-310001725579us-gaap:EmployeeStockOptionMembersrt:MaximumMember2019-01-012019-12-310001725579us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-12-310001725579us-gaap:ShareBasedCompensationAwardTrancheOneMemberus-gaap:RestrictedStockUnitsRSUMember2020-01-012020-12-310001725579srt:ParentCompanyMemberus-gaap:RestrictedStockUnitsRSUMember2019-12-310001725579srt:ParentCompanyMemberus-gaap:RestrictedStockUnitsRSUMember2020-01-012020-12-310001725579srt:ParentCompanyMemberus-gaap:RestrictedStockUnitsRSUMember2020-12-310001725579us-gaap:RestrictedStockUnitsRSUMembersrt:SubsidiariesMember2019-12-310001725579us-gaap:RestrictedStockUnitsRSUMembersrt:SubsidiariesMember2020-01-012020-12-310001725579us-gaap:RestrictedStockUnitsRSUMembersrt:SubsidiariesMember2020-12-310001725579us-gaap:RestrictedStockUnitsRSUMember2019-01-012019-12-310001725579srt:ParentCompanyMemberus-gaap:RestrictedStockUnitsRSUMember2019-01-012019-12-310001725579srt:ParentCompanyMemberus-gaap:RestrictedStockUnitsRSUMember2018-01-012018-12-310001725579us-gaap:RestrictedStockUnitsRSUMember2020-12-3100017255792020-05-012020-05-310001725579us-gaap:EmployeeStockMember2018-05-310001725579us-gaap:EmployeeStockMember2018-05-012018-05-310001725579us-gaap:EmployeeStockMember2020-12-310001725579us-gaap:EmployeeStockMember2020-01-012020-12-31ps:period0001725579us-gaap:EmployeeStockMember2019-01-012019-12-310001725579srt:MinimumMemberus-gaap:EmployeeStockMember2019-01-012019-12-310001725579srt:MinimumMemberus-gaap:EmployeeStockMember2020-01-012020-12-310001725579srt:MaximumMemberus-gaap:EmployeeStockMember2019-01-012019-12-310001725579srt:MaximumMemberus-gaap:EmployeeStockMember2020-01-012020-12-310001725579ps:LLCIncentiveUnitsMember2019-12-310001725579ps:LLCIncentiveUnitsMember2020-01-012020-12-310001725579ps:LLCIncentiveUnitsMember2020-12-310001725579ps:LLCIncentiveUnitsMember2019-01-012019-12-310001725579ps:LLCIncentiveUnitsMember2018-01-012018-12-310001725579ps:LLCIncentiveUnitsMember2019-08-012019-08-310001725579us-gaap:CostOfSalesMember2020-01-012020-12-310001725579us-gaap:CostOfSalesMember2019-01-012019-12-310001725579us-gaap:CostOfSalesMember2018-01-012018-12-310001725579us-gaap:SellingAndMarketingExpenseMember2020-01-012020-12-310001725579us-gaap:SellingAndMarketingExpenseMember2019-01-012019-12-310001725579us-gaap:SellingAndMarketingExpenseMember2018-01-012018-12-310001725579ps:TechnologyAndContentMember2020-01-012020-12-310001725579ps:TechnologyAndContentMember2019-01-012019-12-310001725579ps:TechnologyAndContentMember2018-01-012018-12-310001725579us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-12-310001725579us-gaap:GeneralAndAdministrativeExpenseMember2019-01-012019-12-310001725579us-gaap:GeneralAndAdministrativeExpenseMember2018-01-012018-12-310001725579us-gaap:DomesticCountryMember2020-12-310001725579us-gaap:StateAndLocalJurisdictionMember2020-12-310001725579us-gaap:ResearchMemberus-gaap:DomesticCountryMember2020-12-310001725579us-gaap:ResearchMemberus-gaap:StateAndLocalJurisdictionMember2020-12-310001725579ps:MergerAgreementMember2020-12-110001725579ps:ExchangeOfCommonSharesMember2020-01-012020-12-310001725579us-gaap:EmployeeStockOptionMember2020-01-012020-12-310001725579us-gaap:RestrictedStockUnitsRSUMembersrt:ParentCompanyMember2020-01-012020-12-310001725579us-gaap:RestrictedStockUnitsRSUMemberps:PluralsightHoldingsMember2020-01-012020-12-310001725579us-gaap:EmployeeStockMember2020-01-012020-12-310001725579srt:ChiefExecutiveOfficerMember2020-01-012020-12-3100017255792019-01-012019-03-3100017255792019-04-012019-06-3000017255792019-07-012019-09-3000017255792019-10-012019-12-3100017255792020-01-012020-03-3100017255792020-04-012020-06-3000017255792020-07-012020-09-3000017255792020-10-012020-12-310001725579us-gaap:SubsequentEventMemberps:NextTechMember2021-01-012021-01-310001725579us-gaap:SubsequentEventMemberus-gaap:RestrictedStockUnitsRSUMemberps:NextTechMember2021-01-31
Item 1A. Risk Factors
Summary of Risk Factors
Investing in our common stock involves a high degree of risk because our business is subject to numerous risks and uncertainties, as described below. The principal factors and uncertainties that make investing in our Class A common stock risky include, among others:
•We face risks relating to the proposed Mergers with Vista.
•If our business customers do not expand their use of our platform beyond their current organizational engagements or renew their existing contracts with us, our ability to grow our business and improve our results of operations may be adversely affected.
•Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our platform.
•If we do not expand our course library effectively or develop new platform features that respond to constantly evolving technologies and the needs of our customers, our business and results of operations could be adversely affected.
•If we are unable to mitigate the risks associated with serving our business customers, while increasing sales of our platform subscriptions to these customers, our business, financial condition, and results of operations could suffer.
•Market adoption of cloud-based learning solutions is new and unproven and may not grow as we expect, which may harm our business and results of operations, and even if market demand increases, the demand for our platform may not increase.
•The market in which we participate is competitive, and if we do not compete effectively, our results of operations could be harmed.
•Our future performance partly depends on attracting and retaining authors and producing content that addresses our customers’ needs.
•Our quarterly and annual results of operations may be difficult to predict because they may vary significantly, and if we fail to meet the expectations of investors or securities analysts, our stock price could decline.
•The impact of the COVID-19 pandemic has affected and may continue to materially adversely affect our stock price, business operations, and overall financial performance.
•Our principal asset is our interest in Pluralsight Holdings, and we are dependent upon Pluralsight Holdings and its consolidated subsidiaries for our results of operations, cash flows, and distributions, since we have no means to independently generate them.
•Our ability to pay taxes and expenses, including payments under the Tax Receivable Agreement, or TRA, may be limited by our structure.
•We will be required to pay the TRA Members for certain tax benefits we may claim, and we expect that the payments we will be required to make will be substantial.
•The multi-class structure of our common stock has the effect of concentrating voting control with Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman; which limits or precludes your influence as a stockholder on corporate matters and may have a negative impact on the price of our Class A common stock.
Risks Related to Our Business and Our Industry
The impact of the COVID-19 pandemic has affected and may continue to materially adversely affect our stock price, business operations, and overall financial performance.
Since December 2019, when COVID-19 was first reported in China, it has spread globally and the WHO declared it as a pandemic in March 2020. This pandemic has and may continue to adversely affect worldwide economic activity, business operations, and financial markets. The duration and magnitude of the extent to which the COVID-19 pandemic continues to impact our stock price, business operations, and overall financial performance is unknown at this time and will depend on certain developments, some of which are uncertain and not within our control, including the span and spread of the outbreak; the severity and transmission rate of the virus and emergence of new strains; the measures implemented or suggested by governing bodies, such as cities, counties, states, countries, and the WHO, to slow the spread of COVID-19 (for example, the closure of businesses deemed “non-essential;” social distancing; international border closures; and travel restrictions); the extent and effectiveness of containment actions, including vaccines and their distribution; the effect on our vendors, customers, and community; the global economy and political conditions; the impact of changes to domestic and foreign legislative and tax policy in response to the COVID-19 pandemic; the health of our employees, contractors, and their families; the duration of the global COVID-19-driven recession; the rate at which vaccines are distributed and administered broadly; how quickly and to what extent normal economic and operating activities can resume; and other factors that are not predictable. Even after the COVID-19 pandemic has subsided, we may continue experiencing adverse effects to our business as a result of its global economic impact, including the global recession . If we are not able to sufficiently manage and effectively respond to the ongoing impact of the COVID-19 outbreak, our business will be harmed.
Since March 2020 we have taken precautionary measures and made operational modifications to protect our employees, contractors, and their families, including: converting customer events, such as Pluralsight LIVE, to virtual-only experiences; temporarily closing our offices and implementing a mandatory worldwide work-from-home policy; limiting all employee travel; reducing discretionary spending; and limiting the hiring of additional personnel. In addition, we may deem it advisable to alter, postpone, convert to virtual-only or cancel entirely future in-person customer, employee, or industry events. Such restrictions may hinder our ability to interact with our prospective and existing customers in-person and host conferences and events in-person, which has and may continue to impact sales of our products and services, decrease customer satisfaction and the effectiveness of our support activities, extend sales cycles and increase attrition rates. We actively monitor COVID-19-related developments and may take further actions that alter our business operations as may be required by local, state or federal authorities or that we determine are in the best interests of our personnel, customers, vendors and stockholders. The extent these measures will negatively affect our sales and marketing efforts, sales cycles, personnel productivity, or customer retention, any of which could harm our financial performance and business operations, is indeterminable at this time.
Technology spending by our customers or prospective customers has been and may continue to be impacted by conditions presented by the COVID-19 pandemic, including the global recession. These conditions have caused and may continue to cause them to reduce or delay their purchasing decisions, limit their ability to purchase our offerings, reduce their ability to provide payment under existing contracts, prolong payment periods, decrease our customer retention, or delay our ability to provision our products and services, all of which could adversely affect our results of operations, future sales, and overall financial performance. For example, we experienced a decrease in our dollar-based net retention rate during 2020, in part due to the impact of COVID-19, and because we calculate that metric on a twelve-month trailing period, we expect that the impact of COVID-19 on our business in 2020 may also effect our dollar-based net retention rate in future quarters.
The conditions presented by the COVID-19 pandemic may affect provisioning of goods and services by our suppliers and vendors, including Amazon Web Services and internet service providers. For example, the COVID-19 pandemic could cause some of our third-party providers to shut down their business, experience security incidents that impact our business, delay performance or delivery of goods and services, or experience interference with the supply chain of hardware required by their systems and services, any of which could materially adversely affect our business. In addition, the COVID-19 pandemic has resulted in more personnel working from home and conducting
work via the internet and if the network and infrastructure of internet providers becomes overburdened by increased usage or is otherwise unreliable or unavailable, our personnel’s access to the internet to conduct business could be negatively impacted. Limitations on access or disruptions to services or goods provided by or to some of our suppliers and vendors upon which our platform and business operations relies, could interrupt our ability to provide our offerings, decrease the productivity of our workforce, and significantly harm our business operations, financial performance and results of operations.
Moreover, the increase in remote working may also result in privacy, data protection, data security, and fraud risks, and our understanding of applicable legal and regulatory requirements, as well as the latest guidance from regulatory authorities in connection with the COVID-19 pandemic may be subject to legal or regulatory challenge. Our platform and the other systems or networks used in our business have experienced and may continue experiencing an increase in attempted cyber-attacks, targeted intrusion, ransomware, and phishing campaigns seeking to take advantage of shifts to personnel working remotely using their household or personal internet networks and leverage fears promulgated by the COVID-19 pandemic. We may incur increased expenses to limit these risks. The success of any of these unauthorized attempts could substantially impact our platform, the proprietary and other confidential data contained therein or otherwise stored or processed in our operations, and ultimately on our business. Any actual or perceived security incident also may cause us to incur increased expenses to improve our security controls and to remediate security vulnerabilities. Although we retain errors and omissions insurance coverage for certain security and privacy damages and claim expenses, this coverage may be insufficient to compensate us for all liabilities that we may incur as a result of any actual or potential security breach, and we cannot be certain that insurance coverage will continue to be available to us on economically reasonable terms, or at all, or that an insurer will not deny coverage as to any future claim. One or more claims that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
In the event a significant number of our employees, authors, or members of our key personnel become unavailable due to the COVID-19 pandemic, our business could be harmed, employee morale and cohesion could suffer, and our financial performance could be materially negatively impacted. Further, preservation of our company culture, efforts to collaborate, and the productivity of personnel could be compromised by the physical distance and lack of in-person interaction created by social distancing, travel restrictions, our global work-from-home mandate, and other measures responsive to the COVID-19 pandemic, which could harm our business.
In the event financial markets worsen from impacts of the COVID-19 pandemic, investments in some financial instruments may pose risks arising from credit and market liquidity concerns. The long-term effects to the global securities markets of pandemics and other public health crises, including the ongoing COVID-19 pandemic, are difficult to estimate or predict. Concerns regarding the economic impact of the COVID-19 pandemic has caused extreme volatility in financial and other capital markets throughout the world, which may have a material adverse impact on our stock price. Further, such volatility in the global capital markets could increase the cost of capital and could adversely impact our access to capital.
The global COVID-19 outbreak and its long-term impacts on our business are not fully ascertainable at this time and difficult to predict. If our plans to ensure our business functions continue to operate effectively during and after this pandemic are unsuccessful or inadequate, our business, results of operations, financial condition, and stock price could be harmed. Further, to the extent the COVID-19 pandemic adversely affects our business, results of operations, or financial condition, it may also have the effect of heightening many of the risks described in this “Risk Factors” section.
Market adoption of cloud-based learning solutions is new and unproven and may not grow as we expect, which may harm our business and results of operations, and even if market demand increases, the demand for our platform may not increase.
We believe our future success depends in part on the growth, if any, in the demand for cloud-based technology learning solutions, particularly enterprise-grade solutions. The widespread adoption of our platform depends not only on strong demand for new forms of technology learning, but also for solutions delivered via a Software-as-a-
Service, or SaaS, business model in particular. The market for cloud-based learning solutions is less mature than the market for in-person instructor-led training, or ILT, which many businesses currently utilize, and these businesses may be slow or unwilling to migrate from these legacy approaches. As such, it is difficult to predict customer demand for our platform, customer adoption and renewal, the rate at which existing customers expand their engagement with our platform, the size and growth rate of the market for our platform, the entry of competitive products into the market, or the success of existing competitive products. Furthermore, even if businesses want to adopt a cloud-based technology learning solution, it may take them a long time to fully transition to this type of learning solution or they could be delayed due to budget constraints, weakening economic conditions, or other factors. Some businesses may also have long-term contracts with existing vendors and cannot switch to our platform in the short term. Even if market demand for cloud-based technology learning solutions generally increases, we cannot assure you that adoption of our platform will also increase. If the market for cloud-based technology learning solutions does not grow as we expect or demand for our platform does not increase, it could result in reduced customer spending, customer attrition, and decreased revenue, any of which would adversely affect our business and results of operations.
If we do not expand our course library effectively or develop new platform features that respond to constantly evolving technologies and the needs of our customers, our business and results of operations could be adversely affected.
The market for talent in technology-related fields is growing and constantly evolving due to the continuously changing needs of our customers. Moreover, software is displacing manual processes throughout businesses in many industries and, as a result, the talent that companies seek to hire and retain must keep pace with technological change and drive digital transformation. As such, our future success depends on ensuring our business customers’ employees can master the latest emerging technologies and improve their skills in existing areas by developing and making available on a timely basis new and improved learning content and platform features that can address evolving customer needs. With respect to content creation, since new technologies are constantly introduced, our success depends upon our ability to identify technological developments and predict which technology will become widely adopted or strategically important, and then develop course content and related skill and role assessments to address these areas in a timely manner, which we may not do successfully. For example, certain courses we developed in the past received lower than anticipated levels of customer interest and we did not generate sufficient revenue from those courses to offset their costs. In addition, if we do not anticipate our customers’ demands and provide courses in topics that address these demands, our lead times for course production may make it difficult for us to rapidly produce the desired content. With respect to platform features, many of the features we currently offer are relatively new and unproven and we cannot assure you that our existing features and any future features or enhancements we develop will be utilized. The success of any course library expansion or new or enhanced feature depends on several factors, including our understanding of market demand, timely execution, successful introduction, and market acceptance. We may fail to develop new content and features or enhance our existing platform to meet customer needs or our new content and features and enhancements may not achieve adequate acceptance in the market. Additionally, we may not sufficiently increase our revenue to offset the upfront technology and content, sales and marketing, and other expenses we incur in connection with the development of new courses, platform features and enhancements. Any of the foregoing may adversely affect our business and results of operations, reduce market acceptance of our platform, and diminish customer retention and satisfaction.
The market in which we participate is competitive, and if we do not compete effectively, our results of operations could be harmed.
The market for professional skill development, including technology skills and engineering analytics, is highly competitive, rapidly evolving, and fragmented, and we expect competition to continue increasing and intensifying in the future. A significant number of companies developed, or are developing, products and services that compete or will compete with our offerings. There are relatively modest barriers to entry in our industry, as well as low switching costs relative to the broader enterprise software sector. The discretionary nature of our services creates significant volatility based on changes in customer budgets and timing, and we are highly susceptible to changes in market conditions. In addition, the emergence of new, highly capitalized competition and free or ad-supported offerings (e.g., leveraging YouTube, GitHub and similar platforms) has accelerated and intensified competitive pressures. This competition has in the past resulted in, and could in the future result in, decreased billings and
revenue growth, increased pricing pressure, increased sales and marketing expenses and other customer acquisition costs, higher churn, lower retention and loss of market share, any of which could adversely affect our business, results of operations, and financial condition.
We face competition from consumer-centric SaaS solutions, legacy enterprise SaaS solutions, in-person ILT, and free solutions. We compete directly or indirectly with:
•ILT vendors, such as Global Knowledge, General Assembly, and New Horizons;
•legacy e-learning services, such as Skillsoft and O’Reilly;
•certification and training courses, such as A Cloud Guru and CBT Nuggets;
•individual-focused e-learning services, such as LinkedIn Learning, Udemy, and Udacity;
•engineering analytics tools, such as Code Climate, Waydev, and BlueOptima; and
•free solutions, such as YouTube.
Many of our competitors and potential competitors are larger and have greater brand name recognition, longer operating histories, larger marketing budgets, more established customer relationships, access to larger customer bases, and significantly greater resources for the development of their solutions. In addition, some of our competitors have consolidated, and continued consolidation among them may subject us to increased and intensified competitive pressures that may harm our results of operations. Further, we face potential competition from participants in adjacent markets that may enter our markets by leveraging related technologies and partnering with or acquiring other companies or providing alternative approaches to provide similar results. We may face competition from companies entering our market, including some of the largest technology companies in the world, that could expand their offerings or acquire one of our competitors. While these companies may not currently focus on our market, they may have significantly greater financial resources and longer operating histories than we do. As a result, our competitors and potential competitors may respond more quickly and effectively than we can to new or changing opportunities, technologies, or customer requirements. Further, some potential customers, particularly large enterprises, may elect to develop their own internal solutions that address their technology skill needs.
Our ability to compete is subject to the risk of future disruptive technologies. If new technologies emerge delivering skill development solutions at lower prices, with greater feature sets, more efficiently, or more conveniently, such technologies could adversely impact our ability to compete. With the introduction of new technologies and market entrants, we expect competition to continue accelerating and intensifying in the future.
Some of our principal competitors offer solutions at a lower price or for free, which may result in pricing pressures on us. Many of our competitors offering free solutions are also integrating features found previously only with paid solutions, which layers additional pressure on our pricing and feature development. If we do not maintain our pricing levels and competitive differentiation in the market, our results of operations could be negatively impacted.
If we are unable to mitigate the risks associated with serving our business customers, while increasing sales of our platform subscriptions to these customers, our business, financial condition, and results of operations could suffer.
Our growth strategy is largely dependent upon increasing sales of our platform subscriptions to business customers. As we seek to increase sales to business customers, we face upfront sales costs and longer sales cycles, higher customer acquisition costs, more complex customer requirements, and volume discount requirements that we do not typically face with sales to individuals.
We often enter into customized contractual arrangements with our business customers, particularly large enterprises, in which we offer more favorable pricing terms in exchange for larger total contract values that accompany large deployments. As we drive a greater portion of our revenue through our deployments with business customers, we expect our revenue to continue growing significantly, but the price we charge business customers per user may decline. This may result in reduced margins in the future if our cost of revenue increases. Sales to business
customers involve risks that may not be present, or are present to a lesser extent, with sales to individuals. For example, business customers may request we integrate our platform with their existing technologies, and these customization efforts could create additional costs and delays in utilization. In addition, business customers often begin using our platform on a limited basis, but nevertheless require education and interactions with our sales team, which increases our upfront investment in the sales effort with no guarantee that these customers will use our platform widely enough across their organization to justify our upfront investment. As we continue expanding our sales efforts to business customers, we need to continue increasing the investments we make in sales and marketing, and there is no guarantee that our investments will succeed and contribute to additional customer acquisition and revenue growth. If we do not increase sales to business customers while mitigating the risks associated with serving such customers, our business, financial condition, and results of operations may suffer.
Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our platform.
Our ability to broaden our customer base, particularly our business customer base, and achieve broader market acceptance of our platform predominately depends on the ability of our sales and marketing organizations to expand our sales pipeline and cultivate customer and partner relationships to drive revenue growth. We invested in and plan to continue expanding our sales and marketing organizations, both domestically and internationally. Competitive pressures may require us to further increase our sales and marketing spend. Identifying, recruiting, and training sales personnel requires significant time, expense, and attention. We have made changes to our sales senior leadership team in the past, and future changes could disrupt our operations due to logistical and administrative inefficiencies, increase costs, and result in us losing personnel with deep institutional knowledge, all of which could significantly impact our operations.
We also plan to continue dedicating significant resources to sales and marketing programs, including lead generation activities and brand awareness campaigns, such as search engine and email marketing, online banner and video advertising, user events such as our annual user conference, Pluralsight LIVE, and webinars. If we do not hire, develop, and retain talented sales or marketing personnel, if our new sales or marketing personnel are unable to achieve desired productivity levels in a reasonable period of time, if our sales and marketing programs are not effective, or if we are not able to successfully integrate new senior leadership to our sales organization, our ability to broaden our customer base and achieve broader market acceptance of our platform could be harmed. In addition, the investments we make in our sales and marketing organization will occur in advance of experiencing benefits from such investments, making it difficult to determine in a timely manner if we are efficiently allocating our resources in these areas.
If our business customers do not expand their use of our platform beyond their current organizational engagements or renew their existing contracts with us, our ability to grow our business and improve our results of operations may be adversely affected.
Our future success partly depends on increased adoption of our platform by our existing customers and future customers. Many of our business customers initially use our platform in specific groups or departments within their organization, or for a specific use case. Growth of our business depends in part on customers’ expanded use of our platform to address additional use cases. Further, to continue growing our business, it is important our customers renew their subscriptions when existing contracts expire and we expand our relationships with our existing customers. Our customers have no obligation to renew their subscriptions, and our customers may decide not to renew their subscriptions with a similar contract period, at the same prices and terms, with the same or a greater number of users, or at all. In the past, some of our customers elected not to renew their agreements with us, and it is difficult to accurately predict whether we will continue successfully retaining customers or expanding our relationships with them. We experienced significant growth in the number of users of our platform, but it is unknown whether we will sustain similar user growth in the future. Retention of our business customers and expansion of our deployments with them may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our platform, our customer support, our prices, the prices and features of competing solutions, reductions in our customers’ spending levels, insufficient user adoption of our platform, and new feature releases, or the lack thereof. If our business customers do not purchase additional subscriptions or renew their
existing subscriptions, renew on less favorable terms, or fail to continue expanding their engagement with our platform, our revenue may decline or grow less quickly than anticipated, which could harm our results of operations.
Our future performance partly depends on attracting and retaining authors and producing content that addresses our customers’ needs.
The majority of our content is created by subject-matter experts, or authors, who are generally not our employees. This presents certain risks to our business, including, among others:
•we may not be able to remain competitive in finding and retaining authors;
•we generally have exclusivity with our authors with respect to the specific subject matter of the courses they create for us, but they may produce content for competitors or on their own with respect to related topics and other subjects;
•our existing authors, particularly our most popular authors, may not continue creating content for us;
•the topics of content created by our authors may not address the needs of our customers;
•the content created by our authors may not meet the quality standards that our customers expect and demand, or effectively differentiate our content from that of our competitors with respect to content quality and breadth;
•the fees that we pay our authors may cease to be competitive with the market for their talent; and
•most of our content authors assign us all right and title to the course content, however certain content authors license us the right to use the course content on a non-exclusive basis, which means that those authors could license the same course content to one of our competitors.
If any of the risks above occur, customers may seek other solutions for their professional skill development needs and we may not retain them or acquire additional customers to offset any such departures, which could adversely affect our business and results of operations. In addition, our most popular authors are a relatively small group of individuals who created course content that has historically represented a significant portion of the total course hours viewed. The loss of our authors, particularly our most popular authors, and our inability to replace them with new author relationships of comparable quality and standing, could significantly impact our business and operating results and limit our ability to produce content of a quality or at a scale sufficient to grow our business.
Our quarterly and annual results of operations may be difficult to predict because they may vary significantly, and if we fail to meet the expectations of investors or securities analysts, our stock price and the value of your investment could decline.
Our quarterly and annual billings, revenue and results of operations fluctuated significantly in the past and may vary significantly in the future due to a variety of factors, many of which are outside of our control. Our financial results in any one quarter should not be relied upon as indicative of future performance. We may not be able to accurately predict our future billings, revenue or results of operations. Factors that may cause fluctuations in our quarterly results of operations include, but are not limited to, those listed below:
•fluctuations in the demand for our platform and the timing of sales, particularly larger subscriptions;
•our ability to attract new customers or retain existing customers;
•our existing authors, particularly our most popular authors, may not continue creating content for us;
•the content created by our authors may not address the needs of our customers and may not meet the standards that our customers expect and demand;
•changes in customer renewal rates and our ability to increase sales to our existing customers;
•our ability to anticipate or respond to changes in the competitive landscape, including consolidation among competitors;
•an increase in the length of sales cycle as a higher percentage of our billings come from larger business customers;
•our customers’ seasonal buying patterns;
•our customers’ budgeting cycles and internal purchasing priorities;
•the payment terms and subscription term length associated with our platform sales and their effect on our billings and free cash flow;
•the timing of expenses and recognition of revenue;
•the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure;
•the timing and success of new product feature and service introductions by us or our competitors;
•network outages;
•changes in laws and regulations that impact our business; and
•general economic and market conditions, including as a result of the impact of the COVID-19 pandemic.
If our billings, revenue or results of operations fall below the expectations of investors or securities analysts in a particular quarter, or below any guidance we provide, the price of our Class A common stock could decline.
If we fail to retain and recruit key employees or qualified technical and sales personnel, our business could be harmed.
We believe our success depends on the continued employment of our senior management and other key employees. We also rely on our leadership team in the areas of technology, content, marketing, sales, services and general and administrative functions. Challenges attracting and recruiting key senior personnel upon the departure of an executive team member, implementation of any team member reorganization coinciding with such departure, training and onboarding any newly hired employees, and the impacts of the executive team member’s departure on employee morale, could have a serious adverse effect on our business.
Our future success depends on our ability to continue enhancing and introducing new content and platform features, which makes attracting and retaining qualified personnel with the requisite education, background, and industry experience crucial. As we expand our business globally, our continued success will also depend, in part, on our ability to attract and retain qualified sales, marketing, and operational personnel capable of supporting a larger and more diverse worldwide customer base. The current market environment is highly competitive for such talent. The loss of a significant number of our technology, content or sales personnel and their services could be disruptive to our development efforts or customer relationships. In addition, if any of our key employees joins a competitor or decides to otherwise compete with us, we may experience a material disruption of our operations and business strategy, which may cause us to lose customers or increase operating expenses and may divert our attention as we seek to recruit replacements for the departed employees.
If we fail to effectively manage our growth, our business and results of operations could be harmed.
We experienced, and may continue experiencing, rapid growth and organizational change, which placed, and may continue placing, significant demands on our management and our operational and financial resources. For example, our full-time employee headcount has grown from approximately 1,100 employees as of December 31, 2018 to approximately 1,700 employees as of December 31, 2020, of which, over 1,400 are located in the United States. We operate globally, sell subscriptions to customers in more than 180 countries, and have employees in various locations in the United States, Europe, and the Asia Pacific region. We plan to continue expanding our
operations into other countries in the future, which will place additional demands on our resources and operations. Simultaneously, we continue increasing the breadth and scope of our platform and our operations. To support this growth, and to manage any future growth effectively, we must continuously and efficiently improve our IT and financial infrastructures, operating and administrative systems, and management of our headcount, capital, and internal processes. Our organizational structure is becoming more complex as we grow our operational, financial, and management infrastructure and we must continuously enhance our internal controls, reporting systems and procedures. We intend to continue expanding our business by investing in technology, content, sales and marketing operations, hiring additional personnel, improving our internal controls, reporting systems and procedures, and upgrading our infrastructure. These investments will require significant capital expenditures and the allocation of management resources, and any investments we make will occur in advance of experiencing the benefits from such investments, making it difficult to determine in a timely manner if we are efficiently allocating our resources. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our results of operations may be adversely affected.
Our rapid growth and limited history with our cloud-based technology skills platform make it difficult to evaluate our future prospects and may increase the risk that we will not continue growing at or near historical rates.
We grew rapidly over the last several years, and as a result, forecasting our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth. Although we began operations in 2004, we shifted our business model in 2011 from offering in-person ILT to an entirely online delivery model. Beginning in 2011, we extended our offering to include new content areas and additional features, which enabled us to expand our addressable market, attract new users, and broaden our relationships with businesses. This limited history with our SaaS model and cloud-based platform offering further limits forecasting of our future results of operations. As such, any predictions about our future revenue and expenses may not be as accurate as they could be if we had a longer operating history with our delivery model or platform or operated in a more predictable market. We encountered in the past, and may encounter in the future, risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks adequately, our results of operations could differ materially from our expectations, our growth rates may slow, and our business may suffer.
We recognize revenue from subscriptions over the term of our customer contracts, and as such our reported revenue and billings may differ significantly in a given period, and our revenue in any period may not be indicative of our financial health and future performance.
We generally recognize revenue from subscriptions ratably over the subscription term of the underlying customer contract, which is generally one year. Our billings are recorded upon invoicing for access to our platform, thus a significant portion of the billings we report in each quarter are generated from customer agreements entered into and invoiced during the period. As a result, much of the revenue we report each quarter is derived from contracts that we entered into with customers in prior periods. Consequently, a decline in new or renewed subscriptions in any quarter will not be fully reflected in revenue or other results of operations in that quarter. Rather, it will negatively affect our revenue and other results of operations across future quarters, making it difficult for us to rapidly increase our revenue from additional billings in a given period. Any increases in the average term of subscriptions would result in revenue for those contracts being recognized over longer periods of time with less positive impact on our results of operations in the near term. Accordingly, our revenue in any given period may not be an accurate indicator of our financial health and future performance.
As we continue expanding our sales efforts to larger business customers, our sales cycles may lengthen and grow in complexity, which may cause our billings and revenue to vary substantially and become difficult to predict and cause our results of operations to fluctuate significantly.
Our results of operations may fluctuate, in part, because of the resource-intensive nature of our sales efforts to larger businesses, from which we derive a significant portion of our billings and revenue, the length and variability of our sales cycle, and difficulty in adjusting our operating expenses in the short term. The length of our sales cycle, from identification of the opportunity to delivery of access to our platform, varies significantly from customer to
customer, with sales to larger businesses typically taking longer to complete. In addition, as we continue increasing our sales to larger businesses, we face longer, more complex customer requirements and substantial upfront sales costs. With larger businesses, the decision to subscribe to our platform frequently requires the approvals of multiple management personnel and more technical personnel than would be typical of a smaller organization and, accordingly, sales to larger businesses may require us to invest more time educating these potential customers. Moreover, sales to larger businesses tend to require more complex and sophisticated procurement negotiations which increase the length and cost to acquiring larger businesses. Purchases by larger businesses are also frequently subject to budget constraints and unplanned administrative, processing, and other delays, which may impede our efforts to reach agreement on the terms of the sale to larger businesses.
To the extent our competitors develop products that our prospective customers view as equivalent or superior to our platform, our average sales cycle may increase. Additionally, if a key sales member leaves our employment or if our primary point of contact at a customer or a potential customer leaves their employment, our sales cycle may be further extended or customer opportunities may be lost. As a result of the buying behavior of enterprises and the efforts of our sales force and partners to meet or exceed their sales objectives by the end of each fiscal quarter, we historically received and generated a substantial portion of billings during the last month of each fiscal quarter, often the last two weeks of the quarter. These transactions may not close as expected or may be delayed in closing. The unpredictability of the timing of customer purchases, particularly large purchases, could cause our billings and revenue to vary from period to period or to fall below expected levels for a given period, which may adversely affect our business, results of operations, and financial condition.
We believe our long-term success partly depends on continued expansion of our sales and operations outside of the United States, which subjects us to a number of risks associated with international sales and operations.
We currently maintain offices and employ sales personnel outside the United States in Europe, Australia, and the Asia Pacific region, and we intend to continue expanding our international operations. In order to maintain and expand our sales internationally, we may need to relocate, hire and train experienced personnel to staff and manage our foreign operations. To the extent we experience difficulties in recruiting, training, managing, and retaining international staff, and specifically sales and marketing personnel, we may experience difficulties in growing our international sales and operations.
Additionally, our international sales and operations are subject to a number of risks, including, but not limited to, the following:
•unexpected costs and errors in tailoring our products for individual markets, including translation into foreign languages and adaptation for local practices;
•difficulties in adapting to customer desires due to language and cultural differences;
•increased expenses associated with international sales and operations, including establishing and maintaining office space and equipment for our international operations;
•lack of familiarity and burdens of complying with foreign laws, legal standards, regulatory requirements, tariffs, and other barriers;
•greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;
•practical difficulties of enforcing intellectual property rights in countries with fluctuating laws and standards and reduced or varied protection for intellectual property rights in some countries;
•theft of intellectual property, data and technology through intrusion by foreign actors, those affiliated with or controlled by state actors, and private parties;
•unexpected changes in regulatory requirements, taxes, trade laws, tariffs, trade wars or potential changes in trade relations arising from policy initiatives implemented by the current U.S. presidential administration, export quotas, custom duties, or other trade restrictions;
•limitations on technology infrastructure, which could inhibit our migration of international operations to our existing systems and result in increased costs;
•difficulties in managing and staffing international operations and differing employer/employee relationships and local employment laws;
•challenges in complying with local data privacy and data protection requirements and protecting the security of our platform;
•challenges obtaining work permits and visas, and navigating immigration laws and systems among jurisdictions; and
•potentially adverse tax consequences, including the complexities of foreign value added tax (or other tax) systems and restrictions on the repatriation of earnings.
Additionally, operating in international markets requires significant management attention and financial resources. Our personnel have limited experience in marketing, selling, and supporting our platform abroad, which increases the risk of any potential future expansion efforts undertaken by us being unsuccessful. We plan to invest substantial time and resources toward expanding our international operations, but we cannot be certain that these investments will produce desired levels of revenue or profitability. These factors among others could harm our ability to gain future international revenue and materially affect our business, results of operations and financial condition.
If we fail to develop, maintain, and enhance our brand and reputation cost-effectively, our business and financial condition may be adversely impacted.
We believe that developing, maintaining, and enhancing awareness and integrity of our brand and reputation in a cost-effective manner are important to achieving widespread acceptance of our platform and are important elements in retaining existing customers and attracting new customers. We believe the importance of our brand and reputation will increase as competition in our market further intensifies. Successful promotion of our brand will depend on the effectiveness of our marketing efforts, our ability to provide a reliable and useful platform at competitive prices, the perceived value of our platform, and our provisioning of quality customer support. However, brand promotion activities may not yield increased revenue, and even if they do, the increased revenue may not offset the expenses we incur in building and maintaining our brand and reputation. If we fail to promote and manage our brand successfully, cultivate loyalty among our customers, or incur substantial expenses in an unsuccessful attempt to promote and grow our brand awareness and strength, we may fail to retain our existing customers and partners, or attract new customers and partners, and our business and financial condition may be adversely affected. Any negative publicity relating to our employees, partners, or other parties associated with us or them, may tarnish our reputation simply by association and may reduce the value of our brand. Damage to our brand and reputation may result in reduced demand for our platform and increased risk of losing market share to our competitors. Any efforts to restore the value of our brand and rebuild our reputation may be costly and unsuccessful.
If we cannot maintain our company culture as we grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute to our success and our business may be harmed.
We believe a critical component to our success is our company culture. Our company is aligned behind our culture and key values, and we have invested substantial time and resources in building our team within this company culture. As we grow and develop the infrastructure of a public company, we may find it difficult to sustain these important aspects of our company culture worldwide. If we fail to preserve and nurture our culture, our retainment and recruitment of personnel, ability to effectively focus on and pursue our corporate objectives, and business could be harmed.
We are engaged in legal proceedings that could cause us to incur unforeseen expenses and occupy a significant amount of our management’s time and attention.
From time to time, we are subject to litigation or claims, including securities class actions and shareholder derivative lawsuits, which are typically expensive to defend. Resolving, disputing and litigating legal claims could cause us to incur unforeseen expenses and occupy a significant amount of management’s time and attention, which could negatively affect our business operations and financial condition. For example, a class action complaint was filed in August 2019 by a stockholder in the U.S. District Court for the Southern District of New York against us and some of our officers alleging violation of securities laws and seeking unspecified damages. The action was transferred to the U.S. District Court for the District of Utah in October 2019 and in March 2020, a lead plaintiff was appointed. An amended complaint was filed on June 3, 2020. The amended complaint names us as defendants, along with certain of our officers, members of our Board of Directors, and Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, the lead underwriters from our March 2019 common stock offering.
We believe this lawsuit is without merit and intend to defend the case vigorously. We are unable to estimate a range of loss, if any, that could result were there to be an adverse final decision. If an unfavorable outcome were to occur in this case, it is possible that the impact could be material to our results of operations in the period(s) in which any such outcome becomes probable and estimable. While we have insurance for this class action and other types of claims, there is no assurance that our available insurance will be sufficient to cover these claims. For more information, please see Note 12 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Any failure to offer high-quality customer support may harm our relationships with our customers and results of operations.
Our customers depend on our customer support teams to resolve technical and operational issues if and when they arise. We may not respond quickly enough to accommodate short-term increases in customer demand for customer support. Customer demand for support may increase as we expand the features available on our platform. Increased customer demand for customer support, without corresponding revenue, could increase costs and harm our results of operations. As we continue expanding our business customer base, we need to continue providing efficient and effective customer support that meets our business customers’ needs and expectations globally at scale. The number of our business customers grew significantly, which puts additional pressure on our support organization. In order to meet these needs, we relied in the past, and will continue relying on, self-service customer support to resolve common or frequently asked questions, which supplement our customer support teams. If we are unable to provide efficient and effective customer support globally at scale, including through the use of self-service support, the growth of our operations may be harmed and we may need to hire additional support personnel, which could negatively impact our margins and results of operations. Our sales are highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality customer support, could adversely affect our business, reputation, sales of our platform to existing and prospective customers, results of operations, and financial condition.
Recent and future acquisitions of other companies or technologies could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and harm our results of operations.
As part of our business strategy, we have in the past and may in the future seek to acquire or invest in businesses, people, or technologies that we believe could complement or expand our platform, enhance our content library or otherwise offer growth opportunities. For example, in October 2020 we announced the acquisition of DevelopIntelligence and in January 2021 we announced the acquisition of Next Tech. We have completed eleven acquisition transactions for an aggregate cost of approximately $425 million in the last eight years, which pace is expected to accelerate in the coming years. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are ultimately consummated.
Any integration process may result in unforeseen operating difficulties and require significant time and resources and, although we have been successful in the past, we may not be able to integrate the acquired personnel, operations, and technologies successfully or effectively manage the combined business in connection with any future acquisition.
We may not achieve the anticipated benefits from an acquired business due to a number of factors, such as:
•costs or liabilities associated with the acquisition;
•diversion of management’s attention from other business concerns;
•inability to integrate or benefit from acquired content, technologies, or services in a profitable manner;
•harm to our existing relationships with authors and customers as a result of the acquisition;
•difficulty integrating the accounting systems, operations, and personnel of the acquired business;
•difficulty converting the customers of the acquired business onto our platform and contract terms;
•the potential loss of key employees;
•use of resources that are needed in other parts of our business; and
•the use of substantial portions of our available cash or equity to consummate the acquisition.
Our ongoing need for acquisition transactions introduces execution risk to identify, consummate and integrate target companies. If our past or future acquisitions do not yield expected returns, we may be required to take charges for the write-down or impairment of amounts related to goodwill, intangible assets, and our content library, which could negatively impact our results of operations. We may issue additional equity securities in connection with any future acquisitions, which could dilute our existing stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to pay, incur large charges or substantial liabilities, and become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges. These challenges could adversely affect our business, financial conditions, results of operations, and prospects.
We might require additional capital to support our growth and this capital might not be available on acceptable terms, if at all.
We intend to continue investing in our growth and may require additional funds to respond to business challenges, including the need to develop new features, enhance our existing platform or acquire complementary businesses, technologies, and content. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, 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, supporting our growth and responding to business challenges could be significantly impaired.
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage issues related to our status as a public company that are subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These obligations and constituents require
significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could harm our business, financial condition, and results of operations.
Risks Related to Privacy, Data Protection, Cybersecurity and Intellectual Property
If our security measures are breached or data is otherwise subject to unauthorized access, use or disclosure, our platform may be perceived as insecure, we may lose existing customers or fail to attract new customers, our reputation may be harmed, and we may incur significant liabilities.
Unauthorized access to or use of, or other security breaches of our platform or the other systems or networks used in our business, including those of our vendors, contractors, or those with which we have strategic relationships, or unauthorized access to or use, disclosure or acquisition of our proprietary or confidential data, or personal, proprietary or other confidential data of our employees, vendors, customers, users or others could result in the loss, compromise or corruption of data or intellectual property, loss of business, reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation and other measures taken in connection with the breach, and other liabilities. Security is one of the main course subjects we provide on our platform, which may cause our platform to be a target for hackers and others, and which causes our brand, credibility, and reputation to be particularly sensitive to actual or perceived security breaches.
Our platform, and the other facilities, systems or networks used in our business, including those of our third-party vendors, are at risk for security breaches as a result of cyber attacks, software vulnerabilities or coding errors, hackers, physical break-ins, computer viruses, inadequate security controls by customers, employees, contractors or vendors such as, weak or recycled passwords, worms or other malicious software programs or other third-party action, or employee, vendor, or contractor error or malfeasance. We have invested, and will continue investing, as needed significant expenses to prevent security breaches, including deploying dedicated personnel and protection technologies, training employees, and engaging third-party experts and consultants. However, since the techniques used to obtain unauthorized access, deny authorized access, or otherwise sabotage systems change frequently and generally are not identified until after they are launched against a target, we and our third-party vendors may be unable to anticipate these techniques or implement adequate preventative measures. We and our third parties may also experience security breaches that remain undetected for an extended period and result in a substantial impact on our platform, the proprietary and other confidential data contained therein or otherwise stored or processed in our operations, and ultimately on our business. Any actual or perceived security incident also may cause us to incur increased expenses to improve our security controls and to remediate security vulnerabilities. Although we retain errors and omissions insurance coverage for certain security and privacy damages and claim expenses, this coverage may be insufficient to compensate us for all liabilities that we may incur as a result of any actual or potential security breach, and we cannot be certain that insurance coverage will continue to be available to us on economically reasonable terms, or at all, or that an insurer will not deny coverage as to any future claim. One or more claims that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
Failure or perceived failure to comply with applicable and evolving foreign or domestic privacy and information security regulations could limit the use and adoption of our platform, expose us to increased liability, and harm our business and reputation.
Privacy, information security, and data protection are issues of growing concern and the regulatory framework governing the collection, processing, storage, transfer and use of information is rapidly evolving in various jurisdictions where we do business. Many governments have adopted and continue proposing requirements regarding personally identifiable information and other data relating to individuals. Federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use, and dissemination of data.
Some foreign countries and governmental bodies in regions where we conduct business, including the European Union, or EU, have laws and regulations that often are more restrictive and more broadly applicable than those in the United States. With regard to the transfer of personal data from our European employees and customers to the United States, we historically have relied upon self-certification under the EU-U.S. Privacy Shield and under the Swiss-U.S. Privacy Shield (collectively, the “Privacy Shield Frameworks”). In certain cases, we agreed to standard contract clauses approved by the European Commission, or the SCCs. On July 16, 2020, the Court of Justice of the European Union, or CJEU, issued a decision invalidating the EU-U.S. Privacy Shield and imposing additional obligations on companies when relying on the SCCs. Additionally, the Swiss Federal Data Protection and Information Commissioner has stated that it no longer considers the Swiss-U.S. Privacy Shield adequate for purposes of transfers of personal data from Switzerland to the U.S. This CJEU decision and related circumstances may result in European data protection regulators applying differing standards for, and requiring additional measures to be taken with respect to, transfers of personal data from the EU and Switzerland to the U.S. The CJEU’s decision and related developments may require us and our customers to take additional steps to legitimize any personal data transfers impacted by this CJEU decision, increasing costs of compliance and limitations on our customers and us. We continue to monitor and review the impact of any resulting changes to laws in Europe that could affect our operations.
Variations in required protections and approaches among jurisdictions may result in reluctance or refusal by European customers to use our platform due to potential risk exposure created by transferring personal data from Europe to the United States, and we and our customers may face enforcement actions by European data protection authorities regarding data transfers from Europe to the United States.
Proposed and newly enacted laws, regulations, and industry standards concerning privacy, data protection, and information security continue emerging and evolving globally, including the General Data Protection Regulation 2016/679, or the GDPR, adopted in the EU, which took full effect in May 2018, and the California Consumer Privacy Act, or CCPA, adopted in California, which became operative on January 1, 2020. The GDPR provides for substantial penalties and other remedies, including giving EU regulators the ability to issue fines up to the greater of €20 million or 4% of worldwide annual turnover. The California Attorney General can enforce the CCPA, including seeking injunctive relief and civil penalties for violations. The CCPA also provides a private right of action for certain data breaches that is expected to increase data breach litigation. Many aspects of the CCPA and its interpretation remain uncertain. Additionally, the California Privacy Rights Act, or CPRA, was approved by California voters in the November 3, 2020 election. The CPRA modifies the CCPA significantly, creating obligations relating to consumer data beginning on January 1, 2022, with implementing regulations expected on or before July 1, 2022, and enforcement beginning July 1, 2023. The CPRA is creating further uncertainty and may require us to incur additional costs and expenses in an effort to comply. We cannot fully predict the impact of the CCPA or the CPRA on our business or operations, but they may require us to modify our data practices and policies and to incur substantial costs and expenses in an effort to comply. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could increase our potential liability and adversely affect our business.
Further, the United Kingdom, or UK, ceased to be an EU Member State on January 31, 2020, subject to a transitional period that ended December 31, 2020, but has enacted legislation substantially implementing the GDPR and the European Commission and the United Kingdom government announced a EU-UK Trade and Cooperation Agreement on December 24, 2020, providing for a temporary free flow of personal data between the EU and the UK, but it remains to be seen how the UK’s withdrawal from the EU will impact the manner in which United Kingdom data protection laws or regulations will develop and how data transfers to and from the UK will be regulated and enforced by the UK Information Commissions’ Office, EU data protection authorities, or other regulatory bodies in the longer term. As a result of the UK’s exit from the EU, we could be required to make changes to the way we conduct business and transmit data between the United States, the UK, the EU, and other jurisdictions. In addition, some countries are considering or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our services. We cannot yet determine the impact evolving and future laws, regulations and standards may have on our business. Laws and regulations relating to privacy, data protection and information security are often subject to differing interpretations and may be inconsistent, creating complexity in how we do business.
These uncertain circumstances, new and evolving laws, and other requirements could reduce demand for our platform, increase our costs, impair our ability to grow our business, affect our ability to respond to customer requests to access, correct and delete personal information under these laws, restrict our ability to store and process data or, in some cases, impact our ability to offer our platform in some locations and may subject us to liability. Further, we may find it necessary or beneficial to fundamentally change our business activities and practices or to expend significant resources to modify our platform and otherwise adapt to these changes. If we are not able to make such changes and modifications in a commercially reasonable manner, or at all, our ability to develop new content and features could be limited.
Any failure or perceived failure to comply with applicable privacy, security or data protection laws and regulations, and any follow-up or remedial actions required by such laws or regulations or related to an actual or alleged violation of such laws and regulations, including requirements to notify individuals whose personal information was affected by a security breach, may result in regulatory investigations and proceedings, lawsuits, consent decrees, and injunctions, negatively impact our reputation, cause us to incur significant costs, liabilities and expenses, including legal expenses and substantial fines and penalties, harm customer confidence, hurt our expansion into new markets, reduce demand for our platform, lead to the loss of existing customers and adversely affect our financial condition.
If we do not keep pace with technological developments, our business may be harmed.
Our platform is designed to operate on a variety of network, hardware, and software platforms using internet tools and protocols, which requires us to continuously modify and enhance our platform to keep pace with changes in internet-related hardware, software, communication, browser, and database technologies. If we fail to respond in a timely and cost-effective manner to these rapid technological developments, our platform may become obsolete, which could adversely impact our results of operations. For example, if we fail to ensure our video courses are fully enabled and readily available on multiple platforms, such as computers, tablets and other mobile devices, our business may be harmed.
If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, generate less revenue or experience slower growth rates, and incur costly litigation to protect our rights.
The skill development industry is characterized by a large number of copyrights, trademarks, trade secrets, and other intellectual property rights. Our success is partly dependent upon protecting our proprietary information and technology. We rely on a combination of trademarks, copyrights, trade secrets, intellectual property assignment agreements, license agreements, confidentiality procedures, non-disclosure agreements, and employee invention assignment agreements to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect and mitigate unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our platform and use information that we regard as proprietary to create solutions that compete with ours. In addition, we experienced, and may in the future be subject to, piracy of our course content. In the past, individuals illegally accessed our course materials and posted them online, and individual users within our business customers obtained access to our content outside the scope of the customer’s subscription, which caused us to lose potential revenue opportunities, and such activities may recur in the future. Policing piracy of our content and unauthorized use of our platform is difficult and the steps we take to combat such actions may prove ineffective. Some license provisions protecting against unauthorized use, copying, transfer, and disclosure of our platform may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and mechanisms for enforcement of intellectual property rights in some foreign countries may be insufficient to protect our rights. To the extent we expand our international activities, our exposure to unauthorized copying and use of our platform and proprietary information may increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our technology and intellectual property.
We rely, in part, on trade secrets, proprietary know-how, and other confidential information to maintain our competitive position. Although we enter into intellectual property assignment agreements or license agreements with
our authors, confidentiality and invention assignment agreements with our employees and consultants, and confidentiality agreements with the parties with whom we have strategic relationships and business alliances, no assurance can be given that these agreements will be effective in controlling access to, and distribution of, our platform and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our platform.
To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Unsuccessfully protecting our proprietary technology against unauthorized copying or use, and any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our platform, impair the functionality of our platform, delay introductions of new platform features, result in our substituting inferior or more costly technologies into our platform, or injure our reputation. In addition, we may be required to license additional technology from third parties to develop and market new platform features or services, and we cannot guarantee we will be able to license that technology on commercially reasonable terms or at all, and our inability to license this technology could weaken our competitive abilities.
We may be sued by third parties for alleged infringement of their proprietary rights.
Our success depends in part upon our not infringing the intellectual property rights of others. However, our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry or, in some cases, our technology or content. We obtain much of our content from third-party authors. Although we enter into agreements with our authors in which they represent that their content is not infringing the intellectual property rights of others, such content could be infringing and consequently subject us to liability. Moreover, we have in the past and may in the future leverage open source software in our development processes. Open source software is generally licensed by its authors or other third parties under open source licenses. These licenses may subject us to certain unfavorable conditions or obligations, including that we make publicly available source code for modifications or derivative works we create based upon, incorporating or using the open source software, or that we license such modifications or derivative works under the terms of the particular open source license.
In the past, third parties claimed we infringed their intellectual property rights. Such claims may reoccur in the future, and we may actually be found to be infringing on such rights. Additionally, if a third-party software provider incorporated open source software into software we license from such provider, we may be required to disclose any of our source code that incorporates or is a modification of any such licensed software. Any claims or litigation related to open source software or to alleged infringements of the intellectual property rights of third parties could cause us to incur significant expenses, and if successfully asserted against us, could require we pay substantial damages or ongoing revenue share payments, indemnify our customers or distributors, obtain licenses, modify products, or refund fees, any of which could deplete our resources and adversely impact our business.
Real or perceived errors, failures, vulnerabilities, or bugs in our platform could harm our business and results of operations.
Errors, failures, vulnerabilities, or bugs may occur in our platform, especially when updates are deployed or new features are rolled out. In addition, utilization of our platform in complicated, large-scale customer environments may expose previously unknown errors, failures, vulnerabilities, or bugs in our platform. Any such errors, failures, vulnerabilities, or bugs may not be found until after they are deployed to our customers. As a provider of technology learning solutions, our brand and reputation is particularly sensitive to such errors, failures, vulnerabilities, or bugs. Real or perceived errors, failures, vulnerabilities, or bugs in our platform could result in negative publicity, loss of competitive position, loss or corruption of customer data, loss of or delay in market acceptance of our products, or claims by customers for losses sustained by them, all of which could harm our business and results of operations.
Risks Related to our Dependence on Third Parties
If we fail to manage our hosting network infrastructure capacity, our existing customers may experience service outages and our new customers may experience delays in accessing our platform.
We host our platform on data centers provided by Amazon Web Services, or AWS, a provider of cloud infrastructure services. Our operations depend on the virtual cloud infrastructure hosted in AWS and the information stored in these virtual data centers that third-party internet service providers transmit. Although we have disaster recovery plans that utilize multiple AWS locations, any incident affecting their infrastructure that may be caused by fire, flood, severe storm, earthquake, power loss, telecommunications failures, unauthorized intrusion, computer viruses, disabling devices, natural disasters, war, criminal act, military actions, terrorist attacks, and other similar events beyond our control could negatively affect the availability and reliability of our platform. A prolonged AWS service disruption affecting our platform and the ability of our users to access our products, such as our video courses, for any of the foregoing reasons could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers, or otherwise harm our business. We may also incur significant costs associated with using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage or impair the AWS services we use.
AWS enables us to order and reserve server capacity in varying amounts and sizes distributed across multiple regions, and provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. AWS may terminate the agreement by providing 30 days prior written notice and may, in some cases, terminate the agreement immediately for cause upon notice. Any disruption of our use of, or interference with, AWS could materially adversely affect our operations and business.
We experienced significant growth in the number of users, transactions, and data that our hosting infrastructure supports. We strive to maintain sufficient excess capacity in our hosting network infrastructure to meet the needs of all of our customers and our growing content library. However, the provision of new hosting infrastructure requires significant lead time. If we do not accurately predict our infrastructure capacity requirements, our existing clients may experience service outages that may adversely impact our results of operations and lead to customer losses. If our hosting infrastructure capacity fails to keep pace with increased sales and customer usage, customers may experience delays as we seek to obtain additional capacity, which could harm our reputation and adversely affect our revenue growth.
We rely upon SaaS technologies from third parties to operate our business, and interruptions or performance problems with these technologies may adversely affect our business and results of operations.
We rely on hosted SaaS applications from third parties in order to operate critical functions of our business, including content delivery, enterprise resource planning, customer relationship management, billing, project management, and accounting and financial reporting. If these services become unavailable due to extended outages, interruptions, or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to manage finances could be interrupted, and our processes for managing sales of our platform and supporting our customers could be impaired until equivalent services, if available, are identified, obtained, and implemented, all of which may negatively impact our results of operations, our relationships with our customers, and harm our business.
Our business could be adversely impacted by changes in internet access for our users.
Our platform depends on the quality of our users’ access to the internet. Certain features of our platform, including the display of our video courses, require significant bandwidth and fidelity to work effectively. Internet access is frequently provided by companies having significant market power that could take actions to degrade, disrupt, or increase the cost of user access to our platform, which could negatively impact our business. We could
incur greater operating expenses and our efforts to acquire and retain customers could be negatively impacted if network operators:
•implement usage-based pricing;
•discount pricing for competitive products;
•otherwise materially change their pricing rates or schemes;
•charge us to deliver our traffic at certain levels or at all;
•throttle traffic based on its source or type;
•implement bandwidth caps or other usage restrictions; or
•otherwise monetize or control access to their networks.
As the internet continues to experience growth in the number of users, frequency of use, and amount of data transmitted, the internet infrastructure we and our users rely on may no longer support the demands placed upon it. The failure of the internet infrastructure that we or our users rely on, even for a short period of time, could undermine our operations and harm our results of operations.
Risks Related to our Foreign Operations and Regulations
We believe our long-term success partly depends on continued expansion of our sales and operations outside of the United States, which subjects us to a number of risks associated with international sales and operations.
We currently maintain offices and employ sales personnel outside the United States in Europe, Australia, and the Asia Pacific region, and we intend to continue expanding our international operations. In order to maintain and expand our sales internationally, we may need to relocate, hire and train experienced personnel to staff and manage our foreign operations. To the extent we experience difficulties in recruiting, training, managing, and retaining international staff, and specifically sales and marketing personnel, we may experience difficulties in growing our international sales and operations.
Additionally, our international sales and operations are subject to a number of risks, including, but not limited to, the following:
•unexpected costs and errors in tailoring our products for individual markets, including translation into foreign languages and adaptation for local practices;
•difficulties in adapting to customer desires due to language and cultural differences;
•increased expenses associated with international sales and operations, including establishing and maintaining office space and equipment for our international operations;
•lack of familiarity and burdens of complying with foreign laws, legal standards, regulatory requirements, tariffs, and other barriers;
•greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;
•practical difficulties of enforcing intellectual property rights in countries with fluctuating laws and standards and reduced or varied protection for intellectual property rights in some countries;
•theft of intellectual property, data and technology through intrusion by foreign actors, those affiliated with or controlled by state actors, and private parties;
•unexpected changes in regulatory requirements, taxes, trade laws, tariffs, trade wars or potential changes in trade relations arising from policy initiatives implemented by the current U.S. presidential administration, export quotas, custom duties, or other trade restrictions;
•limitations on technology infrastructure, which could inhibit our migration of international operations to our existing systems and result in increased costs;
•difficulties in managing and staffing international operations and differing employer/employee relationships and local employment laws;
•challenges in complying with local data privacy and data protection requirements and protecting the security of our platform;
•challenges obtaining work permits and visas, and navigating immigration laws and systems among jurisdictions; and
•potentially adverse tax consequences, including the complexities of foreign value added tax (or other tax) systems and restrictions on the repatriation of earnings
Additionally, operating in international markets requires significant management attention and financial resources. Our personnel have limited experience in marketing, selling, and supporting our platform abroad, which increases the risk of any potential future expansion efforts undertaken by us being unsuccessful. We plan to invest substantial time and resources toward expanding our international operations, but we cannot be certain that these investments will produce desired levels of revenue or profitability. These factors among other could harm our ability to gain future international revenue and materially affect our business, results of operations and financial condition.
We may face exposure to foreign currency exchange rate fluctuations.
Today, substantially all of our customer contracts are denominated in U.S. dollars, while our operating expenses outside of the United States are often denominated in local currencies. As we expand our international operations, a larger portion of our operating expenses will be denominated in local currencies. Currently, we do not engage in currency hedging activities to limit the risk of exchange rate fluctuations. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our results of operations when translated into U.S. dollars. In the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.
Our business is subject to a variety of U.S. and international laws that could give rise to claims, increase the cost of operations, or otherwise harm our business due to changes in the laws and their interpretations, greater enforcement of the laws, or investigations into compliance with the laws.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing copyright laws, employment and labor laws, workplace safety, consumer protection laws, privacy and data protection laws, anti-bribery laws, import and export controls, federal securities laws, and tax laws and regulations. In certain foreign jurisdictions, these regulatory requirements may be more stringent than those in the United States. These laws and regulations are subject to change over time and we must continuously monitor and dedicate resources to ensure ongoing compliance. Non-compliance with applicable laws or regulations could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results, and financial condition could be adversely affected. In addition, responding to any action would likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results and financial condition.
We are also subject to consumer protection laws that may impact our sales and marketing efforts, including laws related to subscriptions, billing, and auto-renewal. These laws, as well as any changes in these laws, could make it more difficult for us to retain existing customers and attract new ones.
We are subject to governmental export and import controls and anti-corruption laws and regulations that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
Our business activities are subject to various restrictions under U.S. export and similar laws and regulations, including the U.S. Department of Commerce’s Export Administration Regulations and various economic and trade sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. The U.S. export control laws and U.S. economic sanctions laws include restrictions or prohibitions on the sale or supply of certain products and services to U.S. embargoed or sanctioned countries, governments, persons and entities. In addition, various countries regulate the import of certain technology and have enacted or could enact laws that limit provisioning our customers access to our platform or limit our customers’ access or use of our services in those countries. Further, the current U.S. presidential administration has been critical of existing trade agreements and may impose more stringent export and import controls.
Although we take precautions to prevent our platform from being provided in violation of such laws, our platform could be provided inadvertently in violation of such laws. If we fail to comply with these laws and regulations, we and some of our employees could be subject to civil or criminal penalties, including the loss of export privileges and fines. We also may be adversely affected through penalties, reputational harm, loss of access to certain markets, or otherwise. In addition, various countries regulate the import and export of certain encryption and other technology, including import and export permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our platform or our users’ ability to access our platform in those countries. Changes in our platform, or future changes in export and import regulations may prevent our users with international operations from utilizing our platform globally or, in some cases, prevent the export or import of our platform to certain countries, governments, or persons altogether. Any change in export or import regulations, economic sanctions, or related legislation, increased export and import controls stemming from the current U.S. presidential administration’s policies, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our platform by, or in our decreased ability to export or sell subscriptions to our platform to, existing or potential users with international operations. Any decreased use of our platform or limitation on our ability to export or sell our platform could adversely affect our business, results of operations, and financial results.
We are subject to various domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, or the FCPA, and the U.K. Bribery Act, and other similar anti-bribery and anti-kickback laws and regulations. Anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, agents, representatives, business partners, and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. Under these laws, we may be held liable for the corrupt or other illegal activities of our employees, agents, representatives, business partners or third-party intermediaries even if we do not explicitly authorize such activities. Although we take precautions to prevent violations of these laws, we cannot assure you that all of our employees and agents will not take actions in violation of applicable law and our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in foreign jurisdictions.
Any allegations or violation of the FCPA or other applicable anti-bribery laws could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines, damages, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, results of operations, and prospects. Responding to any investigation or action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.
Our international operations subject us to potentially adverse tax consequences.
We are subject to income taxes and non-income-based taxes, such as payroll, sales, use, value-added, property and goods and services taxes, in both the United States and various foreign jurisdictions. Our domestic and international tax liabilities are subject to jurisdictional rules regarding the timing and allocation of revenue and
expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file and to changes in relevant tax laws. Significant judgment is required to determine our worldwide provision for income taxes and other tax liabilities. From time to time, we may be subject to income and non-income tax audits. While we believe we have complied with all applicable income tax laws, there can be no assurance that a governing tax authority will not interpret the law differently and assess us with additional taxes. Should we be assessed with additional taxes, there could be a material adverse effect on our business, results of operations, and financial condition.
Our future effective tax rate may be affected by such factors as changes in tax laws, regulations, rates, our international organization, and overall levels of income before tax, changing interpretation of existing laws or regulations, and the impact of accounting for equity-based compensation and accounting for business combinations. In the ordinary course of our global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, we cannot ensure that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.
Risks Related to Our Legal and Regulatory Environment
Our business could be affected by new governmental regulations regarding the internet.
Various laws and regulations could impede the growth of the internet or other online services, and new laws and regulations may be adopted in the future. These laws and regulations could limit internet neutrality, involve taxation, tariffs, privacy, data protection, information security, content, copyrights, distribution, electronic contracts and other communications, consumer protection, and the characteristics and quality of services, any of which could decrease the demand for, or the usage of, our platform. To date, government regulations have not materially restricted use of the internet in most parts of the world. However, the legal and regulatory environment pertaining to the internet is uncertain and governments may impose regulation in the future. New laws may be passed, courts may issue decisions affecting the internet, existing but previously inapplicable or unenforced laws may be deemed to apply to the internet, regulatory agencies may begin to more rigorously enforce such formerly unenforced laws, or existing legal safe harbors may be narrowed, both by U.S. federal or state governments or by governments of foreign jurisdictions.
The adoption of any new laws or regulations, or the narrowing of any safe harbors, could hinder growth in the use of the internet and online services generally, and decrease acceptance of the internet and online services as a means of communication, e-commerce, and advertising. In addition, such changes in laws could increase our costs of doing business or prevent us from delivering our services over the internet or in specific jurisdictions, which could harm our business and our results of operations.
Our exposure to tax liabilities may be greater than anticipated and may be affected by changes in tax laws or interpretations, any of which could adversely impact our results of operations.
We are subject to income taxes in the United States and various jurisdictions outside of the United States. Our effective tax rate could fluctuate due to changes in the mix of earnings and losses in countries with differing statutory tax rates. Our tax expense could also be impacted by changes in non-deductible expenses, changes in the tax treatment of equity-based compensation, changes in the valuation of deferred tax assets and liabilities and our ability to utilize them, the applicability of withholding taxes, effects from acquisitions, and the evaluation of new information that results in a change to a tax position taken in a prior period.
Changes in accounting principles, changes in U.S. federal, state, local or international tax laws applicable to corporate multinationals, other fundamental law changes currently being considered by many countries, including the United States, and changes in taxing jurisdictions’ administrative interpretations, positions, decisions, and policies could also impact our tax position. For example, on December 22, 2017, tax reform legislation referred to as the Tax Cuts and Jobs Act, or the Tax Act, was enacted in the United States. We have reflected the impact of the Tax Act in our financial statements in accordance with our understanding of the Tax Act and guidance available as of the date of this Annual Report on Form 10-K. Although the impact of the Tax Act was not material on our consolidated financial statements, many consequences of the Tax Act, including whether and how state, local, and
foreign jurisdictions continue reacting to such changes are unclear and the U.S. Department of Treasury may continue issuing regulations and interpretive guidance that may significantly impact how the Tax Act applies to us. Any of the foregoing changes could adversely impact our results of operations, cash flows, and financial condition.
Additionally, the Organization for Economic Co-Operation and Development released guidance covering various topics, including transfer pricing, country-by-country reporting, and definitional changes to permanent establishment that could ultimately impact our tax liabilities in various jurisdictions.
Our results of operations may be harmed if we are required to collect sales or other related taxes for our subscription services in jurisdictions where we have not historically done so.
We collect sales and value-added tax as part of our subscription agreements in a number of jurisdictions. Sales and use, value-added, and similar tax laws and rates vary greatly by jurisdiction. One or more states or countries may seek to impose additional sales, use, or other tax collection obligations on us, including for past sales by us. Furthermore, since U.S. Supreme Court’s ruling in South Dakota v. Wayfair, many states have implemented economic nexus laws that could require an online retailer with no in-state property or personnel to collect and remit sales tax on sales to the state’s residents and may permit wider enforcement of sales tax collection requirements. A successful assertion by a state, country, or other jurisdiction that we should have been or should be collecting additional sales, use, or other taxes on our platform could, among other things, result in substantial tax liabilities for past sales, create significant administrative burdens for us, discourage customers from purchasing our platform, or otherwise harm our business, results of operations, and financial condition.
We may not be able to utilize a significant portion of our net operating loss or research tax credit carryforwards, which could adversely affect our potential profitability.
We have federal and state net operating loss carryforwards, or NOLs, due to prior period losses, some of which, if not utilized, will begin to expire in 2030 for both federal and state purposes. As of December 31, 2020 we had federal NOLs of $416.2 million and state NOLs of $200.4 million. These NOLs and NOLs of companies we may acquire could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our potential profitability.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, our ability to utilize NOLs or other tax attributes, such as research tax credits and excess business interest, in any taxable year may be limited to the extent we have experienced an “ownership change.” Such an “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage over a three-year period. Past or future transactions among our stockholders may trigger an “ownership change.”
The nature of our business requires the application of complex accounting rules, including revenue and expense recognition rules, and any significant changes in current rules, or interpretations thereof, could affect our financial statements and results of operations.
The accounting rules and regulations that we must comply with are complex and subject to interpretation by the Financial Accounting Standards Board, or the FASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. Recent actions and public comments from the FASB and the SEC are focused on the integrity of financial reporting and internal controls over financial reporting. Many companies’ accounting policies and practices are being subject to heightened scrutiny by regulators and the public. In addition, the accounting rules and regulations are continually changing in ways that could materially impact our financial statements. We cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward, which could significantly affect our reported financial results, and could affect the reporting of transactions completed before the announcement of the change. Further, if we were to change our critical accounting estimates, including those related to the recognition of revenue, our results of operations could be significantly affected.
If our judgments or estimates relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.
The preparation of financial statements in conformity with GAAP requires management to make judgments, 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 entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the results of which form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A common stock. Significant judgments, estimates, and assumptions used in preparing our consolidated financial statements include, or may in the future include, those related to revenue recognition, equity-based compensation expense, sales commissions costs, long-lived assets, business combinations, and accounting for income taxes including deferred tax assets and liabilities.
We previously identified a material weakness in our internal control over financial reporting that resulted in the restatement of certain of our financial statements, and we may identify material weaknesses in the future.
We previously reported a material weakness in internal control over financial reporting for the year ended December 31, 2018 associated with the accounting for non-standard share-based payment awards. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As disclosed in our annual report on Form 10-K/A filed March 2, 2020, we took a number of measures to remediate the material weakness described above and concluded that the material weakness described above was remediated as of December 31, 2019. However, if additional material weaknesses or significant deficiencies in our internal control occur in the future, it may adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner. If we fail to report our results in a timely and accurate manner, we may be required to pay additional interest under our convertible notes, which could adversely impact our liquidity and financial condition. Although we continually review and evaluate internal control systems to allow management to report on the sufficiency of our internal control over financial reporting, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting. If we identify one or more new material weaknesses or are unable to timely remediate our existing material weakness, we may not assert that our internal controls are effective. If we can not assert that our internal control over financial reporting is effective, investors could lose confidence in the accuracy and completeness of our financial reports, which could have a material adverse effect on the price of our common stock and possibly impact our ability to obtain future financing on acceptable terms. Additionally, our management’s attention has been, and may further be, diverted from the operation of our business as a result of the time and attention required to address the remediation of any material weakness in our internal controls.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of the listing standards of Nasdaq. The requirements of these rules and regulations increased our legal, accounting, and financial compliance costs, made some activities more difficult, time-consuming, and costly, and placed significant strain on our personnel, systems, and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and
financial officers. Our efforts to enhance and improve our internal control over financial reporting are ongoing. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we expended, and anticipate continuing to expend, significant resources, including accounting-related costs and significant management oversight.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Moreover, we previously identified a material weakness in our internal control over financial reporting related to the establishment of accounting policies for non-standard equity-based compensation awards, and weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, any difficulties encountered in their implementation or improvement, or any failure to remediate our material weakness, could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting, which we are required to include in our periodic reports filed with the SEC. Ineffective disclosure controls, procedures and internal control over financial reporting could cause investors to lose confidence in our reported financial and other information, which could negatively affect the trading price of our Class A common stock. If we do not meet these requirements, we may not remain listed on Nasdaq. As a public company, we are required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with this Annual Report on Form 10-K.
Our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting. In the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating, it may issue an adverse report. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material negative effect on our business and results of operations and cause a decline in the price of our Class A common stock.
Risks Related to Future Debt and Our Convertible Senior Notes
Servicing our future debt may require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our indebtedness.
In March 2019, we issued $633.5 million aggregate principal amount of 0.375% convertible senior notes due in 2024, or the Notes. Making scheduled payments of the principal of, paying interest on, or refinancing our indebtedness, including the Notes, depends on our future performance and financial condition, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue generating cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we do not generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring our existing debt or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at the time. In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives or may restrict the way in which we operate our business. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our debt.
In the event we or our subsidiaries incur substantially more debt in the future, some of which may be secured debt, our exposure to these risks could intensify. We are not restricted under the terms of the indenture governing the Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt, repurchasing our stock, pledging our assets, making investments, paying dividends, guaranteeing debt, or taking a number of other actions any of which, if taken, could diminish our payments on the Notes when due.
We may not raise the funds necessary to make periodic interest payments, pay the principal amount at maturity, settle conversions of the Notes in cash or repurchase the Notes upon a fundamental change, and our future debt may contain limitations on paying cash upon conversion of the Notes or repurchasing the Notes.
Holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, upon conversion of the Notes, unless we elect to deliver solely shares of our Class A common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted. Moreover, we will be required to repay the Notes in cash at their maturity unless earlier converted, redeemed or repurchased. Meeting our obligations to holders of the Notes will depend on the earnings and cash flows of Pluralsight Holdings. However, if Pluralsight Holdings does not provide cash to us to meet our obligations under the Notes, we may not have enough available cash on hand or obtain financing at the time we are required to make payments with respect to Notes at maturity, upon surrender for repurchase or upon conversion. In addition, our ability to repurchase the Notes or to pay cash upon conversions of the Notes or at maturity may be limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to repurchase Notes at a time when the repurchase is required by the indenture governing the Notes or pay any cash payable on future conversions of the Notes or at maturity as required by such indenture would constitute a default under such indenture. A default under the indenture, or upon a fundamental change itself, could lead to a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof.
The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert the Notes at any time during specified periods at their option. Unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share) and one or more holders elect to convert their Notes, we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
Conversion of the Notes may dilute the ownership interest of our stockholders or may otherwise depress the prices of our Class A common stock.
The conversion of some or all of the Notes may dilute the ownership interests of our stockholders. Upon conversion of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock. If we elect to settle our conversion obligation in shares of our Class A common stock or a combination of cash and shares of our Class A common stock, any sales in the public market of our Class A common stock issuable upon such conversion could adversely affect prevailing market prices of our Class A common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our Class A common stock could depress the price of our Class A common stock.
The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.
Under the FASB Accounting Standards Codification 470-20, Debt with Conversion and Other Options, or ASC 470-20, an entity must separately account for the liability and equity components of convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. ASC 470-20 requires the value of the conversion option of the Notes, representing
the equity component, be recorded as additional paid-in capital within stockholders’ equity in our consolidated balance sheet and as a discount to the Notes, which reduces their initial carrying value. The carrying value of the Notes, net of the discount recorded, will be accreted up to the principal amount of the Notes from the issuance date until maturity, which will result in non-cash charges to interest expense in our consolidated statement of operations. Accordingly, we will report lower net income or higher net loss in our financial results because ASC 470-20 requires interest to include both the current period’s accretion of the debt discount and the instrument’s coupon, which could adversely affect our reported or future financial results, the trading price of our Class A common stock and the trading price of the Notes.
In addition, under certain circumstances, convertible debt instruments (such as the Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the Notes are not included in the calculation of diluted earnings per share except to the extent the conversion value of the Notes exceeds their principal amount, and the effect of the conversion on diluted earnings per share is not antidilutive. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of Class A common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which amends these accounting standards to eliminate the treasury stock method for convertible instruments and require application of the “if-converted” method, which may have the effect of diluting our reported earnings per share. ASU 2020-06 also no longer requires separate accounting for the liability and equity components of convertible debt instruments. This could have the impact of reducing non-cash interest expense, and thereby increasing net income.
Certain provisions in the indenture governing the Notes may delay or prevent an otherwise beneficial takeover attempt of us.
Certain provisions in the indenture governing the Notes may make it more difficult or expensive for a third party to acquire us. For example, the indenture governing the Notes will require us to repurchase the Notes for cash upon the occurrence of a fundamental change (as defined in the indenture governing the Notes) of us and, in certain circumstances, to increase the conversion rate for a holder that converts its Notes in connection with a make-whole fundamental change. A takeover of us may trigger the requirement that we repurchase the Notes and/or increase the conversion rate, which could make it more costly for a potential acquirer to engage in such a takeover. These additional costs may delay or prevent a takeover of us that would otherwise be beneficial to investors.
The capped call transactions may affect the value of the Notes and our Class A common stock.
In connection with the capped call transactions, the counterparties, or their respective affiliates, may purchase shares of our Class A common stock, and/or enter into or modify various derivative transactions with respect to our Class A common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes. This activity could cause or prevent market price fluctuation of our Class A common stock or the Notes. We cannot make any prediction as to the discretion or magnitude of any potential effect that the transactions described above may have on the price of the Notes or the shares of our Class A common stock.
We are subject to counterparty risk with respect to the capped call transactions.
The counterparties to the capped call transactions are financial institutions and we will be subject to the risk that one or more of the counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the capped call transactions. Our exposure to the credit risk of the counterparties will not be secured by any collateral. Some recent global economic conditions resulted in the actual or perceived failure or financial difficulties of many financial institutions. If a counterparty to one or more capped call transaction becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under such transaction. Our exposure will depend on many factors but, generally, it will increase if the market price or the volatility of our Class A common stock increases. Upon a default or other failure to perform, or a termination of obligations, by a counterparty, we may suffer adverse tax consequences and
more dilution than we currently anticipate with respect to our Class A common stock. We can provide no assurances as to the financial stability or viability of the counterparties.
Risks Related to Our Organizational Structure
Our principal asset is our interest in Pluralsight Holdings, and we depend on Pluralsight Holdings and its consolidated subsidiaries for our results of operations, cash flows, and distributions since we have no means to independently generate them.
We are a holding company and have no material assets other than our ownership of the LLC Units of Pluralsight Holdings. As such, we have no independent means of generating revenue or cash flow, and our ability to pay our taxes and operating expenses or declare and pay dividends in the future, if any, depend upon the results of operations and cash flows of Pluralsight Holdings and its consolidated subsidiaries and distributions we receive from Pluralsight Holdings. There can be no assurance that our subsidiaries will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions will permit such distributions.
Our ability to pay taxes and expenses, including payments under the TRA, may be limited by our structure.
Our principal asset is a controlling equity interest in Pluralsight Holdings. As such, we have no independent means of generating revenue. Pluralsight Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, is generally not subject to U.S. federal income tax. Instead, taxable income is allocated to holders of its LLC Units, including us. Accordingly, we incur income taxes on our allocatable share of any net taxable income of Pluralsight Holdings and incur expenses related to our operations. Pursuant to the Fourth LLC Agreement, Pluralsight Holdings will make cash distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations in respect of the cumulative taxable income in excess of cumulative taxable losses of Pluralsight Holdings that is allocated to them, to the extent previous tax distributions from Pluralsight Holdings have been insufficient. In addition to tax expenses, we incur expenses related to our operations, plus payments under the TRA or the TRA Amendment, as applicable, which we expect could be significant given the tax benefits associated with exchanges of LLC Units are more-likely-than-not to be realized. We intend to cause Pluralsight Holdings to make distributions or, in the case of certain expenses, payments in an amount sufficient to allow us to pay our taxes and operating expenses, including distributions to fund any ordinary course payments due under the TRA. However, Pluralsight Holdings’ ability to make such distributions may be subject to various limitations and restrictions. If we do not have sufficient funds to pay tax or other liabilities or to fund our operations (as a result of Pluralsight Holdings’ inability to make distributions due to various limitations and restrictions or as a result of the acceleration of our obligations under the TRA), we may have to borrow funds and our liquidity and financial condition could be materially and adversely affected.
To the extent we do not make payments under the TRA when due, as a result of having insufficient funds or otherwise, interest will generally accrue at a rate equal to LIBOR plus 100 basis points or in some cases LIBOR plus 600 basis points until paid. The UK’s Financial Conduct Authority, the authority regulating LIBOR, announced in July 2017 its intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is uncertain whether new methods of calculating LIBOR will be established to prolong its use after 2021. If we determine, or it is otherwise publicly announced, that LIBOR is no longer a widely recognized benchmark rate, the TRA requires us to establish a replacement interest rate, or Replacement Rate, to be applied in a manner consistent with market practice. Nonpayment of our obligations for a specified period may constitute a breach of a material obligation under the TRA, and may cause acceleration of payments due under the TRA resulting in a lump-sum payment. See the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” for additional information.
We will be required to pay the TRA Members for certain tax benefits we may claim, and we expect the payments we will be required to make will be substantial.
Exchanges or redemptions of LLC Units for cash or shares of our Class A common stock are expected to produce favorable tax attributes for us. When we acquire LLC Units from the Continuing Members through these exchanges or redemptions, anticipated tax basis adjustments are likely to increase (for tax purposes) our depreciation and amortization deductions, thereby reducing the amount of income tax we would be required to pay in the future
in the absence of this increased basis. This increased tax basis may also decrease the gain (or increase the loss) on future dispositions of certain assets to the extent the tax basis is allocated to those assets. Under the TRA, we generally expect to retain the benefit of 15% of the applicable tax savings after our payment obligations below are taken into account.
We are a party to the TRA. Under the TRA, we generally will be required to pay to the TRA Members 85% of the applicable savings, if any, in income tax that we realize, or that we are deemed to realize, as a result of (i) certain tax attributes that are created as a result of the exchanges or redemptions of their LLC Units (calculated under certain assumptions), (ii) tax benefits related to imputed interest, and (iii) payments under such TRA.
The increase in tax basis, as well as the amount and timing of any payments under these agreements, will vary depending upon a number of factors, including the timing of exchanges or redemptions, the price of our Class A common stock at the time of the exchange or redemption, whether such exchanges or redemptions are taxable, the amount and timing of the taxable income we generate in the future, the U.S. federal and state tax rates then applicable, and the portion of our payments under the TRA constituting imputed interest. Payments under the TRA are expected to give rise to certain additional tax benefits attributable to either further increases in basis or in the form of deductions for imputed interest, depending on the circumstances. Any such benefits are covered by the TRA and will increase the amounts due thereunder. In addition, the TRA will provide for interest, generally at a rate equal to LIBOR plus 100 basis points, accrued from the due date (without extensions) of the corresponding tax return to the date of payment specified by the TRA. If the discontinuation of LIBOR as discussed above materializes as expected by 2022, we are required under the TRA to replace the use of LIBOR in the TRA with a Replacement Rate to be applied in a manner consistent with market practice.
As a result of the exchanges made under our structure, we may incur a TRA liability. We have not recorded, and do not expect to record, a TRA liability until the tax benefits associated with the exchanges are more-likely-than-not to be realized. Had the tax benefits been more-likely-than not to be realized, the estimated TRA liability that could result from past exchanges would have been $345.1 million as of December 31, 2020.
We expect our required payments to the TRA Members will be substantial. To the extent we do not make timely payments under the TRA, the unpaid amounts will be deferred and will accrue interest until paid by us. Nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and may cause acceleration of payments due under the TRA. Furthermore, our future obligation to make payments under the TRA could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the TRA. See the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement,” for a discussion of the TRA and the related likely benefits to be realized by the TRA Members.
Payments under the TRA will be based on the tax reporting positions that we determine. Although we are not aware of any issue that could cause the U.S. Internal Revenue Service, or IRS, to challenge a tax basis increase or other tax attributes subject to the TRA, if any subsequent disallowance of tax basis or other benefits were so determined by the IRS, generally we would not be reimbursed for any payments previously made under the applicable TRA (although we would reduce future amounts otherwise payable under such TRA). As a result, payments could be made under the TRA in excess of the tax savings we realize in respect of the attributes to which the TRA relate.
The amounts that we may be required to pay to the TRA Members under the TRA may be accelerated in certain circumstances and may also significantly exceed the actual tax benefits that we ultimately realize.
The TRA provides that if certain mergers, asset sales, other forms of business combination, or other changes of control were to occur or if, at any time, we elect an early termination of the TRA, then the TRA will terminate and our obligations, or our successor’s obligations, to make future payments under the TRA would accelerate and become immediately due and payable. The amount due and payable in those circumstances is determined based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA. We may need to incur debt to finance payments under the TRA to the extent our cash resources are insufficient to meet our obligations under the TRA as a result of timing
discrepancies or otherwise. In these situations, our obligations under the TRA could substantially and negatively impact our liquidity and delay, defer or prevent certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the TRA. See the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” for additional information. The TRA was amended on December 11, 2020, the TRA Amendment, in connection with the Merger Agreement, with the parties agreeing that the consummation of the transactions contemplated by the Merger Agreement will trigger the TRA Payments of $127.0 million and will constitute Early Termination Payments, each as defined in the TRA Amendment. Upon consummation of the Mergers, the TRA shall be terminated in its entirety, as provided for in the TRA Amendment.
Our organizational structure, including the TRA, confers certain benefits upon Continuing Members that will not benefit Class A common stockholders to the same extent as it will benefit the Continuing Members.
Our organizational structure, including the TRA, confers certain benefits upon the Continuing Members that does not benefit the holders of our Class A common stock to the same extent as it benefits the Continuing Members. The TRA with Pluralsight Holdings and the Continuing Members provides for the payment by us to the TRA Members of 85% of the amount of tax benefits, if any, that we realize, or in some circumstances are deemed to realize, as a result of (i) the increases in the tax basis of assets of Pluralsight Holdings resulting from any redemptions or exchanges of LLC Units from the Continuing Members as described under the section entitled “Certain Relationships and Related Party Transactions—Fourth Amended and Restated LLC Agreement” and (ii) certain other tax benefits related to our making payments under the TRA. See the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” for additional information. Although we will retain 15% of the amount of such tax benefits, this and other aspects of our organizational structure may adversely impact the trading market for the Class A common stock.
Generally, we will not be reimbursed for any payments made to TRA Members under the TRA in the event that any tax benefits are disallowed.
If the IRS challenges the tax basis or other tax attributes that give rise to payments under the TRA and the tax basis or other tax attributes are subsequently required to be adjusted, generally the recipients of payments under the TRA will not reimburse us for any payments we previously made to them. Instead, any excess cash payments made by us to a TRA Member will be netted against any future cash payments we might otherwise be required to make under the terms of the TRA. However, a challenge to any tax benefits initially claimed by us may not arise for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the TRA and, as a result, there might not be future cash payments to net against. The applicable U.S. federal income tax rules are complex and factual in nature, and there can be no assurance that the IRS or a court will not disagree with our tax reporting positions. As a result, it is possible that we could make cash payments under the TRA that are substantially greater than our actual cash tax savings. See the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” for additional information.
The disparity between the U.S. corporate tax rate and the U.S. tax rate applicable to non-corporate members of Pluralsight Holdings may complicate our ability to maintain our intended capital structure, which could impose transaction costs on us and require management attention.
If and when we generate taxable income, Pluralsight Holdings will generally make quarterly tax distributions to each of its members, including us, based on each member’s allocable share of net taxable income (calculated under certain assumptions) multiplied by an assumed tax rate. The assumed tax rate for this purpose will be the highest effective marginal combined federal, state, and local income tax rate that may potentially apply to any member for the applicable fiscal year. The Tax Act significantly reduced the highest marginal federal income tax rate applicable to corporations such as Pluralsight, Inc., relative to non-corporate taxpayers. As a result of this disparity, we expect to receive tax distributions from Pluralsight Holdings significantly in excess of our actual tax liability and our obligations under the TRA, which could result in our accumulating a significant amount of cash. This would complicate our ability to maintain certain aspects of our capital structure. Such cash, if retained, could cause the value of an LLC Unit to deviate from the value of a share of Class A common stock, contrary to the one-to-one
relationship described in the section entitled “Certain Relationships and Related Party Transactions—Fourth Amended and Restated LLC Agreement” for additional information. Such cash, if used to purchase additional LLC Units, could result in deviation from the one-to-one relationship between Class A common stock outstanding and LLC Units of Pluralsight Holdings held by Pluralsight, Inc. unless a corresponding number of additional shares of Class A common stock are distributed as a stock dividend. We may choose to pay dividends to all holders of Class A common stock with any excess cash. These considerations could have unintended impacts on the pricing of our Class A common stock and may impose transaction costs and require management efforts to address on a recurring basis. To the extent we do not distribute such excess cash as dividends on our Class A common stock and instead, for example, hold such cash balances or lend them to Pluralsight Holdings, the Continuing Members in Pluralsight Holdings during a period in which we hold such cash balances could benefit from the value attributable to such cash balances as a result of redeeming or exchanging their LLC Units and obtaining ownership of Class A common stock (or a cash payment based on the value of Class A common stock). In such case, these Continuing Members could receive disproportionate value for their LLC Units exchanged during this time frame.
Risks Related to Entering into a Definitive Agreement to Be Acquired
The announcement and pendency of the proposed Mergers could adversely affect our business.
On December 11, 2020, we announced that we had entered into the Merger Agreement with Vista. Uncertainty about the effect of the Mergers on our customers, employees, partners, and other parties may adversely affect our business. Our employees may experience uncertainty about their roles or seniority following the Mergers. There can be no assurance that our employees, including key personnel, can be retained, or that we will be able to attract and retain employees to the same extent that we have previously been able to. Any loss or distraction of such employees could adversely affect our business and operations. In addition, we have diverted, and will continue to divert, significant management resources, and have expended, and will continue to expend, significant cash amounts, toward the completion of the Mergers, which could adversely affect our business and operations. Certain of our stockholders presently publicly oppose the Mergers and may attempt to solicit our stockholders to vote against the Mergers, which has increased these risks. Parties with which we do business may experience uncertainty associated with the Mergers, including with respect to current or future business relationships with us. Uncertainty may cause customers to refrain from doing business with us, which could adversely affect our business, results of operations and financial condition.
The failure to complete the Mergers could adversely affect our business.
Consummation of the Mergers is subject to several conditions beyond our control. If any of these conditions are not satisfied or waived, it is possible that the Mergers will not be consummated in the expected time frame (or at all) or that the Merger Agreement may be terminated. If the Mergers are not completed, the share price of our Class A common stock may decrease to the extent that the current market price of our Class A common stock reflects an assumption that the Mergers will be completed. In addition, under circumstances specified in the Merger Agreement, we may be required to pay a termination fee of $104.6 million to Vista. Further, a failed transaction may result in negative publicity and a negative impression of us in the investment community. Any disruption to our business resulting from the announcement and pendency of the Mergers and from intensifying competition from our competitors, including any adverse changes in our relationships with our customers, employees, partners and other parties, could continue or accelerate in the event of a failed transaction. There can be no assurance that our business, relationships with other parties, liquidity or financial condition will not be adversely affected, as compared to the condition prior to the announcement of the Mergers, if the Mergers are not consummated.
While the Mergers are pending, we are subject to business uncertainties and contractual restrictions that could harm our operations and the future of our business.
Pursuant to the terms of the Merger Agreement, we are subject to certain restrictions on the conduct of our business. These restrictions subject us to a variety of specified limitations, including limiting our ability, in certain cases, to enter into material contracts, acquire or dispose of assets, incur indebtedness, or incur capital expenditures, until the Mergers become effective or the Merger Agreement is terminated. These restrictions may inhibit our ability to take actions that we may consider advantageous, and may limit our ability to respond to future business
opportunities and industry developments that may arise. The pendency of the Mergers has diverted, and may continue to divert, management’s attention and our resources from our ongoing business and operations. Our customers, employees, partners, and other parties may have uncertainties about the effects of the Mergers. In connection with the Mergers, it is possible that some customers and other persons with whom we have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationship with us as a result of the Mergers. If any of these effects were to occur, it could materially and adversely impact our business, cash flow, results of operations or financial condition, as well as the market price of our Class A common stock and our perceived value, regardless of whether the Mergers are completed. In addition, whether or not the Mergers are completed, while the Merger Agreement is in effect we will continue to incur costs, fees, expenses and charges related to the Mergers, which may materially and adversely affect our financial condition.
The Merger Agreement limits our ability to pursue alternatives to the Mergers.
The Merger Agreement contains provisions that make it more difficult for us to enter into alternative change-of-control transactions. The Merger Agreement contains certain provisions that restrict our ability to, among other things, solicit alternative acquisition proposals from third parties and provide information to, and participate in discussions and engage in negotiations with, third parties regarding any alternative acquisition proposals. The Merger Agreement also provides that, subject to limited exceptions, the Board will not change its recommendation to our stockholders in favor of the Mergers and will not approve any agreement with respect to an alternative acquisition proposal.
These provisions might discourage a third party that has an interest in acquiring all or a significant part of us from considering or proposing such acquisition, even if such party were prepared to pay consideration with a higher per-share value than that offered by Vista. Furthermore, the requirement that we pay a termination fee under certain circumstances may result in a third party proposing to pay a lower per-share price to acquire us than it might otherwise have proposed to pay because of the added expense of the termination fee.
We are subject to litigation, and we may become subject to additional litigation, in connection with the Mergers, which could be costly, prevent consummation of the Mergers, divert management’s attention and otherwise materially harm our business.
For information regarding current legal proceedings regarding the Mergers, please see Note 12 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Regardless of the outcome of any current or future litigation related to the Mergers, such litigation may be time-consuming and expensive and may distract our management from running the day-to-day operations of our business. The litigation costs and diversion of management’s attention and resources to address the claims and counterclaims in any litigation related to the Mergers may materially adversely affect our business, results of operations, prospects and financial condition. If the Mergers are not consummated for any reason, litigation could be filed in connection with the failure to consummate the Mergers. Any litigation related to the Mergers may result in negative publicity or an unfavorable impression of us, which could adversely affect the price of our Class A common stock, impair our ability to recruit or retain employees, damage our relationships with our customers and other third parties, or otherwise materially harm our operations and financial performance.
Risks Related to Our Class A Common Stock
The Continuing Members have the right to have their LLC Units exchanged for shares of Class A common stock and any disclosure of such exchange or the subsequent sale of such Class A common stock may cause volatility in our stock price.
As of December 31, 2020, we have an aggregate of 25,524,732 shares of Class A common stock that are issuable upon exchange of LLC Units that are held by the Continuing Members. Under the Fourth LLC Agreement, the Continuing Members will be entitled to have their LLC Units exchanged for shares of our Class A common stock.
We cannot predict the timing, size, or disclosure of any future issuances of our Class A common stock resulting from the exchange of LLC Units or the effect, if any, that future issuances, disclosure, if any, or sales of shares of our Class A common stock may have on the market price of our Class A common stock. Sales or distributions of substantial amounts of our Class A common stock, or the perception that such sales or distributions could occur, may cause the market price of our Class A common stock to decline.
The multi-class structure of our common stock has the effect of concentrating voting control with Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, which limits or precludes your influence as a stockholder on corporate matters and may have a negative impact on the price of our Class A common stock.
Our Class C common stock has 10 votes per share, our Class B common stock has one vote per share, and our Class A common stock, our publicly traded stock, has one vote per share. Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, personally and through his associated entities, holds all our issued and outstanding Class C common stock, and as of December 31, 2020, holds approximately 50.2% of the combined voting power of our outstanding capital stock. As restricted share units of Pluralsight Holdings held by Mr. Skonnard vest over time, he will receive additional LLC Units and Class C common stock with 10 votes per share. As a result, Mr. Skonnard and his associated entities have the ability to control or significantly influence any action requiring the general approval of our stockholders, including the election and removal of our directors, amendments to our amended and restated certificate of incorporation and amended and restated bylaws, the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction. Many of these actions may be taken even if they are opposed by other stockholders. This concentration of ownership and voting power may delay, defer, or prevent an acquisition by a third party or other change of control of us and may make some transactions more difficult or impossible without his support, even if such events are in the best interests of other stockholders. This concentration of voting power with Mr. Skonnard and his associated entities may have a negative impact on the price of our Class A common stock.
As our Chief Executive Officer, Mr. Skonnard controls our day-to-day management and the implementation of major strategic investments of our company, subject to authorization and oversight by our board of directors. As a board member and officer, Mr. Skonnard owes fiduciary duties to us and our stockholders, including those of care and loyalty, and must act in good faith and with a view to the interests of the corporation. As a stockholder, even a controlling stockholder, Mr. Skonnard is entitled to vote his shares, and shares over which he has voting control, in his own interests, which may not always be in the interests of our stockholders generally. Because Mr. Skonnard, personally and through his associated entities, holds his economic interest in our business primarily through Pluralsight Holdings, rather than through the public company, he may have conflicting interests with holders of shares of our Class A common stock. For example, Mr. Skonnard may have a different tax position from us, which could influence his decisions regarding whether and when we should dispose of assets or incur new or refinance existing indebtedness, especially in light of the existence of the TRA, and whether and when we should undergo certain changes of control within the meaning of the TRA or terminate the TRA. In addition, the structuring of future transactions may take into consideration these tax or other considerations even where no similar benefit would accrue to us. See the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” for additional information. In addition, Mr. Skonnard’s significant ownership in us and resulting ability to effectively control or significantly influence us may discourage someone from making a significant equity investment in us, or could discourage transactions involving a change in control, including transactions in which you as a holder of shares of our Class A common stock might otherwise receive a premium for your shares over the then-current market price.
In addition, in July 2017, Standard & Poor’s announced that they would cease allowing most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Affected indices include the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500. Under the announced policies, our multi-class capital structure makes us ineligible for inclusion in any of these indices, and as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track these indices will not invest in our stock. Because of our dual class structure, we may be excluded from these indexes and we cannot assure you that other stock indexes will not take similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indexes, exclusion from stock indexes would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors.
Although we do not rely on the “controlled company” exemption under the rules and regulations of Nasdaq, we have the right to use such exemption and therefore we could in the future avail ourselves of certain reduced corporate governance requirements.
Aaron Skonnard and his associated entities, collectively, hold a majority of the voting power of our outstanding capital stock, and therefore we are considered a “controlled company” as that term is set forth in the rules and regulations of Nasdaq. Under these rules, a company of which more than 50% of the voting power is held by a person or group of persons acting together is a “controlled company” and may elect not to comply with certain rules and regulations of Nasdaq regarding corporate governance, including:
•the requirement that a majority of its board of directors consist of independent directors;
•the requirement that its director nominees be selected or recommended for the board’s selection by a majority of the board’s independent directors in a vote in which only independent directors participate or by a nominating committee comprised solely of independent directors, in either case, with board resolutions or a written charter, as applicable, addressing the nominations process and related matters as required under the federal securities laws; and
•the requirement that its compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purposes and responsibilities.
These requirements would not apply to us if, in the future, we choose to avail ourselves of the “controlled company” exemption. Although we qualify as a “controlled company,” we do not currently rely on these exemptions and we fully comply with all corporate governance requirements under the rules and regulations of Nasdaq, including any phase-in periods specified thereunder. However, if we were to utilize some or all of these exemptions, we would not comply with certain of the corporate governance standards of Nasdaq, which could adversely affect the protections for other stockholders.
Our stock price may continue being volatile, and it may decline regardless of our operating performance.
Prior to our IPO, there was no public market for shares of our Class A common stock. On May 17, 2018, we sold shares of our Class A common stock to the public at $15.00 per share. From May 17, 2018, the date that shares of our Class A common stock began trading on Nasdaq, through December 31, 2020, the market price for our Class A common stock has ranged from $6.59 per share to $38.37 per share. The market price of our Class A common stock may continue fluctuating significantly in response to numerous factors, many of which are beyond our control, including, among others:
•whether the Mergers are consummated;
•actual or anticipated fluctuations in our revenue and other results of operations, including as a result of the addition or loss of any number of customers;
•competitive headwinds, including announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;
•the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections;
•failure of securities analysts to initiate or maintain coverage of us, changes in ratings and financial estimates and the publication of other news by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
•changes in operating performance and stock market valuations of SaaS-based software or other technology companies, or those in our industry in particular;
•the size of our public float;
•price and volume fluctuations in the trading of our Class A common stock and in the overall stock market, including as a result of trends in the economy as a whole;
•new laws or regulations or new interpretations of existing laws or regulations applicable to our business or industry, including data privacy, data protection, and information security;
•lawsuits threatened or filed against us for claims relating to intellectual property, employment issues, or otherwise;
•actual or perceived security breaches;
•changes in our board of directors or management;
•short sales, hedging, and other derivative transactions involving our Class A common stock;
•sales of large blocks of our Class A common stock including sales by our executive officers, directors, and significant stockholders;
•the impact of the COVID-19 pandemic on our business operations and overall financial performance; and
•other events or factors, including changes in general economic, industry, and market conditions, and trends, as well as any natural disasters, which may affect our operations.
Following a period of volatility in the market price of our securities, we became the subject of securities litigation. For example, in August 2019, a class action complaint was filed by a stockholder in the U.S. District Court for the Southern District of New York against us and certain of our officers alleging violation of securities laws and seeking unspecified damages. For more information, please see Note 12 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Following a period of volatility in the market price of our securities, we became the subject of securities litigation. We may experience more such litigation following future periods of volatility. This type of litigation may result in substantial costs and a diversion of management’s attention and resources, which could adversely affect our business and financial condition.
General Risk Factors
Adverse economic conditions in the United States and international countries has impacted and may continue to adversely impact our business and results of operations.
Unfavorable general economic conditions, such as the existing COVID-19 pandemic-driven recession or economic slowdown in the United States or in one or more of our other major markets, has and may continue to adversely affect demand for our platform. Changing macroeconomic conditions may affect our business in a number of ways. For example, spending patterns of businesses are sensitive to the general economic climate. Technology spending by our customers or prospective customers has been and may continue to be impacted by conditions presented by the COVID-19 pandemic as customers may deem subscriptions to our platform discretionary. During 2020, we saw and may continue to see customers or prospective customers reduce or delay their purchasing decisions, limit their ability to purchase our offerings, reduce their ability to provide payment under existing contracts, prolong payment periods, decrease our customer retention, or delay our ability to provision our products and services, all of which could adversely affect our results of operations, future sales, and overall financial performance. Subscriptions for our platform may be considered discretionary by many of our current and potential customers. As a result, businesses considering whether to purchase or renew subscriptions to our products may be influenced by macroeconomic factors.
There is significant uncertainty, which has intensified as a result of the conditions presented by the COVID-19 pandemic, about the future relationship between the United States and other countries with respect to trade policies, treaties, government relations, and tariffs. The previous U.S. presidential administration called for substantial changes to U.S. foreign trade policy with China and other countries, including the possibility of imposing greater
restrictions on international trade and significant increases in tariffs on goods imported into the United States. Many of our customers who conduct business in China may be impacted by these policies or any new policies called for by the current U.S. presidential administration. If the United States’ relationship with China deteriorates or results in trade protection measures, retaliatory actions, tariffs, or increased barriers, policies that favor domestic industries, or heightened import or export licensing requirements or restrictions, then our operations and business may be adversely affected due to such changes in the economic and political ecosystem.
Our business could be negatively impacted by changes in the United States political environment.
There is significant ongoing uncertainty with respect to potential legislation, regulation and government policy at the federal level, as well as the state and local levels in the United States. Any such changes could significantly impact our business as well as the markets in which we compete. Specific legislative and regulatory proposals discussed during election campaigns and more recently that might materially impact us include, but are not limited to, changes to import and export regulations, income tax regulations and the U.S. federal tax code and public company reporting requirements. To the extent changes in the political environment have a negative impact on us or on our markets, our business, results of operation and financial condition could be materially and adversely impacted in the future.
We continue incurring increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our business, financial condition, and results of operations.
As a public company, we incur greater legal, accounting, and other expenses than we incurred as a private company. We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and the rules and regulations of Nasdaq. Recently, we devoted substantial management effort and incurred significant expenses toward ensuring compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We also hired additional accounting and financial professionals with appropriate public company experience and technical accounting knowledge.
These requirements, and any modifications, increase our legal, accounting, and financial compliance costs and make some activities more time-consuming and costly. For example, these rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to maintain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.
Future sales of shares by existing stockholders could cause our stock price to decline.
Sales of a substantial number of shares of our Class A common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our Class A common stock in the public market following our offering in June 2020, the market price of our Class A common stock could decline.
If securities or industry analysts do not publish research or reports about our business, or if they downgrade our common stock, the price of our Class A common stock could decline.
The trading market for our Class A common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not influence or control these analysts. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price could decline. In addition, if our results of operations fail to meet the forecast of analysts, our stock price could decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our stock price and trading volume to decline.
Our issuance of additional capital stock in connection with financings, acquisitions, investments, our equity incentive plans, or otherwise could dilute all other stockholders.
We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. For example, we expect to grant equity awards under our equity incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies, and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our Class A common stock to decline.
We generally do not intend to pay dividends.
We generally do not intend to pay dividends to the holders of our Class A common stock for the foreseeable future, except possibly in connection with maintaining certain aspects of our UP-C structure. See the section entitled “—Risks Related to Our Organizational Structure—The disparity between the U.S. corporate tax rate and the U.S. tax rate applicable to non-corporate members of Pluralsight Holdings may complicate our ability to maintain our intended capital structure, which could impose transaction costs on us and require management attention.” Our ability to pay dividends on our Class A common stock may be restricted by the terms of any future debt incurred or preferred securities issued by us or our subsidiaries or law. Payments of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our business, financial condition, and results of operations, current and anticipated cash needs, plans for expansion and any legal or contractual limitation on our ability to pay dividends. As a result, any capital appreciation in the price of our Class A common stock may be your only source of gain on your investment in our Class A common stock.
If, however, we decide to pay a dividend in the future, we would likely need to cause Pluralsight Holdings to make distributions to Pluralsight, Inc. in an amount sufficient to cover cash dividends, if any, declared by us.
Deterioration in the consolidated financial condition, earnings, or cash flow of Pluralsight Holdings for any reason could limit or impair its ability to pay cash distributions or other distributions to us. In addition, our ability to pay dividends in the future is dependent upon our receipt of cash from Pluralsight Holdings and its subsidiaries. Pluralsight Holdings and its subsidiaries may be restricted from distributing cash to us by, among other things, law or the documents governing our existing or future indebtedness.
Some provisions of Delaware law and our amended and restated certificate of incorporation and amended and restated bylaws may deter third parties from acquiring us and diminish the value of our Class A common stock.
Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would benefit our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws provide for, among other things:
•a classified board of directors with staggered three-year terms;
•the removal of directors by stockholders only for cause;
•our multi-class structure, which provides Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, personally and through his associated entities, the ability to control or significantly influence the outcome of matters requiring stockholder approval;
•the ability of our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change in control;
•advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at stockholder meetings;
•a prohibition on stockholders calling special stockholder meetings; and
•certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws that may be amended only by the affirmative vote of the holders of at least two-thirds in voting power of all outstanding shares of our stock entitled to vote thereon, voting together as a single class.
These anti-takeover defenses could discourage, delay, or prevent a transaction involving a change in control of our company. These provisions could discourage proxy contests, make it more difficult for stockholders to elect directors of their choosing, and cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock, and affect the price that some investors are willing to pay for our Class A common stock.
Our amended and restated bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or other employees.
Our amended and restated bylaws provide that, for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees of ours or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws, or (iv) any other action asserting a claim that is governed by the internal affairs doctrine, the exclusive forum shall be a state or federal court located within the State of Delaware, in substantially all cases. Our amended and restated bylaws also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the sole and exclusive forum for any action asserting a claim arising pursuant to the Securities Act, such a provision known as a “Federal Forum Provision.” Any person or entity purchasing or otherwise acquiring any interest in our shares of capital stock shall be deemed to have notice of and consented to these provisions. These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees.
In light of the decision issued by the Delaware Supreme Court in Salzburg et al. v. Matthew Sciabacucchi, No. 346, 2019 (Del.), finding Federal Forum Provisions are valid under Delaware law, which decision overruled the decision issued by the Delaware Court of Chancery in Matthew Sciabacucchi v. Matthew B. Salzberg et al., C.A. No. 2017-0931-JTL (Del. Ch.), we intend to enforce the Federal Forum Provision in our amended and restated bylaws.
If we face relevant litigation and are unable to enforce these provisions, we may incur additional costs associated with resolving such matters in other jurisdictions, which could harm our business, financial condition, or results of operations.
Our results of operations could be adversely affected by natural disasters, public health crises, political crises, or other catastrophic events.
Natural disasters, such as earthquakes, hurricanes, tornadoes, floods, and other adverse weather and climate conditions; unforeseen public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, and other political instability; or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations in any of our offices or the operations of one or more of our third-party providers and vendors, such as AWS. To the extent any of these events occur, our business and results of operations could be adversely affected.
Climate change may have a long-term impact on our business.
We recognize that there are inherent climate related risks wherever business is conducted and we are exploring methods to mitigate business risks associated with climate change, including affiliations with organizations focused on reducing climate related risks and establishing sustainability initiatives. Access to clean water and reliable energy
in the communities where we conduct our business, whether for our offices, data centers, vendors, customers or other stakeholders, is a priority and is not guaranteed. Any of our primary locations may be vulnerable to the adverse effects of climate change. Climate-related events, including the increasing frequency of extreme weather events and their impact on critical infrastructure in the United States and elsewhere, have the potential to disrupt our business, our partners, and our customers, and may cause us to experience higher attrition, losses, and additional costs to maintain or resume operations.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters occupies approximately 348,000 square feet in Draper, Utah under a lease that expires in 2035. We have a right to extend the term of the lease for up to three additional five-year periods. We also lease offices around the world, including in Boston, Ireland, and Australia.
We believe that our existing facilities are sufficient for our current needs. In the future, we may need to add new facilities and expand our existing facilities as we add employees, grow our infrastructure, and evolve our business, and we believe that suitable additional or substitute space will be available on commercially reasonable terms to meet our future needs.
Item 3. Legal Proceedings.
We are, from time to time, subject to legal proceedings and claims arising from the normal course of business activities, and an unfavorable resolution of any of these matters could materially affect our future business, results of operations, financial condition, and cash flows. The information required by this item is provided in Note 12 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.
Future litigation may be necessary, among other things, to defend ourselves or our users by determining the scope, enforceability, and validity of third-party proprietary rights or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Item 4. Mine Safety Disclosures.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Composition of Our Board
Our board of directors is currently comprised of eleven members. Our board of directors consists of three classes of directors, each serving staggered three-year terms. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the class whose term is then expiring. Each director's term continues until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of as closely as possible to one third of the directors. There are no family relationships among any of our directors or executive officers.
The following table sets forth the names, ages, and certain other information for each of the directors. All information is as of February 11, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Class
|
|
Age
|
|
Position
|
|
Director Since
|
|
Current Term Expires
|
Gary Crittenden(1)(4)
|
|
I
|
|
67
|
|
Director
|
|
2017
|
|
2022
|
Tim Maudlin(2)
|
|
I
|
|
70
|
|
Director
|
|
2017
|
|
2022
|
Brad Rencher(3)
|
|
I
|
|
47
|
|
Director
|
|
2017
|
|
2022
|
Frederick Onion
|
|
II
|
|
52
|
|
Co-Founder and Director
|
|
2017
|
|
2023
|
Arne Duncan
|
|
II
|
|
56
|
|
Director
|
|
2017
|
|
2023
|
Leah Johnson(1)
|
|
II
|
|
58
|
|
Director
|
|
2018
|
|
2023
|
Karenann Terrell(2)
|
|
II
|
|
59
|
|
Director
|
|
2017
|
|
2023
|
Aaron Skonnard
|
|
III
|
|
48
|
|
Co-Founder, Chief Executive Officer and Chairman
|
|
2017
|
|
2021
|
Scott Dorsey(1)(3)
|
|
III
|
|
53
|
|
Director
|
|
2017
|
|
2021
|
Ryan Hinkle(2)(3)
|
|
III
|
|
39
|
|
Director
|
|
2017
|
|
2021
|
Bonita Stewart(3)
|
|
III
|
|
63
|
|
Director
|
|
2018
|
|
2021
|
________________________
(1) Member of nominating and corporate governance committee.
(2) Member of audit committee.
(3) Member of compensation committee.
(4) Lead independent director.
Below is a summary of the composition of our Board’s committees as of February 11, 2021.
Directors Serving on Our Board
Below is summary of the age, tenure, and unique experiences, qualifications and attributes reflected by the members who serve on our Board as of February 11, 2021. We value the diversity our Board represents and consider it critical to our success.
Board Committees
Our board of directors has established a standing audit committee, a standing compensation committee, and a standing nominating and corporate governance committee. Members of committees are appointed by our board of directors following recommendations by our nominating and corporate governance committee and serve at the pleasure of our board of directors for terms of service at the discretion of the board of directors. Each of the committees has the composition and the responsibilities described below.
Audit Committee
Our audit committee currently consists of Messrs. Maudlin and Hinkle, and Ms. Terrell, with Mr. Maudlin serving as chairperson. Mr. Maudlin is considered an "audit committee financial expert" as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act, and all members of the audit committee are financially literate.
Our audit committee oversees our corporate accounting and financial reporting process, internal control over financial reporting, the audit and integrity of our financial statements, and assists our board of directors in monitoring our financial systems, and our legal and regulatory compliance. The responsibilities of our audit committee include, but are not limited to, the following:
•overseeing the qualifications, independence, and performance of our independent registered public accounting firm ("independent auditors") and our internal control functions;
•approving the hiring, retaining, discharging, replacing, and compensation of our independent auditors;
•approving engagements of the independent auditors to render any audit or permissible non-audit services;
•reviewing the qualifications, independence and performance of our independent auditors or any other registered public accounting firm;
•reviewing the scope of the annual audit;
•discussing and reviewing earnings press releases, financial information, and earnings guidance provided to the public, analysts, and rating agencies;
•reviewing our financial statements and critical accounting policies and estimates;
•assessing the adequacy and effectiveness of our disclosure controls and procedures;
•reviewing analyses prepared by management or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of financial statements, including analyses of the effects of alternative generally applicable account principles methods in the financial statements;
•reviewing the adequacy and effectiveness of our internal controls;
•approving all overall objectives, scope, organizational structure, responsibilities, resources and activities of our internal audit function;
•discussing and reviewing with management and our independent auditors the results of our annual audit, including critical audit matters identified by our independent auditors during the audit, as applicable, and our quarterly financial statements;
•reviewing and resolving any disagreements that may arise between management and the independent auditors regarding financial reporting or internal control over financial reporting;
•obtaining and reviewing the independent auditor's internal quality control procedures, and any material issues raised by the most recent internal quality-control review, peer review, or the Public Company Accounting Oversight Board (United States) review of the independent auditors by any inquiry or investigation by governmental or professional authorities, regarding any independent audit performed by the independent auditors and any steps to remediate and address such issues;
•reviewing our risk assessment and risk management processes, including our financial reporting, accounting, auditing, tax, and legal matters;
•establishing procedures for receiving, retaining and investigating complaints received by us regarding accounting, internal accounting controls or audit matters; and
•reviewing and approving related party transactions under Item 404 of Regulation S-K.
Our audit committee operates under a written charter that was approved by our board of directors and that satisfies the applicable rules and regulations of the SEC and Nasdaq Rules. The charter is available on our website at http://investors.pluralsight.com.
Compensation Committee
Our compensation committee currently consists of Messrs. Rencher, Hinkle, and Dorsey, and Ms. Stewart, with Mr. Rencher serving as the chairperson.
Our compensation committee oversees our corporate compensation policies, plans, benefits programs, and overall compensation philosophy. The responsibilities of our compensation committee include, but are not limited to, the following:
•reviewing and approving, or recommending to our board of directors for approval, policies relating to compensation and benefits of our officers and employees;
•periodically reviewing stock ownership guidelines, if any, applicable to members of the board of directors or executive offices;
•reviewing and approving, or recommendation to our board of directors for approval, corporate goals and objectives relevant to compensation of our Chief Executive Officer and other senior officers;
•overseeing our submissions to stockholders on executive compensation matters, including advisory votes on executive compensation and the frequency of such votes, incentive and other executive compensation plans, and in conjunction with our nominating and corporate governance committee of our board of directors, engaging with proxy advisory firms and other stockholder groups on executive compensation matters;
•reviewing and discussing annually with management the risks arising from our compensation philosophy and practices applicable to all employees to determine whether they encourage excessive risk-taking and to evaluate compensation policies and practices that could mitigate such risks;
•evaluating the performance of our officers (including our Chief Executive Officer) in light of established goals and objectives;
•recommending compensation of our officers based on its evaluations;
•discussing and reviewing with management disclosures required by the rules and regulations of the SEC;
•administering our equity compensation plans, including approving or recommending to our board of directors for approval, the grant of equity-based awards; and
•evaluating and approving, or recommending to our board of director for approval, non-employee director compensation.
Our compensation committee operates under a written charter approved by our board of directors and that satisfies the applicable rules and regulations of the SEC and the Nasdaq Rules. The charter is available on our website at http://investors.pluralsight.com.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee currently consists of Messrs. Crittenden and Dorsey, and Ms. Johnson, with Mr. Crittenden serving as the chairperson.
Our nominating and corporate governance committee oversees and assists our board of directors in identifying individuals who are qualified to become members of our board of directors in accordance with criteria approved by our board of directors and reviewing and recommending nominees for election or selection as directors. The responsibilities of our nominating and corporate governance committee include, but are not limited to, the following:
•evaluating and making recommendations regarding the composition, organization and governance of the board of directors and its committees;
•assessing the performance of members of the board of directors and making recommendations regarding committee and chair assignments;
•recommending desired qualifications, qualities, skills and other expertise for membership on our board of directors and conducting searches for potential members of our board of directors;
•reviewing and making recommendations with regard to our corporate governance guidelines;
•overseeing our charitable endeavors, including the activities and governance of Pluralsight One and any other charitable initiatives;
•overseeing our inclusion and diversity initiatives, including review of progress against our stated goals and overall alignment with business strategy and priorities;
•evaluating the "independence" of directors and director nominees against the independence requirements of Nasdaq Rules, applicable rules and regulations promulgated by the SEC and other applicable laws, rules and regulations;
•overseeing compliance with our code of business conduct and ethics;
•contributing to succession planning;
•developing and reviewing periodically the policies and procedures for considering stockholder nominees for election to our board of directors;
•considering any nominations of director candidates validly made by stockholders in accordance with applicable laws, rules and regulations and the provisions of our certificate of incorporation and bylaws and our stockholder nominations and recommendation policies and procedures;
•evaluating and recommending termination of membership of individual directors for cause of other appropriate reasons;
•reviewing any proposals properly submitted by stockholders for action at the annual meeting of stockholders and making recommendations to the board of directors regarding action to be taken in response to each proposal;
•evaluating the participation of members of our board of directors in orientation and continuing education activities in accordance with applicable listing standards;
•reviewing actual and potential conflicts of interest of our directors and officers other than related party transactions reviewed by our audit committee;
•overseeing the self-evaluation process of the board of directors; and
•oversee the our sustainability related initiatives, reporting and programming, including review of progress against the our stated goals and overall alignment with business strategy and priorities.
Our nominating and corporate governance committee operates under a written charter that was approved by our board of directors and that satisfies the applicable rules and regulations of the SEC and the Nasdaq Rules. The charter is available on our website at http://investors.pluralsight.com.
Considerations in Evaluating Director Nominees
In its evaluation of director candidates, including the members of the board of directors eligible for re-election, our nominating and corporate governance committee considers the current size and composition of the board of directors, the needs of the board of directors and its respective committees, and the desired qualifications, expertise and characteristics of the members of our board of directors, including such factors as education, people, brand and risk management, business, financial and technical expertise and directorship and leadership experience as described above in the section entitled “Composition of our Board”. While we do not have a formal policy with respect to diversity, our nominating and corporate governance committee may consider such factors as differences in professional background, education, skill, race, ethnicity, gender, age and other individual qualities and attributes that contribute to the total mix of viewpoints and experience represented on the board of directors. Our board of directors is committed to seeking out qualified women and individuals from underrepresented groups and diverse backgrounds. Our nominating and corporate governance committee has, from time to time, engaged an executive search firm to assist in identifying and recruiting potential candidates for membership on our board of directors.
Our nominating and corporate governance committee evaluates each individual in the context of the membership of the board of directors as a group, with the objective of having a group that can best perpetuate the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of background and experience in various areas. Each director should be an individual of high character and integrity. The board of directors evaluates the performance of the board of directors and its committees. Our nominating and corporate governance committee reviews self-assessment questionnaires to evaluate the performance of individual members. In determining whether to recommend a director for re-election, our nominating and corporate governance committee also considers the director's past attendance at meetings, participation in and contributions to the activities of the board of directors and the Company and other qualifications and characteristics determined by the board of directors. Each director must ensure that other existing and anticipated future commitments do not materially interfere with the members' service as a director. No director should serve on more than four additional public company boards without the approval of our board of directors.
After completing their review and evaluation of director candidates, in accordance with Nasdaq Rules, our nominating and corporate governance committee will recommend a director nominee for selection by our board of directors. Our board of directors has the final authority in determining the selection of director candidates for nomination to our board of directors.
Executive Officers
The following table provides information regarding our executive officers as of February 11, 2021. Officers are appointed by our board of directors to hold office until their successors are appointed and qualified.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
Aaron Skonnard
|
|
48
|
|
Co-Founder, Chief Executive Officer and Chairman
|
James Budge
|
|
54
|
|
Chief Financial Officer
|
Ross Meyercord
|
|
52
|
|
Chief Revenue Officer
|
Matthew Forkner
|
|
46
|
|
Chief Legal Officer, Chief Compliance Officer and Corporate Secretary
|
For Mr. Skonnard’s biography, please see "Board of Directors and Corporate Governance-Directors Serving on Our Board" above.
Code of Business Conduct and Ethics
Our board of directors has adopted a written code of business conduct and ethics, or Code of Conduct and Ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer who is our principal executive officer, Chief Financial Officer, who is our principal financial officer and our principal accounting officer, and other executive and senior financial officers. The full text of our Code of Conduct and Ethics is available on the corporate governance section of our website, which is located at http://investors.pluralsight.com. The nominating and corporate governance committee of our board of directors is responsible for overseeing the Code of Conduct and Ethics and must approve any waivers of the Code of Conduct and Ethics for employees, executive officers and directors. We intend to disclose any amendments to our Code of Conduct and Ethics, or waivers of its requirements, on our website or in filings under the Exchange Act.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our executive officers and directors, as well as any person or entity who owns more than 10% of a registered class of our common stock or other equity securities, to file with the SEC certain reports of ownership and changes in ownership of our securities. Executive officers, directors and stockholders who hold more than 10% of our outstanding common stock are required by the SEC to furnish us with copies of all required forms filed under Section 16(a). We typically prepare Section 16(a) forms on behalf of our executive officers and directors based on the information provided by them.
Based solely on review of this information and written representations by our executive officers and directors that no other reports were required, we believe that, during fiscal year 2020, no reporting person failed to file the forms required by Section 16(a) of the Exchange Act on a timely basis other than the following exceptions: Board member Ms. Terrell submitted a late filing on September 18, 2020 and Mr. Meyercord submitted a late filing on November 2, 2020.
Item 11. Executive Compensation.
Executive Summary
Overview
Pluralsight is a leading technology workforce development platform committed to closing the global technology skills gap. Learners on our platform can utilize Pluralsight Skills to acquire today's most valuable technology skills through high-quality learning experiences delivered by subject-matter experts. Real-time measurement and assessment of a learner's performance in Pluralsight Skills provides technology leaders with visibility into the capabilities of their teams and confidence their teams will deliver on critical objectives. Pluralsight Skills empowers teams to keep up with the pace of technological change, puts the right people on the right projects, and boosts productivity. Pluralsight Flow gives technology leaders objective data and visibility into workflow patterns to measure the productivity of their software developers. Pluralsight Flow aggregates data from code commits, pull requests and tickets, and packages them into actionable metrics. It gives technology leaders a data-driven view of their development process to enable their teams to be more successful by debugging development processes and resolving bottlenecks. Together, our products enable teams to develop, measure and deploy critical skills at scale and deliver products faster. We provide businesses with visibility into the strengths of their workforce, allowing them to better allocate resources, provide targeted skill development to align with objectives, and advance the skills of their teams. Ultimately, our mission is to democratize technology skills.
To support these objectives and deliver strong execution, we strive to provide an executive compensation program that attracts and retains talented and qualified senior executives to manage and lead our business and motivates them to pursue and achieve our business objectives. For this purpose, we use a mix of compensation elements including base salary, annual cash bonus, long-term equity incentives, and benefits, including potential post-termination severance benefits, to incentivize our NEOs.
Our NEOs for 2020 were:
•Aaron Skonnard, our Chief Executive Officer (our "CEO");
•James Budge, our Chief Financial Officer (our "CFO");
•Ross Meyercord, our Chief Revenue Officer;
•Matthew Forkner, our Chief Legal Officer, Chief Compliance Officer and Corporate Secretary; and
•Nate Walkingshaw, our former Chief Experience Officer.
This Compensation Discussion and Analysis summarizes in greater detail the material elements of our 2020 executive compensation program and our executive compensation philosophy and objectives. It also analyzes how and why the compensation committee arrived at the specific compensation decisions for our NEOs for 2020.
2020 Executive Compensation Highlights
Our 2020 executive compensation program continued to emphasize long-term equity compensation as the most significant component of each NEO's compensation. The following key compensation actions were taken with respect to our NEOs for 2020:
•New Time-Based and Performance-Based Long-Term Equity Awards - We granted equity awards to our NEOs 50% in the form of time-based RSU awards and 50% in the form of performance-based restricted stock unit ("PSU") awards. These equity awards were designed to recognize our NEOs' outstanding prior and expected future contributions, promote retention, provide incentives to drive and grow our business over the long-term, and, in the case of PSU awards, provide value only to the extent of our achievements in annual billings growth and cash-based EBIT margin targets in 2020. In February 2020, we selected rigorous targets that were achievable only through focused leadership efforts by our executive team. Following the end of 2020, we determined that the actual achievement of the billings growth for 2020 was below the minimum threshold for 2020 PSU awards of 24%. However, to account for the unforeseen impact of COVID-19 to the business and the corresponding effect this impact had on achievement under the PSU plan design, as well as the contribution of our NEOs with respect to our revised operating plan for billings in 2020, our board of directors and our compensation committee determined that the PSUs held by each of our NEOs, except for Mr. Skonnard, would vest at target levels of achievement. All 2020 PSUs held by Mr. Skonnard were forfeited.
•Rigorous Annual Cash Bonus Plan - We designed our 2020 Executive Bonus Plan (the "2020 Bonus Plan"), to focus on the same key performance measure as the PSU awards - billings growth. In February 2020, we selected billings growth for the PSU awards and the 2020 Bonus Plan because we believed billings were important to driving growth in key components of our business, which incentive links the interests of our stockholders to our NEOs. In August 2020, our board of directors and compensation committee adjusted the target levels under 2020 Bonus Plan to account for the unforeseen impact of COVID-19 to the business and the corresponding effect this impact was expected to have on the likelihood of achievement under the original bonus plan design. Our board of directors and compensation committee believed these adjustments were appropriate in order to retain and properly motivate our employees, including our executives, during an unprecedented pandemic that created headwinds for the macro business environment. The board of directors and compensation committee set the adjusted bonus plan metrics at levels that would require continued focus and diligent efforts from our executives particularly due to the uncertainty of the overall length and scope of the COVID-19 pandemic at the time the adjustments were made. The maximum achievement under the revised bonus plan was 100% of target. The actual billings growth achieved for 2020 was 13.5%, which resulted in the maximum achievement under the amended 2020 Bonus Plan. As a result, the amended 2020 Bonus Plan funded at 100% of target level. The actual bonuses that were paid to our NEOs (other than Mr. Skonnard) under the 2020 Bonus Plan were modified based assessment of their individual contributions in 2020. Mr. Skonnard did not receive a 2020 bonus.
•Market-Based Changes to Target Cash Compensation Opportunities - We increased the base salary for certain of our NEOs to bring their target cash compensation opportunities closer to the mid-point range of the competitive market, including increases to the base salaries of Messrs. Skonnard, Budge, Meyercord and Forkner. Mr. Skonnard elected not to receive his 2020 base salary in lieu of company-paid travel expenses. Mr. Budge elected to receive only $5,996 of his 2020 base salary, which amount was used to make standard employee contributions under our broad-based employee benefits plans, and the remaining amount he elected to receive in the form of a travel expense reimbursement, with any excess payable as a bonus to him at the end of the year.
2021 Key Executive Compensation Highlights
In the first quarter of 2021, we approved the following key changes to the compensation packages for our NEOs for 2021. These changes were designed to provide incentives to retain our NEOs through and following the closing of our announced merger transaction with affiliates of Vista Equity Partners Management, LLC, a leading private equity firm (“Vista”):
•We made the following market-based salary increases for our NEOs: Mr. Skonnard ($467,000), Mr. Budge ($377,000), Mr. Meyercord ($378,000), and Mr. Forkner ($333,000); and
•We made the following time-based RSU grants: Mr. Skonnard ($3,113,250), Mr. Meyercord ($1,250,000) and Mr. Forkner ($580,000). As agreed to with Vista, these awards vest over eighteen months with 2/3 of the award vesting on the one-year anniversary of the grant date and quarterly thereafter. These awards are subject to “double-trigger” vesting acceleration consistent with our historical terms, except that the closing of the transaction with Vista and its affiliates will not constitute the first trigger for the vesting acceleration benefit.
Pay-for-Performance Discussion
We believe our executive compensation program is reasonable, competitive, and appropriately balances the goals of attracting, motivating, rewarding, and retaining our NEOs. To ensure our NEOs' interests are aligned with those of our stockholders and to motivate and reward individual initiative and effort, a substantial portion of their annual target total direct compensation opportunity is "at-risk" and will vary above or below target levels commensurate with our performance.
We emphasize performance-based compensation that appropriately rewards our NEOs for delivering financial, operational, and strategic results that meet or exceed pre-established goals through our cash bonus plan and equity awards.
Executive Compensation Policies and Practices
We maintain sound governance standards consistent with our executive compensation policies and practices. The compensation committee evaluates our executive compensation program regularly to ensure that it supports our short-term and long-term goals given the dynamic nature of our business and the market in which we compete for executive talent. These policies and practices were in effect during 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
What we do
|
|
What we don't do
|
ü
|
Independent Compensation Committee Advisor. The compensation committee engaged its own independent compensation consultant to assist with the design of the 2020 executive compensation program.
|
|
û
|
No Special Health and Welfare Benefits. Our NEOs participate in the same company-sponsored health and welfare benefits programs as our other full-time, salaried employees.
|
|
|
|
|
|
ü
|
Annual Executive Compensation Review. The compensation committee conducts an annual review of compensation for our NEOs and a review of compensation-related risks.
|
|
û
|
No Special Retirement Plans. We do not offer, nor do we have plans to provide, pension arrangements, retirement plans or nonqualified deferred compensation plans or arrangements exclusively to our NEOs.
|
|
|
|
|
|
ü
|
Compensation At-Risk. The executive compensation program is designed so that a significant portion of executive annual compensation is "at risk" to align the interests of our NEOs and our stockholders. For 2020, (i) the degree of achievement for our NEOs under our 2020 Bonus Plan, as amended in August 2020, was in excess of the target threshold of achievement, resulting in the funding of our amended 2020 Bonus Plan at target levels of achievement (with the actual bonuses paid to our NEOs (other than Mr. Skonnard) modified based on assessment of their individual contributions in 2020), and (ii) the degree of achievement of our NEOs under the PSU awards was beneath the minimum threshold of achievement. In February 2021, to account for the unforeseen impact of COVID-19 to the business and the corresponding effect this impact had on achievement under the original bonus plan design, as well as the contribution of our NEOs with respect to our revised operating plan for billings in 2020, our board of directors and our compensation committee determined that the PSUs held by our NEOs, except for Mr. Skonnard, would vest at target levels of achievement.
|
|
û
|
Limited "Single Trigger" Change of Control Arrangements. No change of control payments or benefits are triggered simply by the occurrence of a change of control, except for an older grant to Mr. Skonnard that is mostly vested. All other change-of-control payments and benefits are based on a "double-trigger" arrangement (that is, they require both a change of control of the Company plus a qualifying termination of employment before payments and benefits are paid).
|
|
|
|
|
|
ü
|
Multi-Year Vesting Requirements. The time-based RSU awards granted to our NEOs vests over four years and no portion of the award vest until approximately 12 months after the grant date, and our PSU awards vest over two years and no portion of the award vests unless the performance metric associated with such PSU is achieved at the end of the fiscal year in which the award is made, consistent with current market practice and our retention objectives.
|
|
û
|
No "Golden Parachute" Tax Reimbursements. We do not provide any tax reimbursement payments (including "gross-ups") on any tax liability that our NEOs might owe as a result of the application of Sections 280G or 4999 of the Internal Revenue Code (the "Code").
|
|
|
|
|
|
ü
|
Limited Perquisites. We provide minimal perquisites and other personal benefits to our NEOs, except where they serve a legitimate business purpose.
|
|
û
|
No Hedging and Pledging. We have a policy that restricts employees from hedging our securities or pledging our securities as collateral.
|
|
|
|
|
|
Executive Compensation Philosophy and Program Design
Our executive compensation program is guided by our overarching philosophy of only paying for demonstrable performance. Consistent with this philosophy, we have designed our executive compensation program to achieve the following primary objectives:
•provide compensation and benefit levels that will attract, retain, motivate, and reward a highly-talented team of NEOs 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 NEOs; and
•align the interests and objectives of our NEOs with those of our stockholders by linking the long-term incentive compensation opportunities to stockholder value creation and their cash incentives to our annual performance.
We structure the annual compensation of our NEOs using three principal elements: base salary, annual cash bonus opportunities, and long-term equity incentive opportunities. The design of our executive compensation program is influenced by a variety of factors, with the primary goals being to align the interests of our NEOs and stockholders and to link pay with performance.
Governance of Executive Compensation Program
Role of the Compensation Committee
The compensation committee discharges the responsibilities of our board of directors relating to the compensation of our NEOs. With respect to our NEOs the compensation committee reviews and approves, or recommends the board of directors approve, at the beginning of the year, or more frequently as warranted, their annual base salaries; cash bonus opportunities and cash bonus payments; long-term equity incentive compensation; employment offers (including post-employment compensation arrangements); and other compensation, perquisites, and other personal benefits, if any.
The compensation committee's practice of developing and maintaining compensation arrangements that are competitive includes a balance between hiring and retaining the best possible talent and maintaining a reasonable and responsible cost structure.
Compensation-Setting Process
We do not establish a specific target for setting the target total direct compensation opportunity of our NEOs. When determining and setting the amount of each compensation element, the compensation committee considers the following factors:
•our performance against the financial and operational objectives established by the compensation committee and our board of directors;
•each individual NEO's skills, experience, and qualifications relative to other similarly-situated executives at the companies in our compensation peer group;
•the scope of each NEO's role compared to other similarly-situated executives at the companies in our compensation peer group;
•the performance of each individual NEO, based on a subjective assessment of his or her contributions to our overall performance, ability to lead his or her business unit or function, and work as part of a team, all of which reflect our core values;
•compensation parity among our NEOs;
•with respect to NEOs other than our CEO, the recommendations of our CEO; and
•the compensation practices of our compensation peer group and the positioning of each NEO's compensation in a ranking of peer company compensation levels with an emphasis on the midpoint range of the peer group for annual base salaries and the upper quartile of the peer group for equity compensation.
These factors provide the framework for compensation decision-making and final decisions regarding the compensation opportunities for each NEO.
Role of Management
The compensation committee believes our CEO has valuable insight into the day-to-day contributions of our NEOs and solicits the advice and input from each with respect to performance objectives under our annual bonus plan. Our CEO also provides input with respect to adjustments to annual base salaries, annual cash bonus opportunities, long-term equity incentive compensation opportunities, program structures, and other compensation-related matters for our NEOs (other than with respect to his own compensation). The compensation committee reviews and discusses these recommendations and proposals with our CEO and uses them as one factor in determining and approving the compensation for our NEOs. In setting the compensation of our CEO, he recuses himself from all discussions and recommendations regarding his own compensation.
Role of Compensation Consultant
The compensation committee engages an external compensation consultant to assist it by providing information, analysis, and other advice relating to our executive compensation program and the decisions resulting from its annual executive compensation review. For 2020, the compensation committee retained Compensia to serve as its compensation advisor. This compensation consultant serves at the discretion of the compensation committee.
During 2020, Compensia provided the following services:
•consulting with the compensation committee chair and other members between compensation committee meetings;
•providing competitive market data based on the compensation peer group for our NEO positions and evaluating how the compensation we pay our NEOs compares both to our performance and to how the companies in our compensation peer group compensate their executives;
•assessing executive compensation trends within our industry, and updating on corporate governance and regulatory issues and developments;
•providing competitive market data based on the compensation peer group for our board of directors and evaluating how the compensation we pay the non-employee members of our board of directors compares to how the companies in our compensation peer group compensate their boards of directors; and
•reviewing market equity compensation practices, including "burn rate" and "overhang."
In 2020, Compensia did not provide any services to us other than the consulting services to the compensation committee. The compensation committee regularly reviews the objectivity and independence of the advice provided by its compensation consultant on executive compensation. In 2020, the compensation committee considered the six specific independence factors adopted by the SEC and reflected in the listing standards of Nasdaq Rules and determined that the work of Compensia did not raise any conflicts of interest.
Competitive Positioning
To compare our executive compensation against the competitive market, the compensation committee reviews and considers the compensation levels and practices of a group of comparable technology companies. The companies in this compensation peer group were selected on the basis of their similarity to us in size and industry focus. For 2020 pay decisions, the compensation committee used compensation data provided in July 2019. The companies in this compensation peer group were selected on the basis of their similarity to us, based on these criteria:
•similar revenue size;
•similar market capitalization;
•similar revenue growth and market-capitalization to revenue ratio;
•industry - application software, internet software and services companies, and systems software;
•strong revenue growth of over twenty percent;
•executive positions similar in breadth, complexity, and/or scope of responsibility; and
•competitors for executive talent.
After consultation with Compensia, the compensation committee approved the following compensation peer group for 2020 executive compensation decisions:
|
|
|
|
|
|
|
|
|
2U
|
Ebix
|
Paylocity Holdings
|
Alarm.com Holdings
|
Elastic N.V.
|
Q2 Holdings
|
Alteryx
|
Five9
|
Qualys
|
Anaplan
|
Hubspot
|
Smartsheet
|
Avalara
|
Instructure
|
The Trade Desk
|
BlackLine
|
MongoDB
|
Yext
|
Cloudera
|
New Relic
|
Zscaler
|
Coupa Software
|
Okta
|
Zuora
|
To analyze the executive compensation practices of the companies in our compensation peer group, Compensia gathered data from public filings. This market data was then used as a reference by the compensation committee to assess our current compensation levels during its deliberations regarding compensation designs and amounts. This market data was then used as a reference point for the compensation committee to assess our current executive compensation levels in its deliberations on compensation forms and amounts.
The compensation committee reviews our compensation peer group at least annually and makes adjustments to its composition, taking into account changes in both our business and the businesses of the companies in the peer group.
Individual Compensation Elements
In 2020, the primary elements of our executive compensation program consisted of base salary, an annual cash bonus opportunity, and long-term equity incentive compensation in the form of RSU awards and PSU awards.
Base Salary
Base salary represents the fixed portion of the compensation of our NEOs. It is an important element of compensation intended to attract and retain highly-talented individuals. Generally, we establish the initial base salaries of our NEOs through arm's-length negotiation, taking into account his or her position, qualifications, experience, prior salary level, and the base salaries of our other NEOs. Thereafter, the compensation committee reviews the base salaries of our NEOs annually and makes adjustments to base salaries as it determines to be necessary or appropriate taking into account the factors described above.
In February 2020, the compensation committee reviewed the base salaries of our NEOs taking into consideration a competitive market analysis prepared by Compensia, the recommendations of our CEO (except with respect to his own base salary), and the other factors described above. Following this review, the compensation committee approved the annual base salary to Mr. Skonnard of $443,000 (an increase of approximately 6%), the annual base salary to Mr. Budge of $366,000 (an increase of approximately 2%), the annual base salary to Mr. Meyercord of $364,000 (an increase of approximately 10%) and the annual base salary to Mr. Forkner of $315,000 (an increase of approximately 6%) and did not make any change to the base salary of Mr. Walkingshaw.
The 2020 base salaries approved for our NEOs are set forth below.
|
|
|
|
|
|
|
|
|
NEO
|
|
2020 Base Salary
|
Aaron Skonnard
|
|
$443,000(1)
|
James Budge
|
|
$366,000(2)
|
Ross Meyercord
|
|
$364,000
|
Matthew Forkner
|
|
$315,000
|
Nate Walkingshaw
|
|
$350,000
|
________________________
(1)Mr. Skonnard elected aircraft business-use travel related reimbursement in lieu of his 2020 base salary.
(2)Mr. Budge elected aircraft business-use travel related reimbursement in lieu of his 2020 base salary, except for $5,996, which amount was used to make standard employee contributions under our broad-based employee benefits plans.
Annual Cash Bonuses
Each NEO participated in the 2020 Bonus Plan, which was designed to motivate our NEOs to drive growth based on attainment of annual billings growth targets.
At the time the 2020 Bonus Plan was established, the board of directors and the compensation committee, after taking into account our performance in billings in 2019, approved a bonus plan design that they believed was achievable through diligent effort and focus by our executives and employees. The funding targets under the original 2020 Bonus Plan approved in February 2020 were as follows: (i) the minimum pool fund of 50% would be achieved at 21% billings growth; (ii) the bonus pool would fund at 100% at 31% billings growth and (iii) once the 100% threshold is hit, the fund rate accelerates and tops out at 200% at 41% billings growth or more. Bonuses under our 2020 Bonus Plan were subject to adjustment (up or down) based on our assessment of individual performance in 2020.
Our board of directors, with input from the compensation committee, adjusted the target levels in August 2020 to account for the unforeseen impact of COVID-19 to the business and the corresponding effect this impact was expected to have on the likelihood of achievement under the original 2020 Bonus Plan design. Our board of directors, with input from the compensation committee, believed these adjustments were appropriate in order to retain and properly motivate s executives during an unprecedented pandemic that created headwinds for the macro business environment. Our board of directors set the adjusted bonus plan metrics at levels that would require continued focus and diligent efforts from our executives particularly due to the uncertainty of the overall length and scope of the COVID-19 pandemic at the time the adjustments were made.
Under the revised 2020 Bonus Plan approved by our board of directors and our compensation committee in August 2020, the bonus pool would fund at 100% at 12.2% billings growth, with no additional funding for exceeding the 100% threshold. For achievement of billings growth between 0% and 12.2%, the overall incentive payment scales linearly between 0% and 100%.
For purposes of our 2020 Bonus Plan, "Billings" represents total revenue plus the change in deferred revenue in the period, as presented in our condensed consolidated statements of cash flows, less the change in contract assets and unbilled accounts receivable in the period. Billings in any period represents amounts invoiced to customers and reflects subscription renewals and upsells to existing customers plus sales to new customers. We use billings to measure our ability to sell subscriptions to our platform to both new and existing customers. We use billings from business customers and our percentage of billings from business customers to measure and monitor our ability to sell subscriptions to our platform to business customers.
All bonuses under the 2020 Bonus Plan are subject to the participant maintaining minimum performance standards, as determined by us, and remaining employed through the date a bonus is paid.
Target Annual Cash Bonus Opportunities
Each NEO was assigned a target annual cash bonus opportunity, the amount of which was calculated as a percentage of his 2020 annual base salary. In February 2020, the compensation committee reviewed the target annual cash bonus opportunities of our NEOs, taking into consideration a competitive market analysis prepared by Compensia, the recommendations of our CEO (except with respect to his own target annual cash bonus opportunity), and the other factors described above. Following this review, the compensation committee (and, in the case of Mr. Skonnard, our board of directors) did not make any changes to the target annual cash bonus opportunities of our NEOs.
The 2020 target annual cash bonus opportunities of the NEOs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NEO
|
|
2020 Target Annual Cash Bonus Opportunity
(as a percentage of base salary)
|
|
2020 Target Annual Cash Bonus Opportunity
|
Aaron Skonnard
|
|
100%
|
|
$
|
443,000
|
|
James Budge
|
|
60%
|
|
$
|
219,600
|
|
Ross Meyercord
|
|
100
|
%
|
|
$
|
364,000
|
|
Matthew Forkner
|
|
50
|
%
|
|
$
|
157,500
|
|
Nate Walkingshaw
|
|
50%
|
|
$
|
175,000
|
|
Under the revised bonus plan, each participant in the 2020 Bonus Plan was eligible to earn from 0% up to 100% of his or her target annual cash bonus opportunity depending on our actual performance for the year as measured against the billings growth goals, and subject to adjustment based on our assessment of their individual performance in 2020.
2020 Bonus Plan Decisions
In February 2021, the compensation committee and board of directors reviewed our performance against the billings growth goals established under the 2020 Bonus Plan, as revised in August 2020. Using the 2020 Bonus Plan billings growth goals, the target performance, actual performance, and payout level were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Billings Growth Goals
|
Target Performance Level
|
Actual Performance Level
|
Payout Level
|
Billings Growth
|
12.2%
|
13.5%
|
100%
|
Based on this level of achievement, the 2020 Bonus Plan was funded at 100% of the target level.
In addition, our compensation committee and our board of directors, in consultation with Mr. Skonnard, reviewed the individual performance of each NEO (other than Mr. Skonnard and Mr. Walkingshaw) and exercised their discretion to adjust each NEO’s bonus amount resulting in the following payouts under our revised 2020 Bonus Plan: $228,237 for Mr. Budge, $352,853 for Mr. Meyercord, and $163,695 for Mr. Forkner. Mr. Walkingshaw forfeited his bonus amounts when his employment terminated in July 2020. Mr. Skonnard did not receive a bonus for 2020.
Long-Term Equity Compensation
The compensation committee and our board of directors believes long-term equity compensation is an effective means for focusing our NEOs on driving increased stockholder value over a multi-year period, provides a meaningful reward for appreciation in our stock price and long-term value creation, and motivates them to remain employed with us.
In 2020, the compensation committee determined and recommended our board of directors approve, and the board of directors approved, granting equity awards to Messrs. Skonnard, Budge and Forkner. Each such NEO was granted a mix of RSU awards and PSU awards that are settled in shares of our Class A common stock. The board of directors believed that continuing to use PSU awards in our executive compensation program was important in order help us to remain competitive with our compensation peer companies who use PSU awards as a key component of their executive compensation programs. Equity awards in the form of RSUs and PSUs provide retention incentives for our NEOs and reward them for long-term stock price appreciation while at the same time providing some value even if the market price of our Class A common stock declines. PSU awards also align with our pay-for-performance philosophy as the NEOs only realize value from their awards if performance metrics are achieved.
As with their other elements of compensation, the compensation committee determined and recommended our board of directors approve, and the board of directors approved, the amount of long-term incentive compensation for our NEOs as part of its annual compensation review and after taking into consideration a competitive market analysis referencing the upper quartile of our peer group, the recommendations of our CEO (except with respect to his own long-term equity compensation), the outstanding equity holdings of each NEO, the proportion of our total shares outstanding used for annual employee long-term equity compensation awards (our "burn rate") in relation to the companies in our compensation peer group, the potential voting power dilution to our stockholders (our "overhang") in relation to the companies in our compensation peer group, and the other factors described above.
In 2020, the compensation committee determined and recommended our board of directors approve, and the board of directors approved, granting the following annual equity awards to our NEOs. The awards generally were granted in the first quarter of 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
RSUs
(number of shares)
|
|
PSUs
(total number of shares at target)
|
|
PSUs
(total number of shares at maximum)
|
|
Annual Equity Awards
(aggregate grant date fair value at target)(1)
|
Aaron Skonnard
|
|
106,213
|
|
|
159,320
|
|
318,640
|
|
$
|
5,139,657
|
|
James Budge
|
|
53,106
|
|
|
53,106
|
|
106,213
|
|
$
|
2,065,823
|
|
Ross Meyercord
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Nate Walkingshaw
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Matthew Forkner
|
|
42,485
|
|
|
42,485
|
|
84,970
|
|
$
|
1,652,667
|
|
________________________
(1)Reflects grant date fair value of RSUs and PSUs computed in accordance with FASB ASC Topic 718. These amounts do not correspond to actual amounts that may be realized by the NEOs.
Each of the RSUs listed in the table above vests as to 25% of the shares underlying the award on January 1, 2021 and as to 1/16th of the shares underlying the award each quarter thereafter, subject to the NEO's continued service with us.
Each of the PSU awards listed in the table above vests with respect to up to 50% of the shares underlying the award on January 1, 2022 and up to 50% of the shares underlying the award on January 1, 2023, subject to the NEO's continued service with us and our achievement of performance targets related to annual billings growth and cash-based EBIT margin measure for the year ending December 31, 2020 (collectively, the "PSU goals"). The target levels of achievement for our PSU awards are as follows: (i) if billings growth is at least 24% and cash-based EBIT margin is -5% or better, then 50% of the PSU awards will vest; (ii) if billings growth is 30% and cash-based EBIT margin is -5% or better, then 100% of the PSU awards will vest, and (iii) if billings growth is 33% and cash-based EBIT margin is -5% or better, then 200% of the PSU awards will vest. For achievement of the PSU goals between the threshold and target, the overall incentive payment scales linearly between 50% and 100%. For achievement of
the PSU goals between the target and maximum, the overall number of shares subject the PSU award that become eligible to vest scales linearly between 100% and 200%. The maximum level of achievement is 200%.
We calculate "Billings" in the same manner as we do under our 2020 Bonus Plan. Cash-Based EBIT Margin: Fiscal Year 2020 Cash-Based EBIT (which is the same as non-GAAP based EBIT except that revenue is replaced with billings as the top line measure) / Fiscal Year 2020 Billings.
In February 2021, the compensation committee reviewed our overall performance for 2020, including performance against the PSU goals established under the PSU awards. Using the PSU goals, the compensation committee determined and recommended our board of directors approve, and our board of directors approved, the target performance, actual performance, and payout levels as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Composite Goals
|
Target Performance Level
|
Actual Performance Level
|
Payout Level
|
Billings Growth
+
Cash-Based EBIT Margin Measure
|
24% billings growth,
-5% cash-based EBIT margin
|
13.5% billings growth,
cash-based EBIT margin was at least -5%
|
—
|
Based on this level of achievement, none of the shares subject to the PSUs became eligible to vest. However, to account for the unforeseen impact of COVID-19 to the business and the corresponding effect this impact had on achievement under the PSU design, as well as the contribution of our NEOs with respect to our revised operating plan for billings in 2020, our board of directors and our compensation committee determined that the PSUs held by Messrs. Budge and Forkner would vest at target levels of achievement. The compensation committee and board of directors believed these adjustments were appropriate in order to reward our executives for achievements during an unprecedented pandemic that created headwinds for the macro business environment and for our business.
All 2020 PSUs held by Mr. Skonnard were forfeited and the shares were forfeited to the plan.
Employee Benefits
Our NEOs are eligible to participate in our employee benefit programs on the same basis as all of our employees. These benefits include 401(k) profit sharing plan, medical, dental and vision benefits, disability insurance, basic life insurance coverage, health savings accounts, and accidental death and dismemberment insurance, as well as ESPP. In 2020, we amended our 401(k) plan to provide that matching contributions for 2020 will be paid in the form of our Class A common stock, in order to conserve our cash resources and further enhance the link between the financial interests of our stockholders and our employees.
We design our employee benefits programs to be affordable and competitive in relation to the market, as well as compliant with applicable laws and practices. We adjust our employee benefits programs as needed based upon regular monitoring of applicable laws and practices and the competitive market.
Perquisites, Special Bonuses / Equity Awards and Other Personal Benefits
In general, we do not view perquisites, special bonuses, or other personal benefits as a significant component of our executive compensation program. Accordingly, we do not provide perquisites, special bonuses, or other personal benefits to our NEOs, except in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make our NEOs more efficient and effective, and for recruitment and retention purposes. In particular, as a technology company located in Utah, we have provided housing and relocation expense payments for certain of our executives in order to join and remain with our company.
We provide Messrs. Skonnard and Budge an amount of up to $2,700 per year each for flexible spending account contributions.
In February 2020, our compensation committee approved the reimbursement of Mr. Budge's business use of a chartered aircraft at an amount up to his annual base salary of $366,000, plus typical annual airfare spend of $100,000 per year. Any amount spent less than his annual base salary plus $100,000 during the applicable year will be provided to Mr. Budge during the first quarter of the following year in the form of a bonus. As of December 31, 2020, we reimbursed Mr. Budge $424,820 for such expenses and paid him a bonus of $41,180 for the remaining amount.
In May 2018, our board of directors approved a program for each of Messrs. Skonnard and Budge to receive Class A common stock under the 2018 Plan on each ESPP exercise date in lieu of their respective participation in the ESPP. At the time the program was established, Messrs. Skonnard and Budge did not receive a base salary sufficient to participate in the ESPP in full and therefore were limited in their ability to participate in the ESPP. Our board of directors determined that this program was important to allow Messrs. Skonnard and Budge the same opportunities for stock ownership as other employees who received a higher base salary and were able to participate in the ESPP.
Employment Arrangements
We have entered into written employment agreements with each of our NEOs. Each of these employment arrangements was approved on our behalf by the compensation committee or, in certain instances, by our board of directors. Each of these employment arrangements provides for "at will" employment and sets forth the compensation arrangements for the NEO, including an annual cash bonus opportunity.
In filling each of our executive positions, our board of directors or the compensation committee, as applicable, recognized that it would need to develop competitive compensation packages to attract qualified candidates in a dynamic labor market. At the same time, our board of directors and the compensation committee were sensitive to the need to integrate new executive officers into the executive compensation structure that we were seeking to develop, balancing both competitive and internal equity considerations.
For information on the specific terms and conditions of the employment arrangements of the NEO, see the discussion of "Executive Compensation Arrangements" below.
Post-Employment Compensation
Each NEO's written employment arrangement provides the NEO with severance payments and benefits in the event the NEO is terminated without "cause" or resigns for "good reason" (as each such term is defined in the applicable employment arrangement).
We approved "single-trigger" vesting acceleration benefits for Mr. Skonnard prior to our initial public offering in May 2018. For Mr. Skonnard's grants in 2017, 100% of the unvested portion of each award will immediately vest in the event we terminate Mr. Skonnard's employment without cause (other than due to death or disability) or Mr. Skonnard terminates his employment with us for good reason (each as defined in Mr. Skonnard's Class B Incentive Unit Offer, dated September 29, 2017). This benefit is referred to herein as the "Skonnard Single Trigger Acceleration Benefit."
Pursuant to each award agreement granted to our NEOs, if an NEO's employment with us is terminated without "cause" or the NEO terminates his or her employment for "good reason" within twelve months following a "Change in Control", 100% of the then-unvested portion of the award will vest (and in the case of the PSU awards, as to the target number of shares (if the measurement date for the performance goal has not yet occurred) or the actual achieved shares (if the measurement date for the performance goals has already occurred)). This benefit is referred to herein as the "Double Trigger Acceleration Benefit."
Additionally, in April 2019, the compensation committee approved and recommended the board of directors approve, and the board of directors approved, an amendment to each of our equity compensation arrangements to provide for a death acceleration benefit that affected all participants in such arrangements, including our NEOs. Pursuant to this death acceleration benefit, upon the death of an employee who holds unvested equity awards, such employee's unvested equity awards will immediately vest, provided that the aggregate fair market value of such
equity awards may not exceed $3,000,000, and provided further that no equity awards subject to performance-based vesting (such as the PSU awards) will vest pursuant to the death acceleration benefit. In the event of suicide, we will have the discretion to determine whether or not to apply the death acceleration benefit. This benefit is referred to herein as the "Death Acceleration Benefit."
We believe that having in place reasonable and competitive post-employment compensation arrangements are essential to attracting and retaining highly-qualified executive officers. Our post-employment compensation arrangements are designed to provide reasonable compensation to executive officers who leave our company under certain circumstances to facilitate their transition to new employment. Further, we seek to mitigate any potential employer liability and avoid future disputes or litigation by requiring a departing executive officer to sign a separation and release agreement acceptable to us as a condition to receiving post-employment compensation payments or benefits.
We do not consider specific amounts payable under these post-employment compensation arrangements when establishing annual compensation. We do believe, however, that these arrangements are necessary to offer compensation packages that are competitive.
We believe that these arrangements are designed to align the interests of management and stockholders when considering the long-term future for the Company. The primary purpose of these arrangements is to keep our most senior executive officers focused on pursuing all corporate transaction activity that is in the best interests of stockholders regardless of whether those transactions may result in their own job loss. Reasonable post-acquisition payments and benefits should serve the interests of both the executive and our investors.
We do not use excise tax payments (or "gross-ups") relating to a change of control of the Company and have no such obligations in place with respect to any of our NEOs.
For information on the change of control and severance agreements for the NEOs, as well as an estimate of the potential payments and benefits payable under these agreements as of the end of 2020, see "Executive Compensation Arrangements" and "Potential Payments Upon Termination or Change of Control" below.
Other Compensation Policies and Practices
Policy Prohibiting Hedging or Pledging of Our Equity Securities
We have an Insider Trading Policy that prohibits, among other things, short sales, hedging of stock ownership positions, and transactions involving derivative securities relating to our common stock.
CEO Aircraft Reimbursement
Mr. Skonnard beneficially owns 100% of an aircraft that he uses from time to time for business trips. The reimbursement rate for his use of the aircraft is $4,800 per hour, plus actual costs for landing fees, crew travel expenses, catering, and other out of pocket expenses, up to a maximum of $1,000,000 per year. Our board of directors approved this hourly reimbursement rate based upon a review of comparable chartered aircraft rates that showed that the reimbursement rate is at or below market rates for the charter of similar aircraft. In 2020, Mr. Skonnard used this aircraft for business-related travel services, and the board of directors approved reimbursing him at an amount of $169,001 for 2020. Due to the COVID-19 pandemic, Mr. Skonnard’s actual travel expenses were substantially less than the amounts that we budgeted at the beginning of 2020. Due to the fact that the $4,800 hourly rate paid for the use of the aircraft represents the actual operational costs incurred by Mr. Skonnard as owner of the aircraft, Mr. Skonnard does not profit from the use of the aircraft. Other executives and employees may accompany Mr. Skonnard from time to time at a reimbursement rate comparable to what a first-class ticket would cost on commercial flight for such travel.
Tax and Accounting Considerations
Deductibility of Executive Compensation
Section 162(m) of the Code generally limits the amount we may deduct from our federal income taxes for compensation paid to our CEO and certain other current and former executive officers that are "covered employees" within the meaning of Section 162(m) of the Code to $1 million per individual per year, subject to certain exceptions. The regulations promulgated under Section 162(m) of the Code contain a transition rule that applies to companies, such as ours, that become subject to Section 162(m) of the Code by reason of becoming publicly held. Pursuant to this rule, certain compensation granted during a transition period (and, with respect to RSU awards, that are paid out before the end of the transition period) currently is not counted toward the deduction limitations of Section 162(m) of the Code if the compensation is paid under a compensation arrangement that was in existence before the effective date of the initial public offering and certain other requirements are met. While certain of our equity awards may be eligible to be excluded from our deductibility limitation of Section 162(m) of the Code pursuant to this transition rule, the compensation committee has not adopted a policy that all equity or other compensation must be deductible.
We currently expect our transition period to expire at our annual meeting of stockholders to be held in 2023, although it could expire earlier in certain circumstances. Historically, because of our organizational structure, Section 162(m) limitations did not apply to compensation paid to our executives. In approving the amount and form of compensation for our NEOs in the future, the compensation committee generally considers all elements of the cost to us of providing such compensation, including the potential impact of Section 162(m) of the Code, as well as our need to maintain flexibility in compensating executive officers in a manner designed to promote our goals. We may authorize compensation payments that will or may not be deductible when it believes that such payments are appropriate to attract, retain or motivate executive talent.
Accounting for Stock-Based Compensation
We follow the Financial Accounting Standard Board's Accounting Standards Codification Topic 718 ("FASB ASC Topic 718") for our stock-based compensation awards. FASB ASC Topic 718 requires us to measure the compensation expense for all share-based payment awards made to our employees and members of our board of directors, including restricted stock units, options to purchase our equity securities, and other stock awards, based on the grant date fair value of these awards. This calculation is performed for accounting purposes and reported in the executive compensation tables required by the federal securities laws, even though the recipient of the awards may never realize any value from their awards.
Risk Considerations
The compensation committee, in cooperation with management, reviewed our 2020 compensation programs. Our compensation committee believes that the mix and design of the elements of such programs do not encourage our employees to assume excessive risks and accordingly are not reasonably likely to have a material adverse effect on our company. We have designed our compensation programs to be balanced so that our employees are focused on both short and long-term financial and operational performance. In particular, the weighting towards long-term incentive compensation discourages short-term risk taking. Goals are appropriately set with targets that encourage growth in the business, while doing so in a manner that encourages profitability.
Executive Employment Arrangements
Aaron Skonnard Executive Employment Agreement
Mr. Skonnard, our co-founder, CEO and chairman, entered into an executive employment agreement with us, dated August 16, 2017 (the "Skonnard Employment Agreement"). Pursuant to the Skonnard Employment Agreement, Mr. Skonnard receives no base salary and is eligible to participate in standard benefit plans and perquisite programs made available to our employees generally. We provide Mr. Skonnard an amount of up to $2,700 per year for flexible spending account contributions. We also provide Mr. Skonnard with payment or reimbursement for private air travel of up to $1,000,000 per year for his business travel as described in the "CEO
Aircraft Reimbursement" section above. Mr. Skonnard also is eligible to participate in any annual bonus plan offered by us to our employees generally, with an annual target bonus of $443,000 as of December 31, 2020, and with individual goals, performance assessment, and discretionary bonus payments, if any, to be determined by our board of directors.
The Skonnard Employment Agreement provides for "at-will" employment and may be terminated at any time, for any or no reason, by either us or Mr. Skonnard on 30 days' written notice to the other party. However, we may terminate Mr. Skonnard's employment immediately and without prior notice for cause (as defined in the Skonnard Employment Agreement) or at our sole discretion by providing Mr. Skonnard with pay in lieu of the 30-day notice period. In addition, Mr. Skonnard may terminate his employment immediately and without prior notice for good reason (as defined in the Skonnard Employment Agreement). In the event Mr. Skonnard terminates the Skonnard Employment Agreement for any reason other than for good reason, then during the 30-day notice period, we may terminate Mr. Skonnard's employment at any time, in which case all our obligations to Mr. Skonnard under the Skonnard Employment Agreement other than accrued obligations through the date of termination will cease.
If we terminate the Skonnard Employment Agreement without cause or if Mr. Skonnard terminates the Skonnard Employment Agreement for good reason, then we will pay to Mr. Skonnard: (i) severance pay in an amount equal to $200,000, less applicable withholdings, in equal periodic installments over six months in accordance with the Company's payroll practices; and (ii) if Mr. Skonnard properly elects continuation coverage under our group medical insurance plan under applicable law, the percentage of the premium for such medical plan coverage which we bear for similarly situated active employees of ours and their enrolled family members immediately before the termination date for up to six months. These severance payments, however, will be reduced by the amount of any compensation Mr. Skonnard earns from other employment during the period such severance payments are payable. In addition, if we determine following the termination of the Skonnard Employment Agreement that cause existed on or before such termination, the severance payments described in this paragraph will cease and/or become repayable to us by Mr. Skonnard, as applicable.
To receive the severance payments described in the immediately preceding paragraph, Mr. Skonnard must timely execute and deliver to us a separation agreement and release of all claims in a form acceptable to us and must not revoke such agreement.
The Skonnard Employment Agreement requires Mr. Skonnard to covenant to not compete with or against us for one year following Mr. Skonnard's termination of employment with us, and to cooperate with us in good faith to resolve any dispute, controversy, or litigation we may be involved in (excluding any proceeding where Mr. Skonnard is an adverse party) for two years following his termination of employment with us.
James Budge Executive Employment Agreement
Mr. Budge, our CFO, entered into an executive employment agreement with us, dated September 15, 2017 (the "Budge Employment Agreement"). Pursuant to the Budge Employment Agreement, Mr. Budge is to receive no base salary, other than any payments necessary to allow for standard applicable employee contributions under our broad-based employee benefits plans, and is eligible to participate in standard benefit plans and perquisite programs made available to our employees generally. We provided Mr. Budge an amount of up to $2,700 per year for flexible spending account contributions. Mr. Budge is also eligible to participate in any annual bonus plan offered by us to our employees generally, with individual goals, performance assessment, and discretionary bonus payments, if any, determined by our Chief Executive Officer or our board of directors.
The Budge Employment Agreement provides for "at-will" employment and may be terminated at any time, for any or no reason, by either us or Mr. Budge on 30 days' written notice to the other party. However, we may terminate Mr. Budge's employment immediately and without prior notice for cause (as defined in the Budge Employment Agreement) or at our sole discretion by providing Mr. Budge with pay in lieu of the 30-day notice period. In addition, Mr. Budge may terminate his employment immediately and without prior notice for good reason (as defined in the Budge Employment Agreement). In the event Mr. Budge terminates the Budge Employment Agreement for any reason other than for good reason, then during the 30-day notice period, we may terminate
Mr. Budge's employment at any time, in which case all our obligations to Mr. Budge under the Budge Employment Agreement other than accrued obligations through the date of termination will cease.
If we terminate the Budge Employment Agreement without cause or if Mr. Budge terminates the Budge Employment Agreement for good reason, then we will pay to Mr. Budge: (i) severance pay in an amount equal to $175,000, less applicable withholdings, in equal periodic installments over six months in accordance with the Company's payroll practices; and (ii) if Mr. Budge properly elects continuation coverage under our group medical insurance plan under applicable law, the percentage of the premium for such medical plan coverage which we bear for similarly situated active employees of ours and their enrolled family members immediately before the termination date for up to six months. These severance payments, however, will be reduced by the amount of any compensation Mr. Budge earns from other employment during the period such severance payments are payable. In addition, if we determine following the termination of the Budge Employment Agreement that cause existed on or before such termination, the severance payments described in this paragraph will cease and/or become repayable to us by Mr. Budge, as applicable.
To receive the severance payments described in the immediately preceding paragraph, Mr. Budge must timely execute and deliver to us a separation agreement and release of all claims in a form acceptable to us and must not revoke such agreement.
The Budge Employment Agreement requires Mr. Budge to covenant to not compete with or against us for one year following Mr. Budge's termination of employment with us, and to cooperate with us in good faith to resolve any dispute, controversy or litigation we may be involved in (excluding any proceeding where Mr. Budge is an adverse party) for two years following his termination of employment with us.
Ross Meyercord Executive Employment Agreement
Mr. Meyercord, our Chief Revenue Officer, entered into an executive employment agreement with us, dated October 28, 2019 (the "Meyercord Employment Agreement"). Pursuant to the Meyercord Employment Agreement, Mr. Meyercord is eligible to participate in standard benefit plans and perquisite programs made available to our employees generally and, as of December 31, 2020, Mr. Meyercord receives an annual base salary of $364,000. Mr. Meyercord also is eligible to participate in any annual bonus plan offered by us to our employees generally, with individual goals, performance assessment, and discretionary bonus payments, if any, determined by our Chief Executive Officer or our board of directors. Mr. Meyercord also is entitled to a cash sign-on bonus of an aggregate amount of $317,500, payable in two installments, and subject to repayment upon certain terminations of employment as set forth in the Meyercord Employment Agreement. Through October 28, 2021, we will also provide Mr. Meyercord a housing reimbursement of up to $2,500 per month and reasonable travel reimbursement between California and Utah. Mr. Meyercord is also eligible to participate in any annual bonus plan offered by us to our employees generally, with individual goals, performance assessment, and discretionary bonus payments, if any, determined by our Chief Executive Officer or our board of directors.
The Meyercord Employment Agreement provides for "at-will" employment and may be terminated at any time, for any or no reason, by either us or Mr. Meyercord on 30 days' written notice to the other party. However, we may terminate Mr. Meyercord's employment immediately and without prior notice for cause (as defined in the Meyercord Employment Agreement) or at our sole discretion by providing Mr. Meyercord with pay in lieu of the 30-day notice period. In addition, Mr. Meyercord may terminate his employment immediately and without prior notice for good reason (as defined in the Meyercord Employment Agreement). In the event Mr. Meyercord terminates the Meyercord Employment Agreement for any reason other than for good reason, then during the 30-day notice period, we may terminate Mr. Meyercord's employment at any time, in which case all our obligations to Mr. Meyercord under the Meyercord Employment Agreement other than accrued obligations through the date of termination will cease.
If we terminate the Meyercord Employment Agreement without cause or if Mr. Meyercord terminates the Meyercord Employment Agreement for good reason, then we will pay to Mr. Meyercord: (i) severance pay in an amount equal to six months Mr. Meyercord's then-current base salary, less applicable withholdings, in equal periodic installments over six months in accordance with the Company's payroll practices; and (ii) if Mr. Meyercord properly
elects continuation coverage under our group medical insurance plan under applicable law, the percentage of the premium for such medical plan coverage which we bear for similarly situated active employees of ours and their enrolled family members immediately before the termination date for up to six months.
To receive the severance payments described in the immediately preceding paragraph, Mr. Meyercord must timely execute and deliver to us a separation agreement and release of all claims in a form acceptable to us and must not revoke such agreement.
The Meyercord Employment Agreement requires Mr. Meyercord to covenant to not compete with or against us for one year following Mr. Meyercord's termination of employment with us, and to cooperate with us in good faith to resolve any dispute, controversy or litigation we may be involved in (excluding any proceeding where Mr. Meyercord is an adverse party) for two years following his termination of employment with us.
Matthew Forkner Executive Employment Agreement
Mr. Forkner, our General Counsel, entered into an executive employment agreement with us, dated March 19, 2018 (the "Forkner Employment Agreement"). Pursuant to the Forkner Employment Agreement, Mr. Forkner is eligible to participate in standard benefit plans and perquisite programs made available to our employees generally and, as of December 31, 2020, Mr. Forkner receives an annual base salary of $315,000. Mr. Forkner also is eligible to participate in any annual bonus plan offered by us to our employees generally, with individual goals, performance assessment, and discretionary bonus payments, if any, determined by our Chief Executive Officer or our board of directors.
The Forkner Employment Agreement provides for "at-will" employment and may be terminated at any time, for any or no reason, by either us or Mr. Forkner on 30 days' written notice to the other party. However, we may terminate Mr. Forkner's employment immediately and without prior notice for cause (as defined in the Forkner Employment Agreement) or at our sole discretion by providing Mr. Forkner with pay in lieu of the 30-day notice period. In addition, Mr. Forkner may terminate his employment immediately and without prior notice for good reason (as defined in the Forkner Employment Agreement). In the event Mr. Forkner terminates the Forkner Employment Agreement for any reason other than for good reason, then during the 30-day notice period, we may terminate Mr. Forkner's employment at any time, in which case all our obligations to Mr. Forkner under the Forkner Employment Agreement other than accrued obligations through the date of termination will cease.
If we terminate the Forkner Employment Agreement without cause or if Mr. Forkner terminates the Forkner Employment Agreement for good reason, then we will pay to Mr. Forkner: (i) severance pay in an amount equal to six months of Mr. Forkner's then-current base salary, less applicable withholdings, in six equal monthly installments; and (ii) if Mr. Forkner properly elects continuation coverage under our group medical insurance plan under applicable law, the percentage of the premium for such medical plan coverage which we bear for similarly situated active employees of ours and their enrolled family members immediately before the termination date for up to six months. These severance payments, however, will be reduced by the amount of any compensation Mr. Forkner earns from other employment during the period such severance payments are payable. In addition, if we determine following the termination of the Forkner Employment Agreement that cause existed on or before such termination, the severance payments described in this paragraph will cease and/or become repayable to us by Mr. Forkner, as applicable.
To receive the severance payments described in the immediately preceding paragraph, Mr. Forkner must timely execute and deliver to us a separation agreement and release of all claims in a form acceptable to us and must not revoke such agreement.
The Forkner Employment Agreement requires Mr. Forkner to covenant to not compete with or against us for one year following Mr. Forkner's termination of employment with us, and to cooperate with us in good faith to resolve any dispute, controversy or litigation we may be involved in (excluding any proceeding where Mr. Forkner is an adverse party) for two years following his termination of employment with us.
Nate Walkingshaw Executive Employment Agreement
Mr. Walkingshaw, our Chief Experience Officer, entered into an executive employment agreement with us, dated September 15, 2017 (the "Walkingshaw Employment Agreement"). The Walkingshaw Employment Agreement terminated when Mr. Walkingshaw terminated his employment with the Company.
Pursuant to the Walkingshaw Employment Agreement, Mr. Walkingshaw was eligible to participate in standard benefit plans and perquisite programs made available to our employees generally and Mr. Walkingshaw received an annual base salary of $350,000. Mr. Walkingshaw also was eligible to participate in any annual bonus plan offered by us to our employees generally, with individual goals, performance assessment, and discretionary bonus payments, if any, determined by our Chief Executive Officer or our board of directors.
The Walkingshaw Employment Agreement provided for "at-will" employment and could have terminated at any time, for any or no reason, by either us or Mr. Walkingshaw on 30 days' written notice to the other party. However, we could have terminated Mr. Walkingshaw's employment immediately and without prior notice for cause (as defined in the Walkingshaw Employment Agreement) or at our sole discretion by providing Mr. Walkingshaw with pay in lieu of the 30-day notice period. In addition, Mr. Walkingshaw could have terminated his employment immediately and without prior notice for good reason (as defined in the Walkingshaw Employment Agreement). In the event Mr. Walkingshaw terminates the Walkingshaw Employment Agreement for any reason other than for good reason, then during the 30-day notice period, we could have terminated Mr. Walkingshaw's employment at any time, in which case all our obligations to Mr. Walkingshaw under the Walkingshaw Employment Agreement other than accrued obligations through the date of termination will cease.
If we terminated the Walkingshaw Employment Agreement without cause or if Mr. Walkingshaw terminated the Walkingshaw Employment Agreement for good reason, then we would have had to pay to Mr. Walkingshaw: (i) severance pay in an amount equal to six months of Mr. Walkingshaw's then-current base salary, less applicable withholdings, in six equal monthly installments; and (ii) if Mr. Walkingshaw properly elected continuation coverage under our group medical insurance plan under applicable law, the percentage of the premium for such medical plan coverage which we bear for similarly situated active employees of ours and their enrolled family members immediately before the termination date for up to six months. These severance payments, however, would have been reduced by the amount of any compensation Mr. Walkingshaw earns from other employment during the period such severance payments are payable. In addition, if we determined following the termination of the Walkingshaw Employment Agreement that cause existed on or before such termination, the severance payments described in this paragraph will cease and/or become repayable to us by Mr. Walkingshaw, as applicable.
To receive the severance payments described in the immediately preceding paragraph, Mr. Walkingshaw would have been required to timely execute and deliver to us a separation agreement and release of all claims in a form acceptable to us and must not revoke such agreement.
The Walkingshaw Employment Agreement required Mr. Walkingshaw to covenant to not compete with or against us for one year following Mr. Walkingshaw's termination of employment with us, and to cooperate with us in good faith to resolve any dispute, controversy or litigation we may be involved in (excluding any proceeding where Mr. Walkingshaw is an adverse party) for two years following his termination of employment with us.
Nate Walkingshaw Separation
We entered into a separation agreement with Mr. Walkingshaw, which became effective on July 16, 2020. Pursuant to the Walkingshaw Separation Agreement, in exchange for Mr. Walkingshaw executing a release of claims in our favor and resigning on July 17, 2020, we paid Mr. Walkingshaw a lump sum bonus of $11,140, less applicable withholdings, to assist with Mr. Walkingshaw’s transition to a new benefits provider.
Compensation Committee Interlocks and Insider Participation
During 2020, our compensation committee was comprised of Messrs. Rencher, Hinkle, and Dorsey, and Ms. Stewart, with Mr. Rencher serving as the chairperson. None of the members of our compensation committee is an officer or employee of our company. None of our executive officers currently serve, or in the past year have served,
as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.
Compensation Committee Report
The compensation committee has reviewed and discussed with management the section entitled "Executive Compensation" (the "Executive Compensation Disclosure") including, without limitation, the disclosure under the heading "Compensation Discussion and Analysis," summary executive compensation tables and related narrative information in this Annual Report on Form 10-K. Based on such review and discussion, the compensation committee has recommended to the board of directors that the section entitled "Executive Compensation Disclosure" be included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Respectfully subjected by the members of the compensation committee of our board of directors:
Brad Rencher (Chair)
Scott Dorsey
Ryan Hinkle
Bonita Stewart
This compensation committee report shall not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A promulgated by the SEC or to the liabilities of Section 18 of the Exchange Act, and shall not be deemed incorporated by reference into any prior or subsequent filing by Pluralsight under the Securities Act of 1933, as amended, or the Securities Act, or the Exchange Act, except to the extent Pluralsight specifically requests that the information be treated as "soliciting material" or specifically incorporates it by reference.
Summary Compensation Table
The following table sets forth information regarding the compensation for services performed during fiscal years 2020, 2019 and 2018 awarded to, paid to or earned by the NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)(1)
|
|
Incentive Unit Awards
($)
|
|
Stock Awards
($)(2)(3)
|
|
Option Awards
($)(4)
|
|
Non-Equity Incentive Plan Compensation
($)(5)
|
|
All Other Compensation
($)(6)
|
|
Total
($)
|
Aaron Skonnard
|
|
2020
|
|
—
|
|
|
169,001
|
|
|
—
|
|
|
5,150,285(7)
|
|
—
|
|
|
—
|
|
|
17,486
|
|
|
5,336,772
|
|
Co-Founder, Chief Executive Officer, and Chairman
|
|
2019
|
|
—
|
|
|
1,037,372
|
|
|
—
|
|
|
5,227,663(7)
|
|
—
|
|
|
—
|
|
|
211,629
|
|
|
6,476,664
|
|
|
2018
|
|
—
|
|
|
77,000
|
|
|
—
|
|
|
7,394(7)
|
|
12,420,017
|
|
|
438,420
|
|
|
9,144
|
|
|
12,951,975
|
|
James Budge
|
|
2020
|
|
5,991(8)
|
|
466,000
|
|
|
—
|
|
|
2,076,549(9)
|
|
—
|
|
|
228,237
|
|
|
58,465
|
|
|
2,835,242
|
|
Chief Financial Officer
|
|
2019
|
|
5,991(8)
|
|
450,000
|
|
|
—
|
|
|
2,333,564(9)
|
|
—
|
|
|
—
|
|
|
41,039
|
|
|
2,830,594
|
|
|
2018
|
|
5,991(8)
|
|
—
|
|
|
—
|
|
|
1,347,899(9)
|
|
5,848,550
|
|
|
191,809
|
|
|
33,251
|
|
|
7,427,500
|
|
Ross Meyercord
|
|
2020
|
|
364,014
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
352,853
|
|
|
49,576
|
|
|
766,443
|
|
Chief Revenue Officer
|
|
2019
|
|
59,588
|
|
|
317,500
|
|
|
—
|
|
|
5,999,986
|
|
|
—
|
|
|
—
|
|
|
8,915
|
|
|
6,385,989
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Nate Walkingshaw
|
|
2020
|
|
186,940
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,620
|
|
|
224,560
|
|
Former Chief Experience Officer
|
|
2019
|
|
347,819
|
|
|
—
|
|
|
—
|
|
|
3,947,177
|
|
|
—
|
|
|
—
|
|
|
24,642
|
|
|
4,319,639
|
|
|
2018
|
|
330,026
|
|
|
—
|
|
|
—
|
|
|
577,500
|
|
|
1,184,352
|
|
|
179,778
|
|
|
12,085
|
|
|
2,283,741
|
|
Matthew Forkner
|
|
2020
|
|
315,028
|
|
|
—
|
|
|
—
|
|
|
1,654,237(10)
|
|
—
|
|
|
163,695
|
|
|
25,665
|
|
|
2,158,625
|
|
Chief Legal Officer, Chief Compliance Officer, and Corporate Secretary
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
________________________
(1)For Mr. Skonnard, this reflects the amount reimbursed for use of an aircraft he 100% owns for business-related travel services in the applicable fiscal years. For Mr. Budge, the amount in 2020 represents reimbursement for business use of a chartered aircraft ($424,820) and a bonus ($41,180), reflecting the amount Mr. Budge spent less than his annual base
salary plus $100,000 in 2020. The bonus amount of $41,180 was provided to Mr. Budge during the first quarter of the following year in the form of a cash bonus.
(2)The amounts in the "Stock Awards" column reflect the aggregate grant-date fair value of RSUs of Pluralsight, Inc. or restricted share units of Pluralsight Holdings awarded to our NEOs during 2020, 2019 and 2018 as computed in accordance with FASB ASC Topic 718. We provide information regarding the assumptions used to calculate the value of all RSU awards made to executive officers in Note 15 to Pluralsight, Inc.'s consolidated financial statements included herein.
(3)Assuming the highest level of performance achieved for the PSUs, the maximum amount of PSUs that could be awarded to each NEO in 2020 and 2019 and the maximum value of those PSUs are as follows: (i) in 2020, 318,640 PSUs with a total maximum value of $6,047,787 to Mr. Skonnard; 106,213 PSUs with a total maximum value of $2,015,923 to Mr. Budge; and 84,970 PSUs with a total maximum value of $1,612,731 to Mr. Forkner; and (ii) in 2019: 162,955 PSUs with a total maximum value of $5,204,783 to Mr. Skonnard; 72,344 PSUs with a total maximum value of $2,310,667 to Mr. Budge; and 61,790 PSUs with a total maximum value of $1,973,573 to Mr. Walkingshaw. The maximum amount of PSUs granted is calculated in accordance with FASB ASC Topic 718. For 2020 PSUs the maximum value is based on the closing stock price on December 11, 2020, the date the performance targets were modified.
(4)The amounts in this column represent the aggregate grant date fair value of stock option awards as computed in accordance with FASB ASC 718. The assumptions used in calculating the grant date fair value of the awards reported in this column are set forth in Note 15 to Pluralsight, Inc.'s consolidated financial statements included herein.
(5)With respect to Messrs. Skonnard, Budge, Walkingshaw, and Forkner the amounts for 2020 and 2018 in this column represent annual incentives earned by Messrs. Skonnard, Budge, Walkingshaw, and Forkner under our Executive Bonus Plan. With respect to Mr. Meyercord, the amounts in this column represent amounts earned by Mr. Meyercord under his incentive compensation arrangement.
(6)The amounts for 2020 include matching contributions under our 401(k) plan ($0 for Mr. Skonnard, $1,440 for Mr. Budge, $7,042 for Mr. Meyercord, $4,937 for Mr. Walkingshaw, and $5,907 for Mr. Forkner) and life insurance premiums ($0 for of Mr. Skonnard, $16 Mr. Budge, $402 for Mr. Meyercord, $218 for Mr. Walkingshaw, and $402 for Mr. Forkner); for Mr. Walkingshaw, the amount also includes a severance payment ($11,140); for Mr. Budge, the amount also includes a relocation reimbursement ($19,755); and for Mr. Meyercord, the amount also includes housing expenses ($10,956). The amounts for 2019 include matching contributions under our 401(k) plan ($4,563 for Mr. Skonnard, $5,934 for Mr. Budge, $1,375 for Mr. Meyercord and $7,110 for Mr. Walkingshaw), life insurance premiums ($0 for of Mr. Skonnard, $16 Mr. Budge, $84 for Mr. Meyercord and $402 for Mr. Walkingshaw), and a tax gross-up relating to a gift ($662 for Mr. Budge and $245 for Mr. Walkingshaw); for Mr. Skonnard, the amount includes payment by the Company of a HSR filing fee paid and associated fees for legal and tax services, as described in further detail in footnote in the amount of $190,970 (which was imputed as income to Mr. Skonnard and he was responsible for any taxes due as a result of the Company paying the HSR filing fee; he was not provided a tax gross-up payment); for Mr. Budge, the amount also includes housing expenses ($7,315), and a relocation reimbursement ($11,004); and for Mr. Meyercord, the amount also includes housing expenses ($3,827). The amounts for 2018 include matching contributions under our 401(k) plan ($2,892 for Mr. Skonnard, $8,250 for Mr. Budge and $8,250 for Mr. Walkingshaw), life insurance premiums ($66 for each of Mr. Skonnard and Mr. Budge), and a tax gross-up relating to a sales trip ($6,186 for Mr. Skonnard and $6,456 for Mr. Budge); and for Mr. Budge, the amount also includes housing expenses ($18,209) and a wellness reimbursement ($270).
(7)Includes the grant date fair value of shares of Class A common stock granted to Mr. Skonnard pursuant to an ESPP equivalent program approved by our board of directors in May 2018.
(8)Represents payments necessary to allow Mr. Budge to make standard applicable employee contributions under our broad-based employee benefits plans.
(9)Includes the grant date fair value of shares of Class A common stock granted to Mr. Budge pursuant to an ESPP equivalent program approved by our board of directors in May 2018 as well as the grant date fair value of shares of Class A common stock granted to Mr. Budge pursuant to a 401(k) equity match program in Q3 and Q4 of 2020.
(10)Includes the grant date fair value of shares of Class A common stock granted to Mr. Forkner pursuant to a 401(k) equity match program in Q3 of 2020.
CEO Pay Ratio
The 2020 annual total compensation of our CEO was approximately $5,336,771 and the 2020 annual total compensation of our median compensated employee was approximately $99,134. Thus, the ratio of the 2020 annual total compensation of our CEO to our median employee was approximately 54 to 1.
We determined our median compensated employee by reviewing the taxable compensation of all employees globally, including those employed by us or any of our subsidiaries on a temporary, seasonal, part-time or full-time basis as of December 31, 2020. We ascertained the taxable compensation from information derived from our 2020
payroll records. To determine our consistently applied compensation measure, we converted the taxable amount into USD and annualized it for those employees who were not employed by us for all of 2020. Upon determining the median compensated employee based on these measures, we utilized the same methodology to calculate our median employee’s 2020 annual total compensation as the approach used to calculate our CEO’s annual total compensation in the table below entitled “Summary Compensation Table.”
This pay ratio disclosure is a reasonable estimate that was calculated in a manner consistent with SEC rules. The SEC rules allow for companies to make reasonable assumptions and estimates, apply certain exclusions, and adopt a variety of methodologies when identifying the company’s median employee, calculating annual total compensation, and determining the pay ratio. Therefore, our pay ratio disclosure may not be comparable to the pay ratio reported by other companies.
Grants of Plan Based Awards During 2020
The following table presents information regarding grants of plan-based awards made to our NEOs during 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)
|
|
Estimated Future Payouts Under Equity Incentive Plan Awards(2)
|
|
401(k) Equity Match Stock Awards: Number of shares of stock or Units (#)(3)
|
|
All Other Stock Awards: Number of Shares of Stock or Units (#)(4)
|
|
Grant Date Fair Value of Stock and Option
Awards ($)(5)
|
Name
|
|
Grant Date
|
|
Threshold ($)
|
|
Target ($)
|
|
Maximum ($)
|
|
Threshold (#)
|
|
Target (#)
|
|
Maximum (#)
|
|
|
Aaron Skonnard
|
|
—
|
|
221,500
|
|
|
443,000
|
|
|
886,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
___ (6)
|
|
2/11/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
106,213
|
|
|
2,115,763
|
|
|
2/11/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
79,660
|
|
|
159,320
|
|
|
318,640
|
|
|
—
|
|
|
—
|
|
|
3,023,894
|
|
James Budge
|
|
—
|
|
109,800
|
|
|
219,600
|
|
|
439,200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
___ (6)
|
|
2/11/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53,106
|
|
|
1,057,872
|
|
|
2/11/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,553
|
|
|
53,106
|
|
|
106,213
|
|
|
—
|
|
|
—
|
|
|
1,007,952
|
|
|
11/13/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
48
|
|
|
12/31/2020(7)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
50
|
|
Ross Meyercord
|
|
—
|
|
182,000
|
|
|
364,000
|
|
|
728,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Nate Walkingshaw
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
___ (6)
|
Matthew Forkner
|
|
—
|
|
78,750
|
|
|
157,500
|
|
|
315,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2/11/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
42,485
|
|
|
846,301
|
|
|
2/11/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,243
|
|
|
42,485
|
|
|
84,970
|
|
|
—
|
|
|
—
|
|
|
806,365
|
|
|
11/13/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
99
|
|
|
—
|
|
|
1,570
|
|
________________________
(1)These columns represent awards granted under our 2020 Bonus Plan for performance in the year ended December 31, 2020. These columns show the awards that were possible at the threshold, target at 50% and target at 100%, and maximum levels of performance. Minimum performance under the 2020 Bonus Plan could have resulted in a threshold amount equal to $0. Actual cash incentive awards earned in 2020 by the NEOs under the 2020 Bonus Plan are shown in the column titled "Non-Equity Incentive Plan Compensation" in the "Summary Compensation Table."
(2)These columns represent PSU awards granted under our 2020 executive compensation program. These columns show the awards that were possible at the threshold, target and maximum levels of performance. See the "Compensation Discussion and Analysis" section of this Annual Report on Form 10-K for additional discussion.
(3)This column represents stock awards granted pursuant to an employee 401(k) equity match program.
(4)This column represents awards of 2020 RSUs. 25% of the RSUs vested on January 1, 2021 and the remaining RSUs will vest quarterly thereafter, subject to each NEO’s continued service through each vesting date.
(5)These amounts do not reflect the actual economic value realized by the NEO. In accordance with SEC rules, this column represents the grant date fair value, computed in accordance with stock-based compensation accounting principles, of each equity award.
(6)The grant date fair value included in this column for PSU awards granted is based on the probable outcome of the performance conditions associated with these grants determined as of the grant date, excluding the effect of estimated forfeitures.
(7)The award granted on this date was pursuant to an employee 401(k) equity match program earned in Q4 of 2020 but not awarded until February 12, 2021.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning all outstanding equity awards held by each of our NEOs as of December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
Name
|
|
Grant Date(1)
|
|
Number of Stock Options Outstanding Exercisable
(#)
|
|
Number of Stock Options Outstanding Unexercisable
(#)
|
|
Option Exercise Price
($)
|
|
Option Expiration Date
|
|
Number of Unearned Units or Other Rights That Have Not Vested
(#)
|
|
Market Value of Unearned Units or Other Rights That Have Not Vested
($)(2)
|
Aaron Skonnard
|
|
9/29/2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
327,576(3)
|
|
6,865,993
|
|
|
|
9/29/2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
562,500(4)
|
|
11,790,000
|
|
|
5/17/2018
|
|
1,566,166(5)
|
|
—
|
|
|
15.00
|
|
5/17/2028
|
|
—
|
|
|
—
|
|
|
2/12/2019
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45,831(6)
|
|
960,618
|
|
|
2/11/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
106,213(13)
|
|
2,226,224
|
|
James Budge
|
|
4/25/2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
132,846(7)
|
|
2,784,452
|
|
|
|
5/17/2018
|
|
737,503(5)
|
|
—
|
|
|
15.00
|
|
5/17/2028
|
|
—
|
|
|
—
|
|
|
2/21/2018
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24,935(8)
|
|
522,638
|
|
|
2/21/2018
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39,896(9)
|
|
836,220
|
|
|
2/12/2019
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,347(6)
|
|
426,473
|
|
|
2/11/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53,106(12)
|
|
1,113,102
|
|
|
2/11/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53,106(13)
|
|
1,113,102
|
|
Ross Meyercord
|
|
10/28/2019
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
242,326(10)
|
|
5,079,153
|
|
Matthew Forkner
|
|
5/17/2018
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
93,750(11)
|
|
1,965,000
|
|
|
|
2/12/2019
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,110(6)
|
|
190,946
|
|
|
2/11/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,485(12)
|
|
890,486
|
|
|
2/11/2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,485(13)
|
|
890,486
|
|
________________________
(1)Each of the outstanding equity awards was granted pursuant to the 2013 Incentive Unit Plan, 2017 Equity Incentive Plan, 2017 Skonnard RSU Agreement or 2018 Plan, as applicable.
(2)In accordance with SEC rules, market value is determined by multiplying the number of shares by the fair market value of the Company's Class A common stock on December 31, 2020, or $20.96.
(3)286,594 LLC Units vested on July 25, 2018 with the remaining LLC Units vesting in increments of 109,191 or 109,192 every three months thereafter. Each of Mr. Skonnard’s LLC Unit corresponds with a share of Class C common stock, which together are exchangeable for one share of our Class A common stock at the option of the holder (for which we may substitute cash). The Class C common stock is also convertible into Class B common stock on a one-for-one basis at the holder's election.
(4)The RSUs covering Class A common stock vested as to 25% of the total on July 25, 2018 and the remaining RSUs vest in equal amounts every three months thereafter, subject to NEO’s continued service through each vesting date.
(5)The option grant vested as to 25% of the total option grant on November 17, 2018, and the remaining option grant vest as to 25% of the total option grant every six months, subject to NEO's continued service through each vesting date.
(6)The RSUs covering Class A common stock vested as to 25% of the total on March 1, 2020 and the remaining RSUs vest quarterly thereafter, subject to NEO’s continued service through each vesting date.
(7)The LLC Units vested as to 25% of the total on April 17, 2018 and the remaining LLC Units vest in equal amounts every three months thereafter. Each LLC Unit corresponds with a share of our Class B common stock, which together are exchangeable for one share of our Class A common stock at the option of the holder (for which we may substitute cash).
(8)The RSUs covering Class A common stock vested as to 25% of the total on February 21, 2019 and the remaining RSUs vest in equal amounts every three months thereafter.
(9)Based on performance criteria, which were met in 2018, 50% of the RSUs vested on January 1, 2020 and the remaining 50% vested on January 1, 2021.
(10)The RSUs covering Class A common stock vested as to 25% of the total on October 28, 2020 and the remaining RSUs vest quarterly thereafter, subject to NEO’s continued service through each vesting date.
(11)The RSUs covering Class A common stock vested as to 25% of the total on April 1, 2019 and the remaining RSUs vest quarterly thereafter, subject to NEO’s continued service through each vesting date.
(12)The RSUs covering Class A common stock vested as to 25% of the total on January 1, 2021 and the remaining RSUs vest quarterly thereafter, subject to NEO’s continued service through each vesting date.
(13)Based on performance criteria, which were met in 2020 at target level, 50% of the PSUs vest on January 1, 2022 and the remaining 50% vest on January 1, 2023.
Stock Option Exercises and Stock Award Vested During 2020
The following table sets forth the number of shares acquired and the value realized upon exercise of stock options and the vesting of RSUs during 2020 by each of our NEOs. The value realized on exercise of stock options is calculated based on the difference between the closing market price of our Class A common stock upon exercise and the exercise price of the stock options. The value realized on vesting of stock awards is calculated based on the closing market price of our Class A common stock on the vesting date of the RSU.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Awards
|
|
Equity Awards
|
Name
|
|
Number of Shares Acquired on Exercise (#)(1)
|
|
Value Realized on Exercise ($)(2)
|
|
Number of Shares Acquired on Vesting (#)
|
|
Value Realized on Vesting ($)
|
Aaron Skonnard
|
|
—
|
|
|
—
|
|
|
785,646
|
|
|
13,938,588
|
|
James Budge
|
|
—
|
|
|
—
|
|
|
75,669
|
|
|
1,357,937
|
|
Ross Meyercord
|
|
—
|
|
|
—
|
|
|
80,775
|
|
|
1,340,057
|
|
Nate Walkingshaw
|
|
149,347
|
|
|
886,569
|
|
|
71,073
|
|
|
1,155,930
|
|
Matthew Forkner
|
|
—
|
|
|
—
|
|
|
69,584
|
|
|
1,127,105
|
|
________________________
(1)Reflects the aggregate number of shares of Class A common stock underlying the stock options that were exercised in 2020.
(2)Reflects the value of the shares of Class A common stock on the exercise date, reduced by the applicable per share exercise price.
Potential Payments Upon Termination or Change of Control
We entered into an employment agreement with each of our NEOs that provides for severance benefits under certain circumstances, and we approved the Skonnard Single Trigger Acceleration Benefit, Double Trigger Acceleration Benefit and Death Acceleration Benefit applicable to our NEOs. See "Post-Employment Compensation" and "Executive Employment Arrangements" sections for further details.
The following table provides information concerning the estimated payments and benefits that would be provided in the circumstances described below, assuming that the triggering event took place on December 31, 2020, the last day of our fiscal year. The value of the accelerated equity vesting is determined by multiplying the unvested portion of the award subject to vesting acceleration by $20.96, the closing price of our Class A common stock on December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Qualifying Termination Not in Connection with a
Change of Control ($)
|
|
Termination Due to Death or Disability ($)(1)
|
|
Qualifying Termination in Connection with a
Change of Control ($)(2)
|
|
|
|
|
|
|
|
Aaron Skonnard
|
Cash severance
|
|
200,000
|
|
—
|
|
|
200,000
|
Continued Health Coverage
|
|
8,743
|
|
|
8,743
|
|
8,743
|
Accelerated equity vesting
|
|
6,865,993(3)
|
|
3,000,000
|
|
25,182,182
|
James Budge
|
Cash severance
|
|
175,000
|
|
—
|
|
|
175,000
|
Continued Health Coverage
|
|
8,743
|
|
|
8,743
|
|
8,743
|
Accelerated equity vesting
|
|
—
|
|
|
3,000,000
|
|
6,795,987
|
Ross Meyercord
|
Cash severance
|
|
182,000
|
|
|
—
|
|
|
182,000
|
Continued Health Coverage
|
|
8,743
|
|
|
8,743
|
|
8,743
|
Accelerated equity vesting
|
|
—
|
|
|
3,000,000
|
|
5,079,153
|
Nate Walkingshaw
|
Cash severance
|
|
11,140
|
|
—
|
|
|
11,140
|
Continued Health Coverage
|
|
8,743
|
|
|
8,743
|
|
8,743
|
Accelerated equity vesting
|
|
—
|
|
|
—
|
|
|
—
|
|
Matthew Forkner
|
Cash severance
|
|
157,500
|
|
|
—
|
|
|
157,500
|
Continued Health Coverage
|
|
8,743
|
|
|
8,743
|
|
8,743
|
Accelerated equity vesting
|
|
—
|
|
|
3,000,000
|
|
3,936,917
|
________________________
(1)Each NEO's acceleration of unvested equity is capped at $3,000,000.
(2)Each NEO's, excluding Mr. Meyercord who has not been granted PSUs, acceleration of unvested equity includes PSUs that could have been earned in 2020 at 100%. Messrs. Budge and Forkner earned PSUs for their performance in 2020 at 100% and Mr. Skonnard forfeited PSUs that could have been earned in February 2021 due to a failure to meet the applicable performance metrics. For Mr. Skonnard, 100% of his incentive units granted in 2017 vest in connection with a sale of the company, and these units have a value of $22,588,125 as of December 31, 2020.
(3)We approved the Skonnard Single Trigger Acceleration Benefit prior to our initial public offering in May 2018. See "Post-Employment Compensation" section for further details.
Director Compensation Table
The following table provides information regarding compensation of our non-employee directors for service as directors for the year ended December 31, 2020. For all of our non-employee directors, we offer to reimburse any travel expenses or other related expenses for attending meetings. All compensation that we paid to Mr. Skonnard, our only employee director, is presented in the tables summarizing the compensation of our NEOs in the section entitled "Executive Compensation."
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or Paid in Cash(1)
|
|
Stock Awards ($)(2)
|
|
Option Awards ($)(2)
|
|
Total ($)
|
Gary Crittenden(5)
|
|
—
|
|
|
240,490(4)
|
|
—
|
|
|
240,490
|
|
Scott Dorsey(6)
|
|
38,500
|
|
|
185,996(3)
|
|
—
|
|
|
225,496
|
|
Arne Duncan(7)
|
|
30,000
|
|
|
185,996(3)
|
|
—
|
|
|
215,996
|
|
Ryan Hinkle(8)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Leah Johnson(9)
|
|
33,500
|
|
|
185,996(3)
|
|
—
|
|
|
219,496
|
|
Tim Maudlin(10)
|
|
50,000
|
|
|
185,996(3)
|
|
—
|
|
|
235,996
|
|
Frederick Onion(8)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Brad Rencher(11)
|
|
44,000
|
|
|
185,996(3)
|
|
—
|
|
|
229,996
|
|
Bonita Stewart(12)
|
|
—
|
|
|
220,998(4)
|
|
—
|
|
|
220,998
|
|
Karenann Terrell(13)
|
|
39,500
|
|
|
185,996(3)
|
|
—
|
|
|
225,496
|
|
________________________
(1)The amount shown reflects an annual cash retainer for such director's service as a member of our board of directors and, if applicable, chair or member of our audit committee, compensation committee and nominating and corporate governance committee.
(2)The fair value of each stock award is measured based on the closing price of our Class A common stock on the date of grant. Stock option awards are shown at their aggregate grant date fair value in accordance with authoritative accounting guidance on stock compensation. The fair value of each stock option grant is estimated based on the fair market value on the date of grant using the Black-Scholes option pricing model. For more detailed discussion on the valuation model and assumptions used to calculate the fair value of our options, refer to Note 2 of the "Notes to Financial Statements" included in the Annual Report on Form 10-K/A for the year ended December 31, 2020, as filed with the SEC on February 26, 2021.
(3)Messrs. Dorsey, Duncan, Maudlin, Rencher and Mses. Johnson and Terrell were each awarded RSUs covering 11,632 shares of our Class A common stock on May 5, 2020, which will vest in full on the date of the Annual Meeting, subject to each of their continued service with us through such date.
(4)Mr. Crittenden and Ms. Stewart elected to receive the annual cash retainer in the form of RSUs. The fair value of each stock award is measured based on the closing price of our Class A common stock on the date of grant. Mr. Crittenden was awarded RSUs covering 15,040 shares of our Class A common stock on May 5, 2020. Ms. Stewart was awarded RSUs covering 13,821 shares of our Class A common stock on May 4, 2020.
(5)As of December 31, 2020, Mr. Crittenden held (a) 15,040 RSUs and (b) options to purchase a total of 80,721 shares of our Class A common stock that vest in four equal semiannual installments beginning on November 16, 2018, subject to his continued service with us.
(6)As of December 31, 2020, Mr. Dorsey held (a) 11,632 RSUs and (b) options to purchase a total of 109,110 shares of our Class A common stock that vest in four equal semiannual installments beginning on November 16, 2018, subject to his continued service with us.
(7)As of December 31, 2020, Mr. Duncan held (a) 11,632 RSUs and (b) options to purchase a total of 153,179 shares of our Class A common stock that vest in four equal semiannual installments beginning on November 16, 2018, subject to his continued service with us.
(8)Messrs. Hinkle and Onion each elected to forgo compensation that would have been provided to them under our Outside Director Compensation Policy.
(9)As of December 31, 2020, Ms. Johnson held 11,632 RSUs.
(10)As of December 31, 2020, Mr. Maudlin held (a) 11,632 RSUs and (b) options to purchase a total of 80,721 shares of our Class A common stock that vest in four equal semiannual installments beginning on November 16, 2018, subject to his continued service with us.
(11)As of December 31, 2020, Mr. Rencher held (a) 11,632 RSUs and (b) options to purchase a total of 80,721 shares of our Class A common stock that vest in four equal semiannual installments beginning on November 16, 2018, subject to his continued service with us.
(12)As of December 31, 2020, Ms. Stewart held 13,821 RSUs.
(13)As of December 31, 2020, Ms. Terrell held (a) 11,632 RSUs and (b) options to purchase a total of 131,926 shares of our Class A common stock that vest in four equal semiannual installments beginning on November 16, 2018, subject to her continued service with us.
Outside Director Compensation Policy
Our board of directors adopted our Outside Director Compensation Policy in connection with our initial public offering. Members of our board of directors who are not employees are eligible for compensation under our Outside Director Compensation Policy. Accordingly, Mr. Skonnard is not eligible for awards under our Outside Director Compensation Policy.
The compensation committee periodically reviews the type and form of compensation paid to our non-employee directors, which includes a market assessment and analysis by Compensia, Inc. ("Compensia"), its independent compensation consultant. As part of this analysis, Compensia reviews non-employee director compensation trends and data from companies comprising the same executive compensation peer group used by the compensation committee in connection with its review of executive compensation, as discussed below in the section entitled "Executive Compensation-Governance of Executive Compensation Programs."
In the second half of 2020, the compensation committee, with input from Compensia, reviewed our Outside Director Compensation Policy and determined that the compensation levels thereunder were market competitive and no changes were necessary or recommended.
Under our Outside Director Compensation Policy, non-employee directors will receive compensation in the form of equity and cash, as described below:
Cash Compensation
During fiscal year 2020, each non-employee director was eligible to receive the following annual cash retainers for certain board of directors and/or committee service:
•$30,000 per year for service as a member of our board of directors;
•$17,000 per year additionally for service as lead independent director;
•$20,000 per year additionally for service as chair of the audit committee;
•$9,500 per year additionally for service as a member of the audit committee;
•$14,000 per year additionally for service as chair of the compensation committee;
•$5,000 per year additionally for service as a member of the compensation committee;
•$7,500 per year additionally for service as chair of the nominating and corporate governance committee; and
•$3,500 per year additionally for service as a member of the nominating and corporate governance committee.
All cash payments to non-employee directors are paid quarterly in arrears on a prorated basis. There are no per-meeting attendance fees. Each non-employee director receiving an additional fee as a chair of a committee will not also receive the additional fee as a member of the committee.
Equity Compensation
Non-employee directors are eligible to receive all types of equity awards (except incentive stock options) under our 2018 Equity Incentive Plan (the "2018 Plan"), including discretionary awards not covered under our Outside Director Compensation Policy. All grants of awards under our Outside Director Compensation Policy will be automatic and nondiscretionary.
Initial Award. Upon joining our board of directors, each newly-elected non-employee director will receive an initial equity award having a grant date value equal to $186,000 multiplied by a fraction, (A) the numerator of which is the number of full months remaining during the period beginning on the date the individual becomes a member of the board of directors and ending on the one-year anniversary of the date of the then-most recent annual meeting of stockholders (the "Initial Award Vesting Period"), and (B) the denominator of which is 12, rounded to the nearest whole share (the "Initial Award"). The Initial Award will be comprised of restricted stock units ("RSUs") that vest into Class A common stock. The Initial Award will be granted on the first trading day on or after such person first becomes a non-employee director. Subject to the terms of the Outside Director Compensation Policy, the Initial Award will vest upon the earlier of the last day of the Initial Award Vesting Period or the day prior to the date of the annual meeting of stockholders next following the date the Initial Award is granted, subject to the individual's continued service through the applicable vesting date. An individual who is a director and also an employee will not receive an Initial Award if s/he becomes a non-employee director due to termination of employment.
Annual Award. On the date of each annual meeting of stockholders, each continuing non-employee director automatically will be granted an equity award having a grant date value equal to $186,000 (the "Annual Award"). The Annual Award will be comprised of RSUs that vest into Class A common stock. Subject to the terms of the policy, each Annual Award will vest upon the earlier of the one-year anniversary of the grant date or the day prior to our next annual meeting of stockholders occurring after the grant date, subject to the individual's continued service through the applicable vesting date.
Any award granted under our Outside Director Compensation Policy will fully vest in the event of a change in control, as defined in our 2018 Plan, provided that the individual remains a director through such change in control.
Non-Employee Director Elections to Convert Cash Fees and/or Defer Equity Awards
Each non-employee director may elect to convert any cash compensation that s/he would otherwise be entitled to receive under our Outside Director Compensation Policy into an award of RSUs under our 2018 Plan (each, a "Retainer Award"). If the non-employee director makes this election in accordance with the Outside Director Compensation Policy, such Retainer Award will be granted on the date of the annual meeting of stockholders for that year, and will vest upon the earlier of the one-year anniversary of the grant date or the day prior to our next annual meeting of stockholders occurring after the grant date, subject to the individual's continued service through the applicable vesting date, and further subject to the change in control vesting acceleration provisions.
Each non-employee director may elect to defer the delivery of the settlement of any Initial Award, Annual Award, or Retainer Award that would otherwise be delivered to such non-employee director on or following the date such award vests pursuant to the terms of a deferral election such non-employee director makes in accordance with the Outside Director Compensation Policy. A non-employee director may elect to defer 100% of his or her RSUs granted to him or her under the Outside Director Compensation Policy and either have them settled in: (A) a single lump sum installment in whole shares within 60 days following the earlier of the termination of his or her service as a member of our board of directors, or his or her death, (the "Distribution Date"), or (B) five equal installments in whole shares following his or her termination of service as a member of our board of directors or death, with the first installment payable on the one-year anniversary of the Distribution Date, and each consecutive installment payable on each annual anniversary thereafter until all of the installments have been paid.
With respect to calendar years starting on or after January 1, 2021, Mr. Crittenden and Ms. Stewart elected to convert their cash compensation into a Retainer Award in accordance with our Outside Director Compensation Policy. Messrs. Crittenden and Maudlin, and Ms. Stewart elected to defer 100% of their RSUs granted to each non-employee director under the Outside Director Compensation Policy and have such RSUs settled in a single lump sum installment in whole shares on each such non-employee director's applicable Distribution Date.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity Plans and Arrangements
Rule 10b5-1 Trading Plans
Certain of our directors and executive officers have adopted written plans, known as Rule 10b5-1 plans, in which they have contracted with a broker to buy or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by directors or executive officers when entering into the plan, without further direction from them. The director or executive officer may amend or terminate the plan in specified circumstances.
Equity Compensation Plan Information
The following table summarizes information about our equity compensation plans as of December 31, 2020. Information is included for equity compensation plans approved by our stockholders. We do not have any equity compensation plans not approved by stockholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
(a) Number of Securities to be Issued Upon Exercise of Outstanding Stock Options,
Warrants and Rights
|
|
(b) Weighted-Average Exercise Price of Outstanding Stock Options, Warrants and Rights(1)
|
|
(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
(Excluding Securities Reflected in Column (a))(2)
|
Equity compensation plans approved by stockholders
|
|
14,183,031
|
|
|
$
|
14.70
|
|
|
23,882,400
|
|
Equity compensation plans not approved by stockholders
|
|
50,453(3)
|
|
—
|
|
|
—
|
|
Total
|
|
14,233,484
|
|
|
$
|
14.70
|
|
|
23,882,400
|
|
________________________
(1)The weighted average exercise price does not take into account outstanding RSUs.
(2)Includes shares available for future issuance under our 2018 Plan and our 2018 ESPP. Our 2018 Plan provides that on the first day of each fiscal year beginning with the 2019 fiscal year, the number of shares of our Class A common stock available for issuance thereunder will be increased in an amount equal to the least of (i) 14,900,000 shares, (ii) 5% of the outstanding shares of all classes of our Class A common stock on the last day of the immediately preceding fiscal year or (iii) such number of shares determined by our board of directors. Our 2018 ESPP provides that on the first day of each fiscal year beginning with the 2019 fiscal year, the number of shares of our Class A common stock available for issuance thereunder will be increased in an amount equal to the least of (i) 2,970,000 shares, (ii) 1.5% of the outstanding shares of all classes of our Class A common stock on the last day of the immediately preceding fiscal year or (iii) an amount determined by the plan administrator. These increases are not reflected in the table above.
(3)Consists of shares issuable under the GitPrime, Inc. 2015 Equity Incentive Plan and GitPrime, Inc. 2018 Equity Incentive Plan, which have been assumed by us in connection with our acquisition of GitPrime, Inc. in May 2019.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of our capital stock as of February 11, 2021 ("Beneficial Ownership Date") by:
•each person, or group of affiliated persons, known to us to be the beneficial owner of more than 5% of our common stock;
•each of our named executive officers;
•each of our directors and nominees for director; and
•all executive officers and directors as a group.
Applicable percentage ownership is based on 151,516,352 shares of our common stock outstanding at February 11, 2021. Shares of common stock subject to options currently exercisable or exercisable within 60 days of February 11, 2021 which are subject to vesting conditions expected to occur within 60 days of February 11, 2021 are deemed to be outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage of beneficial ownership of that person and any group of which that person is a member, but are not deemed outstanding for the purpose of computing the percentage of beneficial ownership for any other person.
Unless otherwise indicated in the footnotes below, each stockholder named in the following table possesses sole voting and investment power over the shares listed. The information does not necessarily indicate beneficial ownership for any other purpose. Unless otherwise noted below, the address of each person listed on the table is c/o Pluralsight, Inc., 42 Future Way, Draper, Utah 84020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially Owned
|
|
% of Total
Voting Power
#
|
|
|
Class A
|
|
Class B†
|
|
Class C†
|
|
Name of Beneficial Owners
|
|
Shares
|
|
%
|
|
Shares
|
|
%
|
|
Shares
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aaron Skonnard(1)
|
|
1,933,089
|
|
|
1.6
|
|
—
|
|
|
*
|
|
13,508,407
|
|
|
100.0
|
|
50.4
|
James Budge(2)
|
|
792,656
|
|
|
*
|
|
262,692
|
|
|
2.2
|
|
—
|
|
|
*
|
|
*
|
Matthew Forkner(3)
|
|
24,861
|
|
|
*
|
|
—
|
|
|
*
|
|
—
|
|
|
*
|
|
*
|
Ross Meyercord(4)
|
|
27,199
|
|
|
*
|
|
—
|
|
|
*
|
|
—
|
|
|
*
|
|
*
|
Nate Walkingshaw
|
|
—
|
|
|
*
|
|
—
|
|
|
*
|
|
—
|
|
|
*
|
|
*
|
Gary Crittenden(5)
|
|
120,561
|
|
|
*
|
|
179,758
|
|
|
1.5
|
|
|
—
|
|
|
*
|
|
*
|
Scott Dorsey(6)
|
|
134,350
|
|
|
*
|
|
171,712
|
|
|
1.4
|
|
—
|
|
|
*
|
|
*
|
Arne Duncan(7)
|
|
178,419
|
|
|
*
|
|
333,008
|
|
|
2.8
|
|
—
|
|
|
*
|
|
*
|
Ryan Hinkle(8)
|
|
49,412
|
|
|
*
|
|
—
|
|
|
*
|
|
—
|
|
|
*
|
|
*
|
Leah Johnson(9)
|
|
3,620
|
|
|
*
|
|
—
|
|
|
*
|
|
—
|
|
|
*
|
|
*
|
Timothy Maudlin(10)
|
|
80,721
|
|
|
*
|
|
272,588
|
|
|
2.3
|
|
—
|
|
|
*
|
|
*
|
Frederick Onion(11)
|
|
312,400
|
|
|
*
|
|
9,961,071
|
|
|
83.0
|
|
—
|
|
|
*
|
|
3.8
|
Bradley Rencher(12)
|
|
105,961
|
|
|
*
|
|
208,170
|
|
|
1.7
|
|
—
|
|
|
*
|
|
*
|
Bonita Stewart(13)
|
|
26,240
|
|
|
*
|
|
—
|
|
|
*
|
|
—
|
|
|
*
|
|
*
|
Karenann Terrell(14)
|
|
157,166
|
|
|
*
|
|
103,459
|
|
|
0.9
|
|
|
—
|
|
|
*
|
|
*
|
All current executive officers and directors as a group (15 persons)(15)
|
|
3,946,655
|
|
|
3.1
|
|
11,492,458
|
|
|
95.7
|
|
13,508,407
|
|
|
100.0
|
|
55.1
|
Greater than 5% Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities affiliated with Vanguard Group, Inc.(16)
|
|
9,582,912
|
|
|
7.8
|
|
—
|
|
|
*
|
|
—
|
|
|
*
|
|
3.5
|
Entities affiliated with FMR LLC(17)
|
|
9,972,371
|
|
|
8.1
|
|
—
|
|
|
*
|
|
—
|
|
|
*
|
|
3.7
|
Entities affiliated with ArrowMark Colorado Holdings, LLC(18)
|
|
8,777,621
|
|
|
7.1
|
|
—
|
|
|
*
|
|
—
|
|
|
*
|
|
3.2
|
________________________
† The Class B common stock and Class C common stock are convertible at any time by the holder into shares of Class A common stock on a share-for-share basis, such that each holder of Class B common stock or Class C common stock, as applicable, beneficially owns an equivalent number of shares of Class A common stock.
# Percentage total voting power represents voting power with respect to all shares of our Class A common stock, Class B common stock, and Class C common stock, as a single class. Each holder of Class C common stock is entitled to 10 votes per share of Class C common stock and each holder of Class A common stock and Class B common stock is entitled to one vote per share of Class A common stock or Class B common stock, as applicable, on all matters submitted to our stockholders for a vote. The Class A common stock, Class B common stock, and Class C common stock vote together as a single class on all matters submitted to a vote of our stockholders, except as may otherwise be required by law.
* Represents beneficial ownership or voting power of less than one percent (1%) of the outstanding shares of our common stock.
(1)Consists of (i) 329,827 shares of Class A common stock and 9,732,644 shares of Class C common stock held by Skonnard Consulting, Inc., of which Mr. Skonnard is an owner; (ii) 440,477 shares of Class C common stock held by Skonnard Family GRAT 2021, of which Mr. Skonnard is a trustee; (iii) 988,408 shares of Class C common stock held by True Nord Trust, of which Mr. Skonnard may be deemed to have voting and dispositive power; (iv) 365,317 shares of Class C common stock held by Aaron & Monica Skonnard Revocable Trust, of which Mr. Skonnard is co-trustee; (v) 25,366 shares of Class A common stock held by Mr. Skonnard; (vi) 1,566,166 shares of Class A common stock subject to options held by Mr. Skonnard that are immediately exercisable within 60 days of the Beneficial Ownership Date; (vii) 11,730 shares of Class A common stock held by Mr. Skonnard underlying RSUs vesting within 60 days of the Beneficial Ownership Date; and (viii) 1,981,561 shares of Class C common stock held by Mr. Skonnard, of which 218,384 shares are unvested and subject to a right of repurchase in favor of the Company. Amounts exclude the grant of RSUs covering 153,664 shares of our Class A common stock in February 2021.
(2)Consists of (i) 44,584 shares of Class A common stock held by Mr. Budge; (ii) 737,503 shares of Class A common stock subject to options held by Mr. Budge that are immediately exercisable within 60 days of the Beneficial Ownership Date; (iii) 10,569 shares of Class A common stock held by Mr. Budge underlying RSUs vesting within 60 days of the Beneficial Ownership Date; (iv) 262,692 shares of Class B common stock held by Mr. Budge, of which 66,423 shares are unvested and subject to a right of repurchase in favor of the Company.
(3)Consists of (i) 5,568 shares of Class A common stock held by Mr. Forkner; (ii) 19,293 shares of class A common stock held by Mr. Forkner underlying RSUs vesting within 60 days of the Beneficial Ownership Date. Amounts exclude the grant of RSUs covering 28,627 shares of our Class A common stock in February 2021.
(4)Consists of 27,199 shares of Class A common stock held by Mr. Meyercord; Amounts exclude the grant of RSUs covering 61,697 shares of our Class A common stock in February 2021.
(5)Consists of (i) 25,240 shares of Class A common stock and 144,423 shares of Class B common stock held by Mr. Crittenden; (ii) 14,600 shares of Class A common stock and 35,335 shares of Class B common stock held by Bear Mountain Ranch Asset Management, LLC, of which Mr. Crittenden is a managing member; and (iii) 80,721 shares of Class A common stock subject to options held by Mr. Crittenden that are immediately exercisable within 60 days of the Beneficial Ownership Date.
(6)Consists of (i) 25,240 shares of Class A common stock held by Mr. Dorsey; (ii) 109,110 shares of Class A Common stock subject to options held by Mr. Dorsey that are immediately exercisable within 60 days of the Beneficial Ownership Date; (iii) 121,712 shares of Class B common stock held by Mr. Dorsey and (iv) 50,000 shares of Class B common stock held by AREO Ventures, LLC, of which Mr. Dorsey is a manager.
(7)Consists of (i) 25,240 shares of Class A common stock held by Mr. Duncan; (ii) 153,179 shares of Class A Common stock subject to options held by Mr. Duncan that are immediately exercisable within 60 days of the Beneficial Ownership Date; and (iii) 333,008 shares of Class B common stock held by Mr. Duncan.
(8)Consists of 49,412 shares of Class A common stock held by Mr. Hinkle.
(9)Consists of 3,620 shares of Class A common stock held by Ms. Johnson.
(10)Consists of (i) 94,255 shares of Class B common stock held by Mr. Maudlin; (ii) 59,582 shares of Class B common stock held by Timothy I. Maudlin Revocable Trust, of which Mr. Maudlin is a trustee; (iii) 80,721 shares of Class A Common stock subject to options held by Mr. Maudlin that are immediately exercisable within 60 days of the Beneficial Ownership Date; (iv) 79,583 shares of Class B common stock held by Janice K. Maudlin Revocable Trust, of which Mr. Maudlin's wife is a trustee; (v) 19,168 shares of Class B common stock held by Timothy I. Maudlin 2019 Trust, of which Mr. Maudlin is a trustee; and (vi) 20,000 shares of Class B common stock held by Timothy I Maudlin 2020 Trust, of which Mr. Maudlin is a trustee.
(11)Consists of (i) 282,400 shares of Class A common stock and 9,919,847 shares of Class B common stock held by Onion Consulting, Inc., of which Mr. Onion is an owner; and (ii) 30,000 shares of Class A common stock and 41,224 shares of Class B common stock held by Frederick A. Onion Revocable Trust, of which Mr. Onion is a co-trustee.
(12)Consists of (i) 25,240 shares of Class A common stock and 51,923 shares of Class B common stock held by Mr. Rencher; (ii) 80,721 shares of Class A Common stock subject to options held by Mr. Rencher that are immediately exercisable within 60 days of the Beneficial Ownership Date; and (iii) 156,247 shares of Class B common stock held by Centerpine LLC, of which Mr. Rencher is a manager.
(13)Consists of (i) 15,240 shares of Class A common stock held by Ms. Stewart and (ii) 11,000 shares of Class A common stock held by The Bonita K Coleman Trust, of which Ms. Stewart is trustee.
(14)Consists of (i) 25,240 shares of Class A common stock held by Ms. Terrell; (ii) 131,926 shares of Class A Common stock subject to options held by Ms. Terrell that are immediately exercisable within 60 days of the Beneficial Ownership Date; and (iii) 103,459 shares of Class B common stock held by Ms. Terrell.
(15)Consists of the following amounts held by all our executive officers and directors, as a group: (i) 965,016 shares of Class A common stock; (ii) 2,940,047 shares of Class A common stock underlying stock options that are immediately exercisable within 60 days of the Beneficial Ownership Date; (iii) 41,592 shares of Class A common stock underlying RSUs vesting within 60 days of the Beneficial Ownership Date; (iv) 11,426,035 shares of Class B common stock, of which 66,423 shares are unvested and subject to a right of repurchase in favor of the Company; (v) 13,508,407 shares of Class C common stock, of which 218,384 shares are unvested and subject to a right of repurchase in favor of the Company.
(16)Consists of 9,582,912 shares of Class A common stock held by The Vanguard Group, Inc. ("The Vanguard Group"). The Vanguard Group has (i) shared voting power over 76,050 shares of Class A common stock, (ii) sole dispositive power over 9,423,474 shares of Class A common stock and (iii) shared dispositive power over 159,438 shares of Class A common stock. The address for The Vanguard Group is 100 Vanguard Blvd, Malvern, PA 19355. For additional information, see the Schedule 13G/A filed by The Vanguard Group, Inc. with the SEC on February 8, 2021.
(17)Consists of 9,972,371 shares of Class A common stock held by FMR LLC (“FMR”). FMR has (i) sole voting power of 966,002 shares and (ii) sole power to dispose of 9,972,371 shares. Fidelity Management & Research Company is a wholly-owned subsidiary of FMR LLC and serves as investment adviser to various investment companies registered under the Investment Company Act. The address for these entities is 245 Summer Street, Boston, MA 02210. For additional information, see the Schedule 13G/A filed by FMR LLC with the SEC on February 8, 2021.
(18)Consists of 8,777,621 shares of Class A common stock held by ArrowMark Colorado Holdings, LLC (“ArrowMark”). ArrowMark has sole voting and dispositive power over all the shares. The address for this entity is 100 Fillmore Street, Suite 325, Denver, Colorado 80206. For additional information, see the Schedule 13G filed by ArrowMark Colorado Holdings LLC with the SEC on February 16, 2021.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Certain Relationships and Related Party Transactions
In addition to the compensation arrangements, including employment, termination of employment and change in control arrangements and indemnification arrangements, discussed in the sections entitled "Compensation of Non-employee Directors" and "Executive Compensation," the following is a description of each transaction since January 1, 2019 and each currently proposed transaction in which:
•we, Pluralsight Holdings, or any subsidiaries thereof have been or will be a participant;
•the amount involved exceeded or will exceed $120,000; and
•any of our directors, executive officers, or beneficial owners of more than 5% of any class of our capital stock, or their affiliates, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
Fourth Amended and Restated LLC Agreement
As part of our IPO in May 2018, we engaged in certain reorganization transactions pursuant to which certain members ("Continuing Members") of Pluralsight Holdings, LLC continued to hold non-voting common limited liability company units ("LLC Units") in Pluralsight Holdings, LLC. In connection with the reorganization transactions, Pluralsight, Inc. and the Continuing Members entered into the Fourth Amended and Restated LLC Agreement (the "Fourth LLC Agreement"). Each of our directors, executive officers (other than our Chief Legal Officer, Chief Compliance Officer and Corporate Secretary, Matthew Forkner and our Chief Revenue Officer, Ross Meyercord), and beneficial owners of more than 5% of any class of our capital stock are Continuing Members and thus are parties to the Fourth LLC Agreement.
As a result of the reorganization transactions, Pluralsight, Inc. holds LLC Units in Pluralsight Holdings and is the sole manager of Pluralsight Holdings. Accordingly, we operate and control all of the business and affairs of Pluralsight Holdings and, through Pluralsight Holdings and its operating subsidiaries, conduct our business.
As the sole manager of Pluralsight Holdings, Pluralsight, Inc. has the right to determine when distributions will be made to the unit holders of Pluralsight Holdings and the amount of any such distributions (subject to the
requirements with respect to the tax distributions described below). If Pluralsight, Inc. authorizes a distribution, such distribution will be made to the holders of LLC Units, including Pluralsight, Inc., pro rata in accordance with their respective ownership of Pluralsight Holdings, provided that Pluralsight, Inc. as sole manager will be entitled to non-pro rata distributions for certain fees and expenses.
Upon the consummation of the IPO, Pluralsight, Inc. became a holding company, and its principal asset is a controlling equity interest in Pluralsight Holdings. As such, Pluralsight, Inc. has no independent means of generating revenue. Pluralsight Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, is generally not subject to U.S. federal income tax. Instead, taxable income is allocated to holders of LLC Units, including Pluralsight, Inc. Accordingly, Pluralsight, Inc. incurs income taxes on its allocable share of any net taxable income of Pluralsight Holdings and also incurs expenses related to its operations. Pursuant to the Fourth LLC Agreement, Pluralsight Holdings will make cash distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations in respect of the cumulative taxable income in excess of the cumulative taxable losses of Pluralsight Holdings that is allocated to them, to the extent previous tax distributions from Pluralsight Holdings have been insufficient. Under the terms of the original TRA, Pluralsight, Inc. also incurred expenses related to its operations, plus payments under the TRA. Pluralsight, Inc. intends to cause Pluralsight Holdings to make distributions or, in the case of certain expenses, payments in an amount sufficient to allow Pluralsight, Inc. to pay its taxes and operating expenses, including distributions to fund any ordinary course payments due under the TRA.
The Fourth LLC Agreement generally does not permit transfers of LLC Units by Continuing Members, except for transfers to permitted transferees, transfers pursuant to the participation right described below and transfers approved in writing by us, as sole managing manager, and other limited exceptions. In the event of a permitted transfer, such Continuing Member will be required to simultaneously transfer shares of Class B common stock or Class C common stock, as applicable, to such transferee equal to the number of LLC Units that were transferred. The Fourth LLC Agreement also provides that as a general matter a member of Pluralsight Holdings, LLC ("LLC Member") will not have the right to transfer LLC Units if Pluralsight, Inc. determines that such transfer would be prohibited by law or regulation, would violate other agreements with Pluralsight, Inc. to which the LLC Member may be subject, or would cause or increase the possibility for Pluralsight Holdings to be treated as a "publicly traded partnership" taxable as a corporation for U.S. federal income tax purposes.
The Fourth LLC Agreement further provides that, in the event that a tender offer, share exchange offer, issuer bid, takeover bid, recapitalization, or similar transaction with respect to our Class A common stock (each, a "Pubco Offer"), is approved by our board of directors or otherwise effected or to be effected with the consent or approval of our board of directors, each holder of LLC Units shall be permitted to participate in such Pubco Offer by delivering an exchange notice, which shall be effective immediately prior to, and contingent upon, the consummation of such Pubco Offer. If a Pubco Offer is proposed by Pluralsight, Inc., then Pluralsight, Inc. is required to use its reasonable best efforts expeditiously and in good faith to take all such actions and do all such things as are necessary or desirable to enable and permit the holders of such LLC units to participate in such Pubco Offer to the same extent as or on an economically equivalent basis with the holders of shares of Class A common stock, provided that in no event shall any holder of LLC Units be entitled to receive aggregate consideration for each LLC unit that is greater than the consideration payable in respect of each share of Class A common stock pursuant to the Pubco Offer.
The Continuing Members, from time to time, may, subject to the terms of the Fourth LLC Agreement, exchange or redeem their LLC Units, together with the corresponding shares of Class B common stock or Class C common stock, as applicable, for, at our option, cash or shares of Class A common stock, on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications, and other similar transactions. Any such exchange or redemption may be effected by, at our option, having such LLC Units redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by us, or, alternatively, a direct exchange by Pluralsight, Inc. of Class A common stock or cash, as applicable, for such LLC Units. Our decision to make a cash payment in connection with a Continuing Member's exchange or redemption will be made by a majority of the members of our board of directors, other than Aaron Skonnard, our co-founder, Chief Executive Officer, and chairperson. When an LLC Unit, together with a share of our Class B common stock or Class C common stock, as applicable, is exchanged or redeemed for cash or a share of our Class A common stock, the corresponding share of our Class B common stock or Class C common stock, as applicable, will be cancelled.
The Fourth LLC Agreement provides that as a general matter an LLC Member does not have the right to exchange or redeem LLC Units if we determine that such exchange or redemption would be prohibited by law or regulation or would violate other agreements with us to which the LLC Member may be subject, including the Fourth LLC Agreement.
Each Continuing Member's exchange and redemption rights are subject to certain customary limitations, including the expiration of any contractual lock-up period relating to the shares of our Class A common stock that may be applicable to such Continuing Member and the absence of any liens or encumbrances on such LLC Units redeemed. In addition, Continuing Members cannot exercise exchange or redemption rights during applicable black-out periods. Each Continuing Member's exchange and redemption rights are further limited, unless the exchange or redemption is in connection with one of the following events, each of which we refer to as an "Unrestricted Redemption": (1)(a) an exchange or redemption of more than 2% of the total outstanding LLC Units (excluding any LLC Units held by us as long as we are the manager and own more than 10% of all outstanding LLC Units), (b) the exchange or redemption is in connection with a Pubco Offer, or (c) the exchange or redemption is otherwise permitted by us or (2) the exchange or redemption and Pluralsight Holdings each meet the requirements of the "private placement" safe harbor set forth in applicable Treasury Regulations.
If an exchange or redemption request delivered by a Continuing Member is in connection with an Unrestricted Redemption, the Continuing Member may elect to have the redemption or exchange effectuated not less than three business days or more than 10 business days after delivery of the notice. Additionally, in only limited circumstances may a Continuing Member revoke or delay its exchange or redemption following the delivery of its request for such exchange or redemption.
We may impose additional restrictions on exchanges or redemptions that we determine to be necessary or advisable so that Pluralsight Holdings is not treated as a "publicly traded partnership" for U.S. federal income tax purposes. As a holder exchanges LLC Units and Class B common stock or Class C common stock, as applicable, for shares of Class A common stock or a redemption transaction is effected, the number of LLC Units held by Pluralsight, Inc. is correspondingly increased as it acquires the exchanged LLC Units or funds the redemption transaction, and a corresponding number of shares of Class B common stock or Class C common stock, as applicable, are cancelled.
The Fourth LLC Agreement also requires that Pluralsight Holdings take actions with respect to its LLC Units, including issuances, reclassifications, distributions, divisions, or recapitalizations, such that (i) we at all times maintain a ratio of one LLC Unit owned by us, directly or indirectly, for each share of Class A common stock issued by us, and (ii) Pluralsight Holdings at all times maintains (a) a one-to-one ratio between the number of shares of Class A common stock issued by us and the number of LLC Units owned by us and (b) a one-to-one ratio between the number of shares of Class B common stock and Class C common stock owned by the Continuing Members and the number of LLC Units owned by the Continuing Members. As such, in certain circumstances, we as sole manager have the authority to take all actions such that, after giving effect to all issuances, transfers, deliveries, or repurchases, the number of outstanding LLC Units we own equals, on a one-for-one basis, the number of outstanding shares of Class A common stock.
Tax Receivable Agreement
Pluralsight Holdings and certain of its subsidiaries that are treated as partnerships for U.S. federal income tax purposes have, and intend to have, in effect an election under Section 754 of the Code effective for each taxable year in which a redemption or exchange (including deemed exchange) of LLC Units for Class A common stock or cash occurs. We may obtain an increase in our share of the tax basis of the assets of Pluralsight Holdings, when (as described above in the section entitled "Fourth Amended and Restated LLC Agreement"), a Continuing Member receives Class A common stock or cash, as applicable, from us in connection with an exercise of such Continuing Member's right to have LLC Units in Pluralsight Holdings held by such Continuing Member exchanged, or, at our option, redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by us (which we intend to treat as our direct purchase of LLC Units from such Continuing Member for U.S. federal income and other applicable tax purposes, regardless of whether such LLC Units are surrendered by a Continuing Member to Pluralsight Holdings for redemption or sold to us directly), which basis increases we refer to as Basis
Adjustments. Any Basis Adjustment may have the effect of reducing the amounts that we would otherwise pay in the future to various tax authorities. The Basis Adjustments may also decrease the gains (or increase the losses) on future dispositions of our assets to the extent tax basis is allocated to those assets.
In connection with the transactions described above in the section entitled "Fourth Amended and Restated LLC Agreement", we entered into a TRA with Pluralsight Holdings and each of the Continuing Members that provides for the payment by Pluralsight Inc. of 85% of the amount of certain tax benefits, if any, that Pluralsight Inc. actually realizes, or in some circumstances is deemed to realize, as a result of the transactions described above, including the Basis Adjustments and certain other tax benefits attributable to payments made under the TRA. In general, the Continuing Members' rights under the TRA may not be assigned, sold, pledged, or otherwise alienated to any person, other than certain permitted transferees, without our prior written consent (not to be unreasonably withheld, conditioned, or delayed) and subject to our right of first refusal, and such transferee's becoming a party to the TRA and agreeing to succeed to the applicable Continuing Member's interest therein. Payments under the TRA are not conditioned upon one or more of the Continuing Members maintaining a continued ownership interest in Pluralsight Holdings. If a Continuing Member transfers LLC Units of Pluralsight Holdings but does not assign to the transferee of such LLC Units its rights under the TRA, such Continuing Member ("TRA Member") generally will remain the TRA Member with respect to such rights and will continue to be entitled to receive payments under the TRA arising in respect of a subsequent exchange of such LLC Units.
The actual Basis Adjustments, as well as any amounts paid to the TRA Members under the TRA will vary depending on a number of factors, including the timing of any future redemptions or exchanges, the price of shares of our Class A common stock at the time of any future redemptions or exchanges, the extent to which such redemptions or exchanges are taxable, and the amount and timing of our income.
For purposes of the TRA, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that we would have been required to pay had there been no Basis Adjustments, had the TRA not been entered into, and had there been no tax benefits to us as a result of any payments made under the TRA. These calculations will be based upon the actual U.S. federal income tax rate in effect for the applicable period and an assumed, weighted-average state and local income tax rate based on applicable period apportionment factors. There is no maximum term for the TRA; however, the TRA may be terminated by us pursuant to an early termination procedure that requires us to pay the TRA Members an agreed-upon amount equal to the estimated present value of the remaining payments to be made under the agreement (calculated with certain assumptions).
The payment obligations under the TRA are obligations of Pluralsight, Inc. and not of Pluralsight Holdings. Although the actual timing and amount of any payments that may be made under the TRA will vary, we expect that the payments that we may be required to make to the TRA Members will be substantial. Any payments made by us to the TRA Members under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us or to Pluralsight Holdings and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts will be deferred and will accrue interest until paid by us provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore may accelerate payments due under the TRA. Decisions made by us in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations, or other changes in control, may influence the timing and amount of payments that are payable to or received by a TRA Member.
The TRA provides that if certain mergers, asset sales, other forms of business combination, or other changes of control were to occur, if we materially breach any of our material obligations under the TRA or if, at any time, we elect an early termination of the TRA, then the TRA will terminate and our obligations, or our successor's obligations, under the TRA would accelerate and become due and payable, based on certain assumptions, including an assumption that we would have sufficient taxable income in each relevant taxable year to fully utilize all potential future tax benefits that are subject to the TRA. In those circumstances, any remaining outstanding LLC Units of Pluralsight Holdings would be treated as exchanged for Class A common stock and the applicable TRA Members would generally be entitled to payments under the TRA resulting from such deemed exchanges.
We may elect to completely terminate the TRA early only with the written approval of each of a majority of Pluralsight Inc.'s "independent directors" (within the meaning of Rule 10A-3 promulgated under the Exchange Act and the Nasdaq Rules).
As a result of the foregoing, we could be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the TRA, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. We also could be required to make cash payments to the TRA Members that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the TRA. Our obligations under the TRA could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring, deterring, or preventing certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the TRA.
Payments under the TRA will generally be based on the tax reporting positions that we determine. We will not be reimbursed for any cash payments previously made to the TRA Members pursuant to the TRA if any tax benefits initially claimed by us are subsequently challenged by a taxing authority and ultimately disallowed.
Instead, any excess cash payments made by us to a TRA Member will be netted against any future cash payments that we might otherwise be required to make under the terms of the TRA. However, a challenge to any tax benefits initially claimed by us may not arise for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the TRA and, as a result, there might not be future cash payments from which to net against. The applicable U.S. federal income tax rules are complex and factual in nature, and there can be no assurance that the IRS or a court will not disagree with our tax reporting positions. As a result, it is possible that we could make cash payments under the TRA that are substantially greater than our actual ultimate cash tax savings. If we determine that a tax reserve or contingent liability must be established by us for generally accepted accounting principles in respect of an issue that would affect payments under the TRA, we may withhold payments to the TRA Members under the TRA and place them in an interest-bearing escrow account until the reserve or contingent liability is resolved.
If we receive a formal notice or assessment from a taxing authority with respect to any cash savings covered by the TRA, we will place certain subsequent tax benefit payments that would otherwise be made to the TRA Members into an escrow account until there is a final determination and such tax benefit payment obligations will continue to accrue interest, generally at LIBOR plus 100 basis points, until such contest is resolved and tax benefit payment is made to the TRA Members. We will have full responsibility for, and sole discretion over, all Pluralsight Inc. tax matters, including the filing and amendment of all tax returns and claims for refund and defense of all tax contests.
Under the TRA, we are required to provide a representative of the TRA Members with a schedule showing the calculation of payments that are due under the TRA with respect to each taxable year with respect to which a payment obligation arises within 90 calendar days after filing our U.S. federal income tax return for such taxable year. Payments under the TRA will generally be made to the TRA Members within five business days after this schedule becomes final pursuant to the procedures set forth in the TRA, although interest on such payments will begin to accrue at a rate of LIBOR plus 100 basis points from the due date (without extensions) of such tax return. Any payments due that are made to TRA Members later than five business days after the applicable schedule becomes final will generally accrue interest at a rate of LIBOR plus 600 basis points from the sixth business day after the schedule becomes final until payment is made, unless our inability to make such payments is a result of certain restrictions imposed under the debt agreements of Pluralsight Holdings or under applicable law, in each case, despite our using commercially reasonable efforts to obtain such funds, in which case interest will continue to accrue until such payments are made at a rate equal to LIBOR plus 100 basis points.
As of December 31, 2020, there were no tax receivable payments due to the Continuing Members under the TRA.
On December 11, 2020, in connection with the execution into the Merger Agreement, Pluralsight and Pluralsight Holdings entered into an amendment to the TRA (the “TRA Amendment”) with the representative of the other parties to the TRA and certain other persons entitled to payments pursuant to the TRA, in accordance with the terms of the TRA. The TRA Amendment establishes that the parties to the TRA (other than the Pluralsight Parties) will be entitled to receive an aggregate amount of $127,000,000 in connection with the closing of the Mergers in full satisfaction of Pluralsight’s payment obligation under the TRA in connection with a change of control of Pluralsight, which represents a substantial reduction from what Pluralsight’s change of control obligations would have been under the TRA, absent the TRA Amendment. In addition, if Pluralsight terminates the Merger Agreement to enter into an Alternative Acquisition Agreement pursuant to and in accordance with the “fiduciary out” provisions of the Merger Agreement (or terminates such Alternative Acquisition Agreement to enter into an alternative Alternative Acquisition Agreement, in one or more iterations), the agreements in the TRA Amendment also apply in connection with the Acquisition Transaction to be effected pursuant to such Alternative Acquisition Agreement then in effect.
Pluralsight One
Pluralsight One is the Company's social impact initiative dedicated to closing the technology skills gap. This initiative supports nonprofit organizations by providing discounted and donated subscriptions to the Company's platform. Any revenue from subscriptions provided to organizations in connection with Pluralsight One is donated back to the community through charitable grants. During the year ended December 31, 2020, the Company donated approximately $0.3 million back to the community through these charitable grants.
Aircraft Reimbursement
Aaron Skonnard beneficially owns 100% of an aircraft that he uses from time to time for business trips. The reimbursement rate for his use of the aircraft is $4,800 per hour, plus actual costs for landing fees, crew travel expenses, catering, and other out of pocket expenses, up to a maximum of $100,000,000 per year. Our board of directors approved this hourly reimbursement rate based upon a review of comparable chartered aircraft rates that showed that the reimbursement rate is at or below market rates for the charter of similar aircraft. In 2020, Mr. Skonnard used this aircraft for business-related travel services, and the board of directors approved reimbursing him at an amount of $169,001 for 2020. Due to the COVID-19 pandemic, Mr. Skonnard’s actual travel expenses were substantially less than the amounts that we budgeted at the beginning of 2020. Due to the fact that the $4,800 hourly rate paid for the use of the aircraft represents the actual operational costs incurred by Mr. Skonnard as owner of the aircraft, Mr. Skonnard does not profit from the use of the aircraft. Other executives and employees may accompany Mr. Skonnard from time to time at a reimbursement rate comparable to what a first-class ticket would cost on commercial flight for such travel.
Registration Rights Agreement
We are a party to an amended and restated registration rights agreement (the "Registration Rights Agreement"), with certain holders of our Class A common stock (and other securities convertible into or exchangeable or exercisable for shares of our Class A common stock).
Certain holders of our Class A common stock (and other securities convertible into or exchangeable or exercisable for shares of our Class A common stock) have the right to request that we register the sale of shares of Class A common stock to be sold by them on Form S-3 no more than once per calendar year (which may, at such holders' request, be pursuant to shelf registration statements permitting sales of shares of Class A common stock into the market from time to time over an extended period).
Certain holders have the ability to exercise certain piggyback registration rights in respect of shares of Class A common stock (and other securities convertible into or exercisable for shares of our Class A common stock) to be sold by them in connection with registered offerings requested by certain other holders (if any) or initiated by us.
Executive and Director Compensation and Equity Awards
We have granted certain equity awards to our executive officers and certain of our directors. See the sections titled "Executive Compensation-Outstanding Equity Awards at Fiscal Year-End" and "Compensation of Non-
Employee Directors" for a description of these equity awards. We have also entered into a reimbursement arrangement with Aaron Skonnard relating to aircraft rates, as further described above in the section entitled "Aircraft Reimbursement."
Other than as described above under this section entitled "Certain Relationships and Related Party Transactions," since January 1, 2019, we have not entered into any transactions, nor are there any currently proposed transactions, between us and a related party where the amount involved exceeds, or would exceed, $120,000, and in which any related person had or will have a direct or indirect material interest. We believe the terms of the transactions described above were comparable to terms we could have obtained in arm's-length dealings with unrelated third parties.
From time to time, we do business with other companies affiliated with certain holders of our capital stock. We believe that all such arrangements have been entered into in the ordinary course of business and have been conducted on an arm's-length basis.
Limitation of Liability and Indemnification of Officers and Directors
Our amended and restated certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:
•any breach of their duty of loyalty to our company or our stockholders;
•any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
•unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or
•any transaction from which they derived an improper personal benefit.
Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.
In addition, our amended and restated bylaws provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that s/he is or was one of our directors or officers or is or was serving at our request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that s/he is or was one of our employees or agents. Our amended and restated bylaws also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to limited exceptions.
Further, we have entered into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.
We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us
with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.
Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.
Service Arrangements
In the twelve months ended December 31, 2020, we booked sales of our services in the amount of $1,389,000 to GlaxoSmithKline plc ("GSK"). Karenann Terrell, one of our directors, has served as the Chief Digital and Technology Officer of GSK since September 2017.
In the twelve months ended December 31, 2020, we incurred approximately $152,000 of expense for data analytics software provided by Alteryx, Inc. ("Alteryx"). Entities affiliated with Insight Venture Partners are the beneficial owners of more than 5% of our capital stock and hold more than 10% of the capital stock of Alteryx. Additionally, Ryan Hinkle, one of our directors, is a Managing Director of Insight Venture Management, LLC, an affiliate of Insight Venture Partners. Tim Maudlin, one of our directors and the chair of our audit committee, also serves as a director and the chair of the audit committee of the Alteryx board of directors.
In the twelve months ended December 31, 2020, we incurred approximately $160,000 of expense for customer success software provided by Gainsight, Inc. ("Gainsight"). Entities affiliated with Insight Venture Partners are the beneficial owners of more than 5% of our capital stock and hold more than 10% of the capital stock of Gainsight. Additionally, Ryan Hinkle, one of our directors, is a Managing Director of Insight Venture Management, LLC, an affiliate of Insight Venture Partners.
In the twelve months ended December 31, 2020, we incurred approximately $839,000 of expense for experience management software provided by Qualtrics, LLC ("Qualtrics"); in the same time period, we booked sales of our services in the amount of $1,304,000 to Qualtrics. Entities affiliated with Insight Venture Partners are the beneficial owners of more than 5% of our capital stock and hold more than 10% of the capital stock of Qualtrics. Additionally, Ryan Hinkle, one of our directors, is a Managing Director of Insight Venture Management, LLC, an affiliate of Insight Venture Partners.
Policies and Procedures for Related Party Transactions
Our audit committee has the primary responsibility for reviewing and approving or disapproving "related party transactions," which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. Our audit committee has adopted a formal written policy providing that our audit committee is responsible for reviewing transactions between us and related persons provides that a related person is defined as a director, executive officer, nominee for director, or beneficial owner of greater than 5% of any class of our capital stock, or their respective affiliates and their immediate family members. Our audit committee charter provides that our audit committee shall review and approve or disapprove any related party transactions.
Director Independence
Our board of directors has undertaken a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, and considering the relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, our board of directors has determined that each of our directors, other than Messrs. Duncan, Skonnard and Onion are "independent directors" as defined under the Nasdaq Rules. In addition, our board of directors determined that Messrs. Maudlin and Hinkle, and Ms. Terrell, who are members of our audit committee, satisfy the enhanced independence standards for audit committee members established by applicable SEC and Nasdaq Rules. Our board of directors has determined that Messrs. Hinkle, Rencher and Dorsey, and Ms. Stewart, who are members of our compensation committee, satisfy the enhanced independence standards for compensation committee members established by applicable SEC and Nasdaq Rules. Our board of directors has
determined that Messrs. Crittenden and Dorsey, and Ms. Johnson, who are members of our nominating and corporate governance committee, satisfy the independence standards for nominating and corporate governance committee members established by applicable SEC and Nasdaq Rules. Our board of directors consults with our legal counsel to ensure these determinations are consistent with all relevant securities and other laws and regulations regarding the definition of "independent."
Although we are a "controlled company" within the meaning of the corporate governance rules of The Nasdaq Stock Market LLC because Aaron Skonnard and his associated entities, collectively, hold a majority of the voting power of our outstanding capital stock, we have elected not to take advantage of the "controlled company" exemptions found in the Nasdaq Rules and are in full compliance with all corporate governance requirements under the Nasdaq Rules.
There are no family relationships among any of our directors or executive officers.
Item 14. Principal Accounting Fees and Services.
Fees Paid to the Independent Registered Public Accounting Firm
The following table presents the aggregate fees billed for professional audit services and other services rendered to us by EY for our fiscal years ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31,
|
|
2020
|
|
2019
|
Audit Fees(1)
|
$
|
1,681,050
|
|
|
$
|
1,375,456
|
|
Audit-Related Fees
|
—
|
|
|
—
|
|
Tax Fees(2)
|
29,632
|
|
|
52,088
|
|
All Other Fees(3)
|
2,000
|
|
|
2,000
|
|
Total Fees
|
$
|
1,712,682
|
|
|
$
|
1,429,544
|
|
________________________
(1) Includes fees for professional services rendered in connection with the audit of our consolidated financial statements and review of our quarterly consolidated financial statements and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those fiscal years.
(2) Includes fees for professional services for expatriate tax.
(3) Includes fees for accounting disclosure research tools.
The following table presents the aggregate fees billed for professional audit services and other services rendered to us by PricewaterhouseCoopers LLP (“PwC”), our former independent registered public accounting firm for our fiscal year ended December 31, 2019. All fees paid to PwC for our fiscal year ended December 31, 2019, were pre-approved by our audit committee.
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31,
|
|
|
2019
|
|
Audit Fees(1)
|
$
|
879,979
|
|
|
Audit-Related Fees
|
—
|
|
|
Tax Fees(2)
|
256,568
|
|
|
All Other Fees(3)
|
1,800
|
|
|
Total Fees
|
$
|
1,138,347
|
|
|
________________________
(1) Includes fees for professional services rendered in connection with the audit of our consolidated financial statements and review of our quarterly consolidated financial statements and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those fiscal years.
(2) Includes fees for professional services for expatriate tax.
(3) Includes fees for accounting disclosure research tools.
Auditor Independence
In our fiscal year ended December 31, 2020, there were no other professional services provided by EY, other than those described above, that would have required our audit committee to consider their compatibility with maintaining the independence of EY.
Audit and Non-Audit Services Pre-Approval Policy
Our audit committee has established a policy governing our use of the services of our independent registered public accounting firm. Under this policy, our audit committee (or its delegate) may pre-approve services to be performed by our independent registered public accounting firm without consideration of specific case-by-case services or may require the specific pre-approval of the committee, in either case, in order to ensure that the provision of such services does not impair the public accountants' independence. All fees paid to EY for our fiscal years ended December 31, 2019 and December 31, 2020, were pre-approved by our audit committee. All fees paid to PwC for our fiscal year ended December 31, 2019, were pre-approved by our audit committee.