Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1. Organization and Description of Business
Pluralsight, Inc. was incorporated as a Delaware corporation on December 4, 2017 as a holding company for the purpose of facilitating an initial public offering (“IPO”) and other related transactions in order to carry on the business of Pluralsight Holdings, LLC (“Pluralsight Holdings”) and its subsidiaries (together with Pluralsight, Inc., the “Company” or “Pluralsight”). Pluralsight Holdings is a limited liability company (“LLC”) and was organized on August 29, 2014 in the state of Delaware and is the parent company of Pluralsight, LLC, and its directly and indirectly wholly-owned subsidiaries. Pluralsight, LLC was organized on June 17, 2004 in the state of Nevada. Pluralsight operates a cloud-based technology 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”):
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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.
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•
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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.
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•
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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.
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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 included in Pluralsight, Inc.'s Annual Report on Form 10-K/A, as filed with the SEC on June 27, 2019 ("Annual Report").
These unaudited condensed consolidated financial statements include the accounts of Pluralsight, Inc. and its directly and indirectly wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
As discussed in Note 1—Organization and Description of Business, Pluralsight, Inc. consolidates the financial results of Pluralsight Holdings as a Variable Interest Entity (“VIE”). The Company periodically evaluates entities for consolidation either through ownership of a majority voting interest, or through means other than a voting interest, in accordance with the VIE accounting model. A VIE is an entity in which the equity investors as a group, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity's economic performance or the equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support.
Interim Unaudited Condensed Consolidated Financial Statements
The accompanying interim condensed consolidated balance sheet as of September 30, 2019, and the interim condensed consolidated statements of operations, comprehensive loss, redeemable convertible preferred units, members' deficit, and stockholders' equity, for the three and nine months ended September 30, 2019 and 2018, and the interim condensed consolidated cash flows for the nine months ended September 30, 2019 and 2018, are unaudited. The condensed consolidated balance sheet as of December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The interim unaudited condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company's financial 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 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, 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 assets, the impairment of long-lived and intangible assets, including goodwill, the period of benefit for deferred contract acquisition costs, provisions for doubtful accounts receivable and deferred revenue, and certain accrued expenses, including author fees. These estimates and assumptions are based on the Company’s historical results and management’s future expectations. Actual results could differ from those estimates.
Significant Accounting Policies
The Company’s significant accounting policies are discussed in “Note 1—Description of Business and Summary of Significant Accounting Policies” in the Annual Report. There have been no significant changes to these policies that have had a material impact on the Company's unaudited condensed consolidated financial statements and related notes during the three and nine months ended September 30, 2019, except as noted below.
Revenue Recognition (ASC 606)
The Company derives substantially all of its revenue from subscription services (which include support services) 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:
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Identification of the contract, or contracts, with a customer
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Identification of the performance obligations in a contract
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•
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Determination of the transaction price
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•
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Allocation of the transaction price to the performance obligations in the contract
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•
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Recognition of revenue when, or as, performance obligations are satisfied
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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, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40), which supersedes nearly all existing revenue recognition guidance. The core principle behind ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering those goods and services. To achieve this core principle, the guidance provides a model, which involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction prices to the performance obligations in the contract, and recognizing revenue when (or as) the entity satisfies the performance obligations. The standard also provides guidance on the recognition of costs related to obtaining customer contracts.
The Company adopted the standard as of January 1, 2019 using the modified retrospective adoption method applied to those contracts that were not completed as of that date. Upon adoption, the Company recognized the cumulative effect of adopting the standard as an adjustment to the opening balance of stockholders' equity. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company updated its accounting policies, processes, internal controls and information systems to conform to the new revenue standard's reporting and disclosure requirements.
Prior to adoption, the Company limited revenue recognition for delivered elements to the amount that is not contingent on the delivery of future services. The adoption of ASC 606 resulted in an acceleration in timing of the Company's revenue for certain sales contracts due to the removal of this limitation. In addition, as a result of the new standard, the Company capitalizes sales commissions and other incremental costs of obtaining contracts with customers. Such costs are amortized over the expected period of benefit, which for initial contracts is an estimated period of four years, while renewal contracts are amortized over an estimated period of benefit of 18 months.
The following table summarizes the adjustments made to the Company's condensed consolidated balance sheet as of January 1, 2019 as a result of applying the modified retrospective method to adopt ASC 606 (in thousands):
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As Reported
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Adjustments
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As Adjusted
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December 31, 2018
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Revenue Recognition
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Incremental Costs of Obtaining a Contract
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January 1, 2019
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Accounts receivable, net
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$
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63,436
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$
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33
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$
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—
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|
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$
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63,469
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Deferred contract acquisition costs, net
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—
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—
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16,461
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16,461
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Deferred contract acquisition costs, noncurrent, net
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—
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—
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3,751
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3,751
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Deferred revenue
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157,695
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(389
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)
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—
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157,306
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Deferred revenue, noncurrent
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14,886
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—
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—
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14,886
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Accumulated deficit
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(355,446
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)
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205
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9,828
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(345,413
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)
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Non-controlling interests
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107,167
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217
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10,384
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117,768
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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 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs
to capitalize and recognize as an asset. The new guidance is effective for public business entities for annual periods beginning after December 15, 2019, including interim periods within those periods. For all other entities, the ASU is effective for annual periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted for all entities. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities to require that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statements of operations. For public business entities that meet the definition of an SEC filer, it is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2020. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. For public business entities, the ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. Due to an expected loss in the Company's EGC as 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 does not know or cannot reasonably estimate quantitative information related to the impact of the adoption of the new standard on its consolidated financial statements at this time.
Note 3. Restatement of Condensed Consolidated Financial Statements
The Company 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)
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Three Months Ended September 30, 2018
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Nine Months Ended September 30, 2018
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As Previously Reported
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Adjustments
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As Restated
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As Previously Reported
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Adjustments
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As Restated
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Revenue
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$
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61,553
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$
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—
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|
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$
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61,553
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|
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$
|
164,769
|
|
|
$
|
—
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|
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$
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164,769
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Cost of revenue
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15,331
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|
|
16
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|
|
15,347
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|
|
46,107
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|
|
59
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|
|
46,166
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Gross profit
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46,222
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(16
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)
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46,206
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118,662
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(59
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)
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118,603
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Operating expenses:
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Sales and marketing
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41,392
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|
1,240
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42,632
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109,792
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|
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4,164
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113,956
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Technology and content
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17,227
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|
910
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18,137
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47,045
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|
2,813
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|
|
49,858
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General and administrative
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17,398
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|
2,420
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19,818
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48,138
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8,974
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57,112
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Total operating expenses
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76,017
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4,570
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80,587
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204,975
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15,951
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220,926
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Loss from operations
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(29,795
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)
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(4,586
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)
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(34,381
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)
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(86,313
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)
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(16,010
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)
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(102,323
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)
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Other (expense) income:
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Interest expense
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(342
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)
|
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—
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|
|
(342
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)
|
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(6,476
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)
|
|
—
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|
|
(6,476
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)
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Loss on debt extinguishment
|
—
|
|
|
—
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|
|
—
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|
|
(4,085
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)
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—
|
|
|
(4,085
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)
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Other income, net
|
654
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|
|
—
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|
|
654
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|
|
689
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|
|
—
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|
|
689
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|
Loss before income taxes
|
(29,483
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)
|
|
(4,586
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)
|
|
(34,069
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)
|
|
(96,185
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)
|
|
(16,010
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)
|
|
(112,195
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)
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Provision for income taxes
|
(254
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)
|
|
—
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|
|
(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)
|
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.
|
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% and 97% of the Company's revenue for the three and nine months ended September 30, 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
|
|
|
2019
|
|
2018
|
|
Rate
|
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
142,705
|
|
|
63
|
%
|
|
$
|
104,901
|
|
|
64
|
%
|
|
36
|
%
|
Europe, Middle East and Africa(1)
|
|
62,204
|
|
|
27
|
%
|
|
44,302
|
|
|
27
|
%
|
|
40
|
%
|
Other foreign locations
|
|
23,190
|
|
|
10
|
%
|
|
15,566
|
|
|
9
|
%
|
|
49
|
%
|
Total revenue
|
|
$
|
228,099
|
|
|
100
|
%
|
|
$
|
164,769
|
|
|
100
|
%
|
|
|
|
|
(1)
|
Revenue from the United Kingdom represented 11% of revenue for the three and nine months ended September 30, 2019 and the nine months ended September 30, 2018. Revenue from the United Kingdom represented 10% of revenue for the three months ended September 30, 2018.
|
Revenue by type of customer, was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
For the three and nine months ended September 30, 2019, the Company recognized revenue of $70.9 million and $137.1 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, the aggregate amount of the transaction price allocated to remaining performance obligations was $265.8 million. The Company expects to recognize 74% 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):
|
|
|
|
|
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. Cash Equivalents and Investments
Cash equivalents, short-term investments, and long-term investments consisted of the following as of September 30, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
64,380
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
64,380
|
|
Commercial paper
|
|
13,995
|
|
|
—
|
|
|
—
|
|
|
13,995
|
|
U.S. treasury securities
|
|
19,985
|
|
|
1
|
|
|
—
|
|
|
19,986
|
|
Total cash equivalents
|
|
$
|
98,360
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
98,361
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
53,787
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
53,787
|
|
U.S. treasury securities
|
|
129,329
|
|
|
51
|
|
|
—
|
|
|
129,380
|
|
Corporate notes and obligations
|
|
125,236
|
|
|
234
|
|
|
(5
|
)
|
|
125,465
|
|
U.S. agency obligations
|
|
19,971
|
|
|
1
|
|
|
(2
|
)
|
|
19,970
|
|
Total short-term investments
|
|
$
|
328,323
|
|
|
$
|
286
|
|
|
$
|
(7
|
)
|
|
$
|
328,602
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
Corporate notes and obligations
|
|
$
|
60,903
|
|
|
$
|
127
|
|
|
$
|
(10
|
)
|
|
$
|
61,020
|
|
U.S. agency obligations
|
|
22,740
|
|
|
3
|
|
|
(1
|
)
|
|
22,742
|
|
Certificates of deposit
|
|
$
|
448
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
448
|
|
Total long-term investments
|
|
$
|
84,091
|
|
|
$
|
130
|
|
|
$
|
(11
|
)
|
|
$
|
84,210
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents and investments
|
|
$
|
510,774
|
|
|
$
|
417
|
|
|
$
|
(18
|
)
|
|
$
|
511,173
|
|
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 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
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 in fair value. The Company evaluates, among others, whether it has the intention to sell any of these investments and whether it is more likely than not that it will be required to sell any of them before recovery of the amortized cost basis. Based on this evaluation, the Company determined that there were no other-than-temporary impairments associated with its investments as of September 30, 2019.
Note 6. Fair Value Measurements
The Company measures and records certain financial assets at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Company’s financial instruments that are measured at fair value on a recurring basis consist of money market funds. The following three levels of inputs are used to measure the fair value of financial instruments:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The fair value of the Company’s financial instruments was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
185,405
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
185,405
|
|
Convertible Senior Notes
As of September 30, 2019, the estimated fair value of the Company's convertible senior notes, with aggregate principal totaling $593.5 million, was $510.4 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—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. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
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
Accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
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. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
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 million and $2.0 million for the three months ended September 30, 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. Acquisition of GitPrime, Inc.
On May 9, 2019, the Company completed the acquisition of GitPrime, Inc. ("GitPrime"), a leading provider of developer productivity software. Under the terms of the agreement, the Company acquired all of the outstanding stock of GitPrime for approximately $163.8 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
|
|
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
|
|
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. 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 ended September 30, 2019, the Company incurred acquisition costs of $0.8 million. These costs include legal, accounting fees and other costs directly related to the acquisition and are classified within general and administrative expenses in the Company's condensed consolidated statements of operations.
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 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. Intangible Assets
Intangible assets, net are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
|
|
|
|
|
|
Content library:
|
|
|
|
|
|
|
Acquired content library
|
|
$
|
32,835
|
|
|
$
|
32,771
|
|
|
$
|
64
|
|
Course creation costs
|
|
16,380
|
|
|
8,237
|
|
|
8,143
|
|
Total
|
|
$
|
49,215
|
|
|
$
|
41,008
|
|
|
$
|
8,207
|
|
Intangible assets:
|
|
|
|
|
|
|
Technology
|
|
$
|
28,500
|
|
|
$
|
5,209
|
|
|
$
|
23,291
|
|
Trademarks
|
|
162
|
|
|
162
|
|
|
—
|
|
Noncompetition agreements
|
|
390
|
|
|
390
|
|
|
—
|
|
Customer relationships
|
|
3,550
|
|
|
2,829
|
|
|
721
|
|
Database
|
|
40
|
|
|
40
|
|
|
—
|
|
Domain names
|
|
45
|
|
|
—
|
|
|
45
|
|
Total
|
|
$
|
32,687
|
|
|
$
|
8,630
|
|
|
$
|
24,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 million for the three months ended September 30, 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 million and $0.5 million for the three months ended September 30, 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, estimated amortization expense is expected to be as follows (in thousands):
|
|
|
|
|
|
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. 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:
|
|
•
|
During any calendar quarter commencing after the calendar quarter ended on June 30, 2019 (and only during such calendar quarter), if the last reported sale price of the Company's Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
|
|
|
•
|
During the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price as defined in the Indenture per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's Class A common stock and the conversion rate on each such trading day; or
|
|
|
•
|
Upon the occurrence of specified corporate events described in the Indenture.
|
On or after December 1, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes at the conversion rate at any time irrespective of the foregoing conditions. Upon conversion, holders will receive cash, shares of the Company's Class A common stock or a combination of cash and shares of Class A common stock, at the Company's election.
During the nine months ended September 30, 2019, 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 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"). 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 the fair value of the liability component to be $32.0 million, using an estimated discount rate of approximately 5.5% based on comparable debt transactions for similar companies. The remaining consideration of approximately $3.0 million was allocated to the reacquisition of the equity component and recognized as a reduction of stockholders' equity.
The net carrying value of the liability component of the Notes was as follows (in thousands):
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
Principal
|
|
$
|
593,500
|
|
Less: Unamortized debt discount
|
|
(118,788
|
)
|
Less: Unamortized issuance costs
|
|
(11,056
|
)
|
Net carrying amount
|
|
$
|
463,656
|
|
The net carrying value of the equity component of the Notes was as follows (in thousands):
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
Proceeds allocated to the conversion option (debt discount)
|
|
$
|
140,776
|
|
Less: Issuance costs
|
|
(3,743
|
)
|
Less: Reacquisition of conversion option related to the repurchases of convertible senior notes
|
|
(2,965
|
)
|
Net carrying amount
|
|
$
|
134,068
|
|
The interest expense recognized related to the Notes was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Capped Calls
In connection with the offering of the Notes, the Company entered into privately-negotiated capped call transactions ("Capped Calls") with certain counterparties. The Capped Calls each have an initial strike price of approximately $38.76 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have initial cap prices of $58.50 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, 16,345,757 shares of the Company's Class A common stock. The Capped Calls are generally intended to reduce or offset the potential dilution from shares of Class A common stock issued upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. As the Capped Call transactions are considered indexed to the Company's own stock and are considered equity classified, they are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $69.4 million incurred in connection with the Capped Calls was recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.
In connection with the repurchase of the convertible senior notes, 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.
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 and Contingencies
Letters of Credit
As of September 30, 2019, and December 31, 2018, the Company had a total of $0.7 million in letters of credit outstanding with a financial institution. These outstanding letters of credit were issued for purposes of securing certain of the Company’s obligations under facility leases. The letters of credit were collateralized by $0.7 million of the Company’s cash, which is reflected as restricted cash on the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively.
Lease Commitments
The Company is committed under certain operating leases with third parties for office space. These leases expire at various times through 2035. The Company recognizes rent expense on a straight-line basis over the lease period.
In August 2018, the Company entered into a non-cancellable lease agreement to rent office space for the Company's future headquarters to be constructed in Draper, Utah. Based on the Company's involvement in the design and construction of the building, the Company is deemed the owner of the construction project for accounting purposes during the construction period. As a result, the Company recorded a construction in progress asset of $30.7 million and a corresponding facility financing obligation as of September 30, 2019.
In connection with the lease agreement, the Company is required to maintain a deposit of $16.0 million with a financial institution for the benefit of the landlord to secure the Company’s obligations under the lease. The deposit is recorded within restricted cash on the condensed consolidated balance sheet. The lease agreement provides for both a partial and full release of the deposit funds to the Company, provided the Company meets certain liquidity and other financial conditions. Additionally, as
of September 30, 2019, the Company has recorded a deposit into restricted cash on the condensed consolidated balance sheet of $11.0 million for use in constructing tenant improvements in connection with the Draper headquarters.
Future Minimum Lease Payments
At September 30, 2019, future minimum lease payments, including lease payments for the Company’s facilities in Farmington, Utah, and lease payments for the Company’s future headquarters in Draper, Utah were as follows (in thousands):
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2019 (remaining 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 million and $1.3 million for the three months ended September 30, 2019 and 2018, respectively, and $5.0 million and $3.4 million for the nine months ended September 30, 2019 and 2018, respectively.
Other Commitments
The Company has also entered into certain non-cancellable agreements primarily related to cloud infrastructure and software subscriptions in the ordinary course of business. There have been no material changes in the Company's commitments and contingencies, as disclosed in the Annual Report.
Legal Proceedings
In August 2019, a class action complaint was filed by certain stockholders 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. The Company believes this lawsuit is without merit and intends to defend the case 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.
The Company is involved in other legal proceedings from time to time arising in the normal course of business. Management believes that the outcome of these proceedings will not have a material impact on the Company’s financial condition, results of operations, or liquidity.
Warranties and Indemnification
The performance of the Company’s cloud-based technology learning platform is typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable. The Company’s contractual arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such obligations and has not accrued any material liabilities related to such obligations in the accompanying consolidated condensed financial statements.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
Note 13. Stockholders' Equity
Amendment and Restatement of Certificate of Incorporation
In connection with the Reorganization Transactions, the certificate of incorporation of Pluralsight, Inc. was amended and restated to, among other things, provide for the (i) authorization of 1,000,000,000 shares of Class A common stock with a par value of $0.0001 per share; (ii) authorization of 200,000,000 shares of Class B common stock with a par value of $0.0001 per share; (iii) authorization of 50,000,000 shares of Class C common stock with a par value of $0.0001 per share; (iv) authorization of 100,000,000 shares of undesignated preferred stock that may be issued from time to time; and (v) establishment of a classified board of directors, divided into three classes, each of whose members will serve for staggered three-year terms.
Holders of Class A and Class B common stock are entitled to one vote per share and holders of Class C common stock are entitled to ten votes per share. Except as otherwise required by applicable law, holders of Class A common stock, Class B common stock, and Class C common stock vote together as a single class on all matters on which stockholders generally are entitled to vote. Holders of Class B and Class C common stock are not entitled to receive dividends and will not be entitled to receive any distributions upon the liquidation, dissolution or winding up of the Company. Shares of Class B and Class C common stock may only be issued to the extent necessary to maintain the one-to-one ratio between the number of LLC Units held by the Continuing Members and the number of Class B or Class C common shares held by the Continuing Members. Shares of Class B and Class C common stock are transferable only together with an equal number of LLC Units. Subject to certain limitations and exceptions, Continuing Members may exchange or redeem LLC Units and shares of Class B or Class C common stock, as applicable, for, at the option of Pluralsight, Inc., cash or shares of Class A common stock, on a one-for-one basis.
Pluralsight, Inc. must at all times maintain a ratio of one LLC Unit for each share of Class A common stock issued, and Pluralsight Holdings must at all times maintain a one-to-one ratio between the number of shares of Class B or Class C common stock owned by the Continuing Members and the number of LLC Units owned by the Continuing Members.
Recapitalization of Pluralsight Holdings
In connection with the Reorganization Transactions and the amendment and restatement of the LLC Agreement, all membership interests in Pluralsight Holdings were converted into a single-class of common LLC Units and certain holders of LLC Units elected to exchange LLC Units for Class A common stock of Pluralsight, Inc. The following is a summary of the shares converted or exchanged in connection with the Reorganization Transactions:
|
|
•
|
48,407,645 common units of Pluralsight Holdings outstanding prior to the Reorganization Transactions were converted on a one-for-one basis into LLC Units.
|
|
|
•
|
48,447,880 redeemable convertible preferred units of Pluralsight Holdings outstanding prior to the Reorganization Transactions were converted on a one-for-one basis into LLC Units.
|
|
|
•
|
15,783,689 incentive units of Pluralsight Holdings outstanding prior to the Reorganization Transactions were converted into 12,667,778 LLC Units after giving effect to the threshold price and catch-up price per unit.
|
|
|
•
|
3,000,000 Class B incentive units of Pluralsight Holdings outstanding prior to the Reorganization Transactions were converted into 1,747,067 LLC Units after giving effect to the threshold price and catch-up price per unit.
|
In connection with the recapitalization, a total of 39,110,660 LLC Units were exchanged for shares of Class A common stock of Pluralsight, Inc. In addition, the Company issued 58,111,572 shares of Class B common stock and 14,048,138 shares of Class C common stock to the Continuing Members on a one-for-one basis to the corresponding LLC Units held by the Continuing Members.
The amended and restated LLC Agreement requires that Pluralsight Holdings at all times maintain (i) a one-to-one ratio between the number of outstanding shares of Class A common stock of Pluralsight, Inc. and the number of LLC Units and (ii) a one-to-one ratio between the number of shares of Class B or Class C common stock owned by the Continuing Members and the number of LLC Units held by the Continuing Members.
Initial Public Offering
As described in Note 1—Organization and Description of Business, in May 2018, Pluralsight, Inc. completed an IPO of 23,805,000 shares of Class A common stock at a public offering price of $15.00 per share. Pluralsight, Inc. received proceeds of $332.1 million, net of underwriting discounts and commissions, which Pluralsight, Inc. used to purchase newly-issued LLC Units of Pluralsight Holdings at a price per unit equal to the IPO price per share.
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.
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. Non-Controlling Interests
In connection with the Reorganization Transactions, Pluralsight, Inc. became the sole managing member of Pluralsight Holdings and as a result consolidates the results of operations of Pluralsight Holdings. The non-controlling interests balance represents the LLC Units held by Continuing Members, based on the portion of LLC Units owned by Continuing Members. During the three and nine months ended September 30, 2019, the adjustments to the non-controlling interests were primarily related to equity-based compensation, the settlement of equity-based awards, and the issuance of the convertible promissory note with Pluralsight Holdings in connection with the convertible senior notes as discussed in Note 11—Convertible Senior Notes and Other Long-Term Debt. Income or loss is attributed to the non-controlling interests based on the weighted-average ownership percentages of LLC Units outstanding during the period, excluding LLC Units that are subject to time-based vesting requirements. As of September 30, 2019, the non-controlling interests of Pluralsight Holdings owned 26.6% of the outstanding LLC Units, with the remaining 73.4% owned by Pluralsight, Inc. The ownership of the LLC Units is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019
|
|
As of December 31, 2018
|
|
|
Units
|
|
Ownership %
|
|
Units
|
|
Ownership %
|
|
|
|
|
|
|
|
|
|
Pluralsight, Inc.'s ownership of LLC Units
|
|
101,638,179
|
|
|
73.4
|
%
|
|
65,191,907
|
|
|
48.6
|
%
|
LLC Units owned by the Continuing Members(1)
|
|
36,904,870
|
|
|
26.6
|
%
|
|
68,881,732
|
|
|
51.4
|
%
|
|
|
138,543,049
|
|
|
100.0
|
%
|
|
134,073,639
|
|
|
100.0
|
%
|
|
|
|
(1) Excludes 1,827,844 and 3,195,322 LLC Units still subject to time-based vesting requirements as of September 30, 2019 and December 31, 2018, respectively
|
Note 15. Equity-Based Compensation
Incentive Unit Plan
Certain employees and directors were granted incentive units in Pluralsight Holdings, pursuant to the Incentive Unit Plan (“2013 Plan”). In connection with the Reorganization Transactions, all outstanding incentive units were converted into LLC Units of Pluralsight Holdings and certain holders of incentive units elected to exchange LLC Units for shares of Class A common stock of Pluralsight, Inc. Shares of Class A common stock and LLC Units issued as a result of the exchange or conversion of unvested incentive units remain subject to the same time-based vesting requirements that existed prior to the Reorganization Transactions. In connection with the IPO, the 2013 Plan was terminated.
The unvested LLC Units following the conversion of unvested incentive units are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Unvested Units
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
|
|
|
|
Unvested 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") to employees. 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 of the 2018 Plan, the 2017 Plan was terminated. With the establishment of the 2018 Plan, the Company no longer grants equity-based awards under the 2017 Plan and any shares that expire, terminate, are forfeited or repurchased by the Company, or are withheld by the Company to cover tax withholding obligations, under the 2017 Plan, will automatically be transferred to the 2018 Plan.
In connection with the acquisition of GitPrime, Inc. the Company assumed all existing equity awards under the 2015 and 2018 Equity Incentive Plans of GitPrime.
Stock Options
In connection with the IPO, the Company granted to employees stock options under the 2018 Plan to purchase shares of Class A common stock at an exercise price equal to the IPO price of $15.00 per share. The stock options will vest ratably in equal six-month periods over a period of two years from the IPO date.
In connection with the GitPrime acquisition, the stock options granted to GitPrime employees under the 2015 and 2018 Equity Incentive Plans were automatically converted into options to purchase shares of the Company's Class A common stock, subject to appropriate adjustments to the number of shares issuable pursuant to such options and the exercise price of such options as provided in the Merger Agreement. The options are subject to time-based vesting conditions and continue to vest over the remaining vesting period of the original award ranging from two to four years.
The following table summarizes the stock option activity for the nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
During the nine months ended September 30, 2019, the total intrinsic value of options exercised was $7.6 million. The total unrecognized equity-based compensation related to the stock options was $14.9 million, which is expected to be recognized over a weighted-average period of 1.1 years.
RSUs
RSUs represent the right to receive shares of Pluralsight, Inc.’s Class A common stock at a specified future date. Restricted share units of Pluralsight Holdings under the 2017 Plan are generally subject to both a service condition and a liquidity condition. RSUs under the 2018 Plan are generally subject to a service condition. The service condition is generally satisfied over four years, whereby 25% of the share units satisfy this condition on the first anniversary of the vesting start date and then ratably on a quarterly basis thereafter through the end of the vesting period. The liquidity condition under the 2017 plan is satisfied upon the occurrence of a qualifying event, which was satisfied upon expiration of the lock-up period following the IPO.
Under the 2017 Plan, all restricted share units granted were initially restricted share units of Pluralsight Holdings. In connection with the IPO, all restricted share units were converted into RSUs of Pluralsight, Inc., except for Class B restricted share units of Pluralsight Holdings, which remain restricted share units of Pluralsight Holdings, and represent the right to receive LLC Units and corresponding shares of Class C common stock of Pluralsight, Inc. upon vesting.
The activity for RSUs for the nine months ended September 30, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
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, unrecognized compensation cost related to RSUs, including restricted share units of Pluralsight Holdings, was $136.1 million, which is expected to be recognized over a weighted-average period of 3.1 years.
Employee Stock Purchase Plan
In May 2018, Pluralsight, Inc.'s board of directors adopted the Employee Stock Purchase Plan ("ESPP"). The ESPP generally provides for consecutive overlapping 24-month offering periods comprised of four six-month purchase periods. The offering periods start on the first trading day on or after May 31 and November 30 of each year.
The ESPP permits participants to elect to purchase shares of Class A common stock through fixed contributions from eligible compensation paid during each purchase period during an offering period, provided that this fixed contribution amount will not exceed 75.0% of the eligible compensation a participant receives during a purchase period, or $12,500 (increased to $25,000 for purposes of the first purchase period under the ESPP). A participant may purchase a maximum of 5,000 shares during each purchase period. Amounts deducted and accumulated by the participant will be used to purchase shares of Class A common stock at the end of each purchase period. The purchase price of the shares will be 85% of the lower of the fair market value of Class A common stock on the first trading day of each offering period or on the purchase date. If the fair market value of the common stock on any purchase date within an offering period is lower than the stock price as of the beginning of the offering period, the offering period will immediately reset after the purchase of shares on such purchase date and participants will automatically be re-enrolled in a new offering period. Participants may end their participation at any time during an offering period and will be paid their accrued contributions that have not yet been used to purchase shares of common stock. Participation ends automatically upon termination of employment.
ESPP employee payroll contributions accrued at September 30, 2019 and December 31, 2018, totaled $6.2 million and $1.5 million, and are included within accrued expenses in the condensed consolidated balance sheets. Employee payroll contributions ultimately used to purchase shares under the ESPP will be reclassified to stockholders' equity at the end of the purchase period. As of September 30, 2019, total unrecognized equity-based compensation for purchase rights committed under the ESPP was $9.3 million, which is expected to be recognized over a weighted-average period of 1.0 years.
Equity-Based Compensation
Equity-based compensation was classified as follows in the accompanying condensed consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 capitalized as internal-use software was $0.4 million and $0.1 million for the three months ended September 30, 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. Income Taxes
As a result of the Reorganization Transactions, Pluralsight, Inc. became the sole managing member of Pluralsight Holdings, which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Pluralsight Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Pluralsight Holdings is passed through to and included in the taxable income or loss of its members, including Pluralsight, Inc. following the Reorganization Transactions, on a pro rata basis. Pluralsight, Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income of Pluralsight Holdings following the Reorganization Transactions. The Company is also subject to taxes in foreign jurisdictions.
The tax provision for interim periods is determined using an estimate of the Company's annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of its annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The quarterly tax provision and estimate of the Company's annual effective tax rate are subject to variation due to several factors including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company conducts business, and tax law developments.
For the three months ended September 30, 2019 and 2018 the Company's estimated effective tax rate was (0.9)% 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)%, respectively. The variations between the Company's estimated effective tax rate and the U.S. statutory rate are primarily due to the portion of the Company's earnings (or loss) attributable to non-controlling interests following the Reorganization Transactions and the full domestic valuation allowance.
The Company is subject to income tax in the U.S. as well as other tax jurisdictions in which the Company operates. The provision for income taxes consists primarily of income taxes and withholding taxes in foreign jurisdictions in which the Company conducts business. The Company's U.S. operations have resulted in losses, and as such, the Company maintains a full valuation allowance against its U.S. deferred tax assets. While the Company believes its current valuation allowance is appropriate, the Company assesses the need for an adjustment to the valuation allowance on a quarterly basis. The assessment is based on estimates of future sources of taxable income for the jurisdictions in which the Company operates and the periods over which deferred tax assets will be realizable. In the event the Company determines that it will be able to realize all or part of its net deferred tax assets in the future, all or part of the valuation allowance will be released in the period in which the Company makes such determination. The release of all or part of the valuation allowance against deferred tax assets may cause greater volatility in the effective tax rate in the periods in which it is released.
Tax Receivable Agreement
On the date of the IPO, the Company entered into a Tax Receivable Agreement (“TRA”) with Continuing Members that provides for a payment to the Continuing Members of 85% of the amount of tax benefits, if any, that Pluralsight, Inc. realizes, or is deemed to realize as a result of redemptions or exchanges of LLC Units.
During the nine months ended September 30, 2019, certain Continuing Members exchanged 33,536,262 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. The total unrecorded TRA liability as of September 30, 2019 is approximately $252.8 million.
Note 17. Net Loss Per Share
The following table presents the calculation of basic and diluted net loss per share for the periods following the Reorganization Transactions (in thousands, except per share amounts):
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Three Months Ended September 30, 2019
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Three Months Ended September 30, 2018
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Nine Months Ended September 30, 2019
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May 16, 2018 through September 30, 2018
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Numerator:
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Net loss
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$
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(45,802
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)
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$
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(34,323
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)
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$
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(121,127
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)
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$
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(60,918
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)
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Less: Net loss attributable to non-controlling interests
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(13,073
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)
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(17,980
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)
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(39,763
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)
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(31,890
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)
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Net loss attributable to Pluralsight, Inc.
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$
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(32,729
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)
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$
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(16,343
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)
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$
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(81,364
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)
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$
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(29,028
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)
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Denominator:
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Weighted-average shares of Class A common stock outstanding, basic and diluted
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101,407
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62,876
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91,741
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62,867
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Less: Weighted-average shares of Class A common stock subject to time-based vesting
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—
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(404
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)
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—
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(467
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)
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Weighted-average shares of Class A common stock outstanding, basic and diluted
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101,407
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62,472
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91,741
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62,400
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Net loss per share:
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Net loss per share, basic and diluted
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$
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(0.32
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)
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$
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(0.26
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)
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$
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(0.89
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)
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$
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(0.47
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)
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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, 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):
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As of September 30, 2019
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LLC Units held by Continuing Members
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38,733
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Stock options
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4,446
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RSUs of Pluralsight, Inc.
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7,546
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Restricted Share Units of Pluralsight Holdings
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1,500
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Purchase rights committed under the ESPP
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1,493
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Total
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53,718
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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. 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 million as of September 30, 2019 included within accrued expenses on
the condensed consolidated balance sheets. A total of $0.7 million has been paid under the arrangement during the nine months ended September 30, 2019.
Tax Receivable Agreement
On the date of the IPO, the Company entered into a TRA with Continuing Members that provides for a payment to the Continuing Members of 85% of the amount of tax benefits, if any, that Pluralsight, Inc. realizes, or is deemed to realize as a result of redemptions or exchanges of LLC Units. As discussed in Note 16—Income Taxes, no amounts were paid or payable to Continuing Members under the TRA as it is more-likely-than-not that the Company’s tax benefits obtained from exchanges subject to the TRA will not be realized.
Note 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.