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 ~~September 30, 2019~~March 31, 2020

☐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, Utah84025

(Address of principle executive offices, including zip code)

~~(801)~~ (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. Yesý ☒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). Yesý☒ 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 ~~October 28, 2019,~~April 24, 2020, the registrant had ~~140,628,827~~142,909,406 shares of common stock outstanding, consisting of ~~101,791,676~~105,525,933 shares of Class A common stock, ~~24,442,952~~23,010,178 shares of Class B common stock, and ~~14,394,199~~14,373,295 shares of Class C common stock.

PLURALSIGHT, INC.

TABLE OF CONTENTS




		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	3
	Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	5
	Condensed Consolidated Statements of ~~Redeemable Convertible Preferred Units, Members’ Deficit, and~~ Stockholders' Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	6
	Condensed Consolidated Statements of Cash Flows ~~for the Nine~~Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	107
	Notes to Condensed Consolidated Financial Statements	128
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4426
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5435
Item 4.	Controls and Procedures	5536

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	5737
Item 1A.	Risk Factors	57
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	5837
Item 6.	Exhibits	5939

Signatures		6040

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, cash provided by operating activities, 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 of the impact the novel coronavirus strain named SARS-CoV-2, abbreviated as COVID-19, ("COVID-19") pandemic may have on our business;

our ability to maintain operations and implement effective measures in response to the COVID-19 pandemic;

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;

our ability to successfully defend ourselves in legal proceedings;

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;~~

~~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.notes.

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-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~~2019 included in our Annual Report on Form 10-K/A.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

PLURALSIGHT, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019

Assets
Current assets:
Cash and cash equivalents	$	120,871		$	194,306		$	94,476		$	90,515
Short-term investments	328,602			—			311,684			332,234
Accounts receivable, net of allowances of $2,909 and $2,501 as of September 30, 2019 and December 31, 2018, respectively	63,001			63,436
Deferred contract acquisition costs, net	17,128			—
Accounts receivable, net of allowances of $4,634 and $3,465 as of March 31, 2020 and December 31, 2019, respectively							61,208			101,576
Deferred contract acquisition costs							17,796			18,331
Prepaid expenses and other current assets	12,664			8,323			13,957			14,174
Total current assets	542,266			266,065			499,121			556,830
Restricted cash	27,748			16,765
Restricted cash and cash equivalents							24,431			28,916
Long-term investments	84,210			—			126,214			105,805
Property and equipment, net	56,471			31,641			35,401			22,896
Right-of-use assets							13,912			15,804
Content library, net	8,207			7,050			9,777			8,958
Intangible assets, net	24,057			1,759			21,204			22,631
Goodwill	261,622			123,119			262,532			262,532
Deferred contract acquisition costs, noncurrent, net	4,435			—
Deferred contract acquisition costs, noncurrent							5,937			5,982
Other assets	1,530			1,064			1,771			1,599
Total assets	$	1,010,546		$	447,463		$	1,000,300		$	1,031,953
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	4,664		$	7,160		$	7,770		$	10,615
Accrued expenses	37,635			32,047			35,595			40,703
Accrued author fees	11,294			10,002			11,596			11,694
Lease liabilities							4,532			5,752
Deferred revenue	177,523			157,695			214,505			215,137
Total current liabilities	231,116			206,904			273,998			283,901
Deferred revenue, noncurrent	17,586			14,886			17,416			19,517
Convertible senior notes, net	463,656			—			476,819			470,228
Facility financing obligations	38,225			15,777
Lease liabilities, noncurrent							10,058			11,167
Other liabilities	2,157			1,303			859			980
Total liabilities	752,740			238,870			779,150			785,793
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 September 30, 2019 and December 31, 2018	—			—
Class A common stock, $0.0001 par value per share, 1,000,000,000 shares authorized, 101,638,179 shares issued and outstanding as of September 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, 24,442,952 shares issued and outstanding as of September 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, 14,289,762 shares issued and outstanding as of September 30, 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 March 31, 2020 and December 31, 2019							—			—
Class A common stock, $0.0001 par value per share, 1,000,000,000 shares authorized, 105,459,701 and 104,083,271 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively							11			10
Class B common stock, $0.0001 par value per share, 200,000,000 shares authorized, 23,010,178 and 23,211,418 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively							2			2
Class C common stock, $0.0001 par value per share, 50,000,000 shares authorized, 14,373,295 and 14,269,199 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively							1			1
Additional paid-in capital	615,713			456,899			659,480			641,128
Accumulated other comprehensive income (loss)	185			(41		)
Accumulated other comprehensive (loss) income							(1,102		)	225
Accumulated deficit	(426,777		)	(355,446		)	(493,700		)	(458,381		)
Total stockholders’ equity attributable to Pluralsight, Inc.	189,134			101,426			164,692			182,985
Non-controlling interests	68,672			107,167			56,458			63,175
Total stockholders’ equity	257,806			208,593			221,150			246,160
Total liabilities and stockholders' equity	$	1,010,546		$	447,463		$	1,000,300		$	1,031,953

The accompanying notes are an integral part of these condensed consolidated financial statements.

PLURALSIGHT, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)



	Three Months Ended March 31,
	2020			2019

Revenue	$	92,646		$	69,617
Cost of revenue	19,008			16,712
Gross profit	73,638			52,905
Operating expenses:
Sales and marketing	62,415			44,171
Technology and content	30,144			20,271
General and administrative	23,371			22,191
Total operating expenses	115,930			86,633
Loss from operations	(42,292		)	(33,728		)
Other income (expense):
Interest expense	(7,149		)	(1,678		)
Other income, net	2,170			1,676
Loss before income taxes	(47,271		)	(33,730		)
Provision for income taxes	(242		)	(154		)
Net loss	$	(47,513	)	$	(33,884	)
Less: Net loss attributable to non-controlling interests	(12,194		)	(14,809		)
Net loss attributable to Pluralsight, Inc.	$	(35,319	)	$	(19,075	)
Net loss per share, basic and diluted	$	(0.34	)	$	(0.25	)
Weighted-average shares of Class A common stock used in computing basic and diluted net loss per share	104,631			75,927

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Restated) (Restated)

Revenue $ 82,620
$ 61,553
$ 228,099
$ 164,769
Cost of revenue 17,825
15,347
52,336
46,166
Gross profit 64,795
46,206
175,763
118,603
Operating expenses:
Sales and marketing 55,727
42,632
149,852
113,956
Technology and content 27,799
18,137
72,829
49,858
General and administrative 20,817
19,818
63,591
57,112
Total operating expenses 104,343
80,587
286,272
220,926
Loss from operations (39,548 ) (34,381 ) (110,509 ) (102,323 )
Other (expense) income:
Interest expense (7,778 ) (342 ) (17,499 ) (6,476 )
Loss on debt extinguishment (950 ) —
(950 ) (4,085 )
Other income, net 2,878
654
8,532
689
Loss before income taxes (45,398 ) (34,069 ) (120,426 ) (112,195 )
Provision for income taxes (404 ) (254 ) (701 ) (506 )
Net loss $ (45,802 ) $ (34,323 ) $ (121,127 ) $ (112,701 )
Less: Net loss attributable to non-controlling interests (13,073 ) (17,980 ) (39,763 ) (31,890 )
Net loss attributable to Pluralsight, Inc. $ (32,729 ) $ (16,343 ) $ (81,364 ) $ (80,811 )
Less: Accretion of Series A redeemable convertible preferred units —
—
—
(176,275 )
Net loss attributable to shares of Class A common stock $ (32,729 ) $ (16,343 ) $ (81,364 ) $ (257,086 )
Net loss per share, basic and diluted⁽¹⁾
$ (0.32 ) $ (0.26 ) $ (0.89 ) $ (0.47 )
Weighted-average shares of Class A common stock used in computing basic and diluted net loss per share⁽¹⁾
101,407
62,472
91,741
62,400

~~________________________~~

~~(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 nine months ended September 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.

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 September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Restated) (Restated)

Net loss $ (45,802 ) $ (34,323 ) $ (121,127 ) $ (112,701 )
Other comprehensive income (loss):
Unrealized gains on investments 19
—
398
—
Foreign currency translation losses, net (90 ) (39 ) (79 ) (97 )
Comprehensive loss $ (45,873 ) $ (34,362 ) $ (120,808 ) $ (112,798 )
Less: Comprehensive loss attributable to non-controlling interests (13,092 ) (18,001 ) (39,670 ) (31,932 )
Comprehensive loss attributable to Pluralsight, Inc. $ (32,781 ) $ (16,361 ) $ (81,138 ) $ (80,866 )

~~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 September 30, 2019~~



	Three Months Ended March 31,
	2020			2019

Net loss	$	(47,513	)	$	(33,884	)
Other comprehensive income (loss):
Unrealized losses on investments	(1,565		)	—
Foreign currency translation (losses) gains, net	(222		)	18
Comprehensive loss	$	(49,300	)	$	(33,866	)
Less: Comprehensive loss attributable to non-controlling interests	(12,654		)	(14,801		)
Comprehensive loss attributable to Pluralsight, Inc.	$	(36,646	)	$	(19,065	)

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~~share amounts)

(unaudited)

Three Months Ended ~~September 30, 2018~~March 31, 2020



	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 Stockholders' Equity
	Shares	Amount		Shares		Amount		Shares	Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Non-Controlling Interests			Total Stockholders' Equity

Balance at January 1, 2020	104,083,271	$	10	23,211,418		$	2	14,269,199	$	1	$	641,128		$	225		$	(458,381	)	$	63,175		$	246,160
Effect of exchanges of LLC Units	201,240	—		(201,240	)	—		—	—		354			—			—			(354		)	—
Vesting of restricted stock units	1,117,441	1		—		—		104,096	—		(1		)	—			—			—			—
Exercise of common stock options	57,749	—		—		—		—	—		699			—			—			—			699
Shares withheld for tax withholding on equity awards	—	—		—		—		—	—		(2,350		)	—			—			—			(2,350		)
Equity-based compensation	—	—		—		—		—	—		25,941			—			—			—			25,941
Adjustments to non-controlling interests	—	—		—		—		—	—		(6,291		)	—			—			6,291			—
Other comprehensive loss	—	—		—		—		—	—		—			(1,327		)	—			(460		)	(1,787		)
Net loss	—	—		—		—		—	—		—			—			(35,319		)	(12,194		)	(47,513		)
Balance at March 31, 2020	105,459,701	$	11	23,010,178		$	2	14,373,295	$	1	$	659,480		$	(1,102	)	$	(493,700	)	$	56,458		$	221,150

Three Months Ended March 31, 2019



	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 Stockholders' Equity
	Shares	Amount		Shares		Amount			Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Non-Controlling Interests			Total Stockholders' Equity

Balance at January 1, 2019	65,191,907	$	7	57,490,881		$	6		14,586,173		$	1	$	456,899		$	(41	)	$	(355,446	)	$	107,167		$	208,593
Cumulative effect of accounting changes	—	—		—		—			—		—		—			—			9,723			10,273			19,996
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	780,609	—		—		—			106,756		—		—			—			—			—			—
Exercise of common stock options	174,753	—		—		—			—		—		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	—	—		—		—			—		—		20,616			—			—			—			20,616
Adjustments to non-controlling interests	—	—		—		—			—		—		(32,137		)	—			—			32,137			—
Other comprehensive income	—	—		—		—			—		—		—			10			—			8			18
Net loss	—	—		—		—			—		—		—			—			(19,075		)	(14,809		)	(33,884		)
Balance at March 31, 2019	95,096,979	$	10	29,071,789		$	3		14,162,311		$	1	$	565,095		$	(31	)	$	(364,798	)	$	85,281		$	285,561

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)~~

~~Nine Months Ended September 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 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 —
—
—
—
33,536,262
3
(32,926,084 ) (4 ) (610,178 ) —
59,158
—
—
(59,157 ) —
Issuance of common stock under employee stock purchase plans —
—
—
—
621,463
—
—
—
—
—
8,257
—
—
—
8,257
Vesting of restricted stock units —
—
—
—
1,835,633
—
—
—
313,767
—
—
—
—
—
—
Exercise of common stock options —
—
—
—
452,914
—
—
—
—
—
6,619
—
—
—
6,619
Forfeiture of unvested LLC Units —
—
—
—
—
—
(121,845 ) —
—
—
—
—
—
—
—
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 )
Repurchases of equity component of convertible senior notes —
—
—
—
—
—
—
—
—
—
(2,965 ) —
—
—
(2,965 )
Settlement of capped calls related to repurchases of convertible senior notes —
—
—
—
—
—
—
—
—
—
1,284
—
—
—
1,284
Equity-based compensation —
—
—
—
—
—
—
—
—
—
68,591
—
—
—
68,591
Adjustments to non-controlling interests —
—
—
—
—
—
—
—
—
—
(49,731 ) —
—
49,731
—
Other comprehensive income —
—
—
—
—
—
—
—
—
—
—
226
—
93
319
Net loss —
—
—
—
—
—
—
—
—
—
—
—
(81,364 ) (39,763 ) (121,127 )
Balance at September 30, 2019 —
$ —
—
$ —
101,638,179
$ 10
24,442,952
$ 2
14,289,762
$ 1
$ 615,713
$ 185
$ (426,777 ) $ 68,672
$ 257,806

~~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)~~

~~Nine Months Ended September 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
—
—
—
—
324,704
—
—
—
324,706
Allocation of equity to non-controlling interests —
—
—
—
—
—
—
—
—
—
(474,007 ) (4 ) 339,782
134,229
—
Activity subsequent to the Reorganization Transactions and initial public offering:
Effect of the Rescission Transactions —
—
—
—
(605,390 ) —
455,217
—
150,173
—
—
—
—
—
—
Settlement of equity appreciation rights —
—
—
—
—
—
—
—
—
—
(325 ) —
—
—
(325 )
Equity-based compensation, as restated —
—
—
—
—
—
—
—
—
—
30,818
—
—
—
30,818
Adjustments to non-controlling interests, as restated —
—
—
—
—
—
—
—
—
—
(16,679 ) —
—
16,679
—
Foreign currency translation losses —
—
—
—
—
—
—
—
—
—
—
(37 ) —
(42 ) (79 )
Net loss, as restated —
—
—
—
—
—
—
—
—
—
—
—
(29,028 ) (31,890 ) (60,918 )
Balance at September 30, 2018, as restated —
$ —
—
$ —
62,310,270
$ 6
58,566,789
$ 6
14,198,311
$ 1
$ 446,463
$ (34 ) $ (339,144 ) $ 118,976
$ 226,274

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

PLURALSIGHT, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2019			2018			Three Months Ended March 31,
				(Restated)			2020			2019

Operating activities
Net loss	$	(121,127	)	$	(112,701	)	$	(47,513	)	$	(33,884	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation of property and equipment	6,471			6,331			2,643			2,247
Amortization of acquired intangible assets	3,044			7,721			1,435			702
Amortization of course creation costs	1,841			1,437			761			579
Equity-based compensation	67,657			52,982			25,578			20,268
Amortization of deferred contract acquisition costs	17,317			—			6,451			5,867
Amortization of debt discount and issuance costs	15,120			1,215			6,591			1,545
Investment discount and premium amortization, net	(1,771		)	—			(376		)	—
Loss on debt extinguishment	950			4,085
Other	(178		)	507			661			25
Changes in assets and liabilities, net of acquired assets and liabilities:
Changes in assets and liabilities:
Accounts receivable	1,858			(10,352		)	39,200			11,392
Deferred contract acquisition costs	(18,668		)	—			(5,871		)	(5,851		)
Prepaid expenses and other assets	(3,660		)	(2,990		)	286			(1,801		)
Right-of-use assets							1,490			1,284
Accounts payable	(2,486		)	928			(2,467		)	1,035
Accrued expenses and other liabilities	6,067			6,912			(6,331		)	(5,159		)
Accrued author fees	1,292			1,452			(98		)	735
Lease liabilities							(1,925		)	(1,736		)
Deferred revenue	22,461			28,190			(2,220		)	8,288
Net cash used in operating activities	(3,812		)	(14,283		)
Net cash provided by operating activities							18,295			5,536
Investing activities
Purchases of property and equipment	(7,619		)	(6,576		)	(13,894		)	(2,133		)
Purchases of content library	(3,822		)	(2,345		)	(1,680		)	(937		)
Cash paid for acquisition, net of cash acquired	(163,771		)	—
Purchases of investments	(529,653		)	—			(161,862		)	—
Proceeds from sales of investments	4,967			—
Proceeds from maturities of short-term investments	112,995			—
Proceeds from maturities of investments							160,535			—
Net cash used in investing activities	(586,903		)	(8,921		)	(16,901		)	(3,070		)
Financing activities
Proceeds from issuance of common stock from employee equity plans							699			2,621
Taxes paid related to net share settlement							(2,350		)	—
Proceeds from issuance of convertible senior notes, net of discount and issuance costs	616,654			—			—			617,663
Purchase of capped calls related to issuance of convertible senior notes	(69,432		)	—			—			(69,432		)
Repurchases of convertible senior notes	(35,000		)	—
Proceeds from terminations of capped calls related to repurchases of convertible senior notes	1,284			—
Proceeds from issuance of common stock from employee equity plans	14,876			—
Proceeds from initial public offering, net of underwriting discounts and commissions	—			332,080
Payments of costs related to initial public offering	—			(7,083		)
Borrowings of long-term debt	—			20,000
Repayments of long-term debt	—			(137,710		)
Payments of debt extinguishment costs	—			(2,179		)
Payments of debt issuance costs	—			(450		)
Payments to settle equity appreciation rights	—			(325		)
Taxes paid related to net share settlement	—			(78		)
Other	(10		)	(13		)
Net cash provided by financing activities	528,372			204,242
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(109		)	(136		)
Net (decrease) increase in cash, cash equivalents, and restricted cash	(62,452		)	180,902
Cash, cash equivalents, and restricted cash, beginning of period	211,071			28,477
Cash, cash equivalents, and restricted cash, end of period	$	148,619		$	209,379
Net cash (used in) provided by financing activities							(1,651		)	550,852
Effect of exchange rate changes on cash, cash equivalents, and restricted cash and cash equivalents							(267		)	26
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents							(524		)	553,344
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period							119,431			211,071
Cash, cash equivalents, and restricted cash and cash equivalents, end of period							$	118,907		$	764,415
Supplemental cash flow disclosure:
Cash paid for interest							$	1,113		$	—
Cash paid for income taxes, net							$	270		$	116
Supplemental disclosure of non-cash investing and financing activities:
Unpaid capital expenditures							$	5,008		$	870
Equity-based compensation capitalized as internal-use software							$	363		$	348
Unrealized losses on investments							$	(1,565	)	$	—
Reconciliation of cash, cash equivalents, and restricted cash and cash equivalents as shown in the statement of cash flows:
Cash and cash equivalents							$	94,476		$	736,566
Restricted cash and cash equivalents							24,431			27,849
Total cash, cash equivalents, and restricted cash and cash equivalents							$	118,907		$	764,415

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)~~

Nine Months Ended September 30,
2019 2018
(Restated)

Supplemental cash flow disclosure:
Cash paid for interest $ 1,126
$ 4,271
Cash paid for income taxes, net $ 539
$ 338
Supplemental disclosure of non-cash investing and financing activities:
Property acquired under build-to-suit agreements $ 22,461
$ —
Unpaid capital expenditures $ 752
$ 252
Equity-based compensation capitalized as internal-use software $ 934
$ 114
Unrealized gains on investments $ 398
$ —
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 $ —
$ 607
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 $ 120,871
$ 208,626
Restricted cash 27,748
753
Total cash, cash equivalents, and restricted cash $ 148,619
$ 209,379

~~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”).

In May 2018, Pluralsight, ~~Holdings is a~~Inc. completed its IPO and used the net proceeds to purchase newly issued common limited liability company units (“~~LLC”~~LLC Units") ~~and was organized on August 29, 2014~~from Pluralsight Holdings. Following the reorganization transactions completed in connection with the ~~state of Delaware and is~~IPO ("Reorganization Transactions"), Pluralsight, Inc. became the ~~parent company~~sole managing member of Pluralsight Holdings. As the sole managing member, 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 representing the economic interests held by the other members of Pluralsight Holdings. As of March 31, 2020, Pluralsight, Inc. owned 74.5% of Pluralsight Holdings and the members of Pluralsight Holdings who retained LLC ~~and its directly and indirectly wholly-owned subsidiaries.~~Units prior to the IPO (the "Continuing Members") owned the remaining 25.5% of Pluralsight ~~LLC was organized on June 17, 2004 in the state of Nevada.~~ Holdings.

Pluralsight operates a cloud-based technology skills platform that provides a broad range of tools for businesses and individuals, including skill assessments, a curated library of courses, learning paths, developer productivity metrics, 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 its 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 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 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 September 30, 2019, Pluralsight, Inc. owned 73.4% of Pluralsight Holdings and the Continuing Members owned the remaining 26.6% 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~~2019 included in Pluralsight, Inc.'s Annual Report on Form 10-K/A, as filed with the SEC on ~~June 27, 2019~~March 2, 2020 ("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. AUnder the VIE accounting model, Pluralsight, Inc. is ~~an entity~~the primary beneficiary as it has the majority economic interest in ~~which~~Pluralsight Holdings, and, as the ~~equity investors as a group, lack~~sole managing member, has decision making authority that significantly affects the ~~power through voting or similar rights to direct the activities of such entity that most significantly impact such entity's~~ economic performance of the entity, while the limited partners have no substantive kick-out or participating rights.

The assets and liabilities of Pluralsight Holdings represent substantially all of the ~~equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support.~~consolidated assets and liabilities of Pluralsight, Inc. with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement ("TRA") as discussed in Note 15—Income Taxes and the obligations under the Company's convertible senior notes discussed in Note 10—Convertible Senior Notes.

Interim Unaudited Condensed Consolidated Financial Statements

The accompanying ~~interim~~ condensed consolidated balance sheet as of ~~September 30, 2019,~~March 31, 2020, and the ~~interim~~ condensed consolidated statements of operations, comprehensive loss, ~~redeemable convertible preferred units, members' deficit, and~~ stockholders' equity, ~~for the three~~ and ~~nine months ended September 30, 2019 and 2018, and the interim condensed consolidated~~ cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ are unaudited. The condensed consolidated balance sheet as of December 31, ~~2018~~2019 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 condition, 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 nine~~ months ended ~~September 30, 2019~~March 31, 2020 are not necessarily indicative of the results to be expected for the full year or any other period.

~~Reclassifications~~

~~Certain reclassifications were made to the nine months ended September 30, 2018 to conform to the current period presentation in the consolidated statements of cash flows.~~

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, the 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 ~~long-lived~~property and equipment, content library and intangible assets, ~~the~~ impairment of long-lived and intangible assets, including goodwill, provisions for doubtful accounts receivable, the standalone selling price (“SSP”) of performance obligations, the determination of the period of benefit for deferred contract acquisition costs, ~~provisions for doubtful accounts receivable and deferred revenue, and~~ certain accrued expenses, including author ~~fees.~~fees, and the discount rate used for operating leases. 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~~ Note 2—Summary of Significant Accounting ~~Policies”~~Policies and Recent Accounting Pronouncements 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 nine~~ months ended ~~September 30, 2019,~~March 31, 2020, except as noted below.

~~Revenue Recognition (ASC 606)~~

~~The Company derives substantially all of its revenue from subscription services (which include support services) by 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 over the license term, access to unspecified future product updates, 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 software is made available to the customer.

The Company also derives revenue from providing professional services, which generally consist of consulting, integration, or other content creation services. These services are distinct from subscription services. Revenue from professional services is generally recognized as services are performed.

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, performance obligations are 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 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 $4.2 million and $3.0 million for the three months ended September 30, 2019 and 2018, respectively, and $12.2 million and $8.7 million for the nine months ended September 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 ("EGC"). 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 EGC 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.

On the last business day of the second quarter in the Company’s fiscal year 2019, the aggregate worldwide market value of shares of Class A common stock held by the Company’s non-affiliate stockholders exceeded $700 million. As a result, as of December 31, 2019, the Company will be considered a large accelerated filer as defined in Rule 12b-2 under the Exchange Act and will cease to be an EGC as defined in the JOBS Act. The Company will no longer be exempt from the auditor attestation

requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, and the Company’s independent registered public accounting firm will evaluate and report on the effectiveness of internal control over financial reporting.

Recently Adopted Accounting Pronouncements

In ~~May 2014,~~June 2016, the FASB issued ASU ~~2014-09,~~ ~~Revenue from Contracts with Customers~~No. 2016-13, Financial Instruments-Credit Losses (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~~326): Measurement of ~~promised goods and services to customers in an amount that reflects the consideration to which the entity expects~~Credit Losses on Financial Instruments. This ASU requires financial assets measured at amortized cost to be ~~entitled in exchange~~presented at the net amount expected to be collected. The measurement of credit losses for ~~delivering those goods~~newly recognized financial assets 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 obligationssubsequent changes in the ~~contract, determining the transaction price, allocating the transaction prices to the performance obligations~~allowance for credit losses are recorded in the ~~contract,~~statements of operations. The allowance for credit losses is based on relevant information about past events, including historical experience, current conditions, and ~~recognizing revenue when (or as)~~reasonable and supportable forecasts that affect the ~~entity satisfies~~collectibility of the ~~performance obligations.~~reported amount. The ~~standard~~ASU also ~~provides guidance~~amends the impairment model for available-for-sale debt securities and requires any credit losses on ~~the recognition of costs related~~available-for-sale debt securities to ~~obtaining customer contracts.~~

be presented as an allowance rather than as a write-down, with changes presented through earnings. The Company adopted the standard ~~as of~~effective January 1, ~~2019~~2020 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~~approach. The effect of ~~adopting~~ the ~~standard as an adjustment to the opening balance of stockholders' equity. The comparative information has~~adoption was 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~~material 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
December 31, 2018 Revenue Recognition Incremental Costs of Obtaining a Contract January 1, 2019

Accounts receivable, net $ 63,436
$ 33
$ —
$ 63,469
Deferred contract acquisition costs, net —
—
16,461
16,461
Deferred contract acquisition costs, noncurrent, net —
—
3,751
3,751
Deferred revenue 157,695
(389 ) —
157,306
Deferred revenue, noncurrent 14,886
—
—
14,886
Accumulated deficit (355,446 ) 205
9,828
(345,413 )
Non-controlling interests 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 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~~ (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~~Company adopted the standard prospectively effective ~~for public business entities for annual periods beginning after December 15, 2019, including interim periods within those periods. For all other entities,~~January 1, 2020. As a result of 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~~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~~capitalizes certain implementation costs that ~~credit losses on available-for-sale debt securities be presented~~were previously expensed 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~~incurred. These costs will be ~~required~~amortized to ~~recognize a lease liability and a right-of-use asset for all leases (with~~expense over the ~~exception~~term 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. Due to an expected loss in the Company's EGC ashosting arrangement. The effect of ~~December 31, 2019, the Company anticipates~~ adopting the standard on December 31, 2019 for the year ended December 31, 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 doeswas not ~~know or cannot reasonably estimate quantitative information related~~material to the ~~impact of the adoption of the new standard on its~~Company's condensed consolidated financial statements ~~at this time.~~for the three months ended March 31, 2020.

Note 3. ~~Restatement of Condensed Consolidated Financial Statements~~

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 September 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.

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 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 nine-month periods ended September 30, 2018, and on the unaudited condensed consolidated statements of redeemable convertible preferred units, members’ deficit, and stockholders’ equity, and cash flows for the nine months ended September 30, 2018.

~~Condensed Consolidated Statements of Operations~~

~~(in thousands, except per share amounts)~~

Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
As Previously Reported Adjustments As Restated As Previously Reported Adjustments As Restated

Revenue $ 61,553
$ —
$ 61,553
$ 164,769
$ —
$ 164,769
Cost of revenue 15,331
16
15,347
46,107
59
46,166
Gross profit 46,222
(16 ) 46,206
118,662
(59 ) 118,603
Operating expenses:
Sales and marketing 41,392
1,240
42,632
109,792
4,164
113,956
Technology and content 17,227
910
18,137
47,045
2,813
49,858
General and administrative 17,398
2,420
19,818
48,138
8,974
57,112
Total operating expenses 76,017
4,570
80,587
204,975
15,951
220,926
Loss from operations (29,795 ) (4,586 ) (34,381 ) (86,313 ) (16,010 ) (102,323 )
Other (expense) income:
Interest expense (342 ) —
(342 ) (6,476 ) —
(6,476 )
Loss on debt extinguishment —
—
—
(4,085 ) —
(4,085 )
Other income, net 654
—
654
689
—
689
Loss before income taxes (29,483 ) (4,586 ) (34,069 ) (96,185 ) (16,010 ) (112,195 )
Provision for income taxes (254 ) —
(254 ) (506 ) —
(506 )
Net loss $ (29,737 ) $ (4,586 ) $ (34,323 ) $ (96,691 ) $ (16,010 ) $ (112,701 )
Less: Net loss attributable to non-controlling interests (15,578 ) (2,402 ) (17,980 ) (28,284 ) (3,606 ) (31,890 )
Net loss attributable to Pluralsight, Inc. $ (14,159 ) $ (2,184 ) $ (16,343 ) $ (68,407 ) $ (12,404 ) $ (80,811 )
Less: Accretion of Series A redeemable convertible preferred units —
—
—
(176,275 ) —
(176,275 )
Net loss attributable to shares of Class A common stock $ (14,159 ) $ (2,184 ) $ (16,343 ) $ (244,682 ) $ (12,404 ) $ (257,086 )
Net loss per share, basic and diluted⁽¹⁾
$ (0.23 ) $ (0.03 ) $ (0.26 ) $ (0.41 ) $ (0.06 ) $ (0.47 )
Weighted-average shares of Class A common stock used in computing basic and diluted net loss per share⁽¹⁾
62,472
62,472
62,400
62,400

~~________________________~~

~~(1)~~

~~Condensed Consolidated Statements of Comprehensive Loss~~

~~(in thousands)~~

Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
As Previously Reported Adjustments As Restated As Previously Reported Adjustments As Restated

Net loss $ (29,737 ) $ (4,586 ) $ (34,323 ) $ (96,691 ) $ (16,010 ) $ (112,701 )
Other comprehensive loss:
Foreign currency translation losses, net (39 ) —
(39 ) (97 ) —
(97 )
Comprehensive loss $ (29,776 ) $ (4,586 ) $ (34,362 ) $ (96,788 ) $ (16,010 ) $ (112,798 )
Less: Comprehensive loss attributable to non-controlling interests (15,599 ) (2,402 ) (18,001 ) (28,326 ) (3,606 ) (31,932 )
Comprehensive loss attributable to Pluralsight, Inc. $ (14,177 ) $ (2,184 ) $ (16,361 ) $ (68,462 ) $ (12,404 ) $ (80,866 )

~~Condensed Consolidated Statement of Redeemable Convertible Preferred Units, Members’ Deficit~~

~~As Previously Reported for the Nine Months Ended September 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
—
—
—
—
324,704
—
—
—
324,706
Allocation of equity to non-controlling interests —
—
—
—
—
—
—
—
—
—
(474,007 ) (4 ) 339,782
134,229
—
Activity subsequent to the Reorganization Transactions and initial public offering:
Effect of the Rescission Transactions —
—
—
—
(605,390 ) —
455,217
—
150,173
—
—
—
—
—
—
Settlement of equity appreciation rights —
—
—
—
—
—
—
—
—
—
(325 ) —
—
—
(325 )
Equity-based compensation —
—
—
—
—
—
—
—
—
—
23,931
—
—
—
23,931
Adjustment to non-controlling interests —
—
—
—
—
—
—
—
—
—
(13,073 ) —
—
13,073
—
Foreign currency translation losses —
—
—
—
—
—
—
—
—
—
—
(37 ) —
(42 ) (79 )
Net loss —
—
—
—
—
—
—
—
—
—
—
—
(25,747 ) (28,284 ) (54,031 )
Balance at September 30, 2018 —
$ —
—
$ —
62,310,270
$ 6
58,566,789
$ 6
14,198,311
$ 1
$ 443,182
$ (34 ) $ (335,863 ) $ 118,976
$ 226,274

~~Condensed Consolidated Statement of Redeemable Convertible Preferred Units, Members’ Deficit, and Stockholders’ Equity (Continued)~~

~~Restatement Adjustments for the Nine Months Ended September 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:
Effect of the Rescission Transactions —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Settlement of equity appreciation rights —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Equity-based compensation —
—
—
—
—
—
—
—
—
—
6,887
—
—
—
6,887
Adjustment to non-controlling interests —
—
—
—
—
—
—
—
—
—
(3,606 ) —
—
3,606
—
Foreign currency translation losses —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Net loss —
—
—
—
—
—
—
—
—
—
—
—
(3,281 ) (3,606 ) (6,887 )
Balance at September 30, 2018 —
$ —
—
$ —
—
$ —
—
$ —
—
$ —
$ 3,281
$ —
$ (3,281 ) $ —
$ —

~~Condensed Consolidated Statement of Redeemable Convertible Preferred Units, Members’ Deficit, and Stockholders’ Equity (Continued)~~

~~As Restated for the Nine Months Ended September 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
—
—
—
—
324,704
—
—
—
324,706
Allocation of equity to non-controlling interests —
—
—
—
—
—
—
—
—
—
(474,007 ) (4 ) 339,782
134,229
—
Activity subsequent to the Reorganization Transactions and initial public offering:
Effect of the Rescission Transactions —
—
—
—
(605,390 ) —
455,217
—
150,173
—
—
—
—
—
—
Settlement of equity appreciation rights —
—
—
—
—
—
—
—
—
—
(325 ) —
—
—
(325 )
Equity-based compensation, as restated —
—
—
—
—
—
—
—
—
—
30,818
—
—
—
30,818
Adjustment to non-controlling interests, as restated —
—
—
—
—
—
—
—
—
—
(16,679 ) —
—
16,679
—
Foreign currency translation losses —
—
—
—
—
—
—
—
—
—
—
(37 ) —
(42 ) (79 )
Net loss, as restated —
—
—
—
—
—
—
—
—
—
—
—
(29,028 ) (31,890 ) (60,918 )
Balance at September 30, 2018, as restated —
$ —
—
$ —
62,310,270
$ 6
58,566,789
$ 6
14,198,311
$ 1
$ 446,463
$ (34 ) $ (339,144 ) $ 118,976
$ 226,274

~~Condensed Consolidated Statements of Cash Flows~~

~~(in thousands)~~

Nine Months Ended September 30, 2018
As Previously Reported Adjustments As Restated

Operating activities
Net loss $ (96,691 ) $ (16,010 ) $ (112,701 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment 6,331
—
6,331
Amortization of acquired intangible assets 7,721
—
7,721
Amortization of course creation costs 1,437
—
1,437
Equity-based compensation 36,972
16,010
52,982
Amortization of debt discount and debt issuance costs 1,215
—
1,215
Debt extinguishment costs 4,085
—
4,085
Other 507
—
507
Changes in assets and liabilities:
Accounts receivable (10,352 ) —
(10,352 )
Prepaid expenses and other assets (2,990 ) —
(2,990 )
Accounts payable 928
—
928
Accrued expenses and other liabilities 6,912
—
6,912
Accrued author fees 1,452
—
1,452
Deferred revenue 28,190
—
28,190
Net cash used in operating activities (14,283 ) —
(14,283 )
Investing activities
Purchases of property and equipment (6,576 ) —
(6,576 )
Purchases of content library (2,345 ) —
(2,345 )
Net cash used in investing activities (8,921 ) —
(8,921 )
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 (7,083 ) —
(7,083 )
Borrowings of long-term debt 20,000
—
20,000
Repayments of long-term debt (137,710 ) —
(137,710 )
Payments of debt extinguishment costs (2,179 ) —
(2,179 )
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 (13 ) —
(13 )
Net cash provided by financing activities 204,242
—
204,242
Effect of exchange rate change on cash, cash equivalents, and restricted cash (136 ) —
(136 )
Net increase in cash, cash equivalents, and restricted cash 180,902
—
180,902
Cash, cash equivalents, and restricted cash, beginning of period 28,477
—
28,477
Cash, cash equivalents, and restricted cash, end of period $ 209,379
$ —
$ 209,379

~~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
September 30, 2018

Nine Months Ended
September 30, 2018
As Previously Reported Adjustments As Restated As Previously Reported Adjustments As Restated

Cost of revenue $ 40
$ 16
$ 56
$ 86
$ 59
$ 145
Sales and marketing 4,372
1,240
5,612
9,343
4,164
13,507
Technology and content 2,790
910
3,700
5,839
2,813
8,652
General and administrative 8,842
2,420
11,262
21,704
8,974
30,678
Total equity-based compensation $ 16,044
$ 4,586
$ 20,630
$ 36,972
$ 16,010
$ 52,982

~~Note 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 September 30, 2019 and its statement of operations for the three and nine months ended September 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 nine months ended September 30, 2019 by ASC 606 (in thousands, except per share data):

~~Condensed Consolidated Balance Sheet:~~

September 30, 2019
As Reported
Balance without Adoption of
ASC 606
Effect of Adoption Increase/(Decrease)

Accounts receivable, net $ 63,001
$ 62,311
$ 690
Goodwill⁽¹⁾
261,622
262,845
(1,223 )
Deferred contract acquisition costs, net 17,128
—
17,128
Deferred contract acquisition costs, noncurrent, net 4,435
—
4,435
Deferred revenue 177,523
179,480
(1,957 )
Deferred revenue, noncurrent 17,586
17,586
—
Accumulated deficit (426,777 ) (443,649 ) 16,872
Non-controlling interest 68,672
62,557
6,115


~~(1)~~	Reflects the difference in Goodwill from applying ASC 606 to the deferred revenue balance acquired from GitPrime, Inc. See Note 9—Acquisition of GitPrime, Inc. 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 Months Ended September 30, 2019
As Reported
Amount without Adoption of
ASC 606
Effect of Adoption Increase/(Decrease)

Revenue $ 82,620
$ 82,017
$ 603
Operating expenses:
Sales and marketing 55,727
56,959
(1,232 )
Loss from operations (39,548 ) (41,383 ) 1,835
Net loss (45,802 ) (47,637 ) 1,835
Less: Net loss attributable to non-controlling interests (13,073 ) (13,597 ) 524
Net loss attributable to Pluralsight, Inc. (32,729 ) (34,040 ) 1,311
Net loss per share, basic and diluted $ (0.32 ) $ (0.34 ) $ (0.02 )
Weighted-average common shares used in computing basic and diluted net loss per share 101,407
101,407
—

Nine Months Ended September 30, 2019
As Reported
Amount without Adoption of
ASC 606
Effect of Adoption Increase/(Decrease)

Revenue $ 228,099
$ 227,097
$ 1,002
Operating expenses:
Sales and marketing 149,852
151,203
(1,351 )
Loss from operations (110,509 ) (112,862 ) 2,353
Net loss (121,127 ) (123,480 ) 2,353
Less: Net loss attributable to non-controlling interests (39,763 ) (40,475 ) 712
Net loss attributable to Pluralsight, Inc. (81,364 ) (83,005 ) 1,641
Net loss per share, basic and diluted $ (0.89 ) $ (0.90 ) $ (0.01 )
Weighted-average common shares used in computing basic and diluted net loss per share 91,741
91,741
—

~~Condensed Consolidated Statement of Cash Flows:~~

Nine Months Ended September 30, 2019
As Reported
Amount without Adoption of
ASC 606
Effect of Adoption Increase/(Decrease)

Net loss $ (121,127 ) $ (123,480 ) $ 2,353
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of deferred contract acquisition costs 17,317
—
17,317
Changes in assets and liabilities:
Accounts receivable 1,858
1,815
43
Deferred contract acquisition costs (18,668 ) —
(18,668 )
Deferred revenue 22,461
23,506
(1,045 )
Cash used in operating activities (3,812 ) (3,812 ) —

Disaggregation of Revenue

Subscription revenue accounted for approximately ~~95%~~96% and ~~97%~~99% of the Company's revenue for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, respectively.

Revenue by geographic region, based on the physical location of the customer, was as follows (dollars in thousands):

Three Months Ended September 30, Growth
2019 2018 Rate
Amount % Amount % %

United States $ 51,869
63 % $ 39,368
64 % 32 %
Europe, Middle East and Africa⁽¹⁾
22,314
27 % 16,182
26 % 38 %
Other foreign locations 8,437
10 % 6,003
10 % 41 %
Total revenue $ 82,620
100 % $ 61,553
100 %


	Nine Months Ended September 30,								Growth		Three Months Ended March 31,								Growth
	2019				2018				Rate		2020				2019				Rate
	Amount		%		Amount		%		%		Amount		%		Amount		%		%

United States	$	142,705	63	%	$	104,901	64	%	36	%	$	58,166	63	%	$	43,581	63	%	33	%
Europe, Middle East and Africa⁽¹⁾	62,204		27	%	44,302		27	%	40	%	25,972		28	%	18,986		27	%	37	%
Other foreign locations	23,190		10	%	15,566		9	%	49	%	8,508		9	%	7,050		10	%	21	%
Total revenue	$	228,099	100	%	$	164,769	100	%			$	92,646	100	%	$	69,617	100	%

(1)

Revenue from the United Kingdom represented ~~11% of revenue for the three~~12% and ~~nine months ended September 30, 2019 and the nine months ended September 30, 2018. Revenue from the United Kingdom represented 10%~~11% of revenue for the three months ended ~~September 30, 2018.~~March 31, 2020 and 2019, respectively. No other foreign country accounted for 10% or more of revenue during the three months ended March 31, 2020 and 2019 .

Revenue by type of customer, was as follows (dollars in thousands):



	Three Months Ended March 31,
	2020		2019

Business customers	$	81,291	$	58,567
Individual customers	11,355		11,050
Total revenue	$	92,646	$	69,617

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018

Business customers $ 71,278
$ 50,423
$ 194,373
$ 132,160
Individual customers 11,342
11,130
33,726
32,609
Total revenue $ 82,620
$ 61,553
$ 228,099
$ 164,769

Contract Balances

Contract assets represent amounts for which we have recognized revenue, pursuant to our revenue recognition policy, for contracts that have not yet been invoiced to our customers where there is a remaining performance obligation, typically for multi-year arrangements. Total contract assets were $0.9 million and $0.8 million as of March 31, 2020 and December 31, 2019, respectively. The change in contract assets reflects the difference in timing between our satisfaction of remaining performance obligations and our contractual right to bill our customers.

Deferred revenue consists of contract liabilities and includes payments received in advance of performance under the contract. Such amounts are generally recognized as revenue over the contractual period. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, the Company recognized revenue of ~~$70.9~~$80.3 million and ~~$137.1~~$58.6 million, respectively, that was included in the corresponding deferred revenue balance at the beginning of the period. ~~In connection with the acquisition of GitPrime, the Company acquired contract assets of $0.7 million, which are presented within accounts receivable, and deferred revenue of $1.4 million.~~

Remaining Performance Obligations

As of ~~September 30, 2019,~~March 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was ~~$265.8~~$308.4 million. The Company expects to recognize ~~74%~~76% of the transaction price over the next 12 months.

Costs to Obtain a Contract

The following table summarizes the activity of the deferred contract acquisition costs (in thousands):



	Three Months Ended March 31,
	2020			2019

Beginning balance	$	24,313		$	20,212
Capitalization of contract acquisition costs	5,871			5,851
Amortization of deferred contract acquisition costs	(6,451		)	(5,867		)
Ending balance	$	23,733		$	20,196

Balance as of January 1, 2019 $ 20,212
Capitalization of contract acquisition costs 18,668
Amortization of deferred contract acquisition costs (17,317 )
Balance as of September 30, 2019 $ 21,563

Note 5.4. Cash Equivalents and Investments

Cash equivalents, short-term investments, and long-term investments consisted of the following ~~as of September 30, 2019~~ (in thousands):



	March 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value

Cash equivalents
Money market funds	$	72,737	$	—	$	—		$	72,737
Commercial paper	998		—		—			998
Corporate notes and obligations	1,981		—		(1		)	1,980
Total cash equivalents	$	75,716	$	—	$	(1	)	$	75,715
Short-term investments
Commercial paper	$	36,801	$	—	$	—		$	36,801
U.S. treasury securities	139,636		334		—			139,970
Corporate notes and obligations	135,100		95		(282		)	134,913
Total short-term investments	$	311,537	$	429	$	(282	)	$	311,684
Restricted cash equivalents
Money market funds	$	23,897	$	—	$	—		$	23,897
Long-term investments
Corporate notes and obligations	$	107,694	$	123	$	(1,510	)	$	106,307
U.S. agency obligations	18,954		14		(5		)	18,963
Certificates of deposit	944		—		—			944
Total long-term investments	$	127,592	$	137	$	(1,515	)	$	126,214

Total cash equivalents, restricted cash equivalents, and investments	$	538,742	$	566	$	(1,798	)	$	537,510


										December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value

Cash equivalents
Money market funds	$	64,380	$	—	$	—		$	64,380	$	62,085	$	—	$	—		$	62,085
Commercial paper	13,995		—		—			13,995		4,991		—		—			4,991
U.S. treasury securities	19,985		1		—			19,986
Total cash equivalents	$	98,360	$	1	$	—		$	98,361	$	67,076	$	—	$	—		$	67,076
Short-term investments
Commercial paper	$	53,787	$	—	$	—		$	53,787	$	33,627	$	—	$	—		$	33,627
U.S. treasury securities	129,329		51		—			129,380		149,353		53		—			149,406
Corporate notes and obligations	125,236		234		(5		)	125,465		148,993		215		(7		)	149,201
U.S. agency obligations	19,971		1		(2		)	19,970
Total short-term investments	$	328,323	$	286	$	(7	)	$	328,602	$	331,973	$	268	$	(7	)	$	332,234
Restricted cash equivalents
Money market funds										$	28,371	$	—	$	—		$	28,371
Long-term investments
Corporate notes and obligations	$	60,903	$	127	$	(10	)	$	61,020	$	78,353	$	121	$	(46	)	$	78,428
U.S. agency obligations	22,740		3		(1		)	22,742		26,436		1		(4		)	26,433
Certificates of deposit	$	448	$	—	$	—		$	448	944		—		—			944
Total long-term investments	$	84,091	$	130	$	(11	)	$	84,210	$	105,733	$	122	$	(50	)	$	105,805

Total cash equivalents and investments	$	510,774	$	417	$	(18	)	$	511,173
Total cash equivalents, restricted cash equivalents, and investments										$	533,153	$	390	$	(57	)	$	533,486

The amortized cost and fair value of the Company's investments based on their stated maturities consisted of the following as of ~~September 30, 2019~~March 31, 2020 (in thousands):



	Amortized Cost		Fair Value

Due within one year	$	311,537	$	311,684
Due between one and two years	127,592		126,214
Total investments	$	439,129	$	437,898

Amortized Cost Fair Value

Due within one year $ 328,323
$ 328,602
Due between one and two years 84,091
84,210
Total investments $ 412,414
$ 412,812

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~~declines in fair ~~value.~~value are the result of credit losses. The Company evaluates, among ~~others,~~other factors, 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~~the unrealized losses were ~~no other-than-temporary impairments associated~~primarily related to investments in corporate notes and obligations, and were due to increases in credit spreads and temporary declines in liquidity for the asset class that were not specific to the underlying issuer of the investments. The Company does not intend to sell the investments with unrealized losses and it is not more likely than not that the Company will be required to sell its investments before the recovery of the amortized cost basis. As a result of this evaluation, 0 credit losses were recorded for investments as of ~~September 30, 2019.~~March 31, 2020. The investments with unrealized loss positions have been in an unrealized loss position for less than 12 months.

Note 6.5. 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.~~funds and investments in available-for-sale debt securities. 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 was as follows (in thousands):



	March 31, 2020
	Level 1		Level 2		Level 3		Total

Cash equivalents
Money market funds	$	72,737	$	—	$	—	$	72,737
Commercial paper	—		998		—		998
Corporate notes and obligations	—		1,980		—		1,980
Total cash equivalents	$	72,737	$	2,978	$	—	$	75,715
Short-term investments
Commercial paper	$	—	$	36,801	$	—	$	36,801
U.S. treasury securities	—		139,970		—		139,970
Corporate notes and obligations	—		134,913		—		134,913
Total short-term investments	$	—	$	311,684	$	—	$	311,684
Restricted cash equivalents
Money market funds	$	23,897	$	—	$	—	$	23,897
Long-term investments
Corporate notes and obligations	$	—	$	106,307	$	—	$	106,307
U.S. agency obligations	—		18,963		—		18,963
Certificates of deposit	—		944		—		944
Total long-term investments	$	—	$	126,214	$	—	$	126,214

As of September 30, 2019
Level 1 Level 2 Level 3 Total

Cash equivalents
Money market funds $ 64,380
$ —
$ —
$ 64,380
Commercial paper —
13,995
—
13,995
U.S. treasury securities —
19,986
—
19,986
Total cash equivalents $ 64,380
$ 33,981
$ —
$ 98,361
Short-term investments
Commercial paper $ —
$ 53,787
$ —
$ 53,787
U.S. treasury securities —
129,380
—
129,380
Corporate notes and obligations —
125,465
—
125,465
U.S. agency obligations —
19,970
—
19,970
Total short-term investments $ —
$ 328,602
$ —
$ 328,602
Long-term investments
Corporate notes and obligations $ —
$ 61,020
$ —
$ 61,020
U.S. agency obligations —
22,742
—
22,742
Certificates of deposit —
448
—
448
Total long-term investments $ —
$ 84,210
$ —
$ 84,210

Convertible Senior Notes

As of ~~September 30, 2019,~~March 31, 2020, the estimated fair value of the Company's convertible senior notes, with aggregate principal totaling $593.5 million, was ~~$510.4~~$442.2 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 ~~11—~~10—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 7.6. Balance Sheet Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):



	March 31, 2020		December 31, 2019

Prepaid expenses	$	11,485	$	11,469
Other current assets	2,472		2,705
Prepaid expenses and other current assets	$	13,957	$	14,174

September 30,
2019 December 31,
2018

Prepaid expenses $ 10,788
$ 7,931
Other current assets 1,876
392
Prepaid expenses and other current assets $ 12,664
$ 8,323

Accrued expenses consisted of the following (in thousands):



	March 31, 2020		December 31, 2019

Accrued compensation	$	17,287	$	23,310
Accrued income and other taxes payable	6,241		7,116
Accrued other current liabilities	12,067		10,277
Accrued expenses	$	35,595	$	40,703

September 30,
2019 December 31,
2018

Accrued compensation $ 21,462
$ 22,285
Accrued income and other taxes payable 6,534
5,408
Accrued other current liabilities 9,639
4,354
Accrued expenses $ 37,635
$ 32,047

Note 8.7. Property and Equipment

Property and equipment, net consisted of the following (in thousands):



	March 31, 2020			December 31, 2019

Computer equipment	$	9,690		$	9,047
Software	2,354			2,047
Capitalized internal-use software costs	24,802			23,021
Furniture and fixtures	5,956			5,826
Leasehold improvements	9,896			9,871
Construction in progress	16,689			4,427
Total property and equipment	69,387			54,239
Less: Accumulated depreciation	(33,986		)	(31,343		)
Property and equipment, net	$	35,401		$	22,896

September 30,
2019 December 31,
2018

Computer equipment $ 11,221
$ 9,369
Software 2,034
2,031
Capitalized internal-use software costs 20,705
13,880
Furniture and fixtures 5,737
5,478
Buildings 11,251
11,251
Leasehold improvements 1,606
1,490
Construction in progress 1,456
1,671
Build-to-suit lease asset under construction 30,742
8,281
Total property and equipment 84,752
53,451
Less: Accumulated depreciation (28,281 ) (21,810 )
Property and equipment, net $ 56,471
$ 31,641

Depreciation expense totaled ~~$2.3~~$2.6 million and ~~$2.0~~$2.2 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $6.5 million and $6.3 million for the nine months ended September 30, 2019 and 2018,~~ respectively.

Note 9.8. Acquisition of GitPrime, Inc.

On May 9, 2019, the Company completed the acquisition of GitPrime, Inc. ("GitPrime"), a leading provider of software developer productivity software. Under the terms of the agreement, the Company acquired all of the outstanding stock of GitPrime for approximately $163.8 million in cash, excluding cash acquired and including 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.

During the three months ended September 30, 2019, the Company recorded a $0.1 million reduction in consideration transferred, with a corresponding decrease to goodwill due to working capital adjustments agreed upon, and paid by, the selling stockholders.

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
Right-of-use assets	549
Goodwill	139,413
Intangible assets	24,800
Lease liabilities	(549		)
Deferred revenue	(1,367		)
Other liabilities assumed	(1,303		)
Total fair value of net assets acquired	$	169,061

Fair Value

Cash and cash equivalents $ 5,290
Accounts receivable 1,798
Other assets acquired 207
Property and equipment 223
Goodwill 138,503
Intangible assets 24,800
Other liabilities assumed (393 )
Deferred revenue (1,367 )
Total fair value of net assets acquired $ 169,061

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:



	Fair Value of Intangible Assets Acquired (in thousands)		Useful Lives (in years)

Technology	$	24,000	5 years
Customer relationships	800		4 years
Total fair value of intangible assets acquired	$	24,800

Fair Value of Intangible Assets Acquired Useful Lives

(in thousands) (in years)
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.~~Fair Value Measurement (Topic 820). 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.

During the ~~three and nine months~~year ended ~~September 30,~~December 31, 2019, the Company incurred acquisition costs of $0.8 million. These costs include legal and 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.

Unaudited Pro Forma Information

The condensed consolidated statements of operations include the results of GitPrime from the acquisition date. During the three and nine months ended September 30, 2019, the condensed consolidated statements of operations includes revenue from GitPrime of approximately $2.0 million and $2.4 million, respectively. 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 March 31, 2019

Revenue	$	72,269
Net loss	(37,464		)
Net loss per share, basic and diluted	$	(0.28	)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018

Revenue $ 82,620
$ 62,421
$ 231,989
$ 166,773
Net loss (45,802 ) (37,558 ) (126,535 ) (123,145 )
Net loss per share, basic and diluted $ (0.32 ) $ (0.29 ) $ (0.92 ) $ (0.51 )

Note ~~10.~~9. Intangible Assets

Intangible assets, net are summarized as follows (in thousands):



	December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Book Value

Content library:
Acquired content library	$	32,835	$	32,780	$	55
Course creation costs	17,717		8,814		8,903
Total	$	50,552	$	41,594	$	8,958
Intangible assets:
Technology	$	28,500	$	6,585	$	21,915
Trademarks	162		162		—
Noncompetition agreements	390		390		—
Customer relationships	3,550		2,879		671
Database	40		40		—
Domain names	45		—		45
Total	$	32,687	$	10,056	$	22,631

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 $1.4 million and ~~$1.1~~$0.7 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively ~~and $3.0 million and $7.7 million for the nine months ended September 30, 2019 and 2018, respectively.~~ Amortization expense of course creation costs was ~~$0.7~~$0.8 million and ~~$0.5~~$0.6 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $1.8 million and $1.4 million for the nine months ended September 30, 2019 and 2018,~~ respectively.

Based on the recorded intangible assets at ~~September 30, 2019,~~March 31, 2020, estimated amortization expense is expected to be as follows (in thousands):



Year Ending December 31,	Amortization

2020 (remaining nine months)	6,417
2021	8,094
2022	7,228
2023	6,562
2024	2,593
2025	42
Total	$	30,936

Year Ended December 31, Amortization

2019 (remaining three months) $ 2,106
2020 8,057
2021 7,494
2022 6,611
2023 5,946
2024 2,005
Total $ 32,219

~~The change in the carrying amount of goodwill for the nine months ended September 30, 2019 was as follows (in thousands):~~

Goodwill at December 31, 2018 $ 123,119
Goodwill recorded in connection with acquisition 138,603
Reduction in goodwill due to working capital adjustments (100 )
Goodwill as of September 30, 2019 $ 261,622

Note ~~11.~~10. 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.

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:

These events include a change in control transaction, or a recapitalization, liquidation, or delisiting of the Company's Class A common stock.

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 ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the conditions allowing holders of the Notes to convert were not met. The Notes are therefore not currently convertible 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~~allocated 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.

~~Repurchases of Convertible Senior Notes~~

In September 2019, Pluralsight, Inc. repurchased a total of $40.0 million in aggregate principal of its Notes for approximately $35.0 million in ~~cash (the "Repurchase").~~cash. The Company first allocated the cash paid to repurchase the Notes to the liability component based on the estimated fair value of that component immediately prior to the extinguishment. The ~~Company estimated~~difference between the fair value of the liability component ~~to be $32.0 million, using an estimated discount rate~~and the carrying value of ~~approximately 5.5% based~~the repurchased Notes resulted in a loss on ~~comparable~~ debt ~~transactions for similar companies.~~extinguishment of $1.0 million. The remaining consideration of approximately $3.0 million was allocated to the reacquisition of the equity component and ~~recognized~~recorded as a reduction of stockholders' equity.

The net carrying value of the liability component of the Notes was as follows (in thousands):

The net carrying value of the equity component of the Notes was as follows (in thousands):

The interest expense recognized related to the Notes was as follows (in thousands):



	Three Months Ended March 31,
	2020		2019

Contractual interest expense	$	556	$	132
Amortization of debt issuance costs and discount	6,591		1,545
Total	$	7,147	$	1,677

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019

Contractual interest expense $ 585
$ 1,311
Amortization of debt issuance costs and discount 6,826
15,120
Total $ 7,411
$ 16,431

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.

In connection with the repurchase of the convertible senior notes in September 2019, the Company terminated a portion of its existing Capped Calls that cover 1,032,092 shares of the Company's Class A common stock, which corresponds to the number of shares underlying the principal amount of Notes that were repurchased. The Company received proceeds of $1.3 million in connection with the portion of the Capped Calls that were ~~terminated.~~terminated in September 2019.

Intercompany Convertible Promissory Note with Pluralsight Holdings

In connection with the issuance of the Notes, Pluralsight, Inc. entered into an intercompany 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. This note was amended in September 2019 in connection with the Repurchase. All effects of the convertible promissory note on the condensed consolidated financial statements have been eliminated in consolidation.

Note ~~12. Commitments~~11. Leases

The Company leases office space under non-cancellable operating leases with lease terms expiring between 2020 and ~~Contingencies~~2024. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional three to five years. These optional periods have not been considered in the determination of the right-of-use assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options.

~~Letters~~The Company performed evaluations of ~~Credit~~its contracts and determined that each of its identified leases are operating leases. The components of operating lease expense were as follows:



	Three Months Ended March 31,
	2020		2019

Operating lease expense	$	1,800	$	1,460
Variable lease expense	173		60
Short-term lease expense	271		17
Total lease expense	$	2,244	$	1,537

Variable lease expense consists of the Company’s proportionate share of operating expenses, property taxes, and insurance and is classified as lease expense due to the Company’s election to not separate lease and non-lease components.

Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2020 and 2019 was $1.7 million and $1.3 million, respectively, and was included in net cash used in operating activities in the consolidated statements of cash flows.

As of ~~September 30, 2019, and December~~March 31, ~~2018,~~2020, 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~~maturities of the ~~Company’s obligations under facility leases. The letters~~Company's operating lease liabilities were as follows (in thousands):



Year Ending December 31,

2020 (remaining nine months)	$	4,602
2021	3,786
2022	3,598
2023	3,012
2024	2,119
Total lease payments	17,117
Less: Imputed interest	(2,527		)
Lease liabilities	$	14,590

As of ~~credit were collateralized by $0.7 million of~~March 31, 2020, the ~~Company’s cash, which~~weighted average remaining lease term is ~~reflected as restricted cash on~~3.8 years and the ~~condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively.~~

~~Lease Commitments~~weighted average discount rate used to determine operating lease liabilities was 5.6%.

The Company ~~is committed under certain operating leases~~has various sublease agreements with third ~~parties for office space.~~parties. These ~~leases expire at various times through 2035. The Company recognizes rent expense on a straight-line basis over~~subleases have remaining lease terms of between one and three years. Sublease income, which is recorded within other income, was $0.1 million during the ~~lease period.~~three months ended March 31, 2020 and 2019.

In August 2018, the Company entered into a non-cancellable lease agreement to rent office space for the Company's future headquarters to be constructed in Draper, ~~Utah.~~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. The annual rent amount will be determined based on the cost of construction of the premises. Based on the ~~Company's involvement in~~current estimate of the ~~design~~cost of construction, the basic rent amount for the first year is expected to be $7.9 million and excludes maintenance, insurance, taxes and other variable costs. The annual rent amount will increase by 2 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 ~~building,~~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 ~~is deemed~~to pay such amounts. The landlord has agreed to an abatement of basic rent payments at the ~~owner~~commencement of the ~~construction project for accounting purposes during~~initial lease term of up to approximately $3.2 million. As of March 31, 2020, the ~~construction period. As a result,~~lease has not yet commenced and is excluded from the ~~Company recorded a construction in progress asset of $30.7 million and a corresponding facility financing obligation as of September 30, 2019.~~table above.

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 and cash equivalents on the condensed consolidated balance ~~sheet.~~sheets. 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 ~~September 30,~~March 31, 2020 and December 31, 2019, the Company ~~has~~ recorded a deposit of $7.2 million and $11.6 million, respectively, into restricted cash and cash equivalents on ~~the~~its 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 September 30,~~

Note 12. Commitments and Contingencies

As of March 31, 2020 and December 31, 2019, ~~future minimum lease payments, including lease payments~~the Company had a total of $2.1 million in letters of credit outstanding with financial institutions. These outstanding letters of credit were issued for purposes of securing certain of the Company’s ~~facilities in Farmington, Utah, and lease payments for the Company’s future headquarters in Draper, Utah~~obligations under facility leases. The letters of credit were ~~as follows (in thousands):~~

Year Ended December 31,

2019 (remaining three months) 1,995
2020 9,026
2021 10,032
2022 10,025
2023 9,926
Thereafter 99,324
Less: Sublease rental income (763 )
Total future minimum lease payments $ 139,565

~~Rent expense under operating leases was $1.8~~collateralized by $1.2 million and $1.3 million ~~for~~of the ~~three months ended September 30,~~Company’s cash, as of March 31, 2020 and December 31, 2019, respectively, which is reflected as restricted cash and ~~2018, respectively, and $5.0 million and $3.4 million for~~cash equivalents on the ~~nine months ended September 30, 2019 and 2018, respectively.~~condensed consolidated balance sheets.

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.

In August 2019, a class action complaint was filed by ~~certain stockholders~~a stockholder of the Company in the U.S. District Court for the Southern District of New York against the Company, and certain of the Company's officers alleging violation of securities laws and seeking unspecified damages. In October 2019, the action was transferred to the U.S. District Court for the District of ~~Utah.~~ Utah and in March 2020, a lead plaintiff was appointed. An amended complaint is due to be filed by June 3, 2020.

The Company believes this ~~lawsuit~~suit is without merit and intends to defend ~~the case~~it vigorously. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision. If an unfavorable outcome were to occur, ~~in this case,~~ it is possible that the impact could be material to the Company's results of operations in the period(s) in which any such outcome becomes probable and estimable.

In March 2020, a derivative lawsuit was filed by a shareholder in the United States District Court for the District of Delaware as an outgrowth of the aforementioned class action. It includes as defendants certain of the Company’s officers and the Board of Directors, alleging violations of fiduciary duties to the Company. The Company is named as a nominal defendant. No response to the compliant has yet been filed.

The Company is involved in other legal proceedings from time to time arising in the normal course of business. The Company is unable to estimate a range of loss, if any, that could result were there to be an adverse final decision. Management believes that the outcome of these proceedings will not have a material impact on the Company’s financial condition, results of operations, or liquidity.

Warranties and Indemnification

The performance of the Company’s cloud-based technology ~~learning~~skills 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~~third-party’s intellectual property rights. In addition, the Company has some contractual arrangements with provisions for indemnifying customers against liabilities in the case of breaches of the Company’s platform or the other systems or networks used in the Company’s business, including those of vendors, contractors, or others with which the Company has strategic relationships. 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 condensed 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 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:

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.

~~Secondary Offering~~

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.

~~Exchanges of LLC Units~~

During the nine months ended September 30, 2019, certain Continuing Members exchanged 33,536,262 LLC Units of Pluralsight Holdings along with their corresponding shares of Class B and Class C common stock, as applicable, 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 ~~14.~~13. 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 economic interests of the LLC Units held by ~~Continuing Members, based on the portion~~other members of ~~LLC Units owned by Continuing Members.~~Pluralsight Holdings. During the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, the adjustments to the non-controlling interests were primarily related to equity-based compensation and 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 11—Convertible Senior Notes and Other Long-Term Debt.awards. 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 ~~September 30, 2019,~~March 31, 2020, the non-controlling interests of Pluralsight Holdings owned ~~26.6%~~25.5% of the outstanding LLC Units, with the remaining ~~73.4%~~74.5% owned by Pluralsight, Inc. The ownership of the LLC Units is summarized as follows:



(1)	Excludes ~~1,827,844~~1,231,044 and ~~3,195,322~~1,543,813 LLC Units still subject to time-based vesting requirements as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively

Note ~~15.~~14. 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 LLC Units outstanding—December 31, 2018 3,195,322
$ 7.63
Forfeited or cancelled (121,845 ) 5.73
Vested (1,245,633 ) 7.58
Unvested LLC Units outstanding—September 30, 2019 1,827,844
$ 8.58

As of September 30, 2019, total unrecognized equity-based compensation related to unvested LLC Units was $12.9 million, which is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Class A common shares and LLC Units vested during the nine months ended September 30, 2019, was $35.4 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.

In August 2019, the Company entered into a Separation Agreement with its Chief Revenue Officer. Under the agreement, the Company accelerated the vesting of 130,924 LLC Units. The acceleration was deemed a modification, which resulted in an increase to equity-based compensation expense of $2.1 million during the three months ended September 30, 2019.

Equity Incentive Plans

In June 2017, Pluralsight Holdings adopted the 2017 Equity Incentive Plan (“2017 Plan”) and issued ~~restricted stock units ("RSUs")~~RSUs to employees. In connection with the IPO, the 2017 Plan was terminated. In May 2018, Pluralsight, Inc. adopted the 2018 Equity Incentive Plan (“2018 Plan”)~~, as amended in April 2019.~~. 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~~ The number of shares available for issuance under the 2018 Plan also includes an annual increase on the ~~2017 Plan was terminated. With~~first day of each fiscal year, equal to the ~~establishment~~lesser of: (i) 14,900,000 shares, (ii) 5.0% of the outstanding shares of capital stock as of the last day of the immediately preceding fiscal year, or (iii) a lower number of shares determined by the 2018 Plan administrator. The number of shares available under the ~~Company no longer grants equity-based awards~~2018 Plan also includes shares 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,~~obligations. As of March 31, 2020, a total of 20,404,161 shares were available for issuance 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.~~

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~~GitPrime’s 2015 and 2018 Equity Incentive Plans were ~~automatically converted into~~replaced with 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 ~~nine~~three months ended ~~September 30, 2019:~~March 31, 2020:



	Stock Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)

Outstanding as of December 31, 2019	4,361,718		$	14.55
Granted	—		—
Exercised	(57,749	)	12.11
Forfeited or cancelled	(10,843	)	4.45
Outstanding as of March 31, 2020	4,293,126		$	14.61	8.1	$	1.2
Vested and exercisable as of March 31, 2020	3,104,307		$	14.84	8.1	$	0.3

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

Granted 169,762
1.47

Exercised (452,914 ) 14.62

Forfeited or cancelled (414,476 ) 14.87

Outstanding as of September 30, 2019 4,446,084
$ 14.53
8.6 $ 10.0
Vested and exercisable—September 30, 2019 2,099,314
$ 14.86
8.6 $ 4.1

The Company has granted RSUs to employees under the 2018 Plan and previously under the 2017 Plan. 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.~~condition, whereas RSUs under the 2018 Plan are generally subject to a service ~~condition.~~conditions only. The service ~~condition is~~conditions are generally satisfied over four years, whereby 25% of

the share units satisfy this condition on the first anniversary of the ~~vesting start~~grant date and then ratably on a quarterly basis thereafter through the end of the vesting period. The liquidity condition for RSUs granted under the 2017 ~~plan~~Plan is deemed a performance condition and was satisfied upon the ~~occurrence of a qualifying event, which was satisfied upon~~ expiration of the lock-up period following the IPO. RSUs with both performance and service conditions, including shares issued under the 2017 Plan, are recognized using the accelerated attribution method. RSUs issued under the 2018 Plan are primarily subject to service conditions only and are 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~~that convey the right to receive LLC Units and corresponding shares of Class C common stock of Pluralsight, Inc. upon vesting.

The activity for RSUs of Pluralsight, Inc. and restricted share units of Pluralsight Holdings for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was as follows:



	Number of RSUs or Units		Weighted-Average Grant Date Fair Value

RSUs of Pluralsight, Inc.:
Balance at December 31, 2019	7,672,038		$	22.71
Granted	5,604,865		19.69
Forfeited or cancelled	(284,697	)	20.80
Vested	(1,157,244	)	25.45
Balance at March 31, 2020	11,834,962		$	21.06

Restricted Share Units of Pluralsight Holdings:
Balance at December 31, 2019	1,312,500		$	8.24
Vested	(187,500	)	8.24
Balance at March 31, 2020	1,125,000		$	8.24

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
Granted 5,279,646
30.60
Forfeited or cancelled (913,189 ) 20.06
Vested (1,621,773 ) 11.85
Balance at September 30, 2019 7,546,220
$ 23.51
Restricted Share Units of Pluralsight Holdings:
Balance at December 31, 2018 2,062,500
$ 8.24
Vested (562,500 ) 8.24
Balance at September 30, 2019 1,500,000
$ 8.24

As of ~~September 30, 2019,~~March 31, 2020, the total unrecognized equity-based compensation cost related to the RSUs, including the restricted share units of Pluralsight Holdings, was ~~$136.1~~$212.1 million, which is expected to be recognized over a weighted-average period of ~~3.1~~3.2 years.

Employee Stock Purchase Plan

In May 2018, Pluralsight Inc.~~'s board~~’s Board of ~~directors~~Directors adopted the ~~Employee Stock Purchase Plan ("ESPP").~~ ESPP. The number of shares of Class A common stock available for issuance under the ESPP will be increased on the first day of each fiscal year equal to the lesser of: (i) 2,970,000 shares of Class A common stock, (ii) 1.5% of the outstanding shares of all classes of common stock of the Company on the last day of the immediately preceding fiscal year, or (iii) an amount determined by the plan administrator. As of March 31, 2020, the total number of shares available for issuance under the ESPP was 5,016,379.

The ESPP generally provides for consecutive overlapping 24-month offering periods comprised of ~~four~~4 six-month purchase periods. The offering periods are scheduled to 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).~~$12,500. 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. 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.

As of March 31, 2020, a total of 1,216,623 shares were issuable to employees based on contribution elections made under the ESPP. As of March 31, 2020, total unrecognized equity-based compensation costs was $6.7 million, which is expected to be recognized over a weighted-average period of 1.0 year.

ESPP employee payroll contributions accrued at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019 totaled ~~$6.2~~$5.8 million and ~~$1.5~~$1.6 million, respectively, 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.

The Company granted incentive units of Pluralsight Holdings to certain employees and directors prior to its IPO pursuant to the Incentive Unit Plan (“2013 Plan”). In connection with the Reorganization Transactions and the IPO, the 2013 Plan was terminated and all outstanding incentive units were converted into LLC Units of Pluralsight Holdings. In addition, certain holders 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, and as such the Company continues to record equity-based compensation expense for unvested awards.

The activity of unvested LLC Units during the three months ended March 31, 2020 was as follows:



	Unvested Units		Weighted- Average Grant Date Fair Value

Unvested LLC Units outstanding—December 31, 2019	1,543,813		$	8.72
Vested	(312,769	)	8.78
Unvested LLC Units outstanding—March 31, 2020	1,231,044		$	8.71

As of ~~September 30, 2019,~~March 31, 2020, total unrecognized equity-based compensation ~~for purchase rights committed under the ESPP~~related to all unvested Class A common shares and unvested LLC Units was ~~$9.3~~$8.6 million, which is expected to be recognized over a weighted-average period of ~~1.0~~1.2 years.

The total fair value of Class A common shares and LLC Units vested during the three months ended March 31, 2020 was $5.9 million.

Equity-Based Compensation Expense

Equity-based compensation expense was classified as follows in the accompanying condensed consolidated statements of operations (in thousands):



	Three Months Ended March 31,
	2020		2019

Cost of revenue	$	270	$	84
Sales and marketing	9,522		6,276
Technology and content	6,336		3,710
General and administrative	9,450		10,198
Total equity-based compensation	$	25,578	$	20,268

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Restated) (Restated)

Cost of revenue $ 138
$ 56
$ 355
$ 145
Sales and marketing 8,739
5,612
22,967
13,507
Technology and content 6,666
3,700
15,513
8,652
General and administrative 9,114
11,262
28,822
30,678
Total equity-based compensation $ 24,657
$ 20,630
$ 67,657
$ 52,982

Equity-based compensation costs capitalized as internal-use software was $0.4 million and ~~$0.1~~$0.3 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $0.9 million and $0.1 million for the nine months ended September 30, 2019 and 2018,~~ respectively.

Note ~~16.~~15. Income Taxes

~~As a result of the Reorganization Transactions,~~ Pluralsight, Inc. ~~became~~is 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.~~basis, except as otherwise provided under Section 704 of the Internal Revenue Code. 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.~~Holdings. 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 ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ the Company's estimated effective tax rate was ~~(0.9)~~(0.5)% and ~~(0.7)%, respectively. For the nine months ended September 30, 2019 and 2018 the Company's estimated effective tax rate was (0.6)% and (0.5)~~(0.8)%, 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 substantially all 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 ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, certain Continuing Members exchanged ~~33,536,262~~201,240 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 ~~September 30, 2019.~~March 31, 2020. The total unrecorded TRA liability as of ~~September 30, 2019~~March 31, 2020 is approximately ~~$252.8~~$271.9 million.

Note ~~17.~~16. 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 March 31,
	2020			2019

Numerator:
Net loss	$	(47,513	)	$	(33,884	)
Less: Net loss attributable to non-controlling interests	(12,194		)	(14,809		)
Net loss attributable to Pluralsight, Inc.	$	(35,319	)	$	(19,075	)
Denominator:
Weighted-average shares of Class A common stock outstanding, basic and diluted	104,631			75,927
Net loss per share:
Net loss per share, basic and diluted	$	(0.34	)	$	(0.25	)

Three Months Ended September 30, 2019 Three Months Ended September 30, 2018 Nine Months Ended September 30, 2019 May 16, 2018 through September 30, 2018

Numerator:
Net loss $ (45,802 ) $ (34,323 ) $ (121,127 ) $ (60,918 )
Less: Net loss attributable to non-controlling interests (13,073 ) (17,980 ) (39,763 ) (31,890 )
Net loss attributable to Pluralsight, Inc. $ (32,729 ) $ (16,343 ) $ (81,364 ) $ (29,028 )
Denominator:
Weighted-average shares of Class A common stock outstanding, basic and diluted 101,407
62,876
91,741
62,867
Less: Weighted-average shares of Class A common stock subject to time-based vesting —
(404 ) —
(467 )
Weighted-average shares of Class A common stock outstanding, basic and diluted 101,407
62,472
91,741
62,400
Net loss per share:
Net loss per share, basic and diluted $ (0.32 ) $ (0.26 ) $ (0.89 ) $ (0.47 )

Shares of Class B and Class C common stock do not share in the earnings or losses of Pluralsight and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B and Class C common stock under the two-class method has not been presented.

During the three months ended ~~September 30, 2019,~~March 31, 2020, 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 September 30, 2019~~March 31, 2020

LLC Units held by Continuing Members		~~38,733~~37,383
Stock options		~~4,446~~4,293
RSUs of Pluralsight, Inc.		~~7,546~~11,835
Restricted Share Units of Pluralsight Holdings		~~1,500~~1,125
Purchase rights committed under the ESPP		~~1,493~~1,217
Total		~~53,718~~55,853

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 ~~18.~~17. 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 ~~$0.4~~$0.1 million as of ~~September 30,~~March 31, 2020 and December 31, 2019 included within accrued expenses on

the condensed consolidated balance sheets. A total of ~~$0.7~~$0.4 million and $0.5 million has been paid under the arrangement during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020 and 2019, respectively.

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 ~~16—~~15—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 19. Subsequent Events~~

In October 2019, the Company entered into a new non-cancellable operating lease agreement to rent office space in Sydney, Australia for a period of 38 months. The total minimum lease payments under the lease agreement are $1.5 million, with lease payments of $0.5 million per year from 2019 to 2022. In connection with the lease agreement, the Company entered into a bank guarantee with a financial institution for $0.3 million, which is collateralized by the Company’s cash and cash equivalents.

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~~skills development ~~solutions for businesses~~platform committed to closing the global technology skills gap. Learners on our platform can quickly acquire today’s most valuable technology skills through on-demand, high-quality learning experiences delivered by subject-matter experts. Skills can be measured and ~~individuals. We enable businesses to innovate~~assessed in ~~an era of rapid technological change and digital transformation by equipping their employees with the latest~~real-time providing technology ~~skills. We provide businesses~~leaders with visibility into the ~~technical strengths~~capabilities of their ~~workforce, including developer productivity, allowing them~~teams and confidence their teams will deliver on critical objectives. Our platform empowers teams to ~~better align resources, provide targeted skill development in line~~keep up with ~~company goals,~~the pace of technological change, puts the right people on the right projects and ~~advance the skills of individuals and teams.~~boosts productivity.

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~~which expanded our addressable market, ~~attract~~attracted new users, and ~~deepen~~deepened our foothold within businesses.

We ~~have~~ expanded our platform both organically through internal initiatives and through acquisitions, which have ~~all~~ been focused on adding content and capabilities to our offerings. In ~~May~~ 2019, we completed the acquisition of GitPrime, ~~Inc., or GitPrime, a leading provider of developer productivity software for approximately $163.8 million in cash, excluding cash acquired~~ and ~~including working capital adjustments. We~~we believe the ~~acquisition will enhance~~addition of GitPrime, now Pluralsight Flow, enhances our platform ~~to measure~~by measuring software developer ~~productivity, which will enable~~productivity. Pluralsight Flow aggregates data from code commits, pull requests and tickets, and packages this data into actionable metrics. Pluralsight Flow enables technology leaders to ~~identify~~enhance skills and drive productivity by identifying talent and areas of improvement within their ~~teams, in order to enhance skills and drive productivity.~~teams.

Our additions and improvements to our ~~product offering~~platform have enabled us to strengthen our relationships with our business customers and increase our revenue over time. 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~~and our website. We also sell subscriptions to our skills development 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 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.

Recent Developments: COVID-19

On March 11, 2020 COVID-19 was characterized by the World Health Organization ("WHO") as a global pandemic. We are monitoring the situation closely and our response to the COVID-19 pandemic continues to evolve. Responsive measures undertaken include shifting customer events to virtual-only experiences; temporarily closing our offices and implementing a mandatory work from home policy for our worldwide workforce; and banning all employee travel. We actively monitor COVID-19-related developments and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, vendors and stockholders. The effects of these operational modifications on our financial performance, including revenue, billings and results of operations are unknown and may not be realized until future reporting periods.

The duration and magnitude of the extent to which the COVID-19 pandemic impacts our business operations and overall financial performance is unknown at this time and will depend on certain developments, some of which are uncertain and not within our control, including the span and spread of the outbreak; the severity and transmission rate of the virus; the measures implemented or suggested by governing bodies, such as cities, counties, states, countries, and the WHO, to slow the spread of COVID-19 (for example, lockdowns, stay- or shelter- in-place orders, and social distancing); restrictions on travel; the effect on our vendors, customers, and community; the global economy and political conditions; the health of our employees, contractors, and their families; how quickly and to what extent normal economic and operating activities can resume; and other factors that are not predictable. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future. The economic effects of the COVID-19 pandemic has financially constrained some of our prospective and existing customers' technology related spending and may cause our revenue and billings to decrease. As a result, we have made and may continue to

make adjustments to our expenses and cash flow to correlate with potential declines in billings and cash collections from customers. These adjustments include restriction of all employee travel and other non-essential operating costs, and a temporary freeze on hiring. Our platform is provided under a subscription-based model, and as a result, the effect of the COVID-19 pandemic on our results of operations and financial condition may not be fully realized until future periods. The construction of our new headquarters in Draper, Utah has been delayed because of challenges obtaining necessary construction materials and supplies and reductions in the availability of construction workers as a result of the COVID-19 pandemic, which may disrupt future business operations. The ultimate financial impact and duration of these construction delays is difficult to assess at this time.

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 September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019

	(dollars in thousands)												(dollars in thousands)
Billings	$	92,123		$	72,243		$	250,603		$	192,959		$	90,278		$	77,928
Billings from business customers	$	80,707		$	61,143		$	216,967		$	161,018		$	80,472		$	67,156
% of billings from business customers	88		%	85		%	87		%	83		%	89		%	86		%

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 tomay decline over the long term as we achieve scale in our business. During the second quarter of 2019, our billings growth rate declined compared to prior results, primarily due to sales execution challenges, including (i) a lower net retention rate, (ii) being slower in hiring additional sales representatives than planned for in 2019, and (iii) an increase in the length of the sales cycle as a greater portion of our billings are generated from larger enterprise customers. As a result of our second quarter performance, we reorganized our senior leadership within our sales organization, including hiring a new Chief Revenue Officer effective as of October 28, 2019. In addition, we are implementing ongoing changes to improve sales execution. While these changes have contributed to an improvement in the billings growth rate during the third quarter of 2019 compared to the second quarter, we expect that these changes will take time to produce recurring improvements in our growth rates over the long term. 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 March 31, 2020, our billings growth rate declined compared to prior results, primarily due to the global economic effects of the COVID-19 pandemic. As a result, we expect that the recent decline in our billings growth rate during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020, and any future declines in billings resulting from the COVID-19 pandemic, will reduce the growth rate of our revenue in future periods. Given the economic uncertainty and ongoing impact from COVID-19 pandemic, we cannot predict the impact on our billings growth rate in the foreseeable future.

Components of Results of Operations

We derive substantially all of our revenue from the sale of subscriptions to our platform. We also derive revenue from providing professional services, which generally consist of ~~consulting,~~implementation, integration, or ~~other content creation~~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, and employee-related costs, including equity-based compensation associated with our customer support and professional services ~~organizations, and third-party transcription costs.~~organizations.



	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		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Non-Controlling Interests			Total

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
Effect of exchanges of LLC Units	—	—		—	—		116,709	—		(116,709	)	—		—	—		238			—			—			(238		)	—
Vesting of restricted stock units	—	—		—	—		399,052	—		—		—		102,906	—		—			—			—			—			—
Exercise of common stock options	—	—		—	—		25,946	—		—		—		—	—		245			—			—			—			245
Forfeiture of unvested LLC Units	—	—		—	—		—	—		(104,452	)	—		—	—		—			—			—			—			—
Repurchases of equity component of convertible senior notes	—	—		—	—		—	—		—		—		—	—		(2,965		)	—			—			—			(2,965		)
Settlement of capped calls related to repurchases of convertible senior notes	—	—		—	—		—	—		—		—		—	—		1,284			—			—			—			1,284
Equity-based compensation	—	—		—	—		—	—		—		—		—	—		25,009			—			—			—			25,009
Adjustments to non-controlling interests	—	—		—	—		—	—		—		—		—	—		(7,656		)	—			—			7,656			—
Other comprehensive loss	—	—		—	—		—	—		—		—		—	—		—			(52		)	—			(19		)	(71		)
Net loss	—	—		—	—		—	—		—		—		—	—		—			—			(32,729		)	(13,073		)	(45,802		)
Balance at September 30, 2019	—	$	—	—	$	—	101,638,179	$	10	24,442,952		$	2	14,289,762	$	1	$	615,713		$	185		$	(426,777	)	$	68,672		$	257,806



	As Reported			Adjustments					As Adjusted
	December 31, 2018			Revenue Recognition			Incremental Costs of Obtaining a Contract		January 1, 2019

Accounts receivable, net	$	63,436		$	33		$	—	$	63,469
Deferred contract acquisition costs, net	—			—			16,461		16,461
Deferred contract acquisition costs, noncurrent, net	—			—			3,751		3,751
Deferred revenue	157,695			(389		)	—		157,306
Deferred revenue, noncurrent	14,886			—			—		14,886
Accumulated deficit	(355,446		)	205			9,828		(345,413		)
Non-controlling interests	107,167			217			10,384		117,768



	Three Months Ended September 30, 2018									Nine Months Ended September 30, 2018
	As Previously Reported			Adjustments			As Restated			As Previously Reported			Adjustments			As Restated

Revenue	$	61,553		$	—		$	61,553		$	164,769		$	—		$	164,769
Cost of revenue	15,331			16			15,347			46,107			59			46,166
Gross profit	46,222			(16		)	46,206			118,662			(59		)	118,603
Operating expenses:
Sales and marketing	41,392			1,240			42,632			109,792			4,164			113,956
Technology and content	17,227			910			18,137			47,045			2,813			49,858
General and administrative	17,398			2,420			19,818			48,138			8,974			57,112
Total operating expenses	76,017			4,570			80,587			204,975			15,951			220,926
Loss from operations	(29,795		)	(4,586		)	(34,381		)	(86,313		)	(16,010		)	(102,323		)
Other (expense) income:
Interest expense	(342		)	—			(342		)	(6,476		)	—			(6,476		)
Loss on debt extinguishment	—			—			—			(4,085		)	—			(4,085		)
Other income, net	654			—			654			689			—			689
Loss before income taxes	(29,483		)	(4,586		)	(34,069		)	(96,185		)	(16,010		)	(112,195		)
Provision for income taxes	(254		)	—			(254		)	(506		)	—			(506		)
Net loss	$	(29,737	)	$	(4,586	)	$	(34,323	)	$	(96,691	)	$	(16,010	)	$	(112,701	)
Less: Net loss attributable to non-controlling interests	(15,578		)	(2,402		)	(17,980		)	(28,284		)	(3,606		)	(31,890		)
Net loss attributable to Pluralsight, Inc.	$	(14,159	)	$	(2,184	)	$	(16,343	)	$	(68,407	)	$	(12,404	)	$	(80,811	)
Less: Accretion of Series A redeemable convertible preferred units	—			—			—			(176,275		)	—			(176,275		)
Net loss attributable to shares of Class A common stock	$	(14,159	)	$	(2,184	)	$	(16,343	)	$	(244,682	)	$	(12,404	)	$	(257,086	)
Net loss per share, basic and diluted⁽¹⁾	$	(0.23	)	$	(0.03	)	$	(0.26	)	$	(0.41	)	$	(0.06	)	$	(0.47	)
Weighted-average shares of Class A common stock used in computing basic and diluted net loss per share⁽¹⁾	62,472						62,472			62,400						62,400



	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
	As Previously Reported		Adjustments		As Restated		As Previously Reported		Adjustments		As Restated

Cost of revenue	$	40	$	16	$	56	$	86	$	59	$	145
Sales and marketing	4,372		1,240		5,612		9,343		4,164		13,507
Technology and content	2,790		910		3,700		5,839		2,813		8,652
General and administrative	8,842		2,420		11,262		21,704		8,974		30,678
Total equity-based compensation	$	16,044	$	4,586	$	20,630	$	36,972	$	16,010	$	52,982



	September 30, 2019
	As Reported			Balance without Adoption of ASC 606			Effect of Adoption Increase/(Decrease)

Accounts receivable, net	$	63,001		$	62,311		$	690
Goodwill⁽¹⁾	261,622			262,845			(1,223		)
Deferred contract acquisition costs, net	17,128			—			17,128
Deferred contract acquisition costs, noncurrent, net	4,435			—			4,435
Deferred revenue	177,523			179,480			(1,957		)
Deferred revenue, noncurrent	17,586			17,586			—
Accumulated deficit	(426,777		)	(443,649		)	16,872
Non-controlling interest	68,672			62,557			6,115



	Three Months Ended September 30, 2019
	As Reported			Amount without Adoption of ASC 606			Effect of Adoption Increase/(Decrease)

Revenue	$	82,620		$	82,017		$	603
Operating expenses:
Sales and marketing	55,727			56,959			(1,232		)
Loss from operations	(39,548		)	(41,383		)	1,835
Net loss	(45,802		)	(47,637		)	1,835
Less: Net loss attributable to non-controlling interests	(13,073		)	(13,597		)	524
Net loss attributable to Pluralsight, Inc.	(32,729		)	(34,040		)	1,311
Net loss per share, basic and diluted	$	(0.32	)	$	(0.34	)	$	(0.02	)
Weighted-average common shares used in computing basic and diluted net loss per share	101,407			101,407			—



	Nine Months Ended September 30, 2019
	As Reported			Amount without Adoption of ASC 606			Effect of Adoption Increase/(Decrease)

Revenue	$	228,099		$	227,097		$	1,002
Operating expenses:
Sales and marketing	149,852			151,203			(1,351		)
Loss from operations	(110,509		)	(112,862		)	2,353
Net loss	(121,127		)	(123,480		)	2,353
Less: Net loss attributable to non-controlling interests	(39,763		)	(40,475		)	712
Net loss attributable to Pluralsight, Inc.	(81,364		)	(83,005		)	1,641
Net loss per share, basic and diluted	$	(0.89	)	$	(0.90	)	$	(0.01	)
Weighted-average common shares used in computing basic and diluted net loss per share	91,741			91,741			—



Balance as of January 1, 2019	$	20,212
Capitalization of contract acquisition costs	18,668
Amortization of deferred contract acquisition costs	(17,317		)
Balance as of September 30, 2019	$	21,563



	As of September 30, 2019
	Level 1		Level 2		Level 3		Total

Cash equivalents
Money market funds	$	64,380	$	—	$	—	$	64,380
Commercial paper	—		13,995		—		13,995
U.S. treasury securities	—		19,986		—		19,986
Total cash equivalents	$	64,380	$	33,981	$	—	$	98,361
Short-term investments
Commercial paper	$	—	$	53,787	$	—	$	53,787
U.S. treasury securities	—		129,380		—		129,380
Corporate notes and obligations	—		125,465		—		125,465
U.S. agency obligations	—		19,970		—		19,970
Total short-term investments	$	—	$	328,602	$	—	$	328,602
Long-term investments
Corporate notes and obligations	$	—	$	61,020	$	—	$	61,020
U.S. agency obligations	—		22,742		—		22,742
Certificates of deposit	—		448		—		448
Total long-term investments	$	—	$	84,210	$	—	$	84,210


	As of December 31, 2018								December 31, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Cash equivalents
Money market funds	$	185,405	$	—	$	—	$	185,405	$	62,085	$	—	$	—	$	62,085
Commercial paper									—		4,991		—		4,991
Total cash equivalents									$	62,085	$	4,991	$	—	$	67,076
Short-term investments
Commercial paper									$	—	$	33,627	$	—	$	33,627
U.S. treasury securities									—		149,406		—		149,406
Corporate notes and obligations									—		149,201		—		149,201
Total short-term investments									$	—	$	332,234	$	—	$	332,234
Restricted cash equivalents
Money market funds									$	28,371	$	—	$	—	$	28,371
Long-term investments
Corporate notes and obligations									$	—	$	78,428	$	—	$	78,428
U.S. agency obligations									—		26,433		—		26,433
Certificates of deposit									—		944		—		944
Total long-term investments									$	—	$	105,805	$	—	$	105,805



	Fair Value of Intangible Assets Acquired		Useful Lives

	(in thousands)		(in years)
Technology	$	24,000	5 years
Customer relationships	800		4 years
Total fair value of intangible assets acquired	$	24,800



Year Ended December 31,	Amortization

2019 (remaining three months)	$	2,106
2020	8,057
2021	7,494
2022	6,611
2023	5,946
2024	2,005
Total	$	32,219



Goodwill at December 31, 2018	$	123,119
Goodwill recorded in connection with acquisition	138,603
Reduction in goodwill due to working capital adjustments	(100		)
Goodwill as of September 30, 2019	$	261,622


	September 30, 2019			March 31, 2020

Principal	$	593,500		$	593,500
Less: Unamortized debt discount	(118,788		)	(106,746		)
Less: Unamortized issuance costs	(11,056		)	(9,935		)
Net carrying amount	$	463,656		$	476,819


	September 30, 2019			March 31, 2020

Proceeds allocated to the conversion option (debt discount)	$	140,776		$	140,776
Less: Issuance costs	(3,743		)	(3,743		)
Less: Reacquisition of conversion option related to the repurchases of convertible senior notes	(2,965		)	(2,965		)
Net carrying amount	$	134,068		$	134,068



Year Ended December 31,

2019 (remaining three months)	1,995
2020	9,026
2021	10,032
2022	10,025
2023	9,926
Thereafter	99,324
Less: Sublease rental income	(763		)
Total future minimum lease payments	$	139,565



	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
Granted	5,279,646		30.60
Forfeited or cancelled	(913,189	)	20.06
Vested	(1,621,773	)	11.85
Balance at September 30, 2019	7,546,220		$	23.51
Restricted Share Units of Pluralsight Holdings:
Balance at December 31, 2018	2,062,500		$	8.24
Vested	(562,500	)	8.24
Balance at September 30, 2019	1,500,000		$	8.24


(2)	Includes amortization of acquired intangible assets as follows:



	Three Months Ended September 30,				Change
	2019		2018		Amount		%

	(dollars in thousands)
Revenue	$	82,620	$	61,553	$	21,067	34	%



		PLURALSIGHT,INC.

		By:	/s/ Aaron Skonnard
~~October 30, 2019~~Date:	April 29, 2020		Aaron Skonnard Chief Executive Officer



		PLURALSIGHT,INC.

		By:	/s/ James Budge
~~October 30, 2019~~Date:	April 29, 2020		James Budge Chief Financial Officer