UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2019
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-38498
PLURALSIGHT, INC.
(Exact name of registrant as specified in its charter)
|
| | |
| Delaware | | 82-3605465 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
182 North Union Avenue
Farmington, Utah 84025
(Address of principle executive offices, including zip code)
(801) 784-9007
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | |
| Title of each class | | Trading Symbol | | Name of each exchange on which registered |
| | | | |
| Class A Common Stock, $0.0001 par value per share | | PS | | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | | | | | | |
| Large accelerated filer | | ☐ | | | | Accelerated filer | | ☐ |
| Non-accelerated filer | | ý | | | | Smaller reporting company | | ☐ |
| | | | | | | Emerging growth company | | ý |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
As of AprilJuly 19, 2019, the registrant had 138,471,395140,016,129 shares of common stock outstanding, consisting of 95,279,403101,234,524 shares of Class A common stock, 29,029,68124,594,749 shares of Class B common stock, and 14,162,31114,186,856 shares of Class C common stock.
PLURALSIGHT, INC.
TABLE OF CONTENTS
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| PART I. FINANCIAL INFORMATION |
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| Item 1. | | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| PART II. OTHER INFORMATION |
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| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 6. | | |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
As used in this Quarterly Report on Form 10-Q, unless expressly indicated or the context otherwise requires, references to “Pluralsight,” “we,” “us,” “our,” “the Company,” and similar references refer to Pluralsight, Inc. and its consolidated subsidiaries, including Pluralsight Holdings, LLC, or Pluralsight Holdings.
This Quarterly Report on Form 10-Q, including the section titled “Management's Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements, which are subject to a number of risks, uncertainties, and assumptions, generally relate to future events or our future financial or operating performance. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would,” “target,” “project,” “contemplate,” or the negative version of these words and other comparable terminology that concern our expectations, strategy, plans, intentions, or projections. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our ability to attract new customers and retain and expand our relationships with existing customers;
our ability to expand our course library and develop new platform features;
our future financial performance, including trends in billings, revenue, costs of revenue, gross margin, operating expenses, and free cash flow;
the demand for, and market acceptance of, our platform or for cloud-based technology learning solutions in general;
our ability to compete successfully in competitive markets;
our ability to respond to rapid technological changes;
our expectations and management of future growth;
our ability to enter new markets and manage our expansion efforts, particularly internationally;
our ability to attract and retain key employees and qualified technical and sales personnel;
our ability to improve sales management and execution;
our ability to effectively and efficiently protect our brand;
our ability to timely scale and adapt our infrastructure;
our ability to maintain, protect, and enhance our intellectual property and not infringe upon others’ intellectual property;
our ability to successfully identify, acquire, and integrate companies and assets;
the amount and timing of any payments we make under the fourth amended and restated limited liability company agreement of Pluralsight Holdings, or the Fourth LLC Agreement, and our Tax Receivable Agreement, or TRA, with the members of Pluralsight Holdings;
our use of net proceeds from our convertible note offering in March 2019; and
our ability to satisfy our obligations under the convertible senior notes.notes;
our ability to successfully integrate GitPrime, Inc.'s ("GitPrime") operations;
our ability to implement our plans, forecasts and other expectations with respect to GitPrime's business; and
our ability to realize the anticipated benefits of the acquisition of GitPrime, including the possibility that the expected benefits from the acquisition will not be realized within the expected time period.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors” in our Annual Report on Form 10-K10-K/A as filed with the Securities and Exchange Commission, or the SEC, under the Exchange Act. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements and you should not place undue reliance on our forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
You should read this Quarterly Report on Form 10-Q in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2018 included in our Annual Report on Form 10-K.10-K/A.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)(Unaudited)
PLURALSIGHT, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)
| | | | | March 31, 2019 | | December 31, 2018 | | June 30,
2019 | | December 31,
2018 |
| | | | | | | | | |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 736,566 |
| | $ | 194,306 |
| | $ | 260,313 |
| | $ | 194,306 |
|
| Accounts receivable, net of allowances of $2,713 and $2,501 as of March 31, 2019 and December 31, 2018, respectively | | 51,865 |
| | 63,436 |
| |
| Short-term investments | | | 276,818 |
| | — |
|
| Accounts receivable, net of allowances of $3,027 and $2,501 as of June 30, 2019 and December 31, 2018, respectively | | | 57,625 |
| | 63,436 |
|
| Deferred contract acquisition costs, net | | 16,863 |
| | — |
| | 17,079 |
| | — |
|
| Prepaid expenses and other current assets | | 10,238 |
| | 8,323 |
| | 13,115 |
| | 8,323 |
|
| Total current assets | | 815,532 |
| | 266,065 |
| | 624,950 |
| | 266,065 |
|
| Restricted cash | | 27,849 |
| | 16,765 |
| | 27,970 |
| | 16,765 |
|
| Long-term investments | | | 35,654 |
| | — |
|
| Property and equipment, net | | 36,552 |
| | 31,641 |
| | 49,028 |
| | 31,641 |
|
| Content library, net | | 6,858 |
| | 7,050 |
| | 7,510 |
| | 7,050 |
|
| Intangible assets, net | | 1,582 |
| | 1,759 |
| | 25,483 |
| | 1,759 |
|
| Goodwill | | 123,119 |
| | 123,119 |
| | 261,722 |
| | 123,119 |
|
| Deferred contract acquisition costs, noncurrent, net | | 3,333 |
| | — |
| | 3,252 |
| | — |
|
| Other assets | | 1,085 |
| | 1,064 |
| | 1,367 |
| | 1,064 |
|
| Total assets | | $ | 1,015,910 |
| | $ | 447,463 |
| | $ | 1,036,936 |
| | $ | 447,463 |
|
| Liabilities and stockholders' equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 8,605 |
| | $ | 7,160 |
| | $ | 8,608 |
| | $ | 7,160 |
|
| Accrued expenses | | 27,644 |
| | 32,047 |
| | 29,332 |
| | 32,047 |
|
| Accrued author fees | | 10,737 |
| | 10,002 |
| | 11,301 |
| | 10,002 |
|
| Deferred revenue | | 167,956 |
| | 157,695 |
| | 172,310 |
| | 157,695 |
|
| Total current liabilities | | 214,942 |
| | 206,904 |
| | 221,551 |
| | 206,904 |
|
| Deferred revenue, noncurrent | | 12,339 |
| | 14,886 |
| | 13,748 |
| | 14,886 |
|
| Convertible senior notes, net | | 481,167 |
| | — |
| | 487,915 |
| | — |
|
| Facility financing obligations | | 20,070 |
| | 15,777 |
| | 31,668 |
| | 15,777 |
|
| Other liabilities | | 1,514 |
| | 1,303 |
| | 1,948 |
| | 1,303 |
|
| Total liabilities | | 730,032 |
| | 238,870 |
| | 756,830 |
| | 238,870 |
|
| Commitments and contingencies (Note 9) | |
| |
| |
| Commitments and contingencies (Note 12) | | |
| |
|
| Stockholders' equity: | | | | | | | | |
| Preferred stock, $0.0001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding as of March 31, 2019 and December 31, 2018 | | — |
| | — |
| |
| Class A common stock, $0.0001 par value per share, 1,000,000,000 shares authorized, 95,096,979 shares issued and outstanding as of March 31, 2019; 65,191,907 shares issued and outstanding as of December 31, 2018 | | 10 |
| | 7 |
| |
| Class B common stock, $0.0001 par value per share, 200,000,000 shares authorized, 29,071,789 shares issued and outstanding as of March 31, 2019; 57,490,881 shares issued and outstanding as of December 31, 2018 | | 3 |
| | 6 |
| |
| Class C common stock, $0.0001 par value per share, 50,000,000 shares authorized, 14,162,311 shares issued and outstanding as of March 31, 2019; 14,586,173 shares issued and outstanding as of December 31, 2018 | | 1 |
| | 1 |
| |
| Preferred stock, $0.0001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2019 and December 31, 2018 | | | — |
| | — |
|
| Class A common stock, $0.0001 par value per share, 1,000,000,000 shares authorized, 101,096,472 shares issued and outstanding as of June 30, 2019; 65,191,907 shares issued and outstanding as of December 31, 2018 | | | 10 |
| | 7 |
|
| Class B common stock, $0.0001 par value per share, 200,000,000 shares authorized, 24,664,113 shares issued and outstanding as of June 30, 2019; 57,490,881 shares issued and outstanding as of December 31, 2018 | | | 2 |
| | 6 |
|
| Class C common stock, $0.0001 par value per share, 50,000,000 shares authorized, 14,186,856 shares issued and outstanding as of June 30, 2019; 14,586,173 shares issued and outstanding as of December 31, 2018 | | | 1 |
| | 1 |
|
| Additional paid-in capital | | 560,493 |
| | 452,576 |
| | 599,558 |
| | 456,899 |
|
| Accumulated other comprehensive loss | | (31 | ) | | (41 | ) | |
| Accumulated other comprehensive income (loss) | | | 237 |
| | (41 | ) |
| Accumulated deficit | | (359,973 | ) | | (351,123 | ) | | (394,048 | ) | | (355,446 | ) |
| Total stockholders’ equity attributable to Pluralsight, Inc. | | 200,503 |
| | 101,426 |
| | 205,760 |
| | 101,426 |
|
| Non-controlling interests | | 85,375 |
| | 107,167 |
| | 74,346 |
| | 107,167 |
|
| Total stockholders’ equity | | 285,878 |
| | 208,593 |
| | 280,106 |
| | 208,593 |
|
| Total liabilities and stockholders' equity | | $ | 1,015,910 |
| | $ | 447,463 |
| | $ | 1,036,936 |
| | $ | 447,463 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.statements.
PLURALSIGHT, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
| | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | Three Months Ended March 31, | | 2019 | | 2018 | | 2019 | | 2018 |
| | | 2019 | | 2018 | | | | (Restated) | | | | (Restated) |
| | | | | | | | | | | | | |
| Revenue | | $ | 69,617 |
| | $ | 49,644 |
| | $ | 75,862 |
| | $ | 53,572 |
| | $ | 145,479 |
| | $ | 103,216 |
|
| Cost of revenue | | 16,705 |
| | 14,886 |
| | 17,801 |
| | 15,933 |
| | 34,511 |
| | 30,819 |
|
| Gross profit | | 52,912 |
| | 34,758 |
| | 58,061 |
| | 37,639 |
| | 110,968 |
| | 72,397 |
|
| Operating expenses: | | | | | | | | | | | | |
| Sales and marketing | | 44,050 |
| | 29,467 |
| | 49,994 |
| | 41,857 |
| | 94,125 |
| | 71,324 |
|
| Technology and content | | 20,032 |
| | 13,325 |
| | 24,786 |
| | 18,396 |
| | 45,030 |
| | 31,721 |
|
| General and administrative | | 21,809 |
| | 11,292 |
| | 20,601 |
| | 26,002 |
| | 42,774 |
| | 37,294 |
|
| Total operating expenses | | 85,891 |
| | 54,084 |
| | 95,381 |
| | 86,255 |
| | 181,929 |
| | 140,339 |
|
| Loss from operations | | (32,979 | ) | | (19,326 | ) | | (37,320 | ) | | (48,616 | ) | | (70,961 | ) | | (67,942 | ) |
| Other (expense) income: | | | | | | | | | | | | |
| Interest expense | | (2,024 | ) | | (3,710 | ) | | (7,697 | ) | | (2,424 | ) | | (9,721 | ) | | (6,134 | ) |
| Other income (expense), net | | 1,614 |
| | (13 | ) | |
| Loss on debt extinguishment | | | — |
| | (4,085 | ) | | — |
| | (4,085 | ) |
| Other income, net | | | 4,040 |
| | 48 |
| | 5,654 |
| | 35 |
|
| Loss before income taxes | | (33,389 | ) | | (23,049 | ) | | (40,977 | ) | | (55,077 | ) | | (75,028 | ) | | (78,126 | ) |
| Provision for income taxes | | (154 | ) | | (109 | ) | | (143 | ) | | (143 | ) | | (297 | ) | | (252 | ) |
| Net loss | | $ | (33,543 | ) | | $ | (23,158 | ) | | $ | (41,120 | ) | | $ | (55,220 | ) | | $ | (75,325 | ) | | $ | (78,378 | ) |
| Less: Net loss attributable to non-controlling interests | | (14,660 | ) | | — |
| | (11,740 | ) | | (13,910 | ) | | (26,690 | ) | | (13,910 | ) |
| Net loss attributable to Pluralsight, Inc. | | $ | (18,883 | ) | | $ | (23,158 | ) | | $ | (29,380 | ) | | $ | (41,310 | ) | | $ | (48,635 | ) | | $ | (64,468 | ) |
| Less: Accretion of Series A redeemable convertible preferred units | | — |
| | (19,525 | ) | | — |
| | (156,750 | ) | | — |
| | (176,275 | ) |
| Net loss attributable to common shares | | $ | (18,883 | ) | | $ | (42,683 | ) | | $ | (29,380 | ) | | $ | (198,060 | ) | | $ | (48,635 | ) | | $ | (240,743 | ) |
Net loss per share, basic and diluted(1) | | $ | (0.25 | ) | | | | $ | (0.30 | ) | | $ | (0.20 | ) | | $ | (0.56 | ) | | $ | (0.20 | ) |
Weighted-average common shares used in computing basic and diluted net loss per share(1) | | 75,927 |
| | | | 97,608 |
| | 62,252 |
| | 86,827 |
| | 62,252 |
|
________________________
| |
| (1) | RepresentsNet loss per share, basic and diluted and weighted-average common shares used in computing basic and diluted net loss per share of Class A common stock and weighted-average shares of Class A common stock outstanding for the periodsthree and six months ended June 30, 2018 reflect only the activity for the portion of the period following the Reorganization Transactions (as defined below) and Pluralsight, Inc.'s initial public offering and the Reorganization Transactions described in Note 1—Organization and Description of Business. See Note 14—17—Net Loss Per Share for additional details. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PLURALSIGHT, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
| | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | Three Months Ended March 31, | | 2019 | | 2018 | | 2019 | | 2018 |
| | | 2019 | | 2018 | | | | (Restated) | | | | (Restated) |
| | | | | | | | | | | | | |
| Net loss | | $ | (33,543 | ) | | $ | (23,158 | ) | | $ | (41,120 | ) | | $ | (55,220 | ) | | $ | (75,325 | ) | | $ | (78,378 | ) |
| Other comprehensive (loss) income: | | | | | |
| Foreign currency translation gains, net | | 18 |
| | 5 |
| |
| Other comprehensive income (loss): | | | | | | | | | |
| Unrealized gains on investments | | | 379 |
| | — |
| | 379 |
| | — |
|
| Foreign currency translation (losses) gains, net | | | (7 | ) | | (63 | ) | | 11 |
| | (58 | ) |
| Comprehensive loss | | $ | (33,525 | ) | | $ | (23,153 | ) | | $ | (40,748 | ) | | $ | (55,283 | ) | | $ | (74,935 | ) | | $ | (78,436 | ) |
| Less: Comprehensive loss attributable to non-controlling interests | | (14,652 | ) | | — |
| | (11,636 | ) | | (13,931 | ) | | (26,578 | ) | | (13,931 | ) |
| Comprehensive loss attributable to Pluralsight, Inc. | | $ | (18,873 | ) | | $ | (23,153 | ) | | $ | (29,112 | ) | | $ | (41,352 | ) | | $ | (48,357 | ) | | $ | (64,505 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PLURALSIGHT, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Units, Members’ Deficit, and Stockholders' Equity
(in thousands, except share/unit amounts)
(unaudited)
Three Months Ended June 30, 2019
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable
Convertible
Preferred Units | | | Members’ Capital | | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive (Loss) Income | | Accumulated Deficit | | Non-Controlling Interests | | Total |
| | Units | | Amount | | | Units | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at March 31, 2019 | — |
| | $ | — |
| | | — |
| | $ | — |
| | 95,096,979 |
| | $ | 10 |
| | 29,071,789 |
| | $ | 3 |
| | 14,162,311 |
| | $ | 1 |
| | $ | 565,189 |
| | $ | (31 | ) | | $ | (364,668 | ) | | $ | 85,374 |
| | $ | 285,878 |
|
| Effect of exchanges of LLC Units | — |
| | — |
| | | — |
| | — |
| | 4,469,843 |
| | — |
| | (4,390,283 | ) | | (1 | ) | | (79,560 | ) | | — |
| | 9,425 |
| | — |
| | — |
| | (9,424 | ) | | — |
|
| Issuance of common stock under employee stock purchase plans | — |
| | — |
| | | — |
| | — |
| | 621,463 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8,257 |
| | — |
| | — |
| | — |
| | 8,257 |
|
| Vesting of restricted stock units | — |
| | — |
| | | — |
| | — |
| | 655,972 |
| | — |
| | — |
| | — |
| | 104,105 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Exercise of common stock options | — |
| | — |
| | | — |
| | — |
| | 252,215 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,753 |
| | — |
| | — |
| | — |
| | 3,753 |
|
| Forfeiture of unvested LLC Units | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | (17,393 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Equity-based compensation | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 22,966 |
| | — |
| | — |
| | — |
| | 22,966 |
|
| Adjustments to non-controlling interests | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (10,032 | ) | | — |
| | — |
| | 10,032 |
| | — |
|
| Other comprehensive income | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 268 |
| | — |
| | 104 |
| | 372 |
|
| Net loss | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (29,380 | ) | | (11,740 | ) | | (41,120 | ) |
| Balance at June 30, 2019 | — |
| | $ | — |
| | | — |
| | $ | — |
| | 101,096,472 |
| | $ | 10 |
| | 24,664,113 |
| | $ | 2 |
| | 14,186,856 |
| | $ | 1 |
| | $ | 599,558 |
| | $ | 237 |
| | $ | (394,048 | ) | | $ | 74,346 |
| | $ | 280,106 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
PLURALSIGHT, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Units, Members’ Deficit, and Stockholders' Equity (Continued)
(in thousands, except share/unit amounts)
(unaudited)
Three Months Ended March 31, 2019:June 30, 2018
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable
Convertible
Preferred Units | | | Members’ Capital | | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Non-Controlling Interests | | Total |
| | Units | | Amount | | | Units | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2018 | — |
| | $ | — |
| | | — |
| | $ | — |
| | 65,191,907 |
| | $ | 7 |
| | 57,490,881 |
| | $ | 6 |
| | 14,586,173 |
| | $ | 1 |
| | $ | 452,576 |
| | $ | (41 | ) | | $ | (351,123 | ) | | $ | 107,167 |
| | $ | 208,593 |
|
| Impact of the adoption of ASC 606 | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,033 |
| | 10,601 |
| | 20,634 |
|
| Effect of exchanges of LLC Units | — |
| | — |
| | | — |
| | — |
| | 28,949,710 |
| | 3 |
| | (28,419,092 | ) | | (3 | ) | | (530,618 | ) | | — |
| | 49,495 |
| | — |
| | — |
| | (49,495 | ) | | — |
|
| Vesting of restricted stock units | — |
| | — |
| | | — |
| | — |
| | 787,982 |
| | — |
| | — |
| | — |
| | 106,756 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Exercise of common stock options | — |
| | — |
| | | — |
| | — |
| | 167,380 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,621 |
| | — |
| | — |
| | — |
| | 2,621 |
|
| Equity component of convertible senior notes, net of issuance costs | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 137,033 |
| | — |
| | — |
| | — |
| | 137,033 |
|
| Purchase of capped calls related to issuance of convertible senior notes | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (69,432 | ) | | — |
| | — |
| | — |
| | (69,432 | ) |
| Equity-based compensation | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 19,954 |
| | — |
| | — |
| | — |
| | 19,954 |
|
| Adjustments to non-controlling interests | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (31,754 | ) | | — |
| | — |
| | 31,754 |
| | — |
|
| Foreign currency translation gains | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10 |
| | — |
| | 8 |
| | 18 |
|
| Net loss | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (18,883 | ) | | (14,660 | ) | | (33,543 | ) |
| Balance at March 31, 2019 | — |
| | $ | — |
| | | — |
| | $ | — |
| | 95,096,979 |
| | $ | 10 |
| | 29,071,789 |
| | $ | 3 |
| | 14,162,311 |
| | $ | 1 |
| | $ | 560,493 |
| | $ | (31 | ) | | $ | (359,973 | ) | | $ | 85,375 |
| | $ | 285,878 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Redeemable
Convertible
Preferred Units | | | Members’ Capital | | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive Income (Loss) | | Accumulated
Deficit | | Non-Controlling Interests | | Total |
| | | Units | | Amount | | | Units | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at March 31, 2018 | | 48,447,880 |
| | $ | 425,291 |
| | | 48,407,645 |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | 30 |
| | $ | (483,428 | ) | | $ | — |
| | $ | (483,398 | ) |
| Activity prior to the Reorganization Transactions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of warrants to purchase Class A common units | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Equity-based compensation, as restated | | — |
| | — |
| | | — |
| | 18,905 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 18,905 |
|
| Accretion of Series A redeemable convertible preferred units, as restated | | — |
| | 156,750 |
| | | — |
| | (18,905 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (137,845 | ) | | — |
| | (156,750 | ) |
| Foreign currency translation losses | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (23 | ) | | — |
| | — |
| | (23 | ) |
| Net loss, as restated | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (28,625 | ) | | — |
| | (28,625 | ) |
| Effect of the Reorganization Transactions and initial public offering: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Effect of the Reorganization Transactions | | (48,447,880 | ) | | (582,041 | ) | | | (48,407,645 | ) | | — |
| | 39,110,660 |
| | 4 |
| | 58,111,572 |
| | 6 |
| | 14,048,138 |
| | 1 |
| | 581,952 |
| | — |
| | — |
| | — |
| | 581,963 |
|
| Initial public offering, net of offering costs | | — |
| | — |
| | | — |
| | — |
| | 23,805,000 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 324,677 |
| | — |
| | — |
| | — |
| | 324,679 |
|
| Allocation of equity to non-controlling interests | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (474,007 | ) | | (4 | ) | | 339,782 |
| | 134,229 |
| | — |
|
| Activity subsequent to the Reorganization Transactions and initial public offering: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Settlement of equity appreciation rights | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (325 | ) | | — |
| | — |
| | — |
| | (325 | ) |
| Equity-based compensation, as restated | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,074 |
| | — |
| | — |
| | — |
| | 10,074 |
|
| Adjustments to non-controlling interests, as restated | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (5,097 | ) | | — |
| | — |
| | 5,097 |
| | — |
|
| Foreign currency translation losses | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (19 | ) | | — |
| | (21 | ) | | (40 | ) |
| Net loss, as restated | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (12,685 | ) | | (13,910 | ) | | (26,595 | ) |
| Balance at June 30, 2018, as restated | | — |
| | $ | — |
| | | — |
| | $ | — |
| | 62,915,660 |
| | $ | 6 |
| | 58,111,572 |
| | $ | 6 |
| | 14,048,138 |
| | $ | 1 |
| | $ | 437,274 |
| | $ | (16 | ) | | $ | (322,801 | ) | | $ | 125,395 |
| | $ | 239,865 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Three
PLURALSIGHT, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Units, Members’ Deficit, and Stockholders' Equity (Continued)
(in thousands, except share/unit amounts)
(unaudited)
Six Months Ended March 31, 2018:June 30, 2019
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable
Convertible
Preferred Units | | | Members’ Capital | | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional
Paid-In
Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated
Deficit | | Non-Controlling Interests | | Total |
| | Units | | Amount | | | Units | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2017 | 48,447,880 |
| | $ | 405,766 |
| | | 48,407,645 |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | 25 |
| | $ | (445,102 | ) | | $ | — |
| | $ | (445,077 | ) |
| Issuance of warrants to purchase shares of Class A common stock | — |
| | — |
| | | — |
| | 984 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 984 |
|
| Equity-based compensation | — |
| | — |
| | | — |
| | 3,373 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,373 |
|
| Accretion of Series A redeemable convertible preferred units | — |
| | 19,525 |
| | | — |
| | (4,357 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (15,168 | ) | | — |
| | (19,525 | ) |
| Foreign currency translation gains | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5 |
| | — |
| | — |
| | 5 |
|
| Net loss | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (23,158 | ) | | — |
| | (23,158 | ) |
| Balance at March 31, 2018 | 48,447,880 |
| | $ | 425,291 |
| | | 48,407,645 |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | 30 |
| | $ | (483,428 | ) | | $ | — |
| | $ | (483,398 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable
Convertible
Preferred Units | | | Members’ Capital | | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional
Paid-In
Capital | | Accumulated Other Comprehensive (Loss) Income | | Accumulated
Deficit | | Non-Controlling Interests | | Total |
| | Units | | Amount | | | Units | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2018 | — |
| | $ | — |
| | | — |
| | $ | — |
| | 65,191,907 |
| | $ | 7 |
| | 57,490,881 |
| | $ | 6 |
| | 14,586,173 |
| | $ | 1 |
| | $ | 456,899 |
| | $ | (41 | ) | | $ | (355,446 | ) | | $ | 107,167 |
| | $ | 208,593 |
|
| Impact of the adoption of ASC 606 | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,033 |
| | 10,601 |
| | 20,634 |
|
| Effect of exchanges of LLC Units | — |
| | — |
| | | — |
| | — |
| | 33,419,553 |
| | 3 |
| | (32,809,375 | ) | | (4 | ) | | (610,178 | ) | | — |
| | 58,920 |
| | — |
| | — |
| | (58,919 | ) | | — |
|
| Issuance of common stock under employee stock purchase plans | — |
| | — |
| | | — |
| | — |
| | 621,463 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8,257 |
| | — |
| | — |
| | — |
| | 8,257 |
|
| Vesting of restricted stock units | — |
| | — |
| | | — |
| | — |
| | 1,436,581 |
| | — |
| | — |
| | — |
| | 210,861 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Exercise of common stock options | — |
| | — |
| | | — |
| | — |
| | 426,968 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,374 |
| | — |
| | — |
| | — |
| | 6,374 |
|
| Forfeiture of unvested LLC Units | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | (17,393 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Equity component of convertible senior notes, net of issuance costs | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 137,033 |
| | — |
| | — |
| | — |
| | 137,033 |
|
| Purchase of capped calls related to issuance of convertible senior notes | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (69,432 | ) | | — |
| | — |
| | — |
| | (69,432 | ) |
| Equity-based compensation | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 43,582 |
| | — |
| | — |
| | — |
| | 43,582 |
|
| Adjustments to non-controlling interests | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (42,075 | ) | | — |
| | — |
| | 42,075 |
| | — |
|
| Other comprehensive income | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 278 |
| | — |
| | 112 |
| | 390 |
|
| Net loss | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (48,635 | ) | | (26,690 | ) | | (75,325 | ) |
| Balance at June 30, 2019 | — |
| | $ | — |
| | | — |
| | $ | — |
| | 101,096,472 |
| | $ | 10 |
| | 24,664,113 |
| | $ | 2 |
| | 14,186,856 |
| | $ | 1 |
| | $ | 599,558 |
| | $ | 237 |
| | $ | (394,048 | ) | | $ | 74,346 |
| | $ | 280,106 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
PLURALSIGHT, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Units, Members’ Deficit, and Stockholders' Equity (Continued)
(in thousands, except share/unit amounts)
(unaudited)
Six Months Ended June 30, 2018
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Redeemable
Convertible
Preferred Units | | | Members’ Capital | | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive Income (Loss) | | Accumulated
Deficit | | Non-Controlling Interests | | Total |
| | | Units | | Amount | | | Units | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2017 | | 48,447,880 |
| | $ | 405,766 |
| | | 48,407,645 |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | 25 |
| | $ | (445,102 | ) | | $ | — |
| | $ | (445,077 | ) |
| Activity prior to the Reorganization Transactions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of warrants to purchase Class A common units | | — |
| | — |
| | | — |
| | 984 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 984 |
|
| Equity-based compensation, as restated | | — |
| | — |
| | | — |
| | 22,278 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 22,278 |
|
| Accretion of Series A redeemable convertible preferred units, as restated | | — |
| | 176,275 |
| | | — |
| | (23,262 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (153,013 | ) | | — |
| | (176,275 | ) |
| Foreign currency translation losses | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (18 | ) | | — |
| | — |
| | (18 | ) |
| Net loss, as restated | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (51,783 | ) | | — |
| | (51,783 | ) |
| Effect of the Reorganization Transactions and initial public offering: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
| Effect of the Reorganization Transactions | | (48,447,880 | ) | | (582,041 | ) | | | (48,407,645 | ) | | — |
| | 39,110,660 |
| | 4 |
| | 58,111,572 |
| | 6 |
| | 14,048,138 |
| | 1 |
| | 581,952 |
| | — |
| | — |
| | — |
| | 581,963 |
|
| Initial public offering, net of offering costs | | — |
| | — |
| | | — |
| | — |
| | 23,805,000 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 324,677 |
| | — |
| | — |
| | — |
| | 324,679 |
|
| Allocation of equity to non-controlling interests | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (474,007 | ) | | (4 | ) | | 339,782 |
| | 134,229 |
| | — |
|
| Activity subsequent to the Reorganization Transactions and initial public offering: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Settlement of equity appreciation rights | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (325 | ) | | — |
| | — |
| | — |
| | (325 | ) |
| Equity-based compensation, as restated | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,074 |
| | — |
| | — |
| | — |
| | 10,074 |
|
| Adjustments to non-controlling interests, as restated | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (5,097 | ) | | — |
| | — |
| | 5,097 |
| | — |
|
| Foreign currency translation losses | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (19 | ) | | — |
| | (21 | ) | | (40 | ) |
| Net loss, as restated | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (12,685 | ) | | (13,910 | ) | | (26,595 | ) |
| Balance at June 30, 2018, as restated | | — |
| | $ | — |
| | | — |
| | $ | — |
| | 62,915,660 |
| | $ | 6 |
| | 58,111,572 |
| | $ | 6 |
| | 14,048,138 |
| | $ | 1 |
| | $ | 437,274 |
| | $ | (16 | ) | | $ | (322,801 | ) | | $ | 125,395 |
| | $ | 239,865 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
PLURALSIGHT, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | | | | | | | Six Months Ended June 30, |
| | | Three Months Ended March 31, | | 2019 | | 2018 |
| | | 2019 | | 2018 | | | | (Restated) |
| | | | | | | | | |
| Operating activities | | | | | | | | |
| Net loss | | $ | (33,543 | ) | | $ | (23,158 | ) | | $ | (75,325 | ) | | $ | (78,378 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
| Depreciation of property and equipment | | 2,056 |
| | 2,191 |
| | 4,196 |
| | 4,358 |
|
| Amortization of acquired intangible assets | | 702 |
| | 3,333 |
| | 1,609 |
| | 6,665 |
|
| Amortization of course creation costs | | 579 |
| | 447 |
| | 1,190 |
| | 930 |
|
| Equity-based compensation | | 19,606 |
| | 3,373 |
| | 43,000 |
| | 32,352 |
|
| Amortization of deferred contract acquisition costs | | 5,867 |
| | — |
| | 11,311 |
| | — |
|
| Amortization of debt discount and issuance costs | | 1,545 |
| | 876 |
| | 8,294 |
| | 1,215 |
|
| Investment discount and premium amortization, net | | | (706 | ) | | — |
|
| Provision for doubtful accounts | | 27 |
| | 222 |
| | 22 |
| | 358 |
|
| Deferred tax benefit | | (27 | ) | | — |
| | 21 |
| | (64 | ) |
| Debt extinguishment costs | | | — |
| | 4,180 |
|
| Other | | 25 |
| | — |
| | 257 |
| | — |
|
| Changes in assets and liabilities: | | | | | |
| Changes in assets and liabilities, net of acquired assets and liabilities: | | | | | |
| Accounts receivable | | 11,392 |
| | 6,802 |
| | 7,116 |
| | 1,335 |
|
| Deferred contract acquisition costs | | (5,851 | ) | | — |
| | (11,430 | ) | | — |
|
| Prepaid expenses and other assets | | (1,917 | ) | | (1,966 | ) | | (4,194 | ) | | (3,858 | ) |
| Accounts payable | | 1,035 |
| | 2,063 |
| | 1,070 |
| | (588 | ) |
| Accrued expenses and other liabilities | | (4,979 | ) | | (10,203 | ) | | (2,374 | ) | | (2,839 | ) |
| Accrued author fees | | 735 |
| | (179 | ) | | 1,299 |
| | 617 |
|
| Deferred revenue | | 8,288 |
| | 5,775 |
| | 13,003 |
| | 17,500 |
|
| Net cash provided by (used in) operating activities | | 5,540 |
| | (10,424 | ) | |
| Net cash used in operating activities | | | (1,641 | ) | | (16,217 | ) |
| Investing activities | | | | | | | | |
| Purchases of property and equipment | | (2,133 | ) | | (1,868 | ) | | (4,590 | ) | | (4,574 | ) |
| Purchases of content library | | (937 | ) | | (769 | ) | | (2,441 | ) | | (1,504 | ) |
| Cash paid for acquisition, net of cash acquired | | | (163,871 | ) | | — |
|
| Purchases of investments | | | (317,080 | ) | | — |
|
| Proceeds from sales of investments | | | 4,967 |
| | — |
|
| Net cash used in investing activities | | (3,070 | ) | | (2,637 | ) | | (483,015 | ) | | (6,078 | ) |
| Financing activities | | | | | | | | |
| Proceeds from issuance of convertible senior notes, net of discount and issuance costs | | 617,663 |
| | — |
| | 616,654 |
| | — |
|
| Purchase of capped calls related to issuance of convertible senior notes | | (69,432 | ) | | — |
| | (69,432 | ) | | — |
|
| Proceeds from issuance of common stock from employee equity plans | | 2,621 |
| | — |
| | 14,631 |
| | — |
|
| Proceeds from initial public offering, net of underwriting discounts and commissions | | | — |
| | 332,080 |
|
| Payments of costs related to initial public offering | | | — |
| | (3,085 | ) |
| Borrowings of long-term debt | | — |
| | 20,000 |
| | — |
| | 20,000 |
|
| Payments of costs related to initial public offering | | — |
| | (1,899 | ) | |
| Repayments of long-term debt | | | — |
| | (137,710 | ) |
| Payments of debt extinguishment costs | | | — |
| | (2,162 | ) |
| Payments of debt issuance costs | | — |
| | (450 | ) | | — |
| | (450 | ) |
| Payments to settle equity appreciation rights | | | — |
| | (325 | ) |
| Taxes paid related to net share settlement | | | — |
| | (78 | ) |
| Other | | (4 | ) | | (4 | ) | | (7 | ) | | (8 | ) |
| Net cash provided by financing activities | | 550,848 |
| | 17,647 |
| | 561,846 |
| | 208,262 |
|
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | | 26 |
| | 9 |
| | 22 |
| | (86 | ) |
| Net increase in cash, cash equivalents, and restricted cash | | 553,344 |
| | 4,595 |
| | 77,212 |
| | 185,881 |
|
| Cash, cash equivalents, and restricted cash, beginning of period | | 211,071 |
| | 28,477 |
| | 211,071 |
| | 28,477 |
|
| Cash, cash equivalents, and restricted cash, end of period | | $ | 764,415 |
| | $ | 33,072 |
| | $ | 288,283 |
| | $ | 214,358 |
|
| Supplemental cash flow disclosure: | | | | | |
| Cash paid for interest | | $ | — |
| | $ | 2,472 |
| |
| Cash paid for income taxes, net | | $ | 116 |
| | $ | 84 |
| |
| Supplemental disclosure of non-cash investing and financing activities: | | | | | |
| Property acquired under build-to-suit agreements | | $ | 4,297 |
| | $ | — |
| |
| Debt and equity issuance costs, accrued but not yet paid | | $ | 1,008 |
| | $ | 1,506 |
| |
| Unpaid capital expenditures | | $ | 870 |
| | $ | 433 |
| |
| Equity-based compensation capitalized as internal-use software | | $ | 348 |
| | $ | — |
| |
| Redeemable convertible preferred unit accretion | | $ | — |
| | $ | 19,525 |
| |
| Issuance of warrants to purchase shares of Class A common stock | | $ | — |
| | $ | 984 |
| |
| Reconciliation of cash, cash equivalents and restricted cash as shown in the statement of cash flows: | | | | | |
| Cash and cash equivalents | | $ | 736,566 |
| | $ | 32,359 |
| |
| Restricted cash | | 27,849 |
| | 713 |
| |
| Total cash, cash equivalents, and restricted cash | | $ | 764,415 |
| | $ | 33,072 |
| |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PLURALSIGHT, INC.
Condensed Consolidated Statements of Cash Flows (Continued)
(in thousands)
(unaudited)
|
| | | | | | | | |
| | | Six Months Ended June 30, |
| | | 2019 | | 2018 |
| | | | | (Restated) |
| | | | | |
| Supplemental cash flow disclosure: | | | | |
| Cash paid for interest | | $ | — |
| | $ | 4,271 |
|
| Cash paid for income taxes, net | | $ | 228 |
| | $ | 172 |
|
| Supplemental disclosure of non-cash investing and financing activities: | | | | |
| Property acquired under build-to-suit agreements | | $ | 15,900 |
| | $ | — |
|
| Unpaid capital expenditures | | $ | 967 |
| | $ | 568 |
|
| Equity-based compensation capitalized as internal-use software | | $ | 582 |
| | $ | — |
|
| Unrealized gains on investments | | $ | 379 |
| | $ | — |
|
| Conversion of redeemable convertible preferred units | | $ | — |
| | $ | 582,041 |
|
| Redeemable convertible preferred unit accretion | | $ | — |
| | $ | 176,275 |
|
| Costs related to initial public offering, accrued but not yet paid | | $ | — |
| | $ | 4,009 |
|
| Issuance of warrants to purchase shares of Class A common stock | | $ | — |
| | $ | 984 |
|
| Reconciliation of cash, cash equivalents and restricted cash as shown in the statement of cash flows: | | | | |
| Cash and cash equivalents | | $ | 260,313 |
| | $ | 213,645 |
|
| Restricted cash | | 27,970 |
| | 713 |
|
| Total cash, cash equivalents, and restricted cash | | $ | 288,283 |
| | $ | 214,358 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
PLURALSIGHT, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1. Organization and Description of Business
Pluralsight, Inc. was incorporated as a Delaware corporation on December 4, 2017 as a holding company for the purpose of facilitating an initial public offering (“IPO”) and other related transactions in order to carry on the business of Pluralsight Holdings, LLC (“Pluralsight Holdings”) and its subsidiaries (together with Pluralsight, Inc., the “Company” or “Pluralsight”). Pluralsight Holdings is a limited liability company (“LLC”) and was organized on August 29, 2014 in the state of Delaware and is the parent company of Pluralsight, LLC, and its directly and indirectly wholly-owned subsidiaries. Pluralsight, LLC was organized on June 17, 2004 in the state of Nevada. Pluralsight operates a cloud-based technology learningskills platform that provides a broad range of tools for businesses and individuals, including skill assessments, a curated library of courses, learning paths, and business analytics. As the sole managing member of Pluralsight Holdings, Pluralsight, Inc. operates and controls all of the business operations and affairs of Pluralsight.
Initial Public Offering
In May 2018, Pluralsight, Inc. completed an IPO, in which it sold 23,805,000 shares of Class A common stock at a public offering price of $15.00 per share for net proceeds of $332.1 million, after deducting underwriters' discounts and commissions, which Pluralsight, Inc. used to purchase newly issued common limited liability company units (“LLC Units") from Pluralsight Holdings. In connection with the IPO, the Company reclassified $7.4 million of offering costs into stockholders’ equity as a reduction of the net proceeds received from the IPO.
Reorganization Transactions
In connection with the IPO, the Company completed the following transactions (“Reorganization Transactions”):
The limited liability company agreement of Pluralsight Holdings (“LLC Agreement”) was amended and restated to, among other things: (i) appoint Pluralsight, Inc. as its sole managing member and (ii) effectuate the conversion of all outstanding redeemable convertible preferred limited liability company units, incentive units, and Class B incentive units of Pluralsight Holdings into a single class of common units. See Note 10—13—Stockholders' Equity for additional details.
Certain members of Pluralsight Holdings that were corporations merged with and into Pluralsight, Inc. and certain members of Pluralsight Holdings contributed certain of their LLC Units to Pluralsight, Inc., in each case in exchange for shares of Class A common stock.
The certificate of incorporation of Pluralsight, Inc. was amended and restated to authorize three classes of common stock, Class A common stock, Class B common stock, Class C common stock, and one class of preferred stock. Class B and Class C common stock were issued on a one-for-one basis to the members of Pluralsight Holdings who retained LLC Units (“Continuing Members”). Class B and Class C common stock have voting rights but no economic rights. See Note 10—13—Stockholders' Equity for additional details.
As the sole managing member of Pluralsight Holdings, Pluralsight, Inc. has the sole voting interest in Pluralsight Holdings and controls all of the business operations, affairs, and management of Pluralsight Holdings. Accordingly, Pluralsight, Inc. consolidates the financial results of Pluralsight Holdings and reports the non-controlling interests of the Continuing Members' LLC Units on its consolidated financial statements. As of March 31,June 30, 2019, Pluralsight, Inc. owned 70.1%73.5% of Pluralsight Holdings and the Continuing Members owned the remaining 29.9%26.5% of Pluralsight Holdings.
As the Reorganization Transactions are considered transactions between entities under common control, the financial statements for periods prior to the IPO and Reorganization Transactions have been adjusted to combine the previously separate entities for presentation purposes. Prior to the Reorganization Transactions, Pluralsight, Inc. had no operations.
Secondary Offering
In March 2019, the Company completed a secondary offering, in which certain stockholders sold 15,592,234 shares of Class A common stock at a public offering price of $29.25 per share. Pluralsight did not receive any proceeds from the sale of shares by selling stockholders. A total of $0.9 million in costs were incurred by Pluralsight in connection with this offering. In connection with the secondary offering, the Company issued $633.5 million aggregate principal amount of 0.375% convertible senior notes due in 2024 in a private placement to qualified institutional buyers exempt from registration under the Securities Act. See Note 11—Convertible Senior Notes and Other Long-Term Debt for additional details.
Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the applicable regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2018 included in Pluralsight, Inc.'s Annual Report on Form 10-K,10-K/A, as filed with the SEC on February 21,June 27, 2019 ("Annual Report").
These unaudited condensed consolidated financial statements include the accounts of Pluralsight, Inc. and its directly and indirectly wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
As discussed in Note 1—Organization and Description of Business, Pluralsight, Inc. consolidates the financial results of Pluralsight Holdings as a Variable Interest Entity (“VIE”). The Company periodically evaluates entities for consolidation either through ownership of a majority voting interest, or through means other than a voting interest, in accordance with the VIE accounting model. A VIE is an entity in which the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity's economic performance or the equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support.
Interim Unaudited Condensed Consolidated Financial Statements
The accompanying interim condensed consolidated balance sheet as of March 31,June 30, 2019, and the interim condensed consolidated statements of operations, comprehensive loss, redeemable convertible preferred units, members' deficit, and stockholders' equity, for the three and six months ended June 30, 2019 and 2018, and the interim condensed consolidated cash flows for the threesix months ended March 31,June 30, 2019 and 2018, are unaudited. The condensed consolidated balance sheet as of December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The interim unaudited condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company's financial position, its operations and cash flows for the periods presented. The historical results are not necessarily indicative of future results, and the results of operations for the three and six months ended March 31,June 30, 2019 are not necessarily indicative of the results to be expected for the full year or any other period.
Revision of Prior Period Financial Statements
In June 2019, the Company identified an error in equity-based compensation expense for the three months ended March 31, 2019 related to the attribution of equity-based compensation with respect to certain restricted stock units containing double-trigger vesting conditions. The Company had incorrectly recognized expense using a straight-line attribution method rather than on a tranche-by-tranche basis for certain awards with a performance condition, resulting in an understatement of equity-based compensation expense of $0.7 million for the three months ended March 31, 2019. The correction increased sales and marketing, technology and content, and general and administrative expenses for the three months ended March 31, 2019 by $0.1 million, $0.2 million, and $0.4 million, respectively. The correction increased loss from operations, loss before income taxes, and net loss by $0.7 million in the three months ended March 31, 2019. Of the increase in net loss, $0.3 million is attributable to non-controlling interests and the remaining $0.4 million is attributable to Pluralsight, Inc. Net loss per share, basic and diluted for the three months ended March 31, 2019 remained at $0.25 after the correction. Additional paid-in capital and accumulated deficit also each increased by $0.4 million resulting in no net impact to total stockholders’ equity as of March 31, 2019. The correction did not impact the total grant date fair value of these awards, revenue, or total cash flows provided by (used in) operating, investing, or financing activities. Management does not believe that this error and related correction were material to the condensed consolidated financial statements for the three months ended March 31, 2019 taken as a whole; therefore, the previously issued condensed consolidated financial statements can continue to be relied upon and an amendment of the previously filed Quarterly Report on Form 10-Q is not required. However, for comparability, these revised amounts will be reflected in the March 31, 2020 Quarterly Report on Form 10-Q that will contain such information, and the amounts discussed above have been appropriately reflected as of and for the six months ended June 30, 2019.
.Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses for the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to the determination of the fair value of equity awards, fair value of the liability and equity components of the convertible senior notes, the valuation of build-to-suit leases, the fair value of identified assets and liabilities acquired in business combinations, the useful lives of property and equipment, content librarylong-lived assets, the impairment of long-
lived and intangible assets, including goodwill, the period of benefit for deferred contract acquisition costs, provisions for doubtful accounts receivable and deferred revenue, impairment of long-lived and intangible assets, including goodwill, and certain accrued expenses, including author fees. These estimates and assumptions are based on the Company’s historical results and management’s future expectations. Actual results could differ from those estimates.
Significant Accounting Policies
The Company’s significant accounting policies are discussed in “Note 1—Description of Business and Summary of Significant Accounting Policies” in the Annual Report. There have been no significant changes to these policies that have had a material impact on the Company's unaudited condensed consolidated financial statements and related notes during the three and six months ended March 31,June 30, 2019, except as noted below.
Revenue Recognition (ASC 606)
The Company derives substantially all of its revenue from subscription services (which include support services) from providing customers access to its platform.
The Company implemented the provisions of Accounting Standards Update ("ASU") 2014-09 (referred to collectively as "ASC 606") effective January 1, 2019 using the modified retrospective transition method as discussed below under the section "Recent Accounting Pronouncements".
Following the adoption of ASC 606, the Company recognizes revenue when control of these services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the services. Sales and other taxes collected from customers to be remitted to government authorities are excluded from revenue. The Company accounts for revenue contracts with customers by applying the following steps:
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in a contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, performance obligations are satisfied
The Company’s subscription arrangements generally do not provide customers with the right to take possession of the software supporting the platform and, as a result, are accounted for as service arrangements. Access to the Company's platform represents a series of distinct services as the Company continually provides access to, and fulfills its obligation to, the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. Accordingly, the fixed consideration related to subscription revenue is generally recognized on a straight-line basis over the contract term, beginning on the date that the service is made available to the customer. The Company's subscription contracts typically vary from one month to three years. The Company’s arrangements are generally noncancellable and nonrefundable.
Subscriptions that allow the customer to take software on-premise without significant penalty are treated as time-based licenses. These arrangements generally include access to the software, access to unspecified future products and maintenance and support. Revenue for on-premise software subscriptions is recognized at a point in time when the software is made available to the customer. Revenue for access to unspecified future products, maintenance and support included with on-premise software subscriptions is recognized ratably over the contract term beginning on the date that the access is made available to the customer.
A small portion of the Company’s revenue is derived from providing professional services, which generally consist of content creation or other consulting services. These services are distinct from subscription revenue services. Revenue from professional services is generally recognized upon completion, because the customer consumes the intended benefit and assumes control upon final completion of the service.
Some contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately, if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines standalone selling prices considering market conditions and based on overall pricing objectives such as observable standalone selling prices, and other factors, including the value of contracts, types of services sold, customer demographics, and the number and types of users within such contracts.
Deferred Revenue
The Company records contract liabilities to deferred revenue when cash payments are received or billings are due in advance of revenue recognition from subscription services described above, including amounts billed to customers in accordance with the terms of the underlying contracts where the service period has not yet commenced but will commence in the near future. Deferred revenue is recognized when, or as, revenue as the revenue recognition criteriaperformance obligations are met.satisfied. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current; the remaining portion is recorded as non-current deferred revenue.
Cash, Cash Equivalents, Restricted Cash and Investments
The Company considers all highly-liquid investments with a maturity at the time of purchase of 90 days or less to be cash and cash equivalents. Cash consists of deposits with financial institutions. Cash equivalents and investments consist of highly liquid investments in money market funds, U.S. treasury securities, U.S. government agency securities, commercial paper, and corporate debt securities. Cash and cash equivalents that are restricted as to withdrawal or usage are presented as restricted cash on the condensed consolidated balance sheets.
The Company classifies investments as available-for-sale securities. Investments with original maturities beyond 90 days are classified as short-term or long-term investments based on the nature of the securities and their stated maturities. Investments are carried at fair value, with unrealized gains and losses, net of tax, reported in accumulated other comprehensive income within stockholders’ equity.
Investments are reviewed periodically to determine whether a decline in a security’s fair value below the amortized cost basis is other-than-temporary. If the cost of an individual investment exceeds its fair value, the Company considers available quantitative and qualitative factors such as the length of time and extent to which the market value has been less than the cost, the financial condition and near-term prospects of the issuer and the Company's intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s amortized cost basis. If the Company believes that a decline in fair value is determined to be other-than-temporary, the investments are written down to fair value. There were no impairments recognized on investments during the periods presented.
Interest income, amortization of premiums and discounts, realized gains and losses and declines in fair value judged to be other-than-temporary on available-for-sale securities are included in other income, net in the condensed consolidated statements of operations. The Company uses the specific identification method to determine the cost in calculating realized gains and losses upon the sale of these investments.
Accounts Receivable
Accounts receivable represent amounts owed to the Company for subscriptions to the Company’s platform. Accounts receivable balances are recorded at the invoiced amount and are non-interest-bearing. The Company records a contract asset when revenue is recognized in advance of invoicing. Contract assets that represent a right to consideration that is unconditional are presented within accounts receivable on the condensed consolidated balance sheets.
The Company maintains an allowance for doubtful accounts to reserve for potential uncollectible receivables, by assessing the collectability of the accounts by taking into consideration the aging of trade receivables, historical experience, and management judgment. The Company writes off trade receivables against the allowance when management determines a balance is uncollectible and no longer intends to actively pursue collection of the receivable.
Deferred Contract Acquisition Costs
The Company capitalizes sales commissions, and associated fringe costs, such as payroll taxes, paid to direct sales personnel and other incremental costs of obtaining contracts with customers, provided the Company expects to recover those costs. These costs are recorded as deferred contract acquisition costs on the condensed consolidated balance sheets. The Company determines whether costs should be deferred based on its sales compensation plans, if the commissions are in fact incremental and would not have occurred absent the customer contract.
Sales commissions for renewal of a subscription contract are not considered commensurate with the commissions paid for the acquisition of the initial subscription contract given the substantive difference in commission rates between new and renewal contracts. Commissions paid upon the initial acquisition of a contract are amortized over an estimated period of benefit of four years while commissions paid related to renewal contracts are amortized over an estimated period of benefit of approximately 18 months. Amortization is recognized on a straight-line basis commensurate with the pattern of revenue recognition.
The period of benefit for commissions paid for the acquisition of initial subscription contracts is determined by taking into consideration the initial estimated customer life and the technological life of the Company's platform and related significant features. The Company determines the period of benefit for renewal subscription contracts by considering the average contractual term for renewal contracts. Amortization of deferred contract acquisition costs is included within sales and marketing expense in the condensed consolidated statements of operations.
The Company periodically reviews these deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred contract acquisition costs. There were no material impairment losses recorded during the periods presented.
Advertising Costs
Advertising costs are expensed as incurred. The Company recorded advertising costs of $3.6$4.4 million and $2.7$3.2 million for the three months ended March 31,June 30, 2019 and 2018, respectively, and $8.0 million and $5.8 million for the six months ended June 30, 2019 and 2018, respectively.
Recent Accounting Pronouncements
Under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), the Company meets the definition of an emerging growth company. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the Company is no longer an emerging growth company or until the Company affirmatively and irrevocably opts out of the extended transition period. As a result, the Company’s financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40), which supersedes nearly all existing revenue recognition guidance. The core principle behind ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering those goods and services. To achieve this core principle, the guidance provides a model, which involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction prices to the performance obligations in the contract, and recognizing revenue when (or as) the entity satisfies the performance obligations. The standard also provides guidance on the recognition of costs related to obtaining customer contracts.
The Company adopted the standard as of January 1, 2019 using the modified retrospective adoption method applied to those contracts that were not completed as of that date. Upon adoption, the Company recognized the cumulative effect of adopting the standard as an adjustment to the opening balance of stockholders' equity. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company updated its accounting policies, processes, internal controls and information systems to conform to the new revenue standard's reporting and disclosure requirements.
Prior to adoption, the Company limited revenue recognition for delivered elements to the amount that is not contingent on the delivery of future services. The adoption of ASC 606 resulted in an acceleration in timing of the Company's revenue for certain sales contracts due to the removal of this limitation. In addition, as a result of the new standard, the Company capitalizes sales commissions and other incremental costs of obtaining contracts with customers. Such costs are amortized over the expected period of benefit, which for initial contracts is an estimated period of four years, while renewal contracts are amortized over an estimated period of benefit of 18 months.
The following table summarizes the adjustments made to the Company's condensed consolidated balance sheet as of January 1, 2019 as a result of applying the modified retrospective method to adopt ASC 606 (in thousands):
| | | | | As Reported | | Adjustments | | As Adjusted | | As Reported | | Adjustments | | As Adjusted |
| | | December 31, 2018 | | Revenue Recognition | | Incremental Costs of Obtaining a Contract | | January 1, 2019 | | December 31, 2018 | | Revenue Recognition | | Incremental Costs of Obtaining a Contract | | January 1, 2019 |
| | | | | | | | | | | | | | | | | |
| Accounts receivable, net | | $ | 63,436 |
| | $ | 33 |
| | $ | — |
| | $ | 63,469 |
| | $ | 63,436 |
| | $ | 33 |
| | $ | — |
| | $ | 63,469 |
|
| Deferred contract acquisition costs, net | | — |
| | — |
| | 16,461 |
| | 16,461 |
| | — |
| | — |
| | 16,461 |
| | 16,461 |
|
| Deferred contract acquisition costs, noncurrent, net | | — |
| | — |
| | 3,751 |
| | 3,751 |
| | — |
| | — |
| | 3,751 |
| | 3,751 |
|
| Deferred revenue | | 157,695 |
| | (389 | ) | | — |
| | 157,306 |
| | 157,695 |
| | (389 | ) | | — |
| | 157,306 |
|
| Deferred revenue, noncurrent | | 14,886 |
| | — |
| | — |
| | 14,886 |
| | 14,886 |
| | — |
| | — |
| | 14,886 |
|
| Accumulated deficit | | (351,123 | ) | | 205 |
| | 9,828 |
| | (341,090 | ) | | (355,446 | ) | | 205 |
| | 9,828 |
| | (345,413 | ) |
| Non-controlling interests | | 107,167 |
| | 217 |
| | 10,384 |
| | 117,768 |
| | 107,167 |
| | 217 |
| | 10,384 |
| | 117,768 |
|
The decrease of deferred revenue and increase to deferred contract acquisition costs as of January 1, 2019 resulted in additional deferred tax liabilities that reduced the Company's net deferred tax asset position. The net deferred tax assets in the jurisdictions impacted by the adoption of ASC 606 were fully reserved and, accordingly, this impact was offset by a corresponding reduction to the valuation allowance with no resulting net impact to net assets or accumulated deficit.
In addition, the adoption of ASC 606 resulted in changes to the Company's accounting estimates and policies for revenue recognition, deferred contract acquisition costs, deferred revenue, and accounts receivable. See the section titled "Significant Accounting Policies" for a discussion of the Company's updated policies.
Refer to Note 3—4—Revenue for the ongoing impacts of adopting ASC 606 on the condensed consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset. The new guidance is effective for public business entities for annual periods beginning after December 15, 2019, including interim periods within those periods. For all other entities, the ASU is effective for annual periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted for all entities. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities to require that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statements of operations. For public business entities that meet the definition of an SEC filer, it is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2020. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. For public business entities, the ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. TheDue to an expected loss in the Company's emerging growth status as of December 31, 2019, the Company anticipates adopting the standard duringon December 31, 2019 for the fiscal year ended December 31, 2020, unless it loses its status as an emerging growth company prior to the year of adoption.2019. The Company is currently evaluating the potential changes to its future financial reporting and disclosures from this ASU. As part of its preliminary assessment, the Company expects to record right-of-use assets and lease liabilities for its operating leases as a result of adopting this standard. While the Company continues to assess all potential impacts under the new standard, including the areas described above, the Company does not know or cannot reasonably estimate quantitative information related to the impact of the adoption of the new standard on its consolidated financial statements at this time.
Note 3. Restatement of Condensed Consolidated Financial Statements
The Company's condensed consolidated financial statements as of and for the three and six months ended June 30, 2018, along with the accompanying footnotes, have been restated herein to correct a material error.
As described in the Company's Annual Report on Form 10-K/A, the Board of Directors of Pluralsight, Inc., in consultation with the Audit Committee of the Board, reached a determination on June 13, 2019 that the Company's consolidated financial statements and related disclosures for the year ended December 31, 2018, and the condensed consolidated financial statements for each of the quarterly and year-to-date periods ended June 30 and September 30, 2018, contained a material error in recognizing non-cash equity-based compensation resulting in an understatement of net loss. This non-cash equity-based compensation error related to the incorrect timing of recognition of expense for certain RSUs, which expense was initially recognized on a straight-line attribution basis. Upon further review, management determined that the non-cash equity-based compensation expense for such RSUs should have been recognized on a tranche-by-tranche basis ("accelerated attribution method") because the RSUs have a graded-vesting schedule and contain a performance condition. The impact of correcting the attribution shifts the non-cash equity-based compensation expense to earlier reporting periods, while the total cumulative expense expected to be recognized over the service period will remain the same.
The Company previously restated the financial statements for the year ended December 31, 2018 in its Annual Report on Form 10-K/A as filed on June 27, 2019, and included detailed disclosure of the restatement impact on the consolidated financial statements for the quarterly and year-to-date periods ended June 30, 2018 and September 30, 2018. However, because the Company did not amend its Quarterly Reports on Form 10-Q for the period ended June 30, 2018, the effects of the restatement on the condensed consolidated financial statements for such interim period are reflected in the comparative interim financial statements contained herein.
The following tables present the effects of the restatement on the Company's unaudited condensed consolidated statements of operations and comprehensive loss for the three and six month periods ended June 30, 2018, and on the unaudited condensed consolidated statements of redeemable convertible preferred units, members’ deficit, and stockholders’ equity, and cash flows for the six months ended June 30, 2018.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2018 |
| | As Previously Reported | | Adjustments | | As Restated | | As Previously Reported | | Adjustments | | As Restated |
| | | | | | | | | | | | |
| Revenue | $ | 53,572 |
| | $ | — |
| | $ | 53,572 |
| | $ | 103,216 |
| | $ | — |
| | $ | 103,216 |
|
| Cost of revenue | 15,890 |
| | 43 |
| | 15,933 |
| | 30,776 |
| | 43 |
| | 30,819 |
|
| Gross profit | 37,682 |
| | (43 | ) | | 37,639 |
| | 72,440 |
| | (43 | ) | | 72,397 |
|
| Operating expenses: | | | | | | | | | | | |
| Sales and marketing | 38,933 |
| | 2,924 |
| | 41,857 |
| | 68,400 |
| | 2,924 |
| | 71,324 |
|
| Technology and content | 16,493 |
| | 1,903 |
| | 18,396 |
| | 29,818 |
| | 1,903 |
| | 31,721 |
|
| General and administrative | 19,448 |
| | 6,554 |
| | 26,002 |
| | 30,740 |
| | 6,554 |
| | 37,294 |
|
| Total operating expenses | 74,874 |
| | 11,381 |
| | 86,255 |
| | 128,958 |
| | 11,381 |
| | 140,339 |
|
| Loss from operations | (37,192 | ) | | (11,424 | ) | | (48,616 | ) | | (56,518 | ) | | (11,424 | ) | | (67,942 | ) |
| Other (expense) income: | | | | | | | | | | | |
| Interest expense | (2,424 | ) | | — |
| | (2,424 | ) | | (6,134 | ) | | — |
| | (6,134 | ) |
| Loss on debt extinguishment | (4,085 | ) | | — |
| | (4,085 | ) | | (4,085 | ) | | — |
| | (4,085 | ) |
| Other income, net | 48 |
| | — |
| | 48 |
| | 35 |
| | — |
| | 35 |
|
| Loss before income taxes | (43,653 | ) | | (11,424 | ) | | (55,077 | ) | | (66,702 | ) | | (11,424 | ) | | (78,126 | ) |
| Provision for income taxes | (143 | ) | | — |
| | (143 | ) | | (252 | ) | | — |
| | (252 | ) |
| Net loss | $ | (43,796 | ) | | $ | (11,424 | ) | | $ | (55,220 | ) | | $ | (66,954 | ) | | $ | (11,424 | ) | | $ | (78,378 | ) |
| Less: Net loss attributable to non-controlling interests | (12,706 | ) | | (1,204 | ) | | (13,910 | ) | | (12,706 | ) | | (1,204 | ) | | (13,910 | ) |
| Net loss attributable to Pluralsight, Inc. | $ | (31,090 | ) | | $ | (10,220 | ) | | $ | (41,310 | ) | | $ | (54,248 | ) | | $ | (10,220 | ) | | $ | (64,468 | ) |
| Less: Accretion of Series A redeemable convertible preferred units | (156,750 | ) | | — |
| | (156,750 | ) | | (176,275 | ) | | — |
| | (176,275 | ) |
| Net loss attributable to common shares | $ | (187,840 | ) | | $ | (10,220 | ) | | $ | (198,060 | ) | | $ | (230,523 | ) | | $ | (10,220 | ) | | $ | (240,743 | ) |
Net loss per share, basic and diluted(1) | $ | (0.19 | ) | | $ | (0.01 | ) | | $ | (0.20 | ) | | $ | (0.19 | ) | | $ | (0.01 | ) | | $ | (0.20 | ) |
Weighted-average common shares used in computing basic and diluted net loss per share(1) | 62,252 |
| | | | 62,252 |
| | 62,252 |
| | | | 62,252 |
|
________________________
| |
| (1) | Net loss per share, basic and diluted and weighted-average common shares used in computing basic and diluted net loss per share for the three and six months ended June 30, 2018 reflect only the activity for the portion of the period following Pluralsight, Inc.'s initial public offering and the Reorganization Transactions described in Note 1—Organization and Description of Business. See Note 17—Net Loss Per Share for additional details. |
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2018 |
| | As Previously Reported | | Adjustments | | As Restated | | As Previously Reported | | Adjustments | | As Restated |
| | | | | | | | | | | | |
| Net loss | $ | (43,796 | ) | | $ | (11,424 | ) | | $ | (55,220 | ) | | $ | (66,954 | ) | | $ | (11,424 | ) | | $ | (78,378 | ) |
| Other comprehensive loss: | | | | | | | | | | | |
| Foreign currency translation losses, net | (63 | ) | | — |
| | (63 | ) | | (58 | ) | | — |
| | (58 | ) |
| Comprehensive loss | $ | (43,859 | ) | | $ | (11,424 | ) | | $ | (55,283 | ) | | $ | (67,012 | ) | | $ | (11,424 | ) | | $ | (78,436 | ) |
| Less: Comprehensive loss attributable to non-controlling interests | (12,727 | ) | | (1,204 | ) | | (13,931 | ) | | (12,727 | ) | | (1,204 | ) | | (13,931 | ) |
| Comprehensive loss attributable to Pluralsight, Inc. | $ | (31,132 | ) | | $ | (10,220 | ) | | $ | (41,352 | ) | | $ | (54,285 | ) | | $ | (10,220 | ) | | $ | (64,505 | ) |
Condensed Consolidated Statement of Redeemable Convertible Preferred Units, Members’ Deficit
As Previously Reported for the Six Months Ended June 30, 2018
(in thousands, except share/unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Redeemable
Convertible
Preferred Units | | | Members’ Capital | | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive (Loss) Income | | Accumulated
Deficit | | Non-Controlling Interests | | Total |
| | | Units | | Amount | | | Units | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2017 | | 48,447,880 |
| | $ | 405,766 |
| | | 48,407,645 |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | 25 |
| | $ | (445,102 | ) | | $ | — |
| | $ | (445,077 | ) |
| Activity prior to the Reorganization Transactions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of warrants to purchase Class A common units | | — |
| | — |
| | | — |
| | 984 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 984 |
|
| Equity-based compensation | | — |
| | — |
| | | — |
| | 13,155 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13,155 |
|
| Accretion of Series A redeemable convertible preferred units | | — |
| | 176,275 |
| | | — |
| | (14,139 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (162,136 | ) | | — |
| | (176,275 | ) |
| Foreign currency translation losses | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (18 | ) | | — |
| | — |
| | (18 | ) |
| Net loss | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (42,660 | ) | | — |
| | (42,660 | ) |
| Effect of the Reorganization Transactions and initial public offering: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Effect of the reorganization transactions | | (48,447,880 | ) | | (582,041 | ) | | | (48,407,645 | ) | | — |
| | 39,110,660 |
| | 4 |
| | 58,111,572 |
| | 6 |
| | 14,048,138 |
| | 1 |
| | 581,952 |
| | — |
| | — |
| | — |
| | 581,963 |
|
| Initial public offering, net of offering costs | | — |
| | — |
| | | — |
| | — |
| | 23,805,000 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 324,677 |
| | — |
| | — |
| | — |
| | 324,679 |
|
| Allocation of equity to non-controlling interests | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (474,007 | ) | | (4 | ) | | 339,782 |
| | 134,229 |
| | — |
|
| Activity subsequent to the Reorganization Transactions and initial public offering: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Settlement of equity appreciation rights | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (325 | ) | | — |
| | — |
| | — |
| | (325 | ) |
| Equity-based compensation | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,773 |
| | — |
| | — |
| | — |
| | 7,773 |
|
| Adjustment to non-controlling interests | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,893 | ) | | — |
| | — |
| | 3,893 |
| | — |
|
| Foreign currency translation losses | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (19 | ) | | — |
| | (21 | ) | | (40 | ) |
| Net loss | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (11,588 | ) | | (12,706 | ) | | (24,294 | ) |
| Balance at June 30, 2018 | | — |
| | $ | — |
| | | — |
| | $ | — |
| | 62,915,660 |
| | $ | 6 |
| | 58,111,572 |
| | $ | 6 |
| | 14,048,138 |
| | $ | 1 |
| | $ | 436,177 |
| | $ | (16 | ) | | $ | (321,704 | ) | | $ | 125,395 |
| | $ | 239,865 |
|
Condensed Consolidated Statement of Redeemable Convertible Preferred Units, Members’ Deficit, and Stockholders’ Equity (Continued)
Restatement Adjustments for the Six Months Ended June 30, 2018
(in thousands, except share/unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Redeemable
Convertible
Preferred Units | | | Members’ Capital | | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive (Loss) Income | | Accumulated
Deficit | | Non-Controlling Interests | | Total |
| | | Units | | Amount | | | Units | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2017 | | — |
| | $ | — |
| | | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Activity prior to the Reorganization Transactions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of warrants to purchase Class A common units | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Equity-based compensation | | — |
| | — |
| | | — |
| | 9,123 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,123 |
|
| Accretion of Series A redeemable convertible preferred units | | — |
| | — |
| | | — |
| | (9,123 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9,123 |
| | — |
| | — |
|
| Foreign currency translation losses | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net loss | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9,123 | ) | | — |
| | (9,123 | ) |
| Effect of the Reorganization Transactions and initial public offering: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — |
|
| Effect of the reorganization transactions | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Initial public offering, net of offering costs | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Allocation of equity to non-controlling interests | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Activity subsequent to the Reorganization Transactions and initial public offering: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Settlement of equity appreciation rights | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Equity-based compensation | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,301 |
| | — |
| | — |
| | — |
| | 2,301 |
|
| Adjustment to non-controlling interests | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,204 | ) | | — |
| | — |
| | 1,204 |
| | — |
|
| Foreign currency translation losses | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net loss | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,097 | ) | | (1,204 | ) | | (2,301 | ) |
| Balance at June 30, 2018 | | — |
| | $ | — |
| | | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | 1,097 |
| | $ | — |
| | $ | (1,097 | ) | | $ | — |
| | $ | — |
|
Condensed Consolidated Statement of Redeemable Convertible Preferred Units, Members’ Deficit, and Stockholders’ Equity (Continued)
As Restated for the Six Months Ended June 30, 2018
(in thousands, except share/unit amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Redeemable
Convertible
Preferred Units | | | Members’ Capital | | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive (Loss) Income | | Accumulated
Deficit | | Non-Controlling Interests | | Total |
| | | Units | | Amount | | | Units | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2017 | | 48,447,880 |
| | $ | 405,766 |
| | | 48,407,645 |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | 25 |
| | $ | (445,102 | ) | | $ | — |
| | $ | (445,077 | ) |
| Activity prior to the Reorganization Transactions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of warrants to purchase Class A common units | | — |
| | — |
| | | — |
| | 984 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 984 |
|
| Equity-based compensation, as restated | | — |
| | — |
| | | — |
| | 22,278 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 22,278 |
|
| Accretion of Series A redeemable convertible preferred units, as restated | | — |
| | 176,275 |
| | | — |
| | (23,262 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (153,013 | ) | | — |
| | (176,275 | ) |
| Foreign currency translation losses | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (18 | ) | | — |
| | — |
| | (18 | ) |
| Net loss, as restated | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (51,783 | ) | | — |
| | (51,783 | ) |
| Effect of the Reorganization Transactions and initial public offering: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Effect of the reorganization transactions | | (48,447,880 | ) | | (582,041 | ) | | | (48,407,645 | ) | | — |
| | 39,110,660 |
| | 4 |
| | 58,111,572 |
| | 6 |
| | 14,048,138 |
| | 1 |
| | 581,952 |
| | — |
| | — |
| | — |
| | 581,963 |
|
| Initial public offering, net of offering costs | | — |
| | — |
| | | — |
| | — |
| | 23,805,000 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 324,677 |
| | — |
| | — |
| | — |
| | 324,679 |
|
| Allocation of equity to non-controlling interests | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (474,007 | ) | | (4 | ) | | 339,782 |
| | 134,229 |
| | — |
|
| Activity subsequent to the Reorganization Transactions and initial public offering: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Settlement of equity appreciation rights | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (325 | ) | | — |
| | — |
| | — |
| | (325 | ) |
| Equity-based compensation, as restated | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,074 |
| | — |
| | — |
| | — |
| | 10,074 |
|
| Adjustment to non-controlling interests, as restated | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (5,097 | ) | | — |
| | — |
| | 5,097 |
| | — |
|
| Foreign currency translation losses | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (19 | ) | | — |
| | (21 | ) | | (40 | ) |
| Net loss, as restated | | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (12,685 | ) | | (13,910 | ) | | (26,595 | ) |
| Balance at June 30, 2018, as restated | | — |
| | $ | — |
| | | — |
| | $ | — |
| | 62,915,660 |
| | $ | 6 |
| | 58,111,572 |
| | $ | 6 |
| | 14,048,138 |
| | $ | 1 |
| | $ | 437,274 |
| | $ | (16 | ) | | $ | (322,801 | ) | | $ | 125,395 |
| | $ | 239,865 |
|
Condensed Consolidated Statements of Cash Flows
(in thousands)
|
| | | | | | | | | | | | |
| | | Six Months Ended June 30, 2018 |
| | | As Previously Reported | | Adjustments | | As Restated |
| | | | | | | |
| Operating activities | | | | | | |
| Net loss | | $ | (66,954 | ) | | $ | (11,424 | ) | | $ | (78,378 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
| Depreciation of property and equipment | | 4,358 |
| | — |
| | 4,358 |
|
| Amortization of acquired intangible assets | | 6,665 |
| | — |
| | 6,665 |
|
| Amortization of course creation costs | | 930 |
| | — |
| | 930 |
|
| Equity-based compensation | | 20,928 |
| | 11,424 |
| | 32,352 |
|
| Provision for doubtful accounts | | 358 |
| | — |
| | 358 |
|
| Amortization of debt discount and debt issuance costs | | 1,215 |
| | — |
| | 1,215 |
|
| Debt extinguishment costs | | 4,180 |
| | — |
| | 4,180 |
|
| Deferred tax benefit | | (64 | ) | | — |
| | (64 | ) |
| Changes in assets and liabilities: | | | | | | |
| Accounts receivable | | 1,335 |
| | — |
| | 1,335 |
|
| Prepaid expenses and other assets | | (3,858 | ) | | — |
| | (3,858 | ) |
| Accounts payable | | (588 | ) | | — |
| | (588 | ) |
| Accrued expenses and other liabilities | | (2,839 | ) | | — |
| | (2,839 | ) |
| Accrued author fees | | 617 |
| | — |
| | 617 |
|
| Deferred revenue | | 17,500 |
| | — |
| | 17,500 |
|
| Net cash used in operating activities | | (16,217 | ) | | — |
| | (16,217 | ) |
| Investing activities | | | | | | |
| Purchases of property and equipment | | (4,574 | ) | | — |
| | (4,574 | ) |
| Purchases of content library | | (1,504 | ) | | — |
| | (1,504 | ) |
| Net cash used in investing activities | | (6,078 | ) | | — |
| | (6,078 | ) |
| Financing activities | | | | | | |
| Proceeds from initial public offering, net of underwriting discounts and commissions | | 332,080 |
| | — |
| | 332,080 |
|
| Payments of costs related to initial public offering | | (3,085 | ) | | — |
| | (3,085 | ) |
| Borrowings of long-term debt | | 20,000 |
| | — |
| | 20,000 |
|
| Repayments of long-term debt | | (137,710 | ) | | — |
| | (137,710 | ) |
| Payments of debt extinguishment costs | | (2,162 | ) | | — |
| | (2,162 | ) |
| Payments of debt issuance costs | | (450 | ) | | — |
| | (450 | ) |
| Payments to settle equity appreciation rights | | (325 | ) | | — |
| | (325 | ) |
| Taxes paid related to net share settlement | | (78 | ) | | — |
| | (78 | ) |
| Payments of facility financing obligation | | (8 | ) | | — |
| | (8 | ) |
| Net cash provided by financing activities | | 208,262 |
| | — |
| | 208,262 |
|
| Effect of exchange rate change on cash, cash equivalents, and restricted cash | | (86 | ) | | — |
| | (86 | ) |
| Net increase in cash, cash equivalents, and restricted cash | | 185,881 |
| | — |
| | 185,881 |
|
| Cash, cash equivalents, and restricted cash, beginning of period | | 28,477 |
| | — |
| | 28,477 |
|
| Cash, cash equivalents, and restricted cash, end of period | | $ | 214,358 |
| | $ | — |
| | $ | 214,358 |
|
Description of Adjustments
The adjustments in the tables above reflect an increase in equity-based compensation expense due to the correction of an error in attribution of equity-based compensation from the straight-line method to the accelerated attribution method. The following table outlines the classification of the equity-based compensation adjustments in the statements of operations:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2018 |
| | As Previously Reported | | Adjustments | | As Restated | | As Previously Reported | | Adjustments | | As Restated |
| | | | | | | | | | | | |
| Cost of revenue | $ | 46 |
| | $ | 43 |
| | $ | 89 |
| | $ | 46 |
| | $ | 43 |
| | $ | 89 |
|
| Sales and marketing | 4,432 |
| | 2,924 |
| | 7,356 |
| | 4,971 |
| | 2,924 |
| | 7,895 |
|
| Technology and content | 2,668 |
| | 1,903 |
| | 4,571 |
| | 3,049 |
| | 1,903 |
| | 4,952 |
|
| General and administrative | 10,409 |
| | 6,554 |
| | 16,963 |
| | 12,862 |
| | 6,554 |
| | 19,416 |
|
| Total equity-based compensation | $ | 17,555 |
| | $ | 11,424 |
| | $ | 28,979 |
| | $ | 20,928 |
| | $ | 11,424 |
| | $ | 32,352 |
|
Note 3.4. Revenue
Effect of Adopting ASC 606
The adoption of ASC 606 resulted in changes to the Company's condensed consolidated balance sheet as of March 31,June 30, 2019 and its statement of operations for the three and six months ended March 31,June 30, 2019 due to the timing of revenue recognition and the capitalization of incremental costs of obtaining contracts. In addition, there were offsetting shifts in the statement of cash flows through net loss and various changes in operating assets and liabilities, which resulted in no impact on the total cash provided by operating activities. Refer to Note 2—Summary of Significant Accounting Policies and Recent Accounting Pronouncements for a description of the primary impacts resulting from the adoption of ASC 606.
The following tables present the amount by which each condensed consolidated financial statement line item is affected as of and for the three and six months ended March 31,June 30, 2019 by ASC 606 (in thousands, except per share data):
Condensed Consolidated Balance Sheet:
| | | | | March 31, 2019 | | June 30, 2019 |
| | | As Reported | | Balance without Adoption of ASC 606 | | Effect of Adoption Increase/(Decrease) | | As Reported | | Balance without Adoption of ASC 606 | | Effect of Adoption Increase/(Decrease) |
| | | | | | | | | | | | | |
| Accounts receivable, net | | $ | 51,865 |
| | $ | 51,855 |
| | $ | 10 |
| | $ | 57,625 |
| | $ | 56,890 |
| | $ | 735 |
|
Goodwill(1) | | | 261,722 |
| | 262,945 |
| | (1,223 | ) |
| Deferred contract acquisition costs, net | | 16,863 |
| | — |
| | 16,863 |
| | 17,079 |
| | — |
| | 17,079 |
|
| Deferred contract acquisition costs, noncurrent, net | | 3,333 |
| | — |
| | 3,333 |
| | 3,252 |
| | — |
| | 3,252 |
|
| Deferred revenue | | 167,956 |
| | 168,649 |
| | (693 | ) | | 172,310 |
| | 173,619 |
| | (1,309 | ) |
| Deferred revenue, noncurrent | | 12,339 |
| | 12,339 |
| | — |
| | 13,748 |
| | 13,748 |
| | — |
|
| Accumulated deficit | | (359,973 | ) | | (380,872 | ) | | 20,899 |
| | (394,048 | ) | | (409,595 | ) | | 15,547 |
|
| Non-controlling interest | | | 74,346 |
| | 68,741 |
| | 5,605 |
|
| |
| (1) | Reflects the difference in Goodwill from applying ASC 606 to the deferred revenue balance acquired from GitPrime, Inc. See Note 9 for additional details. The difference in deferred revenue under ASC 606 is primarily due to the timing of recognition for subscriptions that allow the customer to install the software on premise without significant penalty. |
Condensed Consolidated Statement of Operations:
| | | | | Three Month Ended March 31, 2019 | | Three Months Ended June 30, 2019 |
| | | As Reported | | Balance without Adoption of ASC 606 | | Effect of Adoption Increase/(Decrease) | | As Reported | | Amount without Adoption of ASC 606 | | Effect of Adoption Increase/(Decrease) |
| | | | | | | | | | | | | |
| Revenue | | $ | 69,617 |
| | $ | 69,336 |
| | $ | 281 |
| | $ | 75,862 |
| | $ | 75,744 |
| | $ | 118 |
|
| Operating expenses: | | | | | | | | | | | | |
| Sales and marketing | | 44,050 |
| | 44,034 |
| | 16 |
| | 49,994 |
| | 50,129 |
| | (135 | ) |
| Loss from operations | | (32,979 | ) | | (33,244 | ) | | 265 |
| | (37,320 | ) | | (37,573 | ) | | 253 |
|
| Net loss | | (33,543 | ) | | (33,808 | ) | | 265 |
| | (41,120 | ) | | (41,373 | ) | | 253 |
|
| Less: Net loss attributable to non-controlling interests | | (14,660 | ) | | (14,776 | ) | | 116 |
| | (11,740 | ) | | (11,812 | ) | | 72 |
|
| Net loss attributable to Pluralsight, Inc. | | (18,883 | ) | | (19,032 | ) | | 149 |
| | (29,380 | ) | | (29,561 | ) | | 181 |
|
| Net loss per share, basic and diluted | | $ | (0.25 | ) | | $ | (0.25 | ) | | $ | — |
| | $ | (0.30 | ) | | $ | (0.30 | ) | | $ | — |
|
| Weighted-average common shares used in computing basic and diluted net loss per share | | 75,927 |
| | 75,927 |
| | — |
| | 97,608 |
| | 97,608 |
| | — |
|
|
| | | | | | | | | | | | |
| | | Six Months Ended June 30, 2019 |
| | | As Reported | | Amount without Adoption of ASC 606 | | Effect of Adoption Increase/(Decrease) |
| | | | | | | |
| Revenue | | $ | 145,479 |
| | $ | 145,080 |
| | $ | 399 |
|
| Operating expenses: | | | | | | |
| Sales and marketing | | 94,125 |
| | 94,244 |
| | (119 | ) |
| Loss from operations | | (70,961 | ) | | (71,479 | ) | | 518 |
|
| Net loss | | (75,325 | ) | | (75,843 | ) | | 518 |
|
| Less: Net loss attributable to non-controlling interests | | (26,690 | ) | | (26,878 | ) | | 188 |
|
| Net loss attributable to Pluralsight, Inc. | | (48,635 | ) | | (48,965 | ) | | 330 |
|
| Net loss per share, basic and diluted | | $ | (0.56 | ) | | $ | (0.56 | ) | | $ | — |
|
| Weighted-average common shares used in computing basic and diluted net loss per share | | 86,827 |
| | 86,827 |
| | — |
|
Condensed Consolidated Statement of Cash Flows:
| | | | | Three Months Ended March 31, 2019 | | Six Months Ended June 30, 2019 |
| | | As Reported | | Balance without Adoption of ASC 606 | | Effect of Adoption Increase/(Decrease) | | As Reported | | Amount without Adoption of ASC 606 | | Effect of Adoption Increase/(Decrease) |
| | | | | | | | | | | | | |
| Net loss | | $ | (33,543 | ) | | $ | (33,808 | ) | | $ | 265 |
| | $ | (75,325 | ) | | $ | (75,843 | ) | | $ | 518 |
|
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | |
| Amortization of deferred contract acquisition costs | | 5,867 |
| | — |
| | 5,867 |
| | 11,311 |
| | — |
| | 11,311 |
|
| Changes in assets and liabilities: | | | | | | | | | | | | |
| Accounts receivable | | 11,392 |
| | 11,369 |
| | 23 |
| | 7,116 |
| | 7,118 |
| | (2 | ) |
| Deferred contract acquisition costs | | (5,851 | ) | | — |
| | (5,851 | ) | | (11,430 | ) | | — |
| | (11,430 | ) |
| Deferred revenue | | 8,288 |
| | 8,592 |
| | (304 | ) | | 13,003 |
| | 13,400 |
| | (397 | ) |
| Cash provided by operating activities | | 5,540 |
| | 5,540 |
| | — |
| |
| Cash used in operating activities | | | (1,641 | ) | | (1,641 | ) | | — |
|
Disaggregation of Revenue
Subscription revenue accounted for approximately 99%97% and 98% of the Company's revenue for the three and six months ended March 31, 2019.June 30, 2019, respectively.
Revenue by geographic region, based on the physical location of the customer, was as follows (dollars in thousands):
| | | | | Three Months Ended March 31, | | Three Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| | | Amount | | % | | Amount | | % | | Amount | | % | | Amount | | % |
| | | | | | | | | | | | | | | | | |
| United States | | $ | 43,581 |
| | 63 | % | | $ | 31,578 |
| | 64 | % | | $ | 47,255 |
| | 62 | % | | $ | 33,955 |
| | 64 | % |
Europe, Middle East and Africa(1) | | 18,986 |
| | 27 | % | | 13,525 |
| | 27 | % | | 20,904 |
| | 28 | % | | 14,595 |
| | 27 | % |
| Other foreign locations | | 7,050 |
| | 10 | % | | 4,541 |
| | 9 | % | | 7,703 |
| | 10 | % | | 5,022 |
| | 9 | % |
| Total revenue | | $ | 69,617 |
| | 100 | % | | $ | 49,644 |
| | 100 | % | | $ | 75,862 |
| | 100 | % | | $ | 53,572 |
| | 100 | % |
|
| | | | | | | | | | | | | | |
| | | Six Months Ended June 30, |
| | | 2019 | | 2018 |
| | | Amount | | % | | Amount | | % |
| | | | | | | | | |
| United States | | $ | 90,836 |
| | 63 | % | | $ | 65,533 |
| | 64 | % |
Europe, Middle East and Africa(1) | | 39,890 |
| | 27 | % | | 28,120 |
| | 27 | % |
| Other foreign locations | | 14,753 |
| | 10 | % | | 9,563 |
| | 9 | % |
| Total revenue | | $ | 145,479 |
| | 100 | % | | $ | 103,216 |
| | 100 | % |
| |
| (1) | Revenue from the United Kingdom represented 11% of revenue for the three and six months ended March 31,June 30, 2019 and 2018. No other foreign country accounted for 10% or more of revenue during the three and six months ended March 31,June 30, 2019 and 2018. |
Revenue by type of customer, was as follows (dollars in thousands):
| | | | | Three Months Ended March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | |
| Business customers | | $ | 58,567 |
| | $ | 38,878 |
| | $ | 64,528 |
| | $ | 42,859 |
| | $ | 123,095 |
| | $ | 81,737 |
|
| Individual customers | | 11,050 |
| | 10,766 |
| | 11,334 |
| | 10,713 |
| | 22,384 |
| | 21,479 |
|
| Total revenue | | $ | 69,617 |
| | $ | 49,644 |
| | $ | 75,862 |
| | $ | 53,572 |
| | $ | 145,479 |
| | $ | 103,216 |
|
Contract Balances
For the three and six months ended March 31,June 30, 2019, the Company recognized revenue of $58.6$65.4 million and $104.9 million, respectively, that was included in the corresponding deferred revenue balance at the beginning of the period. ContractIn connection with the acquisition of GitPrime, the Company acquired contract assets of $0.7 million, which are presented within accounts receivable, were less than $0.1 million asand deferred revenue of March 31, 2019.$1.4 million.
Remaining Performance Obligations
As of March 31,June 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $241.9$254.9 million. The Company expects to recognize 75%74% of the transaction price over the next 12 months.
Costs to Obtain and Fulfill a Contract
The following table summarizes the activity of the deferred contract acquisition costs:costs (in thousands):
| | | Balance as of January 1, 2019 | $ | 20,212 |
| $ | 20,212 |
|
| Capitalization of contract acquisition costs | 5,851 |
| 11,430 |
|
| Amortization of deferred contract acquisition costs | (5,867 | ) | (11,311 | ) |
| Balance as of March 31, 2019 | $ | 20,196 |
| |
| Balance as of June 30, 2019 | | $ | 20,331 |
|
Note 5. Cash Equivalents and Investments
Cash equivalents, short-term investments, and long-term investments consisted of the following as of June 30, 2019 (in thousands):
|
| | | | | | | | | | | | | | | | |
| | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| | | | | | | | | |
| Cash equivalents | | | | | | | | |
| Money market funds | | $ | 107,067 |
| | $ | — |
| | $ | — |
| | $ | 107,067 |
|
| Commercial paper | | 84,884 |
| | — |
| | — |
| | 84,884 |
|
| U.S. treasury securities | | 49,904 |
| | 6 |
| | — |
| | 49,910 |
|
| Total cash equivalents | | $ | 241,855 |
| | $ | 6 |
| | $ | — |
| | $ | 241,861 |
|
| Short-term investments | | | | | | | | |
| Commercial paper | | $ | 43,576 |
| | $ | — |
| | $ | — |
| | $ | 43,576 |
|
| U.S. treasury securities | | 119,298 |
| | 91 |
| | — |
| | 119,389 |
|
| Corporate notes and obligations | | 98,792 |
| | 159 |
| | (7 | ) | | 98,944 |
|
| U.S. agency obligations | | 14,901 |
| | 8 |
| | — |
| | 14,909 |
|
| Total short-term investments | | $ | 276,567 |
| | $ | 258 |
| | $ | (7 | ) | | $ | 276,818 |
|
| Long-term investments | | | | | | | | |
| Corporate notes and obligations | | $ | 25,532 |
| | $ | 121 |
| | $ | — |
| | $ | 25,653 |
|
| U.S. agency obligations | | 10,000 |
| | 1 |
| | — |
| | 10,001 |
|
| Total long-term investments | | $ | 35,532 |
| | $ | 122 |
| | $ | — |
| | $ | 35,654 |
|
| | | | | | | | | |
| Total cash equivalents and investments | | $ | 553,954 |
| | $ | 386 |
| | $ | (7 | ) | | $ | 554,333 |
|
The amortized cost and fair value of the Company's investments based on their stated maturities consisted of the following as of June 30, 2019 (in thousands):
|
| | | | | | | | |
| | | Amortized Cost | | Fair Value |
| | | | | |
| Due within one year | | $ | 276,567 |
| | $ | 276,818 |
|
| Due between one and two years | | 35,532 |
| | 35,654 |
|
| Total investments | | $ | 312,099 |
| | $ | 312,472 |
|
The Company reviews the individual securities that have unrealized losses in its investment portfolio on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. The Company evaluates, among others, whether it has the intention to sell any of these investments and whether it is more likely than not that it will be required to sell any of them before recovery of the amortized cost basis. Based on this evaluation, the Company determined that there were no other-than-temporary impairments associated with its investments as of June 30, 2019.
Note 4.6. Fair Value Measurements
The Company measures and records certain financial assets at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Company’s financial instruments that are measured at fair value on a recurring basis consist of money market funds. The following three levels of inputs are used to measure the fair value of financial instruments:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The fair value of the Company’s financial instruments werewas as follows (in thousands):
| | | | | As of March 31, 2019 | | As of June 30, 2019 |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | | |
| Cash equivalents | | | | | | | | | |
| Money market funds | | $ | 726,399 |
| | $ | — |
| | $ | — |
| | $ | 726,399 |
| | $ | 107,067 |
| | $ | — |
| | $ | — |
| | $ | 107,067 |
|
| Commercial paper | | | — |
| | 84,884 |
| | — |
| | 84,884 |
|
| U.S. treasury securities | | | — |
| | 49,910 |
| | — |
| | 49,910 |
|
| Total cash equivalents | | | $ | 107,067 |
| | $ | 134,794 |
| | $ | — |
| | $ | 241,861 |
|
| Short-term investments | | | | | | | | | |
| Commercial paper | | | $ | — |
| | $ | 43,576 |
| | $ | — |
| | $ | 43,576 |
|
| U.S. treasury securities | | | — |
| | 119,389 |
| | — |
| | 119,389 |
|
| Corporate notes and obligations | | | — |
| | 98,944 |
| | — |
| | 98,944 |
|
| U.S. agency obligations | | | — |
| | 14,909 |
| | — |
| | 14,909 |
|
| Total short-term investments | | | $ | — |
| | $ | 276,818 |
| | $ | — |
| | $ | 276,818 |
|
| Long-term investments | | | | | | | | | |
| Corporate notes and obligations | | | $ | — |
| | $ | 25,653 |
| | $ | — |
| | $ | 25,653 |
|
| U.S. agency obligations | | | — |
| | 10,001 |
| | — |
| | 10,001 |
|
| Total long-term investments | | | $ | — |
| | $ | 35,654 |
| | $ | — |
| | $ | 35,654 |
|
| | | | | As of December 31, 2018 | | As of December 31, 2018 |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | | |
| Cash equivalents | | | | | | | | | |
| Money market funds | | $ | 185,405 |
| | $ | — |
| | $ | — |
| | $ | 185,405 |
| | $ | 185,405 |
| | $ | — |
| | $ | — |
| | $ | 185,405 |
|
Convertible Senior Notes
As of March 31,June 30, 2019, the estimated fair value of the convertible senior notes was $676.7$668.0 million. The Company estimates the fair value based on quoted market prices in an inactive market on the last trading day of the reporting period (Level 2). These convertible senior notes are recorded at face value less unamortized debt discount and transaction costs on the Company's condensed consolidated balance sheet. Refer to Note 8—11—Convertible Senior Notes and Other Long-Term Debt for further information.
Fair Value of Other Financial Instruments
The carrying amounts of the Company’s accounts receivable, accounts payable, accrued expenses, and other liabilities approximate their fair values due to the short maturities of these assets and liabilities.
Note 5.7. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| | | | | March 31, 2019 | | December 31, 2018 | | June 30,
2019 | | December 31,
2018 |
| | | | | | | | | |
| Prepaid expenses | | $ | 9,921 |
| | $ | 7,931 |
| | $ | 11,531 |
| | $ | 7,931 |
|
| Other current assets | | 317 |
| | 392 |
| | 1,584 |
| | 392 |
|
| Prepaid expenses and other current assets | | $ | 10,238 |
| | $ | 8,323 |
| | $ | 13,115 |
| | $ | 8,323 |
|
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
| | | | | March 31, 2019 | | December 31, 2018 | | June 30,
2019 | | December 31,
2018 |
| | | | | | | | | |
| Accrued compensation | | $ | 14,959 |
| | $ | 22,285 |
| | $ | 14,231 |
| | $ | 22,285 |
|
| Accrued income and other taxes payable | | 5,487 |
| | 5,408 |
| | 5,786 |
| | 5,408 |
|
| Accrued other current liabilities | | 7,198 |
| | 4,354 |
| | 9,315 |
| | 4,354 |
|
| Accrued expenses | | $ | 27,644 |
| | $ | 32,047 |
| | $ | 29,332 |
| | $ | 32,047 |
|
Note 6.8. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
| | | | | March 31, 2019 | | December 31, 2018 | | June 30,
2019 | | December 31,
2018 |
| | | | | | | | | |
| Computer equipment | | $ | 9,720 |
| | $ | 9,369 |
| | $ | 10,603 |
| | $ | 9,369 |
|
| Software | | 2,031 |
| | 2,031 |
| | 2,034 |
| | 2,031 |
|
| Capitalized internal-use software costs | | 16,043 |
| | 13,880 |
| | 17,402 |
| | 13,880 |
|
| Furniture and fixtures | | 5,574 |
| | 5,478 |
| | 5,734 |
| | 5,478 |
|
| Buildings | | 11,251 |
| | 11,251 |
| | 11,251 |
| | 11,251 |
|
| Leasehold improvements | | 1,490 |
| | 1,490 |
| | 1,607 |
| | 1,490 |
|
| Construction in progress | | 1,731 |
| | 1,671 |
| | 2,222 |
| | 1,671 |
|
| Build-to-suit lease asset under construction | | 12,578 |
| | 8,281 |
| | 24,181 |
| | 8,281 |
|
| Total property and equipment | | 60,418 |
| | 53,451 |
| | 75,034 |
| | 53,451 |
|
| Less: Accumulated depreciation | | (23,866 | ) | | (21,810 | ) | | (26,006 | ) | | (21,810 | ) |
| Property and equipment, net | | $ | 36,552 |
| | $ | 31,641 |
| | $ | 49,028 |
| | $ | 31,641 |
|
Depreciation expense totaled $2.1 million and $2.2 million for the three months ended March 31,June 30, 2019 and 2018, respectively, and $4.2 million and $4.4 million for the six months ended June 30, 2019 and 2018, respectively.
Note 9. Acquisition of GitPrime, Inc.
On May 9, 2019, the Company completed the acquisition of GitPrime, Inc. ("GitPrime"), a leading provider of developer productivity software. Under the terms of the agreement, the Company acquired all of the outstanding stock of GitPrime for approximately $163.9 million in cash, excluding cash acquired and working capital adjustments.
The Company accounted for the transaction as a business combination using the acquisition method of accounting. The Company allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date. The excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill is attributable to GitPrime's assembled workforce and synergies acquired, and is not deductible for income tax purposes. The preliminary amount of consideration transferred is subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuation of certain tangible and intangible assets acquired and liabilities assumed in connection with the acquisition. The Company expects the allocation of the consideration transferred to be final within the measurement period.
The Company engaged third party valuation specialists to assist in management's analysis of the fair value of the acquired intangibles. All estimates, key assumptions, and forecasts were reviewed by the Company. While the Company chose to utilize a third-party valuation specialist for assistance, the fair value analysis and related valuations reflect the conclusions of management and not those of any third party.
The following table summarizes the acquisition date fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands):
|
| | | | |
| | | Fair Value |
| | | |
| Cash and cash equivalents | | $ | 5,290 |
|
| Accounts receivable | | 1,798 |
|
| Other assets acquired | | 207 |
|
| Property and equipment | | 223 |
|
| Goodwill | | 138,603 |
|
| Intangible assets | | 24,800 |
|
| Other liabilities assumed | | (393 | ) |
| Deferred revenue | | (1,367 | ) |
| Total fair value of net assets acquired | | $ | 169,161 |
|
The useful lives, primarily based on the period of benefit to the Company, and fair values of the identifiable intangible assets at acquisition date were as follows (in thousands, except years):
|
| | | | | | |
| | | Fair Value of Intangible Assets Acquired | | Useful Lives |
| | | | | |
| Technology | | $ | 24,000 |
| | 5 years |
| Customer relationships | | 800 |
| | 4 years |
| Total fair value of intangible assets acquired | | $ | 24,800 |
| | |
The fair value of the technology acquired in the acquisition was determined using the excess earnings model and the customer relationships acquired was determined using a distributor model. These models utilize certain unobservable inputs, including discounted cash flows, historical and projected financial information, customer attrition rates, and technology obsolescence rates, classified as Level 3 measurements as defined by ASC 820.
During the three and six months ended June 30, 2019, the Company incurred acquisition costs of $0.8 million. These costs include legal, accounting fees and other costs directly related to the acquisition and are classified within general and administrative expenses in the Company's condensed consolidated statements of operations.
The condensed consolidated statements of operations includes the results of GitPrime from the acquisition date. During the three and six months ended June 30, 2019, the condensed consolidated statements of operations includes revenue from GitPrime of approximately $0.4 million. Due to the continued integration of the combined businesses, the information needed to determine earnings of GitPrime included in the condensed consolidated statements of operations was unavailable.
The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the acquisition occurred on January 1, 2018. It includes pro forma adjustments related to the amortization of acquired intangible assets, equity-based compensation expense, adjustments for ASC 606, and fair value adjustments for deferred revenue. The unaudited pro forma results have been prepared based on estimates and assumptions, which management believes are reasonable, however, the results are not necessarily indicative of the consolidated results of operations had the acquisition occurred on January 1, 2018, or of future results of operations (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended Jun 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | |
| Revenue | | $ | 77,100 |
| | $ | 54,205 |
| | $ | 149,369 |
| | $ | 104,352 |
|
| Net loss | | (42,948 | ) | | (59,374 | ) | | (80,733 | ) | | (85,587 | ) |
| Net loss per share, basic and diluted | | $ | (0.32 | ) | | $ | (0.22 | ) | | $ | (0.60 | ) | | $ | (0.22 | ) |
Note 7.10. Intangible Assets
Intangible assets, net are summarized as follows (in thousands):
| | | | | As of March 31, 2019 | | As of June 30, 2019 |
| | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
| | | | | | | | | | | | | |
| Content library: | | | | | | | | | | | | |
| Acquired content library | | $ | 32,835 |
| | $ | 32,754 |
| | $ | 81 |
| | $ | 32,835 |
| | $ | 32,762 |
| | $ | 73 |
|
| Course creation costs | | 14,303 |
| | 7,526 |
| | 6,777 |
| | 15,330 |
| | 7,893 |
| | 7,437 |
|
| Total | | $ | 47,138 |
| | $ | 40,280 |
| | $ | 6,858 |
| | $ | 48,165 |
| | $ | 40,655 |
| | $ | 7,510 |
|
| Intangible assets: | | | | | | | | | | | | |
| Technology | | $ | 4,500 |
| | $ | 2,963 |
| | $ | 1,537 |
| | $ | 28,500 |
| | $ | 3,833 |
| | $ | 24,667 |
|
| Trademarks | | 162 |
| | 162 |
| | — |
| | 162 |
| | 162 |
| | — |
|
| Noncompetition agreements | | 390 |
| | 390 |
| | — |
| | 390 |
| | 390 |
| | — |
|
| Customer relationships | | 2,750 |
| | 2,750 |
| | — |
| | 3,550 |
| | 2,779 |
| | 771 |
|
| Database | | 40 |
| | 40 |
| | — |
| | 40 |
| | 40 |
| | — |
|
| Domain names | | 45 |
| | — |
| | 45 |
| | 45 |
| | — |
| | 45 |
|
| Total | | $ | 7,887 |
| | $ | 6,305 |
| | $ | 1,582 |
| | $ | 32,687 |
| | $ | 7,204 |
| | $ | 25,483 |
|
|
| | | | | | | | | | | | |
| | | As of December 31, 2018 |
| | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
| | | | | | | |
| Content library: | | | | | | |
| Acquired content library | | $ | 32,835 |
| | $ | 32,229 |
| | $ | 606 |
|
| Course creation costs | | 13,552 |
| | 7,108 |
| | 6,444 |
|
| Total | | $ | 46,387 |
| | $ | 39,337 |
| | $ | 7,050 |
|
| Intangible assets: | | | | | | |
| Technology | | $ | 4,500 |
| | $ | 2,786 |
| | $ | 1,714 |
|
| Trademarks | | 162 |
| | 162 |
| | — |
|
| Noncompetition agreements | | 390 |
| | 390 |
| | — |
|
| Customer relationships | | 2,750 |
| | 2,750 |
| | — |
|
| Database | | 40 |
| | 40 |
| | — |
|
| Domain names | | 45 |
| | — |
| | 45 |
|
| Total | | $ | 7,887 |
| | $ | 6,128 |
| | $ | 1,759 |
|
Intangible assets are amortized using the straight-line method over the estimated useful lives. Amortization expense of acquired intangible assets was $0.7$0.9 million and $3.3 million for the three months ended March 31,June 30, 2019 and 2018, respectively, and $1.6 million and $6.7 million for the six months ended June 30, 2019 and 2018, respectively. Amortization expense of course creation costs was $0.6 million and $0.4$0.5 million for the three months ended March 31,June 30, 2019 and 2018, respectively, and $1.2 million and $0.9 million for the six months ended June 30, 2019 and 2018, respectively.
The change in the carrying amount of goodwill for the six months ended June 30, 2019 was as follows (in thousands):
|
| | | |
| Goodwill at December 31, 2018 | $ | 123,119 |
|
| Goodwill recorded in connection with acquisition | 138,603 |
|
| Goodwill as of June 30, 2019 | $ | 261,722 |
|
Note 8.11. Convertible Senior Notes and Other Long-Term Debt
Convertible Senior Notes
In March 2019, Pluralsight, Inc. issued $633.5 million aggregate principal amount of 0.375% convertible senior notes due in 2024 (the "Notes"), which includes the initial purchasers’ exercise in full of their option to purchase an additional $83.5 million principal amount of the Notes, in a private placement to qualified institutional buyers exempt from registration under the Securities Act. The net proceeds from the issuance of the Notes were $616.7 million after deducting the initial purchasers’ discounts and estimated issuance costs.
The Notes are governed by an indenture (the “Indenture”) between the Company, as the issuer, and U.S. Bank National Association, as trustee. The Notes are Pluralsight, Inc.'s senior unsecured obligations and rank senior in right of payment to any of its indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of the Company's unsecured indebtedness then existing and future liabilities that are not so subordinated; effectively junior in right of payment to any of the Company's secured indebtedness, to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of its subsidiaries. The Indenture does not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by the Company or any of its subsidiaries. The Notes mature on March 1, 2024 unless earlier repurchased or converted. Interest is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2019.
The Notes have an initial conversion rate of 25.8023 shares of the Company's Class A common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $38.76 per share of its Class A common stock and is subject to adjustment if certain events occur. Following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its Notes in connection with such corporate event. Additionally, upon the occurrence of a corporate event that constitutes a “fundamental change” per the Indenture, holders of the Notes may require the Company to repurchase for cash all or a portion of their Notes at a purchase price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest.
Holders of the Notes may convert all or any portion of their Notes at any time prior to the close of business on December 1, 2023, in integral multiples of $1,000 principal amount, only under the following circumstances:
During any calendar quarter commencing after the calendar quarter endingended on June 30, 2019 (and only during such calendar quarter), if the last reported sale price of the Company's Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
During the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price as defined in the Indenture per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's Class A common stock and the conversion rate on each such trading day; or
Upon the occurrence of specified corporate events described in the Indenture.
On or after December 1, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at the conversion rate at any time irrespective of the foregoing conditions. Upon conversion, holders will receive cash, shares of the Company's Class A common stock or a combination of cash and shares of Class A common stock, at the Company's election.
During the threesix months ended March 31,June 30, 2019, the conditions allowing holders of the Notes to convert were not met. The Notes are therefore not currently convertible during the three months ended March 31, 2019 and are classified as long-term debt.
The Company accounts for the Notes as separate liability and equity components. The Company determined the carrying amount of the liability component as the present value of its cash flows using a discount rate of approximately 5.5% based on comparable debt transactions for similar companies. The estimated interest rate was applied to the Notes, which resulted in a fair value of the liability component of $492.7 million upon issuance, calculated as the present value of future contractual payments based on the $633.5 million aggregate principal amount. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, is amortized to interest expense over the term of the Notes using the effective interest method. The $140.8 million difference between the gross proceeds received from issuance of the Notes of $633.5 million and the estimated fair value of the liability component represents the equity component, or the conversion option, of the Notes and was recorded in additional paid-in capital. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.
The Company allocates issuance costs related to the issuance of the Notes to the liability and equity components using the same proportions as the initial carrying value of the Notes. Issuance costs attributable to the liability component were $13.1 million and are being amortized to interest expense using the effective interest method over the term of the Notes. Issuance costs attributable to the equity components were $3.7 million and are netted with the equity component of the Notes in stockholders’ equity on the condensed consolidated balance sheets.
The net carrying value of the liability component of the Notes was as follows (in thousands):
| | | | | | June 30, 2019 |
| | | March 31, 2019 | | |
| Principal | | $ | 633,500 |
| | $ | 633,500 |
|
| Less: Unamortized debt discount | | (139,362 | ) | | (133,189 | ) |
| Less: Unamortized issuance costs | | (12,971 | ) | | (12,396 | ) |
| Net carrying amount | | $ | 481,167 |
| | $ | 487,915 |
|
The net carrying value of the equity component of the Notes was as follows (in thousands):
| | | | | | June 30, 2019 |
| | | March 31, 2019 | | |
| Proceeds allocated to the conversion option (debt discount) | | $ | 140,776 |
| | $ | 140,776 |
|
| Less: Issuance costs | | (3,743 | ) | | (3,743 | ) |
| Net carrying amount | | $ | 137,033 |
| | $ | 137,033 |
|
The interest expense recognized related to the Notes was as follows (in thousands):
| | | | | | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
| | | Three Months Ended March 31, 2019 | | | | |
| Contractual interest expense | | $ | 132 |
| | $ | 594 |
| | $ | 726 |
|
| Amortization of debt issuance costs and discount | | 1,545 |
| | 6,749 |
| | 8,294 |
|
| Total | | $ | 1,677 |
| | $ | 7,343 |
| | $ | 9,020 |
|
Capped Calls
In connection with the offering of the Notes, the Company entered into privately-negotiated capped call transactions ("Capped Calls") with certain counterparties. The Capped Calls each have an initial strike price of approximately $38.76 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have initial cap prices of $58.50 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, 16,345,757 shares of the Company's Class A common stock. The Capped Calls are generally intended to reduce or offset the potential dilution from shares of Class A common stock issued upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. As the Capped Call transactions are considered indexed to the Company's own stock and are considered equity classified, they are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $69.4 million incurred in connection with the Capped Calls was recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.
Convertible Promissory Note with Pluralsight Holdings
In connection with the issuance of the Notes, Pluralsight, Inc. entered into a convertible promissory note with Pluralsight Holdings, whereby Pluralsight, Inc. provided the net proceeds from the issuance of the Notes to Pluralsight Holdings. The terms of the convertible promissory note mirror the terms of the Notes issued by Pluralsight, Inc. The intent of the convertible promissory note is to maintain the parity of shares of Class A common stock with LLC Units as required by the LLC Agreement in order to preserve the Company's legal structure.
Note 9.12. Commitments and Contingencies
Letters of Credit
As of March 31,June 30, 2019 and December 31, 2018, the Company had a total of $0.7 million in letters of credit outstanding with a financial institution. These outstanding letters of credit were issued for purposes of securing certain of the Company’s obligations under facility leases. The letters of credit were collateralized by $0.7 million of the Company’s cash, which is reflected as restricted cash on the condensed consolidated balance sheets as of March 31,June 30, 2019 and December 31, 2018, respectively.
Lease Commitments
The Company is committed under certain operating leases with third parties for office space. These leases expire at various times through 2035. The Company recognizes rent expense on a straight-line basis over the lease period.
In August 2018, the Company entered into a new non-cancellable lease agreement to rent office space for the Company's future headquarters to be constructed in Draper, Utah for a period of 15 years beginning on the earlier to occur of the date that the Company opens for business in the leased premises or the commencement date of June 24, 2020 (which date may be extended by construction delays). The Company will pay basic annual rent in monthly installments beginning on the rent commencement date, which are reflected in the table of future minimum lease payments below. The annual rent amount will be determined based on the cost of construction of the premises. Based on the current estimate of the cost of construction, the basic rent amount for the first year is expected to be $7.9 million, and the annual rent amount will increase by two percent each year following the rent commencement date. In the event the costs incurred by the landlord exceed the agreed upon cost of construction of $90.0 million, the landlord may elect to pay such amounts and add such amounts to the cost of construction and increase the basic rent amount or require the Company to pay such amounts. The landlord has agreed to an abatement of basic rent payments at the commencement of the initial lease term of up to approximately $3.2 million.
Based on the Company's involvement in the design and construction of the building, the Company is deemed the owner of the construction project for accounting purposes during the construction period. As a result, the Company recorded a construction in progress asset of $12.6$24.2 million and a corresponding facility financing obligation as of March 31,June 30, 2019.
In connection with the lease agreement, the Company is required to maintain a deposit of $16.0 million with a financial institution for the benefit of the landlord to secure the Company’s obligations under the lease. The deposit is recorded within restricted cash on the condensed consolidated balance sheet. The lease agreement provides for both a partial and full release of the deposit funds to the Company, provided the Company meets certain liquidity and other financial conditions. Additionally, as of March 31,June 30, 2019, the Company has recorded a deposit into restricted cash on the condensed consolidated balance sheet of $11.0 million for use in constructing tenant improvements in connection with the Draper headquarters.
Future Minimum Lease Payments
At March 31,June 30, 2019, future minimum lease payments, including lease payments for the Company’s facilities in Farmington, Utah, and lease payments for the Company’s future headquarters in Draper, Utah were as follows (in thousands):
| | | Year Ended December 31, | | | | |
| | | | | |
| 2019 (remaining nine months) | 4,128 |
| |
| 2019 (remaining six months) | | 2019 (remaining six months) | 2,842 |
|
| 2020 | 2020 | 7,489 |
| 2020 | 7,738 |
|
| 2021 | 2021 | 9,881 |
| 2021 | 10,032 |
|
| 2022 | 2022 | 9,871 |
| 2022 | 10,025 |
|
| 2023 | 2023 | 9,861 |
| 2023 | 9,926 |
|
| Thereafter | Thereafter | 99,324 |
| Thereafter | 99,324 |
|
| Less: Sublease rental income | Less: Sublease rental income | (173 | ) | Less: Sublease rental income | (884 | ) |
| Total future minimum lease payments | Total future minimum lease payments | $ | 140,381 |
| Total future minimum lease payments | $ | 139,003 |
|
Rent expense under operating leases was $1.5$1.6 million and $1.0$1.1 million for the three months ended March 31,June 30, 2019 and 2018, respectively, and $3.2 million and $2.2 million for the six months ended June 30, 2019 and 2018, respectively.
Other Commitments
The Company has also entered into certain non-cancellable agreements primarily related to cloud infrastructure and software subscriptions in the ordinary course of business. There have been no material changes in the Company's commitments and contingencies, as disclosed in the Annual Report.
Legal Proceedings
The Company is involved in legal proceedings from time to time arising in the normal course of business. Management believes that the outcome of these proceedings will not have a material impact on the Company’s financial position, results of operations, or liquidity.
Warranties and Indemnification
The performance of the Company’s cloud-based technology learning platform is typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable. The Company’s contractual arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such obligations and has not accrued any material liabilities related to such obligations in the accompanying consolidated condensed financial statements.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
Note 10.13. Stockholders' Equity
Amendment and Restatement of Certificate of Incorporation
In connection with the Reorganization Transactions, the certificate of incorporation of Pluralsight, Inc. was amended and restated to, among other things, provide for the (i) authorization of 1,000,000,000 shares of Class A common stock with a par value of $0.0001 per share; (ii) authorization of 200,000,000 shares of Class B common stock with a par value of $0.0001 per
share; (iii) authorization of 50,000,000 shares of Class C common stock with a par value of $0.0001 per share; (iv) authorization of 100,000,000 shares of undesignated preferred stock that may be issued from time to time; and (v) establishment of a classified board of directors, divided into three classes, each of whose members will serve for staggered three-year terms.
Holders of Class A and Class B common stock are entitled to one vote per share and holders of Class C common stock are entitled to ten votes per share. Except as otherwise required by applicable law, holders of Class A common stock, Class B common stock, and Class C common stock vote together as a single class on all matters on which stockholders generally are entitled to
vote. Holders of Class B and Class C common stock are not entitled to receive dividends and will not be entitled to receive any distributions upon the liquidation, dissolution or winding up of the Company. Shares of Class B and Class C common stock may only be issued to the extent necessary to maintain the one-to-one ratio between the number of LLC Units held by the Continuing Members and the number of Class B or Class C common shares held by the Continuing Members. Shares of Class B and Class C common stock are transferable only together with an equal number of LLC Units. Subject to certain limitations and exceptions, Continuing Members may exchange or redeem LLC Units and shares of Class B or Class C common stock, as applicable, for, at the option of Pluralsight, Inc., cash or shares of Class A common stock, on a one-for-one basis.
Pluralsight, Inc. must at all times maintain a ratio of one LLC Unit for each share of Class A common stock issued, and Pluralsight Holdings must at all times maintain a one-to-one ratio between the number of shares of Class B or Class C common stock owned by the Continuing Members and the number of LLC Units owned by the Continuing Members.
Recapitalization of Pluralsight Holdings
In connection with the Reorganization Transactions and the amendment and restatement of the LLC Agreement, all membership interests in Pluralsight Holdings were converted into a single-class of common LLC Units and certain holders of LLC Units elected to exchange LLC Units for Class A common stock of Pluralsight, Inc. The following is a summary of the shares converted or exchanged in connection with the Reorganization Transactions:
48,407,645 common units of Pluralsight Holdings outstanding prior to the Reorganization Transactions were converted on a one-for-one basis into LLC Units.
48,447,880 redeemable convertible preferred units of Pluralsight Holdings outstanding prior to the Reorganization Transactions were converted on a one-for-one basis into LLC Units.
15,783,689 incentive units of Pluralsight Holdings outstanding prior to the Reorganization Transactions were converted into 12,667,778 LLC Units after giving effect to the threshold price and catch-up price per unit.
3,000,000 Class B incentive units of Pluralsight Holdings outstanding prior to the Reorganization Transactions were converted into 1,747,067 LLC Units after giving effect to the threshold price and catch-up price per unit.
In connection with the recapitalization, a total of 39,110,660 LLC Units were exchanged for shares of Class A common stock of Pluralsight, Inc. In addition, the Company issued 58,111,572 shares of Class B common stock and 14,048,138 shares of Class C common stock to the Continuing Members on a one-for-one basis to the corresponding LLC Units held by the Continuing Members.
The amended and restated LLC Agreement requires that Pluralsight Holdings at all times maintain (i) a one-to-one ratio between the number of outstanding shares of Class A common stock of Pluralsight, Inc. and the number of LLC Units and (ii) a one-to-one ratio between the number of shares of Class B or Class C common stock owned by the Continuing Members and the number of LLC Units held by the Continuing Members.
Initial Public Offering
As described in Note 1—Organization and Description of Business, in May 2018, Pluralsight, Inc. completed an IPO of 23,805,000 shares of Class A common stock at a public offering price of $15.00 per share. Pluralsight, Inc. received proceeds of $332.1 million, net of underwriting discounts and commissions, which Pluralsight, Inc. used to purchase newly-issued LLC Units of Pluralsight Holdings at a price per unit equal to the IPO price per share.
Exchanges of LLC Units
During the threesix months ended March 31,June 30, 2019, certain Continuing Members exchanged 28,949,71033,419,553 LLC Units of Pluralsight Holdings along with their corresponding shares of Class B and Class C common stock for an equal number of shares of Class A common stock. Simultaneously, and in connection with these exchanges, the Company cancelled the exchanged shares of Class B and Class C common stock.
Note 11.14. Non-Controlling Interests
In connection with the Reorganization Transactions, Pluralsight, Inc. became the sole managing member of Pluralsight Holdings and as a result consolidates the results of operations of Pluralsight Holdings. The non-controlling interests balance represents the LLC Units held by Continuing Members, based on the portion of LLC Units owned by Continuing Members. During
the three and six months ended March 31,June 30, 2019, the total adjustments to the non-controlling interests were $31.8 million and were primarily related to equity-based compensation, the settlement of equity-based awards, and the issuance of the convertible promissory note with Pluralsight Holdings in connection with the convertible senior notes as discussed in Note 8—11—Convertible Senior Notes and Other Long-Term Debt. Income or loss is attributed to the non-controlling interests based on the weighted-average ownership percentages of LLC Units outstanding during the period, excluding LLC Units that are subject to time-based vesting requirements.
As of March 31,June 30, 2019, the non-controlling interests of Pluralsight Holdings owned 29.9%26.5% of the outstanding LLC Units, with the remaining 70.1%73.5% owned by Pluralsight, Inc. The ownership of the LLC Units is summarized as follows:
| | | | | | | | | | | | As of June 30, 2019 | | As of December 31, 2018 |
| | | As of March 31, 2019 | | As of December 31, 2018 | | Units | | Ownership % | | Units | | Ownership % |
| | | Units | | Ownership % | | Units | | Ownership % | | | | | | | | |
| Pluralsight, Inc.'s ownership of LLC Units | | 95,096,979 |
| | 70.1 | % | | 65,191,907 |
| | 48.6 | % | | 101,096,472 |
| | 73.5 | % | | 65,191,907 |
| | 48.6 | % |
LLC Units owned by the Continuing Members(1) | | 40,492,749 |
| | 29.9 | % | | 68,881,732 |
| | 51.4 | % | | 36,529,694 |
| | 26.5 | % | | 68,881,732 |
| | 51.4 | % |
| | | 135,589,728 |
| | 100.0 | % | | 134,073,639 |
| | 100.0 | % | | 137,626,166 |
| | 100.0 | % | | 134,073,639 |
| | 100.0 | % |
|
| |
(1) Excludes 2,741,3512,321,275 and 3,195,322 LLC Units still subject to time-based vesting requirements as of March 31,June 30, 2019 and December 31, 2018, respectively |
Note 12.15. Equity-Based Compensation
Incentive Unit Plan
Certain employees and directors were granted incentive units in Pluralsight Holdings, pursuant to the Incentive Unit Plan (“2013 Plan”). In connection with the Reorganization Transactions, all outstanding incentive units were converted into LLC Units of Pluralsight Holdings and certain holders of incentive units elected to exchange LLC Units for shares of Class A common stock of Pluralsight, Inc. Shares of Class A common stock and LLC Units issued as a result of the exchange or conversion of unvested incentive units remain subject to the same time-based vesting requirements that existed prior to the Reorganization Transactions. In connection with the IPO, the 2013 Plan was terminated.
The unvested LLC Units following the conversion of unvested incentive units are summarized as follows:
| | | | | | | | Unvested Units | | Weighted- Average Grant Date Fair Value |
| | | Unvested Units | | Weighted- Average Grant Date Fair Value | | | | |
| Unvested LLC Units outstanding—December 31, 2018 | | 3,195,322 |
| | $ | 7.63 |
| | 3,195,322 |
| | $ | 7.63 |
|
| Forfeited or cancelled | | | (17,393 | ) | | 5.38 |
|
| Vested | | (453,971 | ) | | 6.75 |
| | (856,654 | ) | | 6.91 |
|
| Unvested LLC Units outstanding—March 31, 2019 | | 2,741,351 |
| | $ | 7.77 |
| |
| Unvested LLC Units outstanding—June 30, 2019 | | | 2,321,275 |
| | $ | 7.91 |
|
As of March 31,June 30, 2019, total unrecognized equity-based compensation related to unvested LLC Units was $19.1$16.4 million, which is expected to be recognized over a weighted-average period of 2.01.8 years. The total fair value of Class A common shares and LLC Units vested during the period from the date of the Reorganization Transactions to March 31,six months ended June 30, 2019, was $12.4$25.2 million. If a forfeiture of an unvested LLC Unit occurs, the associated shares of Class B common stock or Class C common stock, as applicable, are also forfeited.
Equity Incentive Plans
In June 2017, Pluralsight Holdings adopted the 2017 Equity Incentive Plan (“2017 Plan”) and issued restricted stock units ("RSUs") to employees. In May 2018, Pluralsight, Inc. adopted the 2018 Equity Incentive Plan (“2018 Plan”). The 2018 Plan provides for the grant of nonstatutory stock options, restricted stock, RSUs, stock appreciation rights, performance units, and performance shares to employees, directors, and consultants of the Company.
In connection with the IPO and the adoption of the 2018 Plan, the 2017 Plan was terminated. With the establishment of the 2018 Plan, the Company no longer grants equity-based awards under the 2017 Plan and any shares that expire, terminate, are forfeited or repurchased by the Company, or are withheld by the Company to cover tax withholding obligations, under the 2017 Plan, will automatically be transferred to the 2018 Plan.
In connection with the acquisition of GitPrime, Inc. the Company assumed all existing equity awards under the 2015 and 2018 Equity Incentive Plans of GitPrime.
Stock Options
In connection with the IPO, the Company granted to employees stock options under the 2018 Plan to purchase shares of Class A common stock at an exercise price equal to the IPO price of $15.00 per share. The stock options will vest ratably in equal six-month periods over a period of two years from the IPO date.
In connection with the GitPrime acquisition, the stock options granted to GitPrime employees under the 2015 and 2018 Equity Incentive Plans were automatically converted into options to purchase shares of the Company's Class A common stock, subject to appropriate adjustments to the number of shares issuable pursuant to such options and the exercise price of such options as provided in the Merger Agreement. The options are subject to time-based vesting conditions and continue to vest over the remaining vesting period of the original award ranging from two to four years.
The following table summarizes the stock option activity for the threesix months ended March 31,June 30, 2019:
| | | | | | | | | | | | Stock Options Outstanding | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value (in millions) |
| | | Stock Options Outstanding | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value (in millions) | | | | | | |
| Balance as of December 31, 2018 | | 5,143,712 |
| | $ | 15.00 |
| | | | 5,143,712 |
| | $ | 15.00 |
| | |
| Granted | | | 169,762 |
| | 1.47 |
| | |
| Exercised | | (174,753 | ) | | 15.00 |
| | | | (426,968 | ) | | 14.93 |
| | |
| Forfeited or cancelled | | (39,249 | ) | | 15.00 |
| | | | (80,313 | ) | | 15.00 |
| | |
| Outstanding as of March 31, 2019 | | 4,929,710 |
| | $ | 15.00 |
| | 9.1 | | $ | 82.5 |
| |
| Vested and exercisable—March 31, 2019 | | 1,049,810 |
| | $ | 15.00 |
| | 9.1 | | $ | 17.6 |
| |
| Outstanding as of June 30, 2019 | | | 4,806,193 |
| | $ | 14.53 |
| | 8.9 | | $ | 75.9 |
|
| Vested and exercisable—June 30, 2019 | | | 2,109,402 |
| | $ | 14.90 |
| | 8.9 | | $ | 32.5 |
|
During the threesix months ended March 31,June 30, 2019, the total intrinsic value of options exercised was $2.6$7.2 million. The total unrecognized equity-based compensation related to the stock options was $23.1$22.2 million, which is expected to be recognized over a weighted-average period of 1.11.3 years.
RSUs
RSUs represent the right to receive shares of Pluralsight, Inc.’s Class A common stock at a specified future date. Restricted share units of Pluralsight Holdings under the 2017 Plan are generally subject to both a service condition and a liquidity condition. RSUs under the 2018 Plan are generally subject to a service condition. The service condition is generally satisfied over four years, whereby 25% of the share units satisfy this condition on the first anniversary of the grant date and then ratably on a quarterly basis thereafter through the end of the vesting period. The liquidity condition is satisfied upon the occurrence of a qualifying event, which was satisfied upon expiration of the lock-up period following the IPO. Prior to the IPO, the Company had not recorded any equity-based compensation associated with the RSUs as the liquidity condition was not deemed probable. Following the completion of the IPO, the Company recorded a cumulative adjustment to equity-based compensation totaling $7.8 million. The remaining unrecognized equity-based compensation related to RSUs will be recognized over the remaining requisite service period, using the straight-line attribution method.
Under the 2017 Plan, all restricted share units granted were initially restricted share units of Pluralsight Holdings. In connection with the IPO, all restricted share units were converted into RSUs of Pluralsight, Inc., except for Class B restricted share units of Pluralsight Holdings, which remain restricted share units of Pluralsight Holdings, and represent the right to receive LLC Units and corresponding shares of Class C common stock of Pluralsight, Inc. upon vesting.
The activity for RSUs for the threesix months ended March 31,June 30, 2019 was as follows:
| | | | | | | | Number of RSUs or Units | | Weighted-Average Grant Date Fair Value |
| | | Number of RSUs or Units | | Weighted-Average Grant Date Fair Value | | | | |
| RSUs of Pluralsight, Inc. | | | | | | | | |
| Balance at December 31, 2018 | | 4,801,536 |
| | $ | 11.11 |
| | 4,801,536 |
| | $ | 11.11 |
|
| Granted | | 4,102,071 |
| | 31.87 |
| | 4,784,948 |
| | 31.75 |
|
| Forfeited or cancelled | | (237,882 | ) | | 14.34 |
| | (400,757 | ) | | 17.11 |
|
| Vested | | (699,865 | ) | | 9.83 |
| | (1,273,293 | ) | | 11.32 |
|
| Balance at March 31, 2019 | | 7,965,860 |
| | $ | 21.82 |
| |
| Balance at June 30, 2019 | | | 7,912,434 |
| | $ | 23.23 |
|
| Restricted Share Units of Pluralsight Holdings: | | | | | | | | |
| Balance at December 31, 2018 | | 2,062,500 |
| | $ | 8.24 |
| | 2,062,500 |
| | $ | 8.24 |
|
| Vested | | (187,500 | ) | | 8.24 |
| | (375,000 | ) | | 8.24 |
|
| Balance at March 31, 2019 | | 1,875,000 |
| | $ | 8.24 |
| |
| Balance at June 30, 2019 | | | 1,687,500 |
| | $ | 8.24 |
|
As of March 31,June 30, 2019, unrecognized compensation cost related to RSUs, including restricted share units of Pluralsight Holdings, was $52.2$154.9 million, which is expected to be recognized over a weighted-average period of 2.73.2 years.
Employee Stock Purchase Plan
In May 2018, Pluralsight, Inc.'s board of directors adopted the Employee Stock Purchase Plan ("ESPP"). The ESPP generally provides for consecutive overlapping 24-month offering periods comprised of four six-month purchase periods. The offering periods start on the first trading day on or after May 31 and November 30 of each year.
The ESPP permits participants to elect to purchase shares of Class A common stock through fixed contributions from eligible compensation paid during each purchase period during an offering period, provided that this fixed contribution amount will not exceed 75.0% of the eligible compensation a participant receives during a purchase period, or $12,500 (increased to $25,000 for purposes of the first purchase period under the ESPP). A participant may purchase a maximum of 5,000 shares during each purchase period. Amounts deducted and accumulated by the participant will be used to purchase shares of Class A common stock at the end of each purchase period. The purchase price of the shares will be 85% of the lower of the fair market value of Class A common stock on the first trading day of each offering period or on the purchase date, except for the first offering period, during which the purchase price of the shares will be 85% of the lower of (i) the IPO price or (ii) the fair market value of common stock on the purchase date. If the fair market value of the common stock on any purchase date within an offering period is lower than the stock price as of the beginning of the offering period, the offering period will immediately reset after the purchase of shares on such purchase date and participants will automatically be re-enrolled in a new offering period. Participants may end their participation at any time during an offering period and will be paid their accrued contributions that have not yet been used to purchase shares of common stock. Participation ends automatically upon termination of employment.
ESPP employee payroll contributions accrued at March 31,June 30, 2019 and December 31, 2018, totaled $5.6$1.7 million and $1.5 million, and are included within accrued expenses in the condensed consolidated balance sheets. Employee payroll contributions ultimately used to purchase shares under the ESPP will be reclassified to stockholders' equity at the end of the purchase period. As of March 31,June 30, 2019, total unrecognized equity-based compensation for purchase rights committed under the ESPP was $10.9$13.2 million, which is expected to be recognized over a weighted-average period of 1.2 years.
Equity-Based Compensation
Equity-based compensation was classified as follows in the accompanying condensed consolidated statements of operations (in thousands):
| | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | Three Months Ended March 31, | | 2019 | | 2018 | | 2019 | | 2018 |
| | | 2019 | | 2018 | | | | (Restated) | | | | (Restated) |
| | | | | | | | | | | | | |
| Cost of revenue | | $ | 79 |
| | $ | — |
| | $ | 133 |
| | $ | 89 |
| | $ | 217 |
| | $ | 89 |
|
| Sales and marketing | | 6,195 |
| | 539 |
| | 7,952 |
| | 7,356 |
| | 14,228 |
| | 7,895 |
|
| Technology and content | | 3,498 |
| | 381 |
| | 5,137 |
| | 4,571 |
| | 8,847 |
| | 4,952 |
|
| General and administrative | | 9,834 |
| | 2,453 |
| | 9,510 |
| | 16,963 |
| | 19,708 |
| | 19,416 |
|
| Total equity-based compensation | | $ | 19,606 |
| | $ | 3,373 |
| | $ | 22,732 |
| | $ | 28,979 |
| | $ | 43,000 |
| | $ | 32,352 |
|
Equity-based compensation capitalized as internal-use software was $0.3$0.2 million for the three months ended March 31,June 30, 2019 and $0.6 million for the six months ended June 30, 2019.
Note 13.16. Income Taxes
As a result of the Reorganization Transactions, Pluralsight, Inc. became the sole managing member of Pluralsight Holdings, which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Pluralsight Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Pluralsight Holdings is passed through to and included in the taxable income or loss of its members, including Pluralsight, Inc. following the Reorganization Transactions, on a pro rata basis. Pluralsight, Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income of Pluralsight Holdings following the Reorganization Transactions. The Company is also subject to taxes in foreign jurisdictions.
The tax provision for interim periods is determined using an estimate of the Company's annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of its annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The quarterly tax provision, and estimate of the Company's annual effective tax rate, are subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company conducts business, and tax law developments.
For the three months ended March 31,June 30, 2019 and 2018 the Company's estimated effective tax rate was (0.8)(0.5)%. For the six months ended June 30, 2019 and 2018 the Company's estimated effective tax rate was (0.6)% and (0.5)%, respectively. The
variations between the Company's estimated effective tax rate and the U.S. statutory rate are primarily due to
the portion of the Company's earnings (or loss) attributable to non-controlling interests following the Reorganization Transactions and the full domestic valuation allowance.
The Company is subject to income tax in the U.S. as well as other tax jurisdictions in which the Company operates. The provision for income taxes consists primarily of income taxes and withholding taxes in foreign jurisdictions in which the Company conducts business. The Company's U.S. operations have resulted in losses, and as such, the Company maintains a full valuation allowance against its U.S. deferred tax assets. While the Company believes its current valuation allowance is appropriate, the Company assesses the need for an adjustment to the valuation allowance on a quarterly basis. The assessment is based on estimates of future sources of taxable income for the jurisdictions in which the Company operates and the periods over which deferred tax assets will be realizable. In the event the Company determines that it will be able to realize all or part of its net deferred tax assets in the future, all or part of the valuation allowance will be released in the period in which the Company makes such determination. The release of all or part of the valuation allowance against deferred tax assets may cause greater volatility in the effective tax rate in the periods in which it is released.
Tax Receivable Agreement
On the date of the IPO, the Company entered into a Tax Receivable Agreement (“TRA”) with Continuing Members that provides for a payment to the Continuing Members of 85% of the amount of tax benefits, if any, that Pluralsight, Inc. realizes, or is deemed to realize as a result of redemptions or exchanges of LLC Units.
During the threesix months ended March 31,June 30, 2019, certain Continuing Members exchanged 28,949,71033,419,553 LLC Units for shares of Class A common stock. The Company has concluded that, based on applicable accounting standards, it is more-likely-than-not that its deferred tax assets subject to the TRA will not be realized; therefore, the Company has not recorded a TRA liability related to the tax savings it may realize from the utilization of deferred tax assets arising from the exchanges that have occurred through March 31,June 30, 2019. The total unrecorded TRA liability as of March 31,June 30, 2019 is approximately $226.5$250.7 million.
Note 14.17. Net Loss Per Share
The following table presents the calculation of basic and diluted net loss per share for the periods following the Reorganization Transactions (in thousands, except per share amounts):
| | | | | | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
| | | Three Months Ended March 31, 2019 | |
| | | | | | |
| Numerator: | | | | | | |
| Net loss | | $ | (33,543 | ) | | $ | (41,120 | ) | | $ | (75,325 | ) |
| Less: Net loss attributable to non-controlling interests | | (14,660 | ) | | (11,740 | ) | | (26,690 | ) |
| Net loss attributable to Pluralsight, Inc. | | $ | (18,883 | ) | | $ | (29,380 | ) | | $ | (48,635 | ) |
| Denominator: | | | | | | |
| Weighted-average common shares outstanding, basic and diluted | | 75,927 |
| | 97,608 |
| | 86,827 |
|
| Net loss per share: | | | | | | |
| Net loss per share, basic and diluted | | $ | (0.25 | ) | | $ | (0.30 | ) | | $ | (0.56 | ) |
During the three months ended March 31,June 30, 2019, the Company incurred net losses and, therefore, the effect of the Company’s potentially dilutive securities were not included in the calculation of diluted loss per share as the effect would be anti-dilutive.
The following table contains share/unit totals with a potentially dilutive impact (in thousands):
|
| | | |
| | | As of March 31,June 30, 2019 |
| | |
| LLC Units held by Continuing Members | | 43,23438,851 |
|
| Stock options | | 4,9304,806 |
|
| RSUs of Pluralsight, Inc. | | 7,9667,912 |
|
| Restricted Share Units of Pluralsight Holdings | | 1,8751,688 |
|
| Purchase rights committed under the ESPP | | 1,9491,604 |
|
| Total | | 59,95454,861 |
|
The Notes will not have an impact on the Company's diluted earnings per share until the average market share price of Class A common stock exceeds the conversion price of $58.50 per share, as the Company intends and has the ability to settle the principal
amount of the Notes in cash upon conversion. The Company is required under the treasury stock method to compute the potentially dilutive shares of common stock related to the Notes for periods it reports net income. However, upon conversion, until the average market price of the Company's common stock exceeds the cap price of $58.50 per share, exercise of the Capped Calls will mitigate dilution from the Notes from the conversion price up to the cap price. Capped Calls are excluded from the calculation of diluted earnings per share, as they would be antidilutive under the treasury stock method.
Note 15.18. Related Party Transactions
The Company utilizes an aircraft owned by the Company’s Chief Executive Officer on an as-needed basis. The Company has agreed to reimburse the Chief Executive Officer for use of the private aircraft for business purposes at an hourly rate per flight hour. The reimbursement rate was approved by the Company's Board of Directors based upon a review of comparable chartered aircraft rates. The Company accrued approximately $0.1 million during the three months ended March 31,as of June 30, 2019 included within accrued expenses on the condensed consolidated balance sheets. A total of $0.5$0.6 million has been paid under the arrangement during the threesix months ended March 31,June 30, 2019.
Tax Receivable Agreement
On the date of the IPO, the Company entered into a TRA with Continuing Members that provides for a payment to the Continuing Members of 85% of the amount of tax benefits, if any, that Pluralsight, Inc. realizes, or is deemed to realize as a result of redemptions or exchanges of LLC Units. As discussed in Note 13—16—Income Taxes, no amounts were paid or payable to Continuing Members under the TRA as it is more-likely-than-not that the Company’s tax benefits obtained from exchanges subject to the TRA will not be realized.
Note 16. Subsequent Events
On April 30, 2019, the Company entered into a definitive merger agreement to acquire GitPrime, Inc. (“GitPrime”), a leading developer productivity platform, in exchange for cash consideration that is expected to be approximately $170.0 million, subject to customary working capital adjustments. The acquisition is expected to close during the three months ended June 30, 2019. Upon completion of the acquisition, the Company will record the fair value of assets and liabilities acquired from GitPrime, and will record goodwill for any excess consideration transferred. The Company cannot reasonably estimate all of the effects of the acquisition on its consolidated financial statements at this time.
In April 2019, the Company invested a total of $450.0 million of its cash and cash equivalents in various money market funds, commercial paper, certificates of deposit, U.S. treasury and agency bonds, and corporate bonds. The Company expects to record these investments at fair value with unrealized gains and losses reflected in other comprehensive income (loss) on the consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Management's Discussion and Analysis of Financial Condition and Results of Operations and financial statements included in our Annual Report. As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” in our Annual Report.
Overview
We are a leading provider of technology skill development solutions for businesses and individuals. We enable businesses to innovate in an era of rapid technological change and digital transformation by equipping their employees with the latest technology skills. We provide businesses with visibility into the technical strengths of their workforce, allowing them to better align resources, provide targeted skill development in line with company goals, and advance the skills of individuals and teams.
We started operations in 2004 and focused initially on in-person instructor-led training. Anticipating the increasing demand for online solutions, we began offering online courses in 2008 and shifted entirely to an online delivery model in 2011. Since 2011, we have extended our offering to include new content areas and additional features that have enabled us to expand our addressable market, attract new users, and deepen our foothold within businesses.
We have expanded our platform both organically through internal initiatives and through acquisitions, which have all been focused on adding capabilities to our offerings. AllIn May 2019, we completed the acquisition of our featuresGitPrime, Inc., or GitPrime, a leading provider of developer productivity software for approximately $163.9 million in cash, excluding cash acquired and content areas are fully integrated intoworking capital adjustments. We believe the acquisition will enhance our platform allowing a seamlessto measure developer productivity, which will enable technology leaders to identify talent and unified experience for our customers.areas of improvement within their teams, in order to enhance skills and drive productivity.
Our additions and improvements to our product offering have allowed us to accelerate our revenue growth and enabled us to strengthen our relationships with our business customers. We derive substantially all of our revenue from the sale of subscriptions to our platform. We sell subscriptions to our platform primarily to business customers through our direct sales team, as well as through our website. We also sell subscriptions to our platform to individual customers directly through our website. In addition, small teams often represent the “top of the funnel” for larger deployments, bringing our technology into their workplaces and proliferating usage of our platform within their companies.
We are focused on attracting businesses, particularly large enterprises, to our platform and expanding their use of our platform over time. We believe that there exists a significant opportunity to drive sales to large enterprises, including expanding relationships with existing customers and attracting new customers. Our ability to attract large enterprises to our platform and to expand their use of our platform will be important for the success of our business and our results of operations.
In May 2018, Pluralsight, Inc. completed an initial public offering, or IPO, in which it issued and sold 23,805,000 shares of Class A common stock. The price per share to the public was $15.00. We received net proceeds of $332.1 million, after deducting underwriting discounts and commissions.
In March 2019, we offered and issued $633.5 million aggregate principal amount of 0.375% convertible senior notes due in 2024, or the Notes, in a private placement to qualified institutional buyers exempt from registration under the Securities Act of 1933, as amended. We received net proceeds from the issuance of the Notes of $616.7 million after deducting the initial purchasers’ discounts and estimated issuance costs. Interest is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2019. To mitigate potential dilution resulting from the issuance of the Notes, we entered into privately-negotiated capped call transactions, or Capped Calls, at the cost of $69.4 million.
In March 2019, we completed a secondary offering, in which certain stockholders sold 15,592,234 shares of Class A common stock at a public offering price of $29.25 per share. We did not receive any proceeds from the sale of shares by selling stockholders.
On April 30, 2019, we entered into a definitive merger agreement to acquire a leading provider of developer productivity software, GitPrime, Inc., or GitPrime, for cash consideration that is expected to total $170.0 million, subject to customary working capital adjustments. The acquisition is expected to close during the second quarter of 2019. We believe the acquisition will enhance our platform to measure developer productivity, which will enable technology leaders to identify talent and areas of improvement within their teams, in order to enhance skills and drive productivity.
Key Business Metrics
We monitor billings and certain related key business metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
| | | | | Three Months Ended March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | |
| | | (dollars in thousands) | | (dollars in thousands) |
| Billings | | $ | 77,928 |
| | $ | 55,419 |
| | $ | 80,552 |
| | $ | 65,297 |
| | $ | 158,480 |
| | $ | 120,716 |
|
| Billings from business customers | | $ | 67,156 |
| | $ | 45,252 |
| | $ | 69,104 |
| | $ | 54,623 |
| | $ | 136,260 |
| | $ | 99,875 |
|
| % of billings from business customers | | 86 | % | | 82 | % | | 86 | % | | 84 | % | | 86 | % | | 83 | % |
Billings
We use billings to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers and our ability to sell subscriptions to our platform to both new and existing customers. Billings represent our 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 particular period represent amounts invoiced to our customers and reflect subscription renewals and upsells to existing customers plus sales to new customers. Our pricing and subscription periods vary for business customers and individual customers. Subscription periods for our business customers generally range from one to three years, with a majority being one year. We typically invoice our business customers in advance in annual installments. Subscription periods for our individual customers range from one month to one year and we typically invoice them in advance in monthly or annual installments.
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. We believe that billings from business customers will be a significant source of future revenue growth and a key factor affecting our long-term performance. We expect our billings from business customers to continue to increase as a percentage of billings over the long term.
As our billings continue to grow in absolute terms, we expect our billings growth rate to decline over the long term as we achieve scale in our business. As we recognize revenue from subscription fees ratably over the term of the contract, due to the difference in timing of billings received and when we recognize revenue, changes to our billings and billings growth rates are not immediately reflected in our revenue and revenue growth rates.
During the three months ended June 30, 2019, our billings growth rate declined compared to recent quarterly results, primarily due to sales execution challenges, including (i) a lower net retention rate during the three months ended June 30, 2019 than recent quarters and (ii) being slower in hiring additional sales representatives than planned for 2019. As a result of our recent performance, we reorganized our senior leadership within our sales organization and are implementing additional changes that have not yet become effective. We expect that the decline in our billings growth rate during the three months ended June 30, 2019 will have a negative impact on our revenue in future periods.
Components of Results of Operations
Revenue
We derive substantially all of our revenue from the sale of subscriptions to our platform. A small portion of our revenue is derived from providing professional services, which generally consist of content creation or other consulting services. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably as revenue over the subscription period. Subscription terms generally range from one year to three years for business customers and one month to one year for individual customers, and begin on the date access to our platform is made available to the customer. Most of our subscriptions to business customers are billed in annual installments even if customers are contractually committed to multi-year agreements. Subscriptions that allow the customer to take software on-premise without significant penalty are recognized at a point in time when the software is made available to the customer.
Cost of Revenue, Gross Profit and Gross Margin
Cost of revenue includes certain direct costs associated with delivering our platform and includes costs for author fees, amortization of our content library, hosting and delivery fees, merchant processing fees, depreciation of capitalized software development costs for internal-use software, employee-related costs, including equity-based compensation associated with our customer support organization, and third-party transcription costs.
Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by various factors, including the mix of subscriptions we sell, the cost of author fees, the costs associated with third-party hosting services, and the extent to which we expand our customer support and professional services organizations. We expect our gross margin to increase over the long term primarily due to a decrease in author fees as a percentage of revenue, although our gross margin may fluctuate from period to period depending on the interplay of the factors described above.
Operating Expenses
Our operating expenses are classified as sales and marketing, technology and content, and general and administrative. For each of these categories, the largest component is employee-related costs, which include salaries and bonuses, equity-based compensation, and employee benefit costs. We allocate shared overhead costs such as information technology infrastructure and facility-related costs based on headcount in that category.
Sales and Marketing
Sales and marketing expenses consist primarily of employee compensation costs of our sales and marketing employees, including salaries, benefits, bonuses, commissions, equity-based compensation, and allocated overhead costs. Other sales and
marketing costs include user events, search engine and email marketing, content syndication, lead generation, and online banner and video advertising. We expect that our sales and marketing expenses will increase in absolute dollars for the foreseeable future and, in the near term, may increase as a percentage of our revenue as we hire additional sales and marketing personnel, increase our marketing activities, and grow our domestic and international operations. Additionally, our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period depending on the timing of expenditures. However, we expect sales and marketing expenses to decrease as a percentage of revenue over the long term.
Technology and Content
Technology costs consist principally of research and development activities including personnel costs, consulting services, other costs associated with platform development efforts, and allocated overhead costs. Content costs consist principally of
personnel costs and other activities associated with content development, course production, curriculum direction, and allocated overhead costs. Technology and content costs are expensed as incurred, except for certain costs relating to the development of internal-use software, including software used to upgrade and enhance our platform and applications supporting our business, which are capitalized and amortized over the estimated useful lives of one to three years. We expect that our technology and content expenses will increase in absolute dollars for the foreseeable future and, in the near term, may increase as a percentage of our revenue as we continue to increase the functionality of and enhance our platform and develop new content and features.features, including the integration of the GitPrime platform into our existing product offerings. Additionally, our technology and content expense may fluctuate as a percentage of our revenue from period to period depending on the timing of expenditures. However, we expect technology and content expenses to decrease as a percentage of revenue over the long term.
General and Administrative
General and administrative expenses consist of personnel costs and related expenses for executive, finance, legal, people operations, and administrative personnel, including salaries, benefits, bonuses, and equity-based compensation; professional fees for external legal, accounting, recruiting, and other consulting services; and allocated overhead costs. We are incurring additional general and administrative expenses as a result of operating as a public company and our UP-C structure, including additional expenses related to compliance with the rules and regulations of the SEC, additional insurance expenses, investor relations activities, and professional services. In addition, we expect to increase the size of our general and administrative function to support our increased compliance requirements and the growth of our business. As a result, we expect that our general and administrative expenses will increase in absolute dollars for the foreseeable future and, in the near term, may increase as a percentage of our revenue. Additionally, our general and administrative expenses may fluctuate as a percentage of our revenue from period to period depending on the timing of expenditures. However, we expect general and administrative expenses to decrease as a percentage of revenue over the long term.
Other (Expense) Income
Other (expense) income consists primarily of interest expense on the Notes and other long-term debt, gains or losses on foreign currency transactions, and interest income earned on our cash, cash equivalents, and cash equivalents.investments.
Results of Operations
The following tables set forth selected unaudited condensed consolidated statements of operations data and such data as a percentage of revenue for each of the periods indicated:
| | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | Three Months Ended March 31, | | 2019 | | 2018 | | 2019 | | 2018 |
| | | 2019 | | 2018 | | | | (Restated) | | | | (Restated) |
| | | | | | | | | | | | | |
| | | (in thousands) | | (in thousands) |
| Revenue | | $ | 69,617 |
| | $ | 49,644 |
| | $ | 75,862 |
| | $ | 53,572 |
| | $ | 145,479 |
| | $ | 103,216 |
|
Cost of revenue(1)(2) | | 16,705 |
| | 14,886 |
| | 17,801 |
| | 15,933 |
| | 34,511 |
| | 30,819 |
|
| Gross profit | | 52,912 |
| | 34,758 |
| | 58,061 |
| | 37,639 |
| | 110,968 |
| | 72,397 |
|
Operating expenses(1)(2): | | | | | | | | | | | | |
| Sales and marketing | | 44,050 |
| | 29,467 |
| | 49,994 |
| | 41,857 |
| | 94,125 |
| | 71,324 |
|
| Technology and content | | 20,032 |
| | 13,325 |
| | 24,786 |
| | 18,396 |
| | 45,030 |
| | 31,721 |
|
| General and administrative | | 21,809 |
| | 11,292 |
| | 20,601 |
| | 26,002 |
| | 42,774 |
| | 37,294 |
|
| Total operating expenses | | 85,891 |
| | 54,084 |
| | 95,381 |
| | 86,255 |
| | 181,929 |
| | 140,339 |
|
| Loss from operations | | (32,979 | ) | | (19,326 | ) | | (37,320 | ) | | (48,616 | ) | | (70,961 | ) | | (67,942 | ) |
| Other (expense) income: | | | | | | | | | | | | |
| Interest expense | | (2,024 | ) | | (3,710 | ) | | (7,697 | ) | | (2,424 | ) | | (9,721 | ) | | (6,134 | ) |
| Other income (expense), net | | 1,614 |
| | (13 | ) | |
| Loss on debt extinguishment | | | — |
| | (4,085 | ) | | — |
| | (4,085 | ) |
| Other income, net | | | 4,040 |
| | 48 |
| | 5,654 |
| | 35 |
|
| Loss before income taxes | | (33,389 | ) | | (23,049 | ) | | (40,977 | ) | | (55,077 | ) | | (75,028 | ) | | (78,126 | ) |
| Provision for income taxes | | (154 | ) | | (109 | ) | | (143 | ) | | (143 | ) | | (297 | ) | | (252 | ) |
| Net loss | | $ | (33,543 | ) | | $ | (23,158 | ) | | $ | (41,120 | ) | | $ | (55,220 | ) | | $ | (75,325 | ) | | $ | (78,378 | ) |
| |
| (1) | Includes equity-based compensation as follows: |
| | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | Three Months Ended March 31, | | 2019 | | 2018 | | 2019 | | 2018 |
| | | 2019 | | 2018 | | | | (Restated) | | | | (Restated) |
| | | | | | | | | | | | | |
| | | (in thousands) | | (in thousands) |
| Cost of revenue | | $ | 79 |
| | $ | — |
| | $ | 133 |
| | $ | 89 |
| | $ | 217 |
| | $ | 89 |
|
| Sales and marketing | | 6,195 |
| | 539 |
| | 7,952 |
| | 7,356 |
| | 14,228 |
| | 7,895 |
|
| Technology and content | | 3,498 |
| | 381 |
| | 5,137 |
| | 4,571 |
| | 8,847 |
| | 4,952 |
|
| General and administrative | | 9,834 |
| | 2,453 |
| | 9,510 |
| | 16,963 |
| | 19,708 |
| | 19,416 |
|
| Total equity-based compensation | | $ | 19,606 |
| | $ | 3,373 |
| | $ | 22,732 |
| | $ | 28,979 |
| | $ | 43,000 |
| | $ | 32,352 |
|
| |
| (2) | Includes amortization of acquired intangible assets as follows: |
| | | | | Three Months Ended March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | |
| | | (in thousands) | | (in thousands) |
| Cost of revenue | | $ | 525 |
| | $ | 2,962 |
| | $ | 702 |
| | $ | 2,961 |
| | $ | 1,227 |
| | $ | 5,923 |
|
| Sales and marketing | | — |
| | 195 |
| | 29 |
| | 194 |
| | 29 |
| | 389 |
|
| Technology and content | | 177 |
| | 176 |
| | 176 |
| | 177 |
| | 353 |
| | 353 |
|
| Total amortization of acquired intangible assets | | $ | 702 |
| | $ | 3,333 |
| | $ | 907 |
| | $ | 3,332 |
| | $ | 1,609 |
| | $ | 6,665 |
|
| | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | Three Months Ended March 31, | | 2019 | | 2018 | | 2019 | | 2018 |
| | | 2019 | | 2018 | | | | (Restated) | | | | (Restated) |
| | | | | | | | | | | | | |
| Revenue | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| Cost of revenue | | 24 |
| | 30 |
| | 23 |
| | 30 |
| | 24 |
| | 30 |
|
| Gross profit | | 76 |
| | 70 |
| | 77 |
| | 70 |
| | 76 |
| | 70 |
|
| Operating expenses: | | | | | | | | | | | | |
| Sales and marketing | | 63 |
| | 59 |
| | 66 |
| | 78 |
| | 65 |
| | 69 |
|
| Technology and content | | 29 |
| | 27 |
| | 33 |
| | 34 |
| | 31 |
| | 31 |
|
| General and administrative | | 31 |
| | 23 |
| | 27 |
| | 49 |
| | 29 |
| | 36 |
|
| Total operating expenses | | 123 |
| | 109 |
| | 126 |
| | 161 |
| | 125 |
| | 136 |
|
| Loss from operations | | (47 | ) | | (39 | ) | | (49 | ) | | (91 | ) | | (49 | ) | | (66 | ) |
| Other (expense) income: | | | | | | | | | | | | |
| Interest expense | | (3 | ) | | (7 | ) | | (10 | ) | | (5 | ) | | (7 | ) | | (6 | ) |
| Loss on debt extinguishment | | | — |
| | (8 | ) | | — |
| | (4 | ) |
| Other income (expense), net | | 2 |
| | — |
| | 5 |
| | — |
| | 4 |
| | — |
|
| Loss before income taxes | | (48 | ) | | (46 | ) | | (54 | ) | | (104 | ) | | (52 | ) | | (76 | ) |
| Provision for income taxes | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net loss | | (48 | )% | | (46 | )% | | (54 | )% | | (104 | )% | | (52 | )% | | (76 | )% |
Comparison of the Three Months Ended March 31,June 30, 2019 and 2018
Revenue
|
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | | | | | |
| | | (dollars in thousands) |
| Revenue | | $ | 69,617 |
| | $ | 49,644 |
| | $ | 19,973 |
| | 40 | % |
|
| | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | | | | | |
| | | (dollars in thousands) |
| Revenue | | $ | 75,862 |
| | $ | 53,572 |
| | $ | 22,290 |
| | 42 | % |
Revenue was $69.6$75.9 million for the three months ended March 31,June 30, 2019, compared to $49.6$53.6 million for the three months ended March 31,June 30, 2018, an increase of $20.0$22.3 million, or 40%42%. The increase in revenue was primarily due to a $19.7$21.7 million, or 51%, increase in revenue from business customers, driven by an increase of 2,3832,228 business customers from 14,83015,507 business customers as of
June 30, 2018 to 17,735 business customers as of March 31, 2018 to 17,213 business customers as of March 31,June 30, 2019, as well as increased sales to our existing business customers. In addition, there was an increase of $0.3$0.6 million in revenue from individual customers.
Cost of Revenue and Gross Profit
| | | | | | | | | | | | Three Months Ended June 30, | | Change |
| | | Three Months Ended March 31, | | Change | | 2019 | | 2018 | | Amount | | % |
| | | 2019 | | 2018 | | Amount | | % | | | | (Restated) | | | | |
| | | | | | | | | | | | | | | | | |
| | | (dollars in thousands) | | (dollars in thousands) |
| Cost of revenue | | $ | 16,705 |
| | $ | 14,886 |
| | $ | 1,819 |
| | 12 | % | | $ | 17,801 |
| | $ | 15,933 |
| | $ | 1,868 |
| | 12 | % |
| Gross profit | | 52,912 |
| | 34,758 |
| | 18,154 |
| | 52 | % | | 58,061 |
| | 37,639 |
| | 20,422 |
| | 54 | % |
Cost of revenue was $16.7$17.8 million for the three months ended March 31,June 30, 2019, compared to $14.9$15.9 million for the three months ended March 31,June 30, 2018, an increase of $1.8$1.9 million, or 12%. The increase in cost of revenue was primarily due to an increase of $3.0$2.8 million in author fees and an increase of $0.4 million in depreciation of capitalized software development costs. These increases were partially offset by a decrease of $2.3$2.1 million in amortization of acquired intangible assets and course creation costs.
Gross profit was $52.9$58.1 million for the three months ended March 31,June 30, 2019, compared to $34.8$37.6 million for the three months ended March 31,June 30, 2018, an increase of $18.2$20.4 million, or 52%54%. The increase in gross profit was the result of the increase in our revenue during the three months ended March 31,June 30, 2019. Gross margin increased from 70% for the three months ended March 31,June 30, 2018 to 76%77% for the three months ended March 31,June 30, 2019 due to a decrease in amortization of acquired intangible assets and a decrease in author fees as a percentage of revenue.
Operating Expenses
| | | | | | | | | | | | Three Months Ended June 30, | | Change |
| | | Three Months Ended March 31, | | Change | | 2019 | | 2018 | | Amount | | % |
| | | 2019 | | 2018 | | Amount | | % | | | | (Restated) | | | | |
| | | | | | | | | | | | | | | | | |
| | | (dollars in thousands) | | (dollars in thousands) |
| Sales and marketing | | $ | 44,050 |
| | $ | 29,467 |
| | $ | 14,583 |
| | 49 | % | | $ | 49,994 |
| | $ | 41,857 |
| | $ | 8,137 |
| | 19 | % |
| Technology and content | | 20,032 |
| | 13,325 |
| | 6,707 |
| | 50 | % | | 24,786 |
| | 18,396 |
| | 6,390 |
| | 35 | % |
| General and administrative | | 21,809 |
| | 11,292 |
| | 10,517 |
| | 93 | % | | 20,601 |
| | 26,002 |
| | (5,401 | ) | | (21 | )% |
| Total operating expenses | | $ | 85,891 |
| | $ | 54,084 |
| | $ | 31,807 |
| | 59 | % | | $ | 95,381 |
| | $ | 86,255 |
| | $ | 9,126 |
| | 11 | % |
Sales and Marketing
Sales and marketing expenses were $44.1$50.0 million for the three months ended March 31,June 30, 2019, compared to $29.5$41.9 million for the three months ended March 31,June 30, 2018, an increase of $14.6$8.1 million, or 49%19%. The increase was primarily due to an increase of $14.1$5.9 million in employee compensation costs, including $5.7$0.6 million in equity-based compensation, as we added headcount to support our growth. In addition, there was an increase of $2.0$2.5 million related to allocated overhead costs primarily driven by our headcount growth, and an increase of $0.4 million due to additional travel expenses related to additional headcount. These increases were partially offset by a decrease of $1.5$0.5 million in marketing expenses as a result of optimizing our digital marketing expenditures to more efficient channels.and event costs.
Technology and Content
Technology and content expenses were $20.0 million for three months ended March 31, 2019, compared to $13.3$24.8 million for the three months ended March 31,June 30, 2019, compared to $18.4 million for the three months ended June 30, 2018, an increase of $6.7$6.4 million, or 50%35%. The increase was primarily due to an increase of $7.1$5.6 million in employee compensation costs, including $3.1$0.6 million in equity-based compensation, as we added headcount to support our growth. In addition, there was an increase of $0.5 million related to allocated overhead costs primarily driven by our headcount growth. These increases were partially offset by a $0.6an increase of $0.4 million increase in capitalized software development costs.
General and Administrative
General and administrative expenses were $21.8$20.6 million for the three months ended March 31,June 30, 2019, compared to $11.3$26.0 million for the three months ended March 31,June 30, 2018, an increasea decrease of $10.5$5.4 million, or 93%21%. The increasedecrease was primarily due to an increasea decrease of $8.3 million in employee compensation costs, including $7.4$7.5 million in equity-based compensation. The decrease in equity-based compensation is primarily due to a cumulative catch-up adjustment that was recorded during the three months ended June 30, 2018 upon completion of the IPO. In addition, there was an increase of $1.2$0.8 million related to costs associated with our merger with GitPrime, and an increase of $0.6 million related to allocated overhead costs primarily driven by our headcount growth, and an increase of $0.9 million related to costs associated with a secondary offering.growth.
Other (Expense) Income
| | | | | Three Months Ended March 31, | | Change | | Three Months Ended June 30, | | Change |
| | | 2019 | | 2018 | | Amount | | % | | 2019 | | 2018 | | Amount | | % |
| | | | | | | | | | | | | | | | | |
| | | (dollars in thousands) | | (dollars in thousands) |
| Interest expense | | $ | (2,024 | ) | | $ | (3,710 | ) | | $ | 1,686 |
| | (45 | )% | | $ | (7,697 | ) | | $ | (2,424 | ) | | $ | (5,273 | ) | | 218 | % |
| Other income (expense), net | | 1,614 |
| | (13 | ) | | 1,627 |
| | NM |
| |
| Loss on debt extinguishment | | | — |
| | (4,085 | ) | | 4,085 |
| | NM |
|
| Other income, net | | | 4,040 |
| | 48 |
| | 3,992 |
| | NM |
|
Interest expense decreasedincreased primarily as a result of our repayment of long-term debt in May 2018. This decrease was partially offset by the increase in interest expense and amortization of debt discount and issuance costs related to the Notes issued in March 2019. This increase is partially offset by a decrease in interest expense as a result of repayment of long-term debt in May 2018. In connection with the repayment, we incurred a loss on debt extinguishment of $4.1 million.
Other income, net increased primarily as a result of the additional interest income earned from our increased cash, cash equivalents, and investments as a result of net proceeds from our IPO and the issuance of the Notes.
Comparison of the Six Months Ended June 30, 2019 and 2018
Revenue
|
| | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | | | | | |
| | | (dollars in thousands) |
| Revenue | | $ | 145,479 |
| | $ | 103,216 |
| | $ | 42,263 |
| | 41 | % |
Revenue was $145.5 million for the six months ended June 30, 2019, compared to $103.2 million for the six months ended June 30, 2018, an increase of $42.3 million, or 41%. The increase in revenue was primarily due to a $41.4 million, or 51%, increase in revenue from business customers, driven by an increase of 2,228 business customers from 15,507 business customers as of June 30, 2018 to 17,735 business customers as of June 30, 2019, as well as increased sales to our existing business customers. In addition, there was an increase of $0.9 million in revenue from individual customers.
Cost of Revenue and Gross Profit
|
| | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | (Restated) | | | | |
| | | | | | | | | |
| | | (dollars in thousands) |
| Cost of revenue | | $ | 34,511 |
| | $ | 30,819 |
| | $ | 3,692 |
| | 12 | % |
| Gross profit | | 110,968 |
| | 72,397 |
| | 38,571 |
| | 53 | % |
Cost of revenue was $34.5 million for the six months ended June 30, 2019, compared to $30.8 million for the six months ended June 30, 2018, an increase of $3.7 million, or 12%. The increase in cost of revenue was primarily due to an increase of $5.8 million in author fees and an increase of $0.8 million in depreciation of capitalized software development costs. These increases were partially offset by a decrease of $4.4 million in amortization of acquired intangible assets and course creation costs.
Gross profit was $111.0 million for the six months ended June 30, 2019, compared to $72.4 million for the six months ended June 30, 2018, an increase of $38.6 million, or 53%. The increase in gross profit was the result of the increase in our revenue during the six months ended June 30, 2019. Gross margin increased from 70% for the six months ended June 30, 2018 to 76% for the six months ended June 30, 2019 due to a decrease in amortization of acquired intangible assets and a decrease in author fees as a percentage of revenue.
Operating Expenses
|
| | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | (Restated) | | | | |
| | | | | | | | | |
| | | (dollars in thousands) |
| Sales and marketing | | $ | 94,125 |
| | $ | 71,324 |
| | $ | 22,801 |
| | 32 | % |
| Technology and content | | 45,030 |
| | 31,721 |
| | 13,309 |
| | 42 | % |
| General and administrative | | 42,774 |
| | 37,294 |
| | 5,480 |
| | 15 | % |
| Total operating expenses | | $ | 181,929 |
| | $ | 140,339 |
| | $ | 41,590 |
| | 30 | % |
Sales and Marketing
Sales and marketing expenses were $94.1 million for the six months ended June 30, 2019, compared to $71.3 million for the six months ended June 30, 2018, an increase of $22.8 million, or 32%. The increase was primarily due to an increase of $20.1 million in employee compensation costs, including $6.3 million in equity-based compensation, as we added headcount to support our growth. In addition, there was an increase of $4.5 million related to allocated overhead costs primarily driven by our headcount growth, and an increase of $0.6 million due to additional travel expenses related to additional headcount. These increases were partially offset by a decrease of $0.9 million in marketing expenses as a result of optimizing our digital marketing expenditures to more efficient channels, and a decrease of $0.4 million in amortization of acquired intangible assets and course creation costs.
Technology and Content
Technology and content expenses were $45.0 million for six months ended June 30, 2019, compared to $31.7 million for the six months ended June 30, 2018, an increase of $13.3 million, or 42%. The increase was primarily due to an increase of $13.0 million in employee compensation costs, including $3.9 million in equity-based compensation, as we added headcount to support our growth. In addition, there was an increase of $0.8 million related to allocated overhead costs primarily driven by our headcount growth. These increases were partially offset by a $1.0 million increase in capitalized software development costs.
General and Administrative
General and administrative expenses were $42.8 million for the six months ended June 30, 2019, compared to $37.3 million for the six months ended June 30, 2018, an increase of $5.5 million, or 15%. The increase was primarily due to an increase of $1.8 million in employee compensation costs, including $0.3 million in equity-based compensation. In addition, there was an increase of $0.9 million related to allocated overhead costs primarily driven by our headcount growth, an increase of $0.9 million related to costs associated with a secondary offering, an increase of $0.8 million related to costs associated with our acquisition of GitPrime, and an increase of $0.8 million related to professional services primarily driven by the additional costs of operating as a public company.
Other (Expense) Income
|
| | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, | | Change |
| | | 2019 | | 2018 | | Amount | | % |
| | | | | | | | | |
| | | (dollars in thousands) |
| Interest expense | | $ | (9,721 | ) | | $ | (6,134 | ) | | $ | (3,587 | ) | | 58 | % |
| Loss on debt extinguishment | | — |
| | (4,085 | ) | | 4,085 |
| | NM |
|
| Other income, net | | 5,654 |
| | 35 |
| | 5,619 |
| | NM |
|
Interest expense increased primarily as a result of the increase in interest expense and amortization of debt discount and issuance costs related to the Notes issued in March 2019. This increase is partially offset by a decrease in interest expense as a result of repayment of long-term debt in May 2018. In connection with the repayment, we incurred a loss on debt extinguishment of $4.1 million.
Other income (expense), net increased primarily as a result of the additional interest income earned from our increased cash, and cash equivalents and investments as a result of net proceeds from our IPO and the issuance of the Notes.
Non-GAAP Financial Measures
| | | | | Three Months Ended March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | |
| | | (dollars in thousands) | | (dollars in thousands) |
| Non-GAAP gross profit | | $ | 53,519 |
| | $ | 37,720 |
| | $ | 58,909 |
| | $ | 40,689 |
| | $ | 112,428 |
| | $ | 78,409 |
|
| Non-GAAP gross margin | | 77 | % | | 76 | % | | 78 | % | | 76 | % | | 77 | % | | 76 | % |
| Non-GAAP operating loss | | $ | (10,309 | ) | | $ | (12,620 | ) | | $ | (11,517 | ) | | $ | (16,305 | ) | | $ | (21,826 | ) | | $ | (28,925 | ) |
| Free cash flow | | $ | 2,470 |
| | $ | (13,061 | ) | | $ | (11,142 | ) | | $ | (9,234 | ) | | $ | (8,672 | ) | | $ | (22,295 | ) |
Non-GAAP Gross Profit and Non-GAAP Gross Margin
Non-GAAP gross profit is a non-GAAP financial measure that we define as gross profit plus equity-based compensation, amortization of acquired intangible assets, and employer payroll taxes on employee stock transactions. We define non-GAAP gross margin as our non-GAAP gross profit divided by our revenue. We believe non-GAAP gross profit and non-GAAP gross margin are useful to investors as these metrics generally eliminate the effects of certain items that may vary from company to company for reasons unrelated to overall profitability or operating performance.
See the section below titled “—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using our non-GAAP gross profit and non-GAAP gross margin as financial measures and for a reconciliation of our non-GAAP gross profit to gross profit, the most directly comparable financial measure calculated in accordance with GAAP.
Non-GAAP Operating Loss
Non-GAAP operating loss is a non-GAAP financial measure that we define as loss from operations plus equity-based compensation, amortization of acquired intangible assets, employer payroll taxes on employee stock transactions, and secondary offering costs, and acquisition-related costs. We believe non-GAAP operating loss provides investors with useful information on period-to-period performance as evaluated by management and comparison with our past financial performance. We believe non-GAAP operating loss is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance.
See the section below titled “—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using our non-GAAP operating loss as a financial measure and for a reconciliation of our non-GAAP operating loss to loss from operations, the most directly comparable financial measure calculated in accordance with GAAP.
Free Cash Flow
We define free cash flow as net cash used in operating activities less purchases of property and equipment and purchases of our content library and other intangible assets. We consider free cash flow to be an important measure because it measures the amount of cash we spend or generate and reflects changes in our working capital.
See the section below titled “—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using free cash flow as a financial measure and for a reconciliation of free cash flow to net cash used in operations, the most directly comparable financial measure calculated in accordance with GAAP.
Reconciliation of Non-GAAP Financial Measures
We use non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, and free cash flow in conjunction with traditional GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, and free cash flow should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.
We compensate for these limitations by providing a reconciliation of non-GAAP gross profit, non-GAAP operating loss, and free cash flow to the related GAAP financial measures, gross profit, loss from operations, and net cash used in operating activities, respectively. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, and free cash flow in conjunction with their respective related GAAP financial measures.
The following table provides a reconciliation of gross profit to non-GAAP gross profit:
| | | | | Three Months Ended March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | |
| | | (dollars in thousands) | | (dollars in thousands) |
| Gross profit | | $ | 52,912 |
| | $ | 34,758 |
| |
| Equity-based compensation | | 79 |
| | — |
| |
| Gross profit, as restated (2018) | | | $ | 58,061 |
| | $ | 37,639 |
| | $ | 110,968 |
| | $ | 72,397 |
|
| Equity-based compensation, as restated (2018) | | | 133 |
| | 89 |
| | 217 |
| | 89 |
|
| Amortization of acquired intangible assets | | 525 |
| | 2,962 |
| | 702 |
| | 2,961 |
| | 1,227 |
| | 5,923 |
|
| Employer payroll taxes on employee stock transactions | | 3 |
| | — |
| | 13 |
| | — |
| | 16 |
| | — |
|
| Non-GAAP gross profit | | $ | 53,519 |
| | $ | 37,720 |
| | $ | 58,909 |
| | $ | 40,689 |
| | $ | 112,428 |
| | $ | 78,409 |
|
| Gross margin | | 76 | % | | 70 | % | | 77 | % | | 70 | % | | 76 | % | | 70 | % |
| Non-GAAP gross margin | | 77 | % | | 76 | % | | 78 | % | | 76 | % | | 77 | % | | 76 | % |
The following table provides a reconciliation of loss from operations to non-GAAP operating loss:
| | | | | Three Months Ended March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | |
| | | (in thousands) | | (in thousands) |
| Loss from operations | | $ | (32,979 | ) | | $ | (19,326 | ) | |
| Equity-based compensation | | 19,606 |
| | 3,373 |
| |
| Loss from operations, as restated (2018) | | | $ | (37,320 | ) | | $ | (48,616 | ) | | $ | (70,961 | ) | | $ | (67,942 | ) |
| Equity-based compensation, as restated (2018) | | | 22,732 |
| | 28,979 |
| | 43,000 |
| | 32,352 |
|
| Amortization of acquired intangible assets | | 702 |
| | 3,333 |
| | 907 |
| | 3,332 |
| | 1,609 |
| | 6,665 |
|
| Employer payroll taxes on employee stock transactions | | 1,444 |
| | — |
| | 1,329 |
| | — |
| | 2,773 |
| | — |
|
| Secondary offering costs | | 918 |
| | — |
| | — |
| | — |
| | 918 |
| | — |
|
| Acquisition-related costs | | | 835 |
| | — |
| | 835 |
| | — |
|
| Non-GAAP operating loss | | $ | (10,309 | ) | | $ | (12,620 | ) | | $ | (11,517 | ) | | $ | (16,305 | ) | | $ | (21,826 | ) | | $ | (28,925 | ) |
The following table provides a reconciliation of net cash provided by (used in) operating activities to free cash flow:
| | | | | Three Months Ended March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | |
| | | (in thousands) | | (in thousands) |
| Net cash provided by (used in) operating activities | | $ | 5,540 |
| | $ | (10,424 | ) | | $ | (7,181 | ) | | $ | (5,793 | ) | | $ | (1,641 | ) | | $ | (16,217 | ) |
| Less: Purchases of property and equipment | | (2,133 | ) | | (1,868 | ) | | (2,457 | ) | | (2,706 | ) | | (4,590 | ) | | (4,574 | ) |
| Less: Purchases of content library | | (937 | ) | | (769 | ) | | (1,504 | ) | | (735 | ) | | (2,441 | ) | | (1,504 | ) |
| Free cash flow | | $ | 2,470 |
| | $ | (13,061 | ) | | $ | (11,142 | ) | | $ | (9,234 | ) | | $ | (8,672 | ) | | $ | (22,295 | ) |
Liquidity and Capital Resources
As of March 31,June 30, 2019, our principal sources of liquidity were cash, cash equivalents, and restricted cash, and investments totaling $764.4$600.8 million, which were held for working capital purposes. Our cash equivalents and investments are comprised primarily of highly liquid investments in money market funds.funds, U.S. treasury securities, U.S. government agency securities, commercial paper, and corporate debt securities. Since our inception, we have financed our operations primarily through sales of equity securities, long-term debt facilities, and
our net cash provided by operating activities. InOn May 2018, Pluralsight, Inc. completed an IPO, in which it issued and sold 23,805,000 shares of Class A common stock at a price of $15.00 per share. We received net proceeds of $332.1 million, after underwriting discounts and commissions. We used the proceeds from our IPO to repay our outstanding long-term debt of $137.7 million. In March9, 2019, we received net proceeds of $616.7 million from the issuance of the Notes after deducting the initial purchasers' discounts and estimated issuance costs. We used $69.4 million of the proceeds to purchase the Capped Calls to reduce or offset potential dilution from the conversion of the Notes. We expect to use the remainder of the proceeds for general corporate purposes including investments in short-term marketable securities as well as the acquisition of, or investment in, complementary products technologies, solutions, or businesses, including the acquisition of GitPrime. We expect to completecompleted the acquisition of GitPrime, during the second quartera leading provider of 2019developer productivity software for approximately $163.9 million in cash, excluding cash acquired, working capital and we expect the total purchase consideration to be approximately $170.0 million, subject to customary working capitaltransactions cost adjustments.
We believe our existing cash, cash equivalents, and restricted cash, and investments, as well as our projected cash flows from operations, will be sufficient to meet our projected operating requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our pace of growth, subscription renewal activity, the timing and extent of spend to support the expansion of sales and marketing activities, technology and content efforts, the continuing market acceptance of our platform, and future acquisitions. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.
In connection with the IPO and our UP-C structure, we entered into the TRA with members of Pluralsight Holdings who did not exchange their LLC Units of Pluralsight Holdings in the Reorganization Transactions, or the TRA Members. As a result of the TRA, we will be obligated to pass along certain tax benefits and cash flows by making future payments to the TRA Members. Although the actual timing and amount of any payments we make to the TRA Members under the TRA will vary, such payments may be significant. Any payments we make to TRA Members under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us.
The following table shows cash flows for the threesix months ended March 31,June 30, 2019 and 2018:
| | | | | Three Months Ended March 31, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | (Restated) |
| | | (in thousands) | | | | |
| Net cash provided by (used in) operating activities | | $ | 5,540 |
| | $ | (10,424 | ) | |
| | | | (in thousands) |
| Net cash used in operating activities | | | $ | (1,641 | ) | | $ | (16,217 | ) |
| Net cash used in investing activities | | (3,070 | ) | | (2,637 | ) | | (483,015 | ) | | (6,078 | ) |
| Net cash provided by financing activities | | 550,848 |
| | 17,647 |
| | 561,846 |
| | 208,262 |
|
| Effect of exchange rate change on cash, cash equivalents, and restricted cash | | 26 |
| | 9 |
| | 22 |
| | (86 | ) |
| Net increase in cash, cash equivalents, and restricted cash | | $ | 553,344 |
| | $ | 4,595 |
| | $ | 77,212 |
| | $ | 185,881 |
|
Operating Activities
Cash provided byused in operating activities for the threesix months ended March 31,June 30, 2019 of $5.5$1.6 million was primarily due to a net loss of $33.5$75.3 million, offset by equity-based compensation of $19.6$43.0 million, amortization of deferred contract acquisition costs of $11.3 million, amortization of debt discount and debt issuance costs of $8.3 million, a favorable change in operating assets and liabilities of $8.7$4.5 million, amortization of deferred contract acquisition costs of $5.9 million,and depreciation of property and equipment of $2.1$4.2 million. The net change in operating assets and liabilities was primarily due to an increase in the deferred revenue balance of $13.0 million amortizationand a decrease in accounts receivable of debt discount and debt issuance$7.1 million, partially offset by an increase in deferred contract acquisition costs of $1.5$11.4 million, an increase in prepaid expenses of $4.2 million, and a decrease in accrued expenses of $2.4 million.
Cash used in operating activities for the six months ended June 30, 2018 of $16.2 million was primarily due to a net loss of $78.4 million, partially offset by equity-based compensation of $32.4 million, a favorable change in operating assets and liabilities of $12.2 million, amortization of acquired intangible assets of $0.7$6.7 million, and amortization of course creation costs of $0.6$0.9 million, and depreciation of property and equipment of $4.4 million. The net change in operating assets and liabilities was primarily due to a decrease in accounts receivable of $11.4 million, an increase in the deferred revenue balance of $8.3 million, an increase in accounts payable of $1.0 million, and an increase in accrued author fees of $0.7 million, partially offset by an increase in deferred contract acquisition costs of $5.9 million, a decrease in accrued expenses of $5.0 million, and an increase in prepaid expenses and other assets of $1.9 million.
Cash used in operating activities for the three months ended March 31, 2018 of $10.4 million was primarily due to a net loss of $23.2 million, partially offset by equity-based compensation of $3.4 million, amortization of acquired intangible assets of $3.3 million, a favorable change in operating assets and liabilities of $2.3 million, depreciation of property and equipment of $2.2 million, and amortization of course creation costs of $0.4 million. The net change in operating assets and liabilities was primarily due to a decrease in accounts receivable of $6.8 million and a favorable change in the deferred revenue balance of $5.8$17.5 million and a decrease in accounts receivable of $1.3 million, partially offset by an increase in prepaid expenses of $3.9 million and a decrease in accrued expenses of $10.2$2.8 million.
Investing Activities
Cash used in investing activities for the threesix months ended March 31,June 30, 2019 of $3.1$483.0 million was primarily due purchases of investments of $317.1 million, purchase of a business of $163.9 million, purchases of property and equipment of $4.6 million, and purchases of our content library of $2.4 million, partially offset by sales of marketable securities of $5.0 million.
Cash used in investing activities for the six months ended June 30, 2018 of $6.1 million related to purchases of property and equipment of $2.1$4.6 million and purchases of our content library of $0.9 million.
Cash used in investing activities for the three months ended March 31, 2018 of $2.6 million was primarily related to purchases of property and equipment of $1.9 million and purchases of content library and intangible assets of $0.8$1.5 million.
Financing Activities
Cash provided by financing activities for the threesix months ended March 31,June 30, 2019 of $550.8$561.8 million was due to net proceeds from the issuance of the Notes of $617.7$616.7 million and proceeds from the issuance of common stock from employee equity plans of $2.6$14.6 million, partially offset by the purchase of the Capped Calls of $69.4 million.
Cash provided by financing activities for the threesix months ended March 31,June 30, 2018 of $17.6$208.3 million was due to $332.1 million in net proceeds from the IPO, $20.0 million in borrowings of long-term debt, of $20.0 million, partially offset by repayments of long-term debt of $137.7 million, payments of deferred offering costs related to the IPO of $1.9$3.1 million, and payments of debt issuanceextinguishment costs of $0.5$2.2 million.
Commitments and Contractual Obligations
In March 2019, we offered and issued $633.5 million aggregate principal amountOutside of our 0.375% Notesconvertible senior notes due in 2024, in a private placement to qualified institutional buyers exempt from registration under the Securities Act of 1933, as amended. We received net proceeds from the issuance of the Notes of $616.7 million after deducting the initial purchasers’ discounts and estimated issuance costs. Interest is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2019. To mitigate potential dilution resulting from the issuance of the Notes, we entered into the Capped Calls at the cost of $69.4 million.
On April 30, 2019, we entered into a definitive merger agreement to acquire of GitPrime in exchange for cash consideration that is expected to be approximately $170.0 million, subject to customary working capital adjustments. The acquisition is expected to close during the second quarter of 2019.
Outside of the Notes, the merger agreement with GitPrime, and routine transactions made in the ordinary course of business, there have been no material changes to the contractual obligations as disclosed in our Annual Report on Form 10-K.10-K/A. Refer to "Note 8—11—Convertible Senior Notes and Other Long-Term Debt" and "Note 9—12—Commitments and Contingencies" of our unaudited condensed consolidating financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information regarding our commitments and contractual obligations.
Off-Balance Sheet Arrangements
Through MarchAs of June 30, 2019 and December 31, 2019, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies and estimates are those that we consider critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
The Company's significant accounting policies are discussed in "Note 2—Summary of Significant Accounting Policies and Recent Accounting Pronouncements" in our Annual Report on Form 10-K.10-K/A. There have been no significant changes to these policies for the three months ended March 31,June 30, 2019, except as noted in "Note 2—Summary of Significant Accounting Policies"Policies and Recent Accounting Pronouncements" of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
JOBS Act Accounting Election
We meet the definition of an emerging growth company under the Jumpstart Our Business Startups Act of 2012, which permits us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.
Recent Accounting Pronouncements
See "Note 2—Summary of Significant Accounting Policies"Policies and Recent Accounting Pronouncements" of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information regarding recently issued accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We have operations in the United States and internationally, and we are exposed to market risk in the ordinary course of business. Our market risk is primarily a result of fluctuations in foreign currency exchange rates and variable interest rates.
Foreign Currency Exchange Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British Pound Sterling, Euro, Swedish Krona, Australian Dollar, Singapore Dollar, Canadian Dollar, New Zealand Dollar, and Indian Rupee. Due to the relative size of our international operations to date, our foreign currency exposure has been fairly limited and thus we have not instituted a hedging program. We expect our international operations to continue to grow in the near term and we are continually monitoring our foreign currency exposure to determine when we should begin a hedging program. Today, our international contracts are mostly denominated in U.S. dollars, while our international operating expenses are often denominated in local currencies. In the future, we plan to begin denominating certain of our international contracts in local currencies, and over time, an increasing portion of our international contracts may be denominated in local currencies. Additionally, as we expand our international operations a larger portion of our operating expenses will be denominated in local currencies. 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. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our historical condensed consolidated financial statements for any of the periods presented.
Interest Rate Sensitivity
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. As of March 31,June 30, 2019, we had cash, cash equivalents, and restricted cash, and investments of $764.4$600.8 million, which consisted primarily of bank deposits and money market funds. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations of interest income have not been significant.
In March 2019, we offered and issued $633.5 million aggregate principal amount of Notes. The Notes have a fixed annual interest rate of 0.375%, and, therefore, we do not have economic interest rate exposure on the Notes. However, the values of the Notes are exposed to interest rate risk. Generally, the fair value of our fixed interest rate Notes will increase as interest rates fall and decrease as interest rates rise. We carry the Notes as face value less unamortized discount on our balance, and we present the fair value for required disclosure purposes only.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a–15(e) and Rule 15d–15(e) under the Exchange Act that are designed to ensureprovide reasonable assurance that information required to be disclosed by a companythe Company in the reports that it fileswe file or submitssubmit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensureprovide reasonable assurance that information required to be disclosed by a companythe Company in the reports that it fileswe file or submitssubmit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31,June 30, 2019. Based on the evaluation of our disclosure controls and procedures as of March 31,June 30, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, due to the material weakness described below, our disclosure controls and procedures were not effective.
Previously Reported Material Weakness in Internal Control Over Financial Reporting
As reported in our 2018 Form 10-K/A we did not maintain effective atinternal control over financial reporting as of December 31, 2018, as a result of a material weakness related to accounting for non-standard equity-based compensation awards which continues to exist as of June 30, 2019. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material weakness of our annual or interim financial statements will not be prevented or detected in a timely manner.
Status of Remediation Plan
During the reasonable assurance level.quarter ended June 30, 2019, we implemented additional control procedures to ensure equity-based compensation awards are accounted for in accordance with GAAP. Although we have designed and implemented additional control procedures, the controls have not been in place and operated for a sufficient period to demonstrate the material weakness has been remediated.
Changes in Internal Control Over Financial Reporting
ThereThe design and implementation of the control procedures related to the accounting for equity-based compensation awards was noconsidered a change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions,
or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost–effective control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
Item 1. 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.
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 1A. Risk Factors
For a discussion of potential risks and uncertainties, see the information in the section titled "Risk Factors" in Amendment No. 1 to our Annual Report on Form 10-K10-K/A filed with the SEC on February 21,June 27, 2019, as supplemented by the section title "Risk Factors" in our Quarterly Report on Form 10-Q filed with the SEC on May 1, 2019. The following risk factors related to the issuance of our Notes in March 2019, supplement and should be read in conjunction with those addressedrisk factors referenced above.
Recent and future acquisitions could divert our management’s attention, result in additional dilution to our Annual Report on Form 10-K.stockholders, and otherwise disrupt our operations and harm our results of operations.
ServicingOn May 9, 2019, we completed the acquisition of GitPrime. As part of our business strategy, we may in the future debtseek 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. 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 a significant amount of cash,time and resources and, although we have been successful in the past, we may not have sufficientbe able to integrate the acquired personnel, operations, and technologies successfully or effectively manage the combined business in connection with any future acquisition.
We may also not achieve the anticipated benefits from the acquired business, including our acquisition of GitPrime, due to a number of factors, including, among others:
•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 flow fromor equity to consummate the acquisition.
In the future, if our 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, that would 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 indebtedness.business, financial conditions, results of operations, and prospects.
The integration of GitPrime presents significant challenges.
In connection with our acquisition of GitPrime, there is a significant degree of difficulty inherent in the process of integrating GitPrime with our company. These difficulties include:
•the integration of GitPrime with our current business while carrying on the ongoing operations of Pluralsight;
•integrating the business cultures of both companies, which may prove to be incompatible;
integrating certain information technology, purchasing, accounting, finance, sales, billing, human resources, and payroll systems;
the potential difficulty in retaining key officers and personnel.
The process of integrating operations could cause an interruption of, or loss of momentum in, our ongoing business activities. Members of our senior management may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage the business of our company, serve the existing businesses, or develop new products or strategies. If our senior management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, our business could suffer.
Our successful or cost-effective integration of GitPrime cannot be assured. The failure to do so could have a material adverse effect on our business, financial condition or results of operations going forward.
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 make scheduled paymentsbroaden our customer base, particularly our business customer base, and achieve broader market acceptance of our platform will depend to a significant extent on the principalability of our sales and marketing organizations to pay interest on orwork together to refinancedrive our indebtedness,sales pipeline and cultivate customer and partner relationships to drive revenue growth. We have invested in and plan to continue expanding our sales and marketing organizations, both domestically and internationally. Identifying, recruiting, and training sales personnel has and will require significant time, expense, and attention. We have recently made changes to our sales senior leadership team. These changes have the potential to disrupt our operations due to operational and administrative inefficiencies, added costs, and loss of personnel with deep institutional knowledge, all of which could result in significant disruptions to our operations.
We also plan to dedicate significant resources to sales and marketing programs, including the Notes, depends onlead generation activities and brand awareness campaigns, such as search engine and email marketing, online banner and video advertising, user events such as our future performance, which is subject to economic, financial, competitiveannual user conference, Pluralsight LIVE, and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures.webinars. If we are unable to generate such cash flow,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 may be requiredare not able to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. Oursuccessfully integrate new senior leadership to our sales organization, our ability to refinance any future indebtednessbroaden 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 depend on the capital marketsoccur 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.
As we continue to expand our sales efforts with larger business customers, our sales cycles can be long and unpredictable, and our financial condition at such time. Wesales efforts require considerable time and expense. As a result, the timing of our billings and revenue are difficult to predict and may vary substantially from period to period, which may 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 to increase 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. Purchases by larger businesses are also frequently subject to budget constraints and unplanned administrative, processing, and other delays, which means we may not be able to engage in any of these activities or engage in these activitiescome to agreement on desirable terms, which could result in a default on our debt obligations. In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives. 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.
We may still incur substantially more debt or take other actions which would intensify the risks discussed above.
We and our subsidiaries may incur substantial additional debt in the future, some of which may be secured debt. We will not be restricted under the terms of the indenture governingsale to larger businesses.
To the Notes from incurring additional debt, securing existingextent our competitors develop products that our prospective customers view as equivalent or future debt, recapitalizingsuperior to our debt, repurchasingplatform, our stock, pledgingaverage sales cycle may increase. Additionally, if a key sales member leaves our assets, making investments, paying dividends, guaranteeing debt,employment or takingif our primary point of contact at a numbercustomer or potential customers leaves his or her employment, our sales cycle may be further extended or customer opportunities may be lost. As a result of other actions that are not limitedthe buying behavior of enterprises and the efforts of our sales force and partners to meet or exceed their sales objectives by the termsend of each fiscal quarter, we have historically received and generated a substantial portion of billings during the last month of each fiscal quarter, often the last two weeks of the indenture governing the Notes that could have the effect of diminishing our ability to make payments on the Notes when due.
Wequarter. These transactions may not have the ability to raise the funds necessary to make periodic interest payments, pay the principal amount at maturity, settle conversionsclose as expected or may be delayed in closing. The unpredictability of the Notes in cashtiming of customer purchases,
particularly large purchases, could cause our billings and revenue to vary from period to period or to repurchase the notes uponfall below expected levels for a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion of the Notes or to repurchase the Notes.
Holders of the Notesgiven period, which will 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. Our ability to meet 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 be able to 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, by regulatory authority or by 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 to 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 also 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. If one or more holders elect to convert their Notes, 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), 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 price 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 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, to be recorded as additional paid-in capital within stockholders’ equity in our condensed 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 condensed 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 interest, 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 that 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. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the Notes, then our diluted earnings per share could be adversely affected.
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 takeover. Such additional costs may have the effect of delaying or preventing 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 an increase or a decrease in the market price of our Class A common stock or the Notes.
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. Recent global economic conditions have 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, our exposure will increase if the market price or the volatility of our Class A common stock increases. In addition, 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.
We have broad discretion to use the net proceeds from the Notes, which we may not use effectively.
In connection with the Notes, we entered into capped call transactions with certain financial institutions and we used a portion of the net proceeds to pay the cost of the capped call transactions. We provided the remainder of the net proceeds from the Notes to Pluralsight Holdings to be used for working capital and other general corporate purposes, as well as the acquisition of, or investment in, complementary products, technologies, solutions, or businesses. The net proceeds from that offering may be invested with a view towards long-term benefits for our stockholders and this may not increase ourbusiness, results of operations, or market value. The failure byand financial condition. For example, during the second quarter 2019 we experienced a decline in our managementbillings growth rate compared to apply those funds effectively may adversely affectrecent quarterly results primarily due to sales execution challenges. As a result, we have made changes to our operations or business prospects.sales senior leadership team. However, our billing growth rate could continue to decline if these measures are not successful.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Use of Proceeds from Convertible Senior Notes
In March 2019, we completed our private placement of $633.5 million aggregate principal of Notes, including the exercise in full by the initial purchasers of the Notes of their option to purchase up to an additional $83.5 million principal amount of Notes. The Notes are our senior unsecured obligations. The Notes were issued pursuant to an Indenture, dated March 11, 2019, between us and U.S. Bank National Association as trustee.
We received net proceeds of $616.7 million, after deducting the initial purchasers’ discounts and commissions and the estimated offering expenses payable by us. We used approximately $69.4 million of the net proceeds to pay the cost of the capped call transactions related thereto. We intend to use the remainder of the net proceeds for working capital and other general corporate purposes. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, including the acquisition of GitPrime. We expect to pay total cash consideration of approximately $170.0 million forbusiness. On May 9, 2019, we completed the acquisition of GitPrime, which is expected to close during the second quartera leading provider of 2019.developer productivity software for approximately $163.9 million in cash, excluding cash acquired, working capital and transactions cost adjustments.
Item 5. Other Information
On April 30, 2019, our board of directors amended and restated the Pluralsight, Inc. 2018 Equity Incentive Plan, Pluralsight, Inc. 2017 Equity Incentive Plan, Pluralsight Holdings, LLC Incentive Unit Plan and Pluralsight Holdings, LLC Restricted Share Unit Agreement with Aaron Skonnard to provide for a vesting acceleration benefit upon a participant’s death subject to the terms and conditions set forth therein. Pursuant to this new vesting acceleration benefit, if a participant dies, such participant’s outstanding and unvested equity awards subject to time-based vesting under the applicable equity plans or arrangements will accelerate and fully vest, subject to the limitations and conditions set forth in the applicable plan or arrangement, including that the fair market value of the shares or other securities that vest pursuant to this benefit may not exceed $3,000,000 in the aggregate.
Item 6. Exhibits
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| | | | | Incorporated by Reference | | Filed or Furnished Herewith |
Exhibit Number | | Description | | Form | | File No. | | Exhibit Number | | Filing Date with SEC | |
| 3.1 | | | | S-1 | | 333-230057 | | 3.3 | | 3/4/2019 | | |
| 4.1 | | | | 8-K | | 001-38498 | | 4.1 | | 3/11/2019 | | |
| 4.2 | | | | 8-K | | 001-38498 | | 4.1 | | 3/11/2019 | | |
| 10.1 | | | | 8-K | | 001-38498 | | 10.1 | | 3/7/2019 | | |
| 10.2 | | | | | | | | | | | | X |
| 10.3 | | | | 8-K | | 001-38498 | | 2.1 | | 5/1/2019 | | |
| 31.1 | | | | | | | | | | | | X |
| 31.2 | | | | | | | | | | | | X |
| 32.1* | | | | | | | | | | | | X |
| 32.2* | | | | | | | | | | | | X |
| 101.INS | | XBRL Instance Document | | | | | | | | | | X |
| 101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | | | X |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X |
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| | | | | | | | | | | | |
| | | | | Incorporated by Reference | | Filed or Furnished Herewith |
Exhibit Number | | Description | | Form | | File No. | | Exhibit Number | | Filing Date with SEC | |
| 3.1 | | | | S-1 | | 333-230057 | | 3.3 | | 3/4/2019 | | |
| 4.1 | | | | 8-K | | 001-38498 | | 4.1 | | 3/11/2019 | | |
| 4.2 | | | | 8-K | | 001-38498 | | 4.1 | | 3/11/2019 | | |
| 10.1 | | | | 8-K | | 001-38498 | | 10.1 | | 3/7/2019 | | |
| 10.2 | | | | 10-Q | | 001-38498 | | 10.2 | | 5/1/2019 | | |
| 10.3 | | | | 8-K | | 001-38498 | | 2.1 | | 5/1/2019 | | |
| 10.4 | | | | | | | | | | | | X |
| 10.5 | | | | | | | | | | | | X |
| 10.6 | | | | | | | | | | | | X |
| 10.7 | | | | | | | | | | | | X |
| 31.1 | | | | | | | | | | | | X |
| 31.2 | | | | | | | | | | | | X |
| 32.1* | | | | | | | | | | | | X |
| 32.2* | | | | | | | | | | | | X |
| 101.INS | | XBRL Instance Document | | | | | | | | | | X |
| 101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | | | X |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X |
*The certifications attached as Exhibit 32.1 and 32.2 accompanying this Quarterly Report on Form 10-Q, are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Pluralsight, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | PLURALSIGHT, INC. |
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| | By: | /s/ Aaron Skonnard |
May 1,July 31, 2019 | | Aaron Skonnard Chief Executive Officer |
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| | PLURALSIGHT, INC. |
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| | By: | /s/ James Budge |
May 1,July 31, 2019 | | James Budge Chief Financial Officer |