Document
Pluralsight, Inc. is filing this Amendment No. 1 on Form 10-K/A, (the “Amendment”), to amend and restate its Annual Report on Form 10-K for the year ended December 31, 2019 (the “Annual Report”), which was originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 25, 2020. The purpose of the Amendment is to include the correct signature page and power of attorney with the Annual Report. No revisions are being made to Pluralsight, Inc.’s financial statements or any other disclosure contained in the Annual Report. true--12-31FY20190001725579P3Y1P1YP6MP6MP0YP0YP0YP0YP0YP0YP0YP0Y0.00010.00010.00010.00010.00010.0001100000000020000000050000000100000000020000000050000000651919075749088114586173104083271232114181426919965191907574908811458617310408327123211418142691990.0258023000P1Y00P3Y0.00010.00011000000001000000000000P5YP5YP7YP3YP1YP3YP5YP1YP2Y000000.65000.67450.55000.59000.01800.02800.02350.01200.02050.0160P1Y9M18DP1Y3M18DP2YP6MP5Y7M17DP2YP5Y10M24DP6MP4Y6M00 0001725579 2019-01-01 2019-12-31 0001725579 us-gaap:CommonClassAMember 2020-02-14 0001725579 us-gaap:CommonClassBMember 2020-02-14 0001725579 us-gaap:CommonClassCMember 2020-02-14 0001725579 2019-06-28 0001725579 2019-12-31 0001725579 2018-12-31 0001725579 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001725579 us-gaap:CommonClassBMember 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K/A
(Amendment No. 1)
 
 
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____

Commission File Number: 001-38498
 
PLURALSIGHT, INC.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
 
 
82-3605465
(State or other jurisdiction of
incorporation or organization)
 
 
 
(I.R.S. Employer
Identification Number)
182 North Union Avenue
Farmington, Utah 84025
(Address of principal executive offices)

(801) 784-9007
(Registrant's telephone number, including area code)
 
 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
 
 
 
 
 
Class A Common Stock, $0.0001 par value per share
 
PS
 
Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None.
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
Emerging growth company
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $2.7 billion based on the closing price of a share of common stock on June 28, 2019 as reported by the Nasdaq Global Select Market, or Nasdaq, for such date. Shares of the registrant’s common stock held by each executive officer, director and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purpose.
As of February 14, 2020, the registrant had 141,833,367 shares of common stock outstanding, consisting of 104,318,657 shares of Class A common stock, 23,141,415 shares of Class B common stock, and 14,373,295 shares of Class C common stock.
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement relating to its 2020 Annual Meeting of Stockholders, or the 2020 Proxy Statement, are incorporated by reference into Part III of this Form 10-K/A where indicated. Such 2020 Proxy Statement will be filed with the United States Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K/A relates.
 



PLURALSIGHT, INC.
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
PART I
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
PART II
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
PART III
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
PART IV
 
 
 
Item 15.
Item 16.
 
 
 
 





EXPLANATORY NOTE

Pluralsight, Inc. is filing this Amendment No. 1 on Form 10-K/A, (the “Amendment”), to amend and restate its Annual Report on Form 10-K for the year ended December 31, 2019 (the “Annual Report”), which was originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 25, 2020.

The purpose of the Amendment is to include the correct signature page and power of attorney with the Annual Report.

No revisions are being made to Pluralsight, Inc.’s financial statements or any other disclosure contained in the Annual Report.

1


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
As used in this Annual Report on Form 10-K, unless expressly indicated or the context otherwise requires, references to “Pluralsight,” “we,” “us,” “our,” “the Company,” and similar references refer to Pluralsight, Inc. and its consolidated subsidiaries, including Pluralsight Holdings, LLC or Pluralsight Holdings.
This Annual Report on Form 10-K, including the sections entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of the federal securities laws. These forward-looking statements, which are subject to a number of risks, uncertainties and assumptions about us, generally relate to future events or our future financial or operating performance. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would,” “target,” “project,” “contemplate,” or the negative version of these words and other comparable terminology that concern our expectations, strategy, plans, intentions or projections. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about:
our ability to attract new customers and retain and expand our relationships with existing customers;
our ability to expand our course library and develop new platform features;
our future financial performance, including trends in billings, revenue, costs of revenue, gross margin, operating expenses, cash (used in) provided by operating activities, and free cash flow;
the demand for, and market acceptance of, our platform or for cloud-based technology learning solutions in general;
our ability to compete successfully in competitive markets;
our ability to respond to rapid technological changes;
our expectations and management of future growth;
our ability to enter new markets and manage our expansion efforts, particularly internationally;
our ability to attract and retain key employees and qualified technical and sales personnel;
our ability to improve sales management and execution;
our ability to effectively and efficiently protect our brand;
our ability to timely scale and adapt our infrastructure;
our ability to maintain, protect, and enhance our intellectual property and not infringe upon others’ intellectual property;
our ability to successfully identify, acquire, and integrate companies and assets;
our ability to successfully defend ourselves in legal proceedings;
the amount and timing of any payments we make under the fourth amended and restated limited liability company agreement of Pluralsight Holdings, or the Fourth LLC Agreement, and our Tax Receivable Agreement, or TRA, with the members of Pluralsight Holdings; and
our ability to satisfy our obligations under the convertible senior notes.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.

2


You should not rely upon forward-looking statements as predictions of future events. These statements are only predictions based primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. There are important factors that could cause our actual results, events, or circumstances to differ materially from the results, events, or circumstances expressed or implied by the forward-looking statements, including those factors discussed in the section entitled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. You should specifically consider the numerous risks outlined in the section entitled “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any of these forward-looking statements after the date of this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.


3


PART I
Item 1. Business.
Overview
Pluralsight is a leading cloud-based technology skills development platform committed to closing the global technology skills gap. Learners on our platform can acquire today’s most valuable technology skills through high-quality learning experiences delivered by subject-matter experts. Real-time measurement and assessment of a learner’s performance on our platform provides technology leaders with visibility into the capabilities of their teams and confidence their teams will deliver on critical objectives. Our platform empowers teams to keep up with the pace of technological change, puts the right people on the right projects, and boosts productivity.
Many companies still use traditional in-person, instructor-led training, or ILT, models, which do not move fast enough or scale quickly enough to meet the ever-evolving customer expectations and the pace of technological change. We are disrupting these traditional skill development models to provide organizations with the skill development they need, when they need it, because learning should not be confined to a classroom, a “one size fits all” curriculum, or to a select minority of people.
With Pluralsight Skills, individuals and teams can quickly acquire today’s most valuable technology skills through high-quality skill development experiences, such as skill assessments, a curated library of expert-authored courses, directed learning paths, interactive content, and business analytics. Our platform is powered by Iris, our proprietary machine-learning driven skill and role assessment algorithm and recommendation engine, which enables businesses to more effectively quantify and develop skills across technologies. Through our platform, we provide businesses with visibility into strengths of their workforce, allowing them to better align resources, provide targeted skill development and advance the skills of their teams. 
In 2019, we acquired GitPrime and rebranded it as Pluralsight Flow, which gives technology leaders objective data and visibility into workflow patterns to measure the productivity of their software developers. Pluralsight Flow aggregates data from code commits, pull requests and tickets, and packages this data into actionable metrics. It gives technology leaders a data-driven view of their development process to enable their teams to be more successful by debugging development processes and resolving bottlenecks. 
Together, our products enable teams to develop, measure and deploy critical skills at scale and deliver products faster. We provide businesses with visibility into the strengths of their workforce, allowing them to better align resources, provide targeted skill development, and advance the skills of their teams. Ultimately, our mission is to democratize technology skills.
Closing the global technology skills gap requires more than success in our commercial business. That is why we created Pluralsight One, our social impact initiative, committed to serving marginalized populations that our commercial business will not reach. Refer to our “Social Impact” discussion in Part II, Item 7 of this Annual Report on Form 10-K.
In recent years, we reached significant scale in users and our customer base, which span over 180 countries across the globe. As of December 31, 2019, we had 17,942 business customers, including over 980,000 business users, compared to approximately 810,000 business users as of December 31, 2018. Our customers include 70% of the 2019 Fortune 500.
We achieved significant growth in recent periods. For the years ended December 31, 2019, 2018, and 2017, our revenue totaled $316.9 million, $232.0 million, and $166.8 million, respectively, which represents year-over-year growth of 37%, 39%, and 27%, respectively. Our revenue from business customers for the same periods was $271.8 million, $188.2 million, and $125.3 million, respectively, representing year-over-year growth of 44%, 50%, and 41%. Our net loss for the years ended December 31, 2019, 2018, and 2017, was $163.6 million, $146.8 million, and $96.5 million, respectively, which reflects our substantial investments in the future growth of our business.

4


Our Platform
Our platform provides businesses the solutions that they need to upskill teams into modern roles and improve workflow efficiency. The key components of our platform’s products, Pluralsight Skills and Pluralsight Flow, include:
Pluralsight Skills
Skill and Role Assessments: Our assessment tool uses machine learning and advanced algorithms to measure a user’s skills, benchmark that user against others in the industry, and recommend opportunities for growth. Users are provided with a Skill IQ that quantifies if a user is a novice, proficient, or expert within technologies such as AngularJS, C#, and Java. Role IQ allows our users to quantify and develop a collection of skills that are required for success in technology roles. This provides greater clarity around the technology skills required for a specific job role and a clear path to concept mastery. For example, we have Role IQ’s for several roles including: Security Analyst, React Web Developer, and Cloud Architect. Skills assessments can be mapped to a defined role in order to benchmark a user’s technical proficiency against what is required to master that role. We provide a modern skill assessment experience that gives businesses a credible, adaptable, and efficient model for validating technology skills.
Course Library: Our course library includes a digital ecosystem of thousands of on-demand courses across a range of technology subject areas, including cloud, mobile, security, IT, and data. Video courses, or videos, are organized by modules and clips and are searchable, so users can either take an entire course or target an area for a specific need. The majority of our courses are transcribed, and once transcribed, are available with closed captioning in over 100 languages. We built our exclusive course library primarily by engaging our world-class community of subject-matter experts, or authors, who create content for us and share in our success by receiving revenue-share amounts based on the viewing of their content. In addition, our platform offers interactive courses with an in-browser developer environment that allows users to practice as they learn through coding challenges with real-time feedback. Interactive courses provide a hands-on learning experience to apply knowledge outside of the course library in order to assess concept mastery. Our projects feature extends the practice modules to the user’s local coding environment, allowing users to apply knowledge to real-world, on-the-job scenarios.
Paths: Based on either an assessment or a user’s goals, our directed learning paths are personalized to take users through a set of courses designed to help them master a particular subject area and not spend time reviewing content that they already know. Businesses can customize learning paths to meet company-specific objectives and roles.
Business Analytics: Our business analytics tools enable business customers to index the technology skills of their teams, align learning to key business objectives, determine the usage of our platform, examine trends in skill development, and quantify the impact of our platform on their business.
Pluralsight Flow
Pluralsight Flow aggregates historical git data to provide insights and reports to software developers and their leaders. The metrics within Pluralsight Flow visualize code commits and code reviews to help leaders and teams observe dynamics and patterns in the code development process. Code commit metrics show leaders the time software developers spend on reworking legacy code by providing concrete data around commit risk and code churn. Code review metrics evaluate productivity and help leaders observe team dynamics and patterns in the code review process. Team collaboration metrics help leaders manage knowledge distribution and teamwork dynamics that may be impacting cycle times and software code quality.
Key Benefits of Our Platform
We developed our platform to empower businesses to enable smarter, more efficient workers and to drive innovation in this period of digital transformation. Key benefits of our platform include the following:
High quality, curated content
We believe we have the most relevant course library for the greatest number of technology professionals. Our content is the product of our industry-leading authors. We spent many years identifying, cultivating, and growing our author network, and over 1,500 authors have contributed to our current course library. One of the primary challenges for businesses and individuals seeking to enhance technology skills is finding the right resources. We address that challenge for them. Our extensive relationships within the developer and technical communities allow us to source and retain the best subject-matter experts to produce relevant content for our users. We provide quality assurance on our authors’ expertise through our selection process and by having our in-house technology professionals and practitioners, as well as other authors, perform reviews on

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the quality and effectiveness of all content before it is published to our platform. This content curation ensures our users are receiving high-quality, consistent results from our platform.
We conduct a thorough, strategic analysis of current job postings and leverage the knowledge of our on-staff subject matter experts and author community to determine the most in-demand tech roles, skills and technologies. The benefit of working with job posting data and continuous, qualitative input from our on-staff curriculum team is that we readily identify shifts in the market and pivot our content strategy accordingly. These factors help us identify which roles, skills and technologies are most needed, and how often they appear in the workplace, which enables us to prioritize content creation and determine the depth and breadth of content supporting these in-demand skills. 
Align skill development to learning styles and business needs
We view skill development as a holistic process. Our integrated platform combines skill and role assessments, a curated library of expert-authored courses, directed learning paths, business analytics, interactive courses, and projects to ensure that learners are taking the courses most useful to them and demonstrating comprehension of the subject matter. Through our skill assessment engine, powered by Iris, we are able to assess the proficiency of a user in a role or a topic through adaptive tests and provide a Skill IQ or Role IQ. By gathering such insights from our platform, businesses can understand skills gaps, benchmark employees against consistent standards, and address skill development needs in an efficient and targeted manner.
Obtain visibility into team skills and efficiencies
Our two-product platform provides teams with a 360-degree approach to increasing efficiency and accelerating product development. With Pluralsight Skills and Pluralsight Flow together, teams can benchmark technical proficiency against their priorities, upskill into the roles they need and monitor their workflow patterns to deliver innovations on time and under budget. Our platform supports the technologist in his or her entire journey from skill gap discovery to skill development to skill application and back again as technology continues to evolve. 
Cost effective technology skills platform
We believe our pricing model provides a significant cost advantage compared to traditional technology skill development offerings. As our customers’ industries and business models evolve, they require a learning solution that helps them deliver key innovations with demanding time and budgetary constraints. Our business subscriptions published pricing ranges from $579 to $779 per user per year for Pluralsight Skills, providing what we believe to be a significant cost advantage over ILT and alternative solutions. In addition, our platform can be deployed with little to no implementation or other professional services required, as evidenced by substantially all of our revenue to date being derived from the sale of subscriptions to our platform.
Our Pluralsight Flow solution is priced similarly to Pluralsight Skills at $499 to $699 per year per active contributor to a customer’s code base. We believe the insights provided by Pluralsight Flow promote work efficiencies, which drive cost savings to our customers.
Optimized for on-demand accessibility
We offer our content the way users want to consume it. Our cloud-based technology skills platform is an on-demand solution that allows globally distributed users to access courses anytime they want from almost any device, maximizing utilization of our product and workplace efficiency. Our mobile applications are available on iOS and Android operating systems, and our desktop application is available on Mac and PCs. Courses can be temporarily downloaded and viewed offline. Our platform allows users to participate and take notes while watching our courses. These applications allow our users to take our courses when convenient for them.
Our platform is designed for the professional technologist but it can be used by anyone, at any skill level, who has an interest in improving their technology skills. We offer a range of courses from novice to expert skill levels, with significant granularity within each topic so users can access the content most relevant to their specific needs. We utilize a cloud-based delivery model that enables us to regularly make new content available to users and allows businesses to deliver consistent skill development across distributed workforces. Users can access our platform to learn anytime and anywhere. Pluralsight applications are delivered on demand and across a range of devices and operating systems, including iOS, Android, Windows, and Mac. In addition, Pluralsight applications are available for TV applications, including Amazon Fire TV, Apple TV, Chromecast, and Roku.
Growth Strategy
We are pursuing the following principal strategies to drive our growth:

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Expand deployments within our customer base
We utilize a land-and-expand strategy within businesses, beginning with either individual users or departmental deployments. Our platform is used by individuals, software developer groups, IT departments, line of business users, and human resources. Historically we have expanded from small teams to departments to business-wide deployments of our platform. For example, our 25 largest customers as of December 31, 2019 expanded their annual spend by approximately 18 times the amount they spent in the year of their initial purchase. We intend to drive increased sales to existing customers by targeting new users, departments, and geographies within our customers.
Grow our business customer base
We have a large direct sales force to focus on business sales and have aligned our sales team’s compensation structure to fit this objective. We intend to pursue a greater proportion of large scale, recurring business transactions and to more effectively drive business customer engagement throughout the life of the relationship. As an example of our ability to increase customer engagement, as of December 31, 2019, the number of customers with annual billings greater than $500,000 and $1,000,000 had grown by 78% and 63%, respectively, when compared to December 31, 2018. We will continue to expand our platform capabilities to deliver additional value to our customers. Our sales force educates business customers on the strengths of our platform to help customers make informed decisions and create a customized and unified end-to-end learning experience for their businesses.
Geographic Expansion
We see a significant opportunity to expand our reach internationally. We have customers in over 180 countries around the world and are building out sales teams in Europe and the Asia Pacific region to further address these large markets impacted by rapidly changing technologies.
In 2018, we expanded our operations to Ireland to build our business and drive customer growth. As a result of these investments, our revenue for the year ended December 31, 2019 increased 40% in the Europe, Middle East and Africa region. In 2019, we expanded our operations to Australia to build our business and drive customer growth in the Asia Pacific region. We intend to continue selectively expanding in key markets to grow our customer base and increase our revenue.
Strategic Acquisitions
Strategic acquisitions have enabled us to quickly scale our business, expand our course library, add features to our platform, and address new areas of technology in high demand by our customers. Over the past seven years, we made nine targeted strategic acquisitions, which allowed us to expand our course library, author base, platform capabilities and product offerings. For example, the acquisition of GitPrime in May 2019 gave us our software developer productivity analysis product known as Pluralsight Flow. The addition of Pluralsight Flow allows us to sell more products to our existing customers and attract new customers. With this addition, we can measure the application of knowledge in real time. We intend to expand the capabilities of Pluralsight Flow with Pluralsight Skills over time to provide more actionable insights to software developers and their leaders.
We have proven success with identifying core capabilities in the market, acquiring talent and technology, and integrating these assets into our platform for a unified user experience. We may continue selectively adding content and platform capabilities through acquisitions that enhance value to our customers.
Expand course library with new content areas and offer additional platform features
We plan to continue expanding our course library to address the most relevant topics for users. We anticipate continued strong growth in our technology skills platform as we build out content in new areas like cloud, data science, data engineering, artificial intelligence, machine learning, and security.
We introduced and acquired several platform features that have been integrated into our cloud-based technology skills platform, including skill and role assessments and learning paths. We will continue adding more features to our platform over time which we believe will strengthen our position as the go-to platform for technology leaders to deliver on their innovation strategies.
Technology and Content
Our cloud-hosted, multi-tenant application platform is designed for enterprise scalability to enable significant growth in our user base, support businesses with widely distributed locations, and provide high levels of system performance and

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availability. Our distributed and scalable technology architecture allows our global user base to access courses anytime they want from almost any device, maximizing utilization of our platform.
Iris
Pluralsight Skills is powered by Iris, our machine learning intelligence underlying our skill assessments algorithm, user gap analysis and personalized content recommendations that guide users on how to develop desired skills. With every assessment and course completed, Iris absorbs information about the state of technology skills across our overall user base, within a specific business customer’s users, and for each individual user, thereby allowing our platform to provide predictive, personalized skill development solutions and adapt to the needs of our customers. Iris creates a smarter, more personalized learning journey for our users.
Content Creation
Our course library was created primarily by our world-class community of authors and industry partners. By publishing courses on our platform, we provide authors with exposure to our broad user base, thereby enabling our authors to build their reputations and increase their name recognition as a trusted source in the market. In addition, we share our success with our authors, who receive revenue-share amounts based on the viewing of their content. This incentivizes authors to create new, up-to-date, high-quality content, which drives customer growth and user adoption, creating a virtuous cycle that promotes our continued growth.
We identify and select prospective authors based on their skills, experience, following in user communities, popularity, ability to effectively instruct, and commitment to advancing knowledge about their discipline.
We provide authors with a set of tools and skill development materials to instruct them on our course design methodology. They are assigned to one of our content leaders, or production editors, to help them select topics, create a framework for their courses, and support them through the course production and editing process. External peer reviewers, who are generally authors, help ensure technical accuracy. Authors produce courses and presentations from their own location on their own time, making the process scalable and efficient.
Based on the size of our author community and the related depth and breadth of technical knowledge, we have the ability to consistently deliver current and relevant content to keep pace with technology’s fast pace of change. For example, in 2019, our authors published courses on average within 60 days of being engaged to create the course.
Pluralsight Flow
Our proprietary Flow software utilizes data-driven methods to process, analyze and visualize software developer coding activities into actionable metrics. We have created a number of metrics designed to measure the volume, type, and complexity of each code commit. Our solution is designed to work with a variety of commonly-used software coding and IT ticketing environments.
Technology and Content Team
Our technology and content teams use a human-centered design and development approach to engage with customers, users, and industry analysts through interviews and surveys on a frequent basis to understand customer needs and general industry trends to enhance our platform and course library. This allows us to build a platform that is uniquely positioned to deliver a highly personalized journey that focuses on the user and provides deep business analytics. The primary function of our technology team is to evaluate new technologies, determine the best technologies to create for our platform, incorporate new features and functionality into our platform to improve user experience, and ensure our solutions are delivered seamlessly, as well as to ensure that our platform is resilient and available to our customers at any time. Our content team tracks subject-matter experts across a variety of categories, researches the latest technology trends and adoption within businesses, and works with our authors to create high-quality content which addresses the needs of our customers.
As of December 31, 2019, we had over 520 employees in our technology and content organization. We intend to continue investing in our technology and content organization to strengthen our existing platform and add new capabilities to enhance our value to customers.
Seasonality
Our quarterly results of operations may fluctuate due to various factors affecting our performance. We have historically experienced seasonality in terms of when we enter into agreements with customers. We typically enter into a higher percentage of agreements with new customers, as well as renewal agreements with existing customers, in the fourth quarter of each year

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and usually during the last month within each quarter. The increase in customer agreements entered into in the fourth quarter is generally attributable to large enterprise buying patterns typical in the software industry. During the fourth quarter of 2019, we recognized 28% of our revenue, and recorded 34% of our total billings. As the terms of most of our customer agreements are measured in full year increments, agreements initially entered into in the fourth quarter will generally come up for renewal at that same time in subsequent years. This seasonality is reflected in our billings, and to a lesser extent, our revenue. We generally recognize revenue from subscription fees ratably over the term of the contract. Therefore, changes in our contracting activity in the near term may not impact changes to our reported revenue until future periods.
Customers
As of December 31, 2019, we had 17,942 business customers on our platform. This is an increase of over 1,100 business customers from December 31, 2018. We experienced rapid growth within large businesses. Our client base is diversified across industries, such as financial services, internet, technology, healthcare, media and entertainment, consumer goods and retail, transportation and logistics, government contractors, manufacturing, energy, education, and professional services.
Sales and Marketing
Our platform is designed to be easy to access and use, which allows both individual and business customers to seamlessly purchase subscriptions to, and deploy, our platform. Accordingly, for the year ended December 31, 2019, approximately 24% of our revenue was derived from self-service subscriptions to our platform without any direct interaction with our sales team. Our self-service deployments are typically to small business teams and individual customers, which represent the “top of the funnel” for larger deployments, bringing our technology into the workplace and proliferating usage within a business.
We also deploy a direct sales team focused on landing new business customers, renewing existing subscriptions, and expanding business-wide deployments, as well as a field sales team responsible for sourcing new prospects and upsell opportunities. We expect to increase penetration of our business customers by expanding their use of our platform to address additional use cases and increasing the number of their employees who utilize our platform.
Our marketing efforts are focused on generating awareness of our cloud-based technology skills platform, creating sales leads, establishing and promoting our brand, and cultivating a community of loyal customers and authors. We utilize both online and offline marketing initiatives, including search engine and email marketing, online banner and video advertising, blogs, corporate communications, white papers, case studies, user events including Pluralsight LIVE in the United States and Europe, and webinars.
Employees
As of December 31, 2019, we had over 1,600 full-time employees. We also engage contractors and consultants. None of our employees are represented by a labor union. We have not experienced any work stoppages, and we believe that our employee relations are good.
Competition
The market for professional skill development is highly competitive, rapidly evolving, and fragmented. We expect competition to continue to accelerate in the future as competitors bundle new and more competitive offerings with their existing products and services, and as products and product enhancements are introduced into our market.
We compete directly or indirectly with:
instructor-led training vendors, such as Global Knowledge, General Assembly, and New Horizons;
legacy e-learning services, such as Skillsoft and Cornerstone OnDemand;
individual-focused e-learning services, such as LinkedIn Learning, Udemy, and Udacity;
software development productivity tools, such as Code Climate, Waydev, and BlueOptima; and
free solutions, such as YouTube.
We believe the principal competitive factors in our market include the following:
breadth, depth, and quality of content library;
platform features and functionality;

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reliability and scalability;
performance;
user experience;
brand;
security and privacy;
price;
accessibility across several devices, operating systems, and applications;
third-party and customer integration;
effectiveness and quality of support and professional services;
customer, technology, and platform support; and
continued innovation.
We believe we compete favorably across these factors and are largely uninhibited by legacy constraints. However, many of our competitors and potential competitors are larger and have greater brand name recognition, longer operating histories, larger marketing budgets and established marketing relationships, access to larger customer bases, and significantly greater resources for the development of their offerings. Moreover, because our market is changing rapidly, it is possible that new entrants, especially those with substantial resources, more efficient operating models, more rapid technology and content development cycles, or lower marketing costs, could introduce new products and services that disrupt our market and better address the needs of our customers and potential customers.
Intellectual Property
We rely on trademarks, copyrights, trade secrets, license agreements, intellectual property assignment agreements, confidentiality procedures, non-disclosure agreements, and employee invention assignment agreements to establish and protect our proprietary rights. We believe our intellectual property rights are valuable and important to our business.
As of December 31, 2019, we had eight pending patent applications in the United States and abroad. These patent applications seek to protect our proprietary inventions relevant to our business.
We have an ongoing trademark and service mark registration program pursuant to which we register our brand names and product names, taglines, and logos in the United States and other countries to the extent we determine appropriate. We also have common law rights in some unregistered trademarks that were established over years of use.
We intend to pursue additional intellectual property protection to the extent we believe it beneficial. Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented, or challenged. In addition, the laws of various foreign countries where our products are distributed may not protect our intellectual property rights to the same extent as laws in the United States.
Our Organizational Structure
In May 2018, we completed an initial public offering, or IPO. Our IPO was conducted through what is commonly referred to as an “UP-C” structure. In connection with the IPO and the UP-C structure, we completed the following transactions, referred to as the Reorganization Transactions:
The Fourth LLC Agreement of Pluralsight Holdings 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 into a single class of LLC Units.
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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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, or the Continuing Members. Class B and Class C common stock have voting rights but no economic rights.
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. See Note 1 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information about the Reorganization Transactions completed as part of the IPO.
Corporate Information
We were incorporated in Delaware in December 2017. Our principal executive offices are located at 182 North Union Avenue, Farmington, Utah 84025, and our telephone number is (801) 784-9007. Our Class A common stock is listed on Nasdaq under the symbol “PS.” Our corporate website address is http://www.pluralsight.com.  Information contained on or accessible through our website is not part of this report. “Pluralsight,” our logo, and our other registered or common law trademarks, service marks, or trade names appearing in this report are the property of Pluralsight, Inc., Pluralsight Holdings, LLC, and their subsidiaries. Other trademarks and trade names referred to in this report are the property of their respective owners.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statement, and all amendments to these filings, are available free of charge from our investor relations website (https://investors.pluralsight.com/financial-information/sec-filings) as soon as reasonably practicable following our filing with or furnishing to the Securities and Exchange Commission, or the SEC, of any of these reports. The SEC’s website (https://www.sec.gov) contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Pluralsight investors and others should note that we announce material information to the public about our company, products and services and other issues through a variety of means, including our website (https://www.pluralsight.com), our investor relations website (https://investors.pluralsight.com), press releases, SEC filings, public conference calls, and social media, in order to achieve broad, non-exclusionary distribution of information to the public. We encourage our investors and others to review the information we make public in these locations as such information could be deemed to be material information. Please note that this list may be updated from time to time.
The contents of any website referred to in this Annual Report on Form 10-K are not intended to be incorporated into this Annual Report on Form 10-K or in any other report or document we file.

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Item 1A. Risk Factors
Risks Related to Our Business and Our Industry
Market adoption of cloud-based learning solutions is new and unproven and may not grow as we expect, which may harm our business and results of operations, and even if market demand increases, the demand for our platform may not increase.
We believe our future success depends in part on the growth, if any, in the demand for cloud-based technology learning solutions, particularly enterprise-grade solutions. The widespread adoption of our platform depends not only on strong demand for new forms of technology learning, but also for solutions delivered via a Software-as-a-Service, or SaaS, business model in particular. The market for cloud-based learning solutions is less mature than the market for in-person ILT, which many businesses currently utilize, and these businesses may be slow or unwilling to migrate from these legacy approaches. As such, it is difficult to predict customer demand for our platform, customer adoption and renewal, the rate at which existing customers expand their engagement with our platform, the size and growth rate of the market for our platform, the entry of competitive products into the market, or the success of existing competitive products. Furthermore, even if businesses want to adopt a cloud-based technology learning solution, it may take them a long time to fully transition to this type of learning solution or they could be delayed due to budget constraints, weakening economic conditions, or other factors. Some businesses may also have long-term contracts with existing vendors and cannot switch to our platform in the short term. Even if market demand for cloud-based technology learning solutions generally increases, we cannot assure you that adoption of our platform will also increase. If the market for cloud-based technology learning solutions does not grow as we expect or demand for our platform does not increase, it could result in reduced customer spending, customer attrition, and decreased revenue, any of which would adversely affect our business and results of operations.
If we do not expand our course library effectively or develop new platform features that respond to constantly evolving technologies and the needs of our customers, our business and results of operations could be adversely affected.
The market for talent in technology-related fields is growing and constantly evolving due to the continuously changing needs of our customers. Moreover, software is displacing manual processes throughout businesses in many industries and, as a result, the talent that companies seek to hire and retain must keep pace with technological change and drive digital transformation. As such, our future success depends on ensuring our business customers’ employees can master the latest emerging technologies and improve their skills in existing areas by developing and making available on a timely basis new and improved learning content and platform features that can address evolving customer needs. With respect to content creation, since new technologies are constantly introduced, our success depends upon our ability to identify technological developments and predict which technology will become widely adopted or strategically important, and then develop course content and related skill and role assessments to address these areas in a timely manner, which we may not do successfully. For example, certain courses we developed in the past received lower than anticipated levels of customer interest and we did not generate sufficient revenue from those courses to offset their costs. In addition, if we do not anticipate our customers’ demands and provide courses in topics that address these demands, our lead times for course production may make it difficult for us to rapidly produce the desired content. With respect to platform features, many of the features we currently offer are relatively new and unproven and we cannot assure you that our existing features and any future features or enhancements we develop will be utilized. The success of any course library expansion or new or enhanced feature depends on several factors, including our understanding of market demand, timely execution, successful introduction, and market acceptance. We may fail to develop new content and features or enhance our existing platform to meet customer needs or our new content and features and enhancements may not achieve adequate acceptance in the market. Additionally, we may not sufficiently increase our revenue to offset the upfront technology and content, sales and marketing, and other expenses we incur in connection with the development of new courses, platform features and enhancements. Any of the foregoing may adversely affect our business and results of operations, reduce market acceptance of our platform, and diminish customer retention and satisfaction.

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The market in which we participate is competitive, and if we do not compete effectively, our results of operations could be harmed.
The market for professional skill development is highly competitive, rapidly evolving, and fragmented, and we expect competition to continue increasing in the future. A significant number of companies developed, or are developing, products and services that compete or will compete with our offerings. This competition could result in decreased revenue, increased pricing pressure, increased sales and marketing expenses, and loss of market share, any of which could adversely affect our business, results of operations, and financial condition.
We face competition from in-person ILT, legacy enterprise SaaS solutions, consumer-centric SaaS solutions, and free solutions. We compete directly or indirectly with:
instructor-led training vendors, such as Global Knowledge, General Assembly, and New Horizons;
legacy e-learning services, such as Skillsoft and Cornerstone OnDemand;
software development productivity tools, such as Code Climate, Waydev, and BlueOptima;
individual-focused e-learning services, such as LinkedIn Learning, Udemy, and Udacity; and
free solutions, such as YouTube.
Many of our competitors and potential competitors are larger and have greater brand name recognition, longer operating histories, larger marketing budgets, established customer relationships, access to larger customer bases, and significantly greater resources for the development of their solutions. In addition, some of our competitors consolidated and continued consolidation among them may subject us to increased competitive pressures that may harm our results of operations. Further, we face potential competition from participants in adjacent markets that may enter our markets by leveraging related technologies and partnering with or acquiring other companies or providing alternative approaches to provide similar results. We may face competition from companies entering our market, including large technology companies, that could expand their offerings or acquire one of our competitors. While these companies may not currently focus on our market, they may have significantly greater financial resources and longer operating histories than we do. As a result, our competitors and potential competitors may respond more quickly and effectively than we can to new or changing opportunities, technologies, or customer requirements. Further, some potential customers, particularly large enterprises, may elect to develop their own internal solutions that address their technology skill development needs.
Our ability to compete is subject to the risk of future disruptive technologies. If new technologies emerge delivering skill development solutions at lower prices, with greater feature sets, more efficiently, or more conveniently, such technologies could adversely impact our ability to compete. With the introduction of new technologies and market entrants, we expect competition to intensify in the future.
Some of our principal competitors offer solutions at a lower price or for free, which may result in pricing pressures on us. Many of our competitors offering free solutions are also integrating features found previously only with paid solutions, which layers additional pressure on our pricing and feature development. If we do not maintain our pricing levels and competitive differentiation in the market, our results of operations could be negatively impacted.
If we are unable to mitigate the risks associated with serving our business customers, while increasing sales of our platform subscriptions to these customers, our business, financial condition, and results of operations could suffer.
Our growth strategy is largely dependent upon increasing sales of our platform subscriptions to business customers. As we seek to increase sales to business customers, we face upfront sales costs and longer sales cycles, higher customer acquisition costs, more complex customer requirements, and volume discount requirements that we do not face with sales to individuals.
We often enter into customized contractual arrangements with our business customers, particularly large enterprises, in which we offer more favorable pricing terms in exchange for larger total contract values that accompany large deployments. As we drive a greater portion of our revenue through our deployments with business customers, we expect our revenue to continue growing significantly, but the price we charge business customers per user may decline. This

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may result in reduced margins in the future if our cost of revenue increases. Sales to business customers involve risks that may not be present, or are present to a lesser extent, with sales to individuals. For example, business customers may request we integrate our platform with their existing technologies, and these customization efforts could create additional costs and delays in utilization. In addition, business customers often begin using our platform on a limited basis, but nevertheless require education and interactions with our sales team, which increases our upfront investment in the sales effort with no guarantee that these customers will use our platform widely enough across their organization to justify our upfront investment. As we continue expanding our sales efforts to business customers, we need to continue increasing the investments we make in sales and marketing, and there is no guarantee that our investments will succeed and contribute to additional customer acquisition and revenue growth. If we do not increase sales to business customers while mitigating the risks associated with serving such customers, our business, financial condition, and results of operations may suffer.
Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our platform.
Our ability to broaden our customer base, particularly our business customer base, and achieve broader market acceptance of our platform will predominately depend on the ability of our sales and marketing organizations to expand our sales pipeline and cultivate customer and partner relationships to drive revenue growth. We invested in and plan to continue expanding our sales and marketing organizations, both domestically and internationally. Identifying, recruiting, and training sales personnel requires significant time, expense, and attention. We recently made changes to our sales senior leadership team and these changes could disrupt our operations due to logistical and administrative inefficiencies, increase costs, and result in us losing personnel with deep institutional knowledge, all of which could significantly impact our operations. Moreover, it may take time to realize the benefits of the change in our sales leadership team.
We also plan to continue dedicating significant resources to sales and marketing programs, including lead generation activities and brand awareness campaigns, such as search engine and email marketing, online banner and video advertising, user events such as our annual user conference, Pluralsight LIVE, and webinars. If we do not hire, develop, and retain talented sales or marketing personnel, if our new sales or marketing personnel are unable to achieve desired productivity levels in a reasonable period of time, if our sales and marketing programs are not effective, or if we are not able to successfully integrate new senior leadership to our sales organization, our ability to broaden our customer base and achieve broader market acceptance of our platform could be harmed. In addition, the investments we make in our sales and marketing organization will occur in advance of experiencing benefits from such investments, making it difficult to determine in a timely manner if we are efficiently allocating our resources in these areas.
If our business customers do not expand their use of our platform beyond their current organizational engagements or renew their existing contracts with us, our ability to grow our business and improve our results of operations may be adversely affected.
Our future success partly depends on increased adoption of our platform by our existing customers and future customers. Many of our business customers initially use our platform in specific groups or departments within their organization, or for a specific use case. Growth of our business depends in part on customers’ expanded use of our platform to address additional use cases. Further, to continue growing our business, it is important our customers renew their subscriptions when existing contracts expire and we expand our relationships with our existing customers. Our customers have no obligation to renew their subscriptions, and our customers may decide not to renew their subscriptions with a similar contract period, at the same prices and terms, with the same or a greater number of users, or at all. In the past, some of our customers elected not to renew their agreements with us, and it is difficult to accurately predict whether we will continue successfully retaining customers or expanding our relationships with them. We experienced significant growth in the number of users of our platform, but it is unknown whether we will sustain similar user growth in the future. Retention of our business customers and expansion of our deployments with them may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our platform, our customer support, our prices, the prices and features of competing solutions, reductions in our customers’ spending levels, insufficient user adoption of our platform, and new feature releases, or the lack thereof. If our business customers do not purchase additional subscriptions or renew their existing subscriptions, renew on less favorable terms, or fail to continue

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expanding their engagement with our platform, our revenue may decline or grow less quickly than anticipated, which could harm our results of operations.
Our future performance partly depends on attracting and retaining authors and producing content that addresses our customers’ needs.
The majority of our content is created by subject-matter experts, or authors, who are generally not our employees. This presents certain risks to our business, including, among others:
we may not be able to remain competitive in finding and retaining authors;
we generally have exclusivity with our authors with respect to the specific subject matter of the courses they create for us, but they may produce content for competitors or on their own with respect to related topics and other subjects;
our existing authors, particularly our most popular authors, may not continue creating content for us;
the topics of content created by our authors may not address the needs of our customers;
the content created by our authors may not meet the quality standards that our customers expect and demand, or effectively differentiate our content from that of our competitors with respect to content quality and breadth; and
the fees that we pay our authors may cease to be competitive with the market for their talent.
If any of the risks above occur, customers may seek other solutions for their professional skill development needs and we may not retain them or acquire additional customers to offset any such departures, which could adversely affect our business and results of operations. In addition, our most popular authors are a relatively small group of individuals who created course content that has historically represented a significant portion of the total course hours viewed. The loss of our authors, particularly our most popular authors, and our inability to replace them with new author relationships of comparable quality and standing, could significantly impact our business and operating results and limit our ability to produce content of a quality or at a scale sufficient to grow our business.
Our quarterly and annual results of operations may be difficult to predict because they may vary significantly, and if we fail to meet the expectations of investors or securities analysts, our stock price and the value of your investment could decline.
Our quarterly and annual billings, revenue and results of operations fluctuated significantly in the past and may vary significantly in the future due to a variety of factors, many of which are outside of our control. Our financial results in any one quarter should not be relied upon as indicative of future performance. We may not be able to accurately predict our future billings, revenue or results of operations. Factors that may cause fluctuations in our quarterly results of operations include, but are not limited to, those listed below:
fluctuations in the demand for our platform and the timing of sales, particularly larger subscriptions;
our ability to attract new customers or retain existing customers;
our existing authors, particularly our most popular authors, may not continue creating content for us;
the content created by our authors may not address the needs of our customers and may not meet the standards that our customers expect and demand;
changes in customer renewal rates and our ability to increase sales to our existing customers;
an increase in the length of sales cycle as a higher percentage of our billings come from larger business customers;
our customers’ seasonal buying patterns;

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our customers’ budgeting cycles and internal purchasing priorities;
the payment terms and subscription term length associated with our platform sales and their effect on our billings and free cash flow;
our ability to anticipate or respond to changes in the competitive landscape, including consolidation among competitors;
the timing of expenses and recognition of revenue;
the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure;
the timing and success of new product feature and service introductions by us or our competitors;
network outages;
changes in laws and regulations that impact our business; and
general economic and market conditions.
If our billings, revenue or results of operations fall below the expectations of investors or securities analysts in a particular quarter, or below any guidance we provide, the price of our Class A common stock could decline.
If our security measures are breached or data is otherwise subject to unauthorized access, use or disclosure, our platform may be perceived as insecure, we may lose existing customers or fail to attract new customers, our reputation may be harmed, and we may incur significant liabilities.
Unauthorized access to or use of, or other security breaches of our platform or the other systems or networks used in our business, including those of our vendors, contractors, or those with which we have strategic relationships, or unauthorized access to or use, disclosure or acquisition of our proprietary or confidential data, or personal, proprietary or other confidential data of our employees, vendors, customers, users or others could result in the loss, compromise or corruption of data or intellectual property, loss of business, reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation and other measures taken in connection with the breach, and other liabilities. Security is one of the main course subjects we provide on our platform, which may cause our platform to be a target for hackers and others, and which causes our brand, credibility, and reputation to be particularly sensitive to actual or perceived security breaches.
Our platform, and the other facilities, systems or networks used in our business, including those of our third-party vendors, are at risk for security breaches as a result of cyber attacks, software vulnerabilities or coding errors, hackers, physical break-ins, computer viruses, inadequate security controls by customers, employees, contractors or vendors such as, weak or recycled passwords, worms or other malicious software programs or other third-party action, or employee, vendor, or contractor error or malfeasance. We incurred and expect to continue incurring significant expenses to prevent security breaches, including deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants. However, since the techniques used to obtain unauthorized access, deny authorized access, or otherwise sabotage systems change frequently and generally are not identified until after they are launched against a target, we and our third-party vendors may be unable to anticipate these techniques or implement adequate preventative measures. We and our third parties may also experience security breaches that remain undetected for an extended period and result in a substantial impact on our platform, the proprietary and other confidential data contained therein or otherwise stored or processed in our operations, and ultimately on our business. Any actual or perceived security incident also may cause us to incur increased expenses to improve our security controls and to remediate security vulnerabilities. Although we retain errors and omissions insurance coverage for certain security and privacy damages and claim expenses, this coverage may be insufficient to compensate us for all liabilities that we may incur as a result of any actual or potential security breach, and we cannot be certain that insurance coverage will continue to be available to us on economically reasonable terms, or at all, or that an insurer will not deny coverage as to any future claim. One or more claims that exceed available insurance coverage, or the occurrence of changes in our insurance

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policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
Failure or perceived failure to comply with applicable and evolving foreign or domestic privacy and information security regulations could limit the use and adoption of our platform, expose us to increased liability, and harm our business and reputation.
Privacy, information security, and data protection are issues of growing concern and the regulatory framework governing the collection, processing, storage, transfer and use of information is rapidly evolving in various jurisdictions where we do business. Many governments adopted and continue proposing requirements regarding personally identifiable information and other data relating to individuals. Federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use, and dissemination of data. 
Some foreign countries and governmental bodies where we conduct business, including the European Union, or EU, have laws and regulations that often are more restrictive and more broadly applicable than those in the United States. With regard to the transfer of personal data from our European employees and customers to the United States, we self-certified under the EU-U.S. Privacy Shield and under the Swiss-U.S. Privacy Shield. In certain cases, we agreed to model contract clauses approved by the European Commission.  It is unclear whether we can continue relying on these mechanisms for European transfers of data because these frameworks and model contract clauses have been subject to legal challenge and may be invalidated or modified. These variations in required protections among jurisdictions may result in reluctance or refusal by European customers to use our platform due to potential risk exposure created by transferring personal data from Europe to the United States, and we and our customers may face enforcement actions by European data protection authorities regarding data transfers from Europe to the United States.
Proposed and newly enacted laws, regulations, and industry standards concerning privacy, data protection, and information security continue emerging and evolving globally, including the General Data Protection Regulation 2016/679, or the GDPR, adopted in the EU, which took full effect in May 2018, and the California Consumer Privacy Act, or CCPA, adopted in California, which became operative on January 1, 2020. The GDPR provides for substantial penalties and other remedies, including giving EU regulators the ability to issue fines up to the greater of €20 million or 4% of worldwide annual turnover. The California Attorney General can enforce the CCPA, including seeking injunctive relief and civil penalties for violations. The CCPA also provides a private right of action for certain data breaches that is expected to increase data breach litigation. Many aspects of the CCPA and its interpretation remain uncertain. We cannot fully predict the impact of the CCPA on our business or operations, but it may require us to modify our data practices and policies and to incur substantial costs and expenses in an effort to comply. Some observers have noted the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could increase our potential liability and adversely affect our business.
Further in March 2017, the United Kingdom, or UK, formally notified the European Council of its intention to leave the EU pursuant to Article 50 of the Treaty on European Union (“Brexit”). The UK ceased to be an EU Member State on January 31, 2020, but enacted a Data Protection Act substantially implementing the GDPR, effective in May 2018, which was further amended to align more substantially with the GDPR following Brexit. It is unclear how UK data protection laws or regulations will develop in the medium to longer term and how data transfers to and from the UK will be regulated following a transition period following Brexit that will conclude on December 31, 2020. In addition, some countries are considering or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our services. As a result of Brexit, we could be required to make changes to the way we conduct business and transmit data between the United States, the UK, the EU, and other jurisdictions. We cannot yet determine the impact evolving and future laws, regulations and standards may have on our business. Laws and regulations relating to privacy, data protection and information security are often subject to differing interpretations and may be inconsistent, creating complexity in how we do business. 
These uncertain circumstances, new and evolving laws, and other requirements could reduce demand for our platform, increase our costs, impair our ability to grow our business, affect our ability to respond to customer requests to access, correct and delete personal information under these laws, restrict our ability to store and process data or, in some cases, impact our ability to offer our platform in some locations and may subject us to liability. Further, we may find it necessary or beneficial to fundamentally change our business activities and practices or to expend significant

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resources to modify our platform and otherwise adapt to these changes. If we are not able to make such changes and modifications in a commercially reasonable manner, or at all, our ability to develop new content and features could be limited.
Any failure or perceived failure to comply with applicable privacy, security or data protection laws and regulations, and any follow-up or remedial actions required by such laws or regulations or related to an actual or alleged violation of such laws and regulations, including requirements to notify individuals whose personal information was affected by a security breach, may result in regulatory investigations and proceedings, lawsuits, consent decrees, and injunctions, negatively impact our reputation, cause us to incur significant costs, liabilities and expenses, including legal expenses and substantial fines and penalties, harm customer confidence, hurt our expansion into new markets, reduce demand for our platform, lead to the loss of existing customers and adversely affect our financial condition.
If we fail to retain key employees or to recruit qualified technical and sales personnel, our business could be harmed.
We believe our success depends on the continued employment of our senior management and other key employees. We also rely on our leadership team in the areas of technology, content, marketing, sales, services and general and administrative functions. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. The loss of one or more of our executive officers or key employees could have a serious adverse effect on our business.
Our future success depends on our ability to continue enhancing and introducing new content and platform features, which makes attracting and retaining qualified personnel with the requisite education, background, and industry experience crucial. As we expand our business globally, our continued success will also depend, in part, on our ability to attract and retain qualified sales, marketing, and operational personnel capable of supporting a larger and more diverse worldwide customer base. The loss of a significant number of our technology, content or sales personnel and their services could be disruptive to our development efforts or customer relationships. In addition, if any of our key employees joins a competitor or decides to otherwise compete with us, we may experience a material disruption of our operations and business strategy, which may cause us to lose customers or increase operating expenses and may divert our attention as we seek to recruit replacements for the departed employees.
If we fail to effectively manage our growth, our business and results of operations could be harmed.
We experienced, and may continue experiencing, rapid growth and organizational change, which placed, and may continue placing, significant demands on our management and our operational and financial resources. For example, our full-time employee headcount has grown from approximately 1,100 employees as of December 31, 2018 to over 1,600 employees as of December 31, 2019. We operate globally, sell subscriptions to customers in more than 180 countries, and have employees in various locations in the United States, Europe, and the Asia Pacific region. We plan to continue expanding our operations into other countries in the future, which will place additional demands on our resources and operations. Simultaneously, we continue increasing the breadth and scope of our platform and our operations. To support this growth, and to manage any future growth effectively, we must continuously and efficiently improve our IT and financial infrastructures, operating and administrative systems, and management of our headcount, capital, and internal processes. Our organizational structure is becoming more complex as we grow our operational, financial, and management infrastructure and we must continuously enhance our internal controls, reporting systems and procedures. We intend to continue expanding our business by investing in technology, content, sales and marketing operations, hiring additional personnel, improving our internal controls, reporting systems and procedures, and upgrading our infrastructure. These investments will require significant capital expenditures and the allocation of management resources, and any investments we make will occur in advance of experiencing the benefits from such investments, making it difficult to determine in a timely manner if we are efficiently allocating our resources. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our results of operations may be adversely affected.
Our rapid growth and limited history with our cloud-based technology skills platform make it difficult to evaluate our future prospects and may increase the risk that we will not continue growing at or near historical rates.
We grew rapidly over the last several years, and as a result, forecasting our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth. Although we began

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operations in 2004, we shifted our business model in 2011 from offering in-person ILT to an entirely online delivery model. Beginning in 2011, we extended our offering to include new content areas and additional features, which enabled us to expand our addressable market, attract new users, and broaden our relationships with businesses. This limited history with our SaaS model and cloud-based platform offering further limits forecasting of our future results of operations. As such, any predictions about our future revenue and expenses may not be as accurate as they could be if we had a longer operating history with our delivery model or platform or operated in a more predictable market. We encountered in the past, and may encounter in the future, risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks adequately, our results of operations could differ materially from our expectations, our growth rates may slow, and our business may suffer.
We recognize revenue from subscriptions over the term of our customer contracts, and as such our reported revenue and billings may differ significantly in a given period, and our revenue in any period may not be indicative of our financial health and future performance.
We generally recognize revenue from subscriptions ratably over the subscription term of the underlying customer contract, which is generally one year. Our billings are recorded upon invoicing for access to our platform, thus a significant portion of the billings we report in each quarter are generated from customer agreements entered into and invoiced during the period. As a result, much of the revenue we report each quarter is derived from contracts that we entered into with customers in prior periods. Consequently, a decline in new or renewed subscriptions in any quarter will not be fully reflected in revenue or other results of operations in that quarter. Rather, it will negatively affect our revenue and other results of operations across future quarters, making it difficult for us to rapidly increase our revenue from additional billings in a given period. Any increases in the average term of subscriptions would result in revenue for those contracts being recognized over longer periods of time with less positive impact on our results of operations in the near term. Accordingly, our revenue in any given period may not be an accurate indicator of our financial health and future performance.
As we continue expanding our sales efforts to larger business customers, our sales cycles may lengthen and grow in complexity, which may cause our billings and revenue to vary substantially and become difficult to predict and cause our results of operations to fluctuate significantly.
Our results of operations may fluctuate, in part, because of the resource-intensive nature of our sales efforts to larger businesses, from which we derive a significant portion of our billings and revenue, the length and variability of our sales cycle, and difficulty in adjusting our operating expenses in the short term. The length of our sales cycle, from identification of the opportunity to delivery of access to our platform, varies significantly from customer to customer, with sales to larger businesses typically taking longer to complete. In addition, as we continue increasing our sales to larger businesses, we face longer, more complex customer requirements and substantial upfront sales costs. With larger businesses, the decision to subscribe to our platform frequently requires the approvals of multiple management personnel and more technical personnel than would be typical of a smaller organization and, accordingly, sales to larger businesses may require us to invest more time educating these potential customers. Purchases by larger businesses are also frequently subject to budget constraints and unplanned administrative, processing, and other delays, which may impede our efforts to reach agreement on the terms of the sale to larger businesses.
To the extent our competitors develop products that our prospective customers view as equivalent or superior to our platform, our average sales cycle may increase. Additionally, if a key sales member leaves our employment or if our primary point of contact at a customer or a potential customer leaves their employment, our sales cycle may be further extended or customer opportunities may be lost. As a result of the buying behavior of enterprises and the efforts of our sales force and partners to meet or exceed their sales objectives by the end of each fiscal quarter, we historically received and generated a substantial portion of billings during the last month of each fiscal quarter, often the last two weeks of the quarter. These transactions may not close as expected or may be delayed in closing. The unpredictability of the timing of customer purchases, particularly large purchases, could cause our billings and revenue to vary from period to period or to fall below expected levels for a given period, which may adversely affect our business, results of operations, and financial condition. For example, during the second quarter of our fiscal year 2019, we experienced a decline in our billings growth rate compared to recent quarterly results primarily due to sales execution challenges. As a result, we made changes to our sales senior leadership team, added key hires in our core sales operations and sales

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enablement teams, and deepened our investment in our customer success and professional services teams. While these changes have shown improvements in the short term, our billings growth rate could decline over the long term if these measures are not successful.
We believe our long-term success partly depends on continued expansion of our sales and operations outside of the United States, which subjects us to a number of risks associated with international sales and operations.
We currently maintain offices and employ sales personnel outside the United States in Europe, Australia, and the Asia Pacific region, and we intend to continue expanding our international operations. In order to maintain and expand our sales internationally, we may need to relocate, hire and train experienced personnel to staff and manage our foreign operations. To the extent we experience difficulties in recruiting, training, managing, and retaining international staff, and specifically sales and marketing personnel, we may experience difficulties in growing our international sales and operations.
Additionally, our international sales and operations are subject to a number of risks, including, but not limited to, the following:
unexpected costs and errors in tailoring our products for individual markets, including translation into foreign languages and adaptation for local practices;
difficulties in adapting to customer desires due to language and cultural differences;
increased expenses associated with international sales and operations, including establishing and maintaining office space and equipment for our international operations;
lack of familiarity and burdens of complying with foreign laws, legal standards, regulatory requirements, tariffs, and other barriers;
greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;
practical difficulties of enforcing intellectual property rights in countries with fluctuating laws and standards and reduced or varied protection for intellectual property rights in some countries;
theft of intellectual property, data and technology through intrusion by foreign actors, those affiliated with or controlled by state actors, and private parties;
unexpected changes in regulatory requirements, taxes, trade laws, tariffs, trade wars or potential changes in trade relations arising from policy initiatives implemented by the current U.S. presidential administration, export quotas, custom duties, or other trade restrictions;
limitations on technology infrastructure, which could inhibit our migration of international operations to our existing systems and result in increased costs;
difficulties in managing and staffing international operations and differing employer/employee relationships and local employment laws;
challenges in complying with local data privacy and data protection requirements and protecting the security of our platform;
challenges obtaining work permits and visas, and navigating immigration laws and systems among jurisdictions; and
potentially adverse tax consequences, including the complexities of foreign value added tax (or other tax) systems and restrictions on the repatriation of earnings.
Additionally, operating in international markets requires significant management attention and financial resources. Our personnel have limited experience in marketing, selling, and supporting our platform abroad, which increases the risk of any potential future expansion efforts undertaken by us being unsuccessful. We plan to invest substantial time

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and resources toward expanding our international operations, but we cannot be certain that these investments will produce desired levels of revenue or profitability. These factors among other could harm our ability to gain future international revenue and materially affect our business, results of operations and financial condition.
We may face exposure to foreign currency exchange rate fluctuations.
Today, substantially all of our customer contracts are denominated in U.S. dollars, while our operating expenses outside of the United States are often denominated in local currencies. As we expand our international operations, a larger portion of our operating expenses will be denominated in local currencies. Currently, we do not engage in currency hedging activities to limit the risk of exchange rate fluctuations. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our results of operations when translated into U.S. dollars. In the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.
If we fail to manage our hosting network infrastructure capacity, our existing customers may experience service outages and our new customers may experience delays in accessing our platform.
We host our platform on data centers provided by Amazon Web Services, or AWS, a provider of cloud infrastructure services. Our operations depend on the virtual cloud infrastructure hosted in AWS and the information stored in these virtual data centers that third-party internet service providers transmit. Although we have disaster recovery plans that utilize multiple AWS locations, any incident affecting their infrastructure that may be caused by fire, flood, severe storm, earthquake, power loss, telecommunications failures, unauthorized intrusion, computer viruses, disabling devices, natural disasters, war, criminal act, military actions, terrorist attacks, and other similar events beyond our control could negatively affect the availability and reliability of our platform. A prolonged AWS service disruption affecting our platform and the ability of our users to access our products, such as our video courses, for any of the foregoing reasons could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers, or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the AWS services we use.
AWS enables us to order and reserve server capacity in varying amounts and sizes distributed across multiple regions, and provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. AWS may terminate the agreement by providing 30 days prior written notice and may, in some cases, terminate the agreement immediately for cause upon notice. Any disruption of our use of, or interference with, AWS could adversely affect our operations and business.
We experienced significant growth in the number of users, transactions, and data that our hosting infrastructure supports. We strive to maintain sufficient excess capacity in our hosting network infrastructure to meet the needs of all of our customers and our growing content library. However, the provision of new hosting infrastructure requires significant lead time. If we do not accurately predict our infrastructure capacity requirements, our existing clients may experience service outages that may adversely impact our results of operations and lead to customer losses. If our hosting infrastructure capacity fails to keep pace with increased sales and customer usage, customers may experience delays as we seek to obtain additional capacity, which could harm our reputation and adversely affect our revenue growth.
We rely upon SaaS technologies from third parties to operate our business, and interruptions or performance problems with these technologies may adversely affect our business and results of operations.
We rely on hosted SaaS applications from third parties in order to operate critical functions of our business, including content delivery, enterprise resource planning, customer relationship management, billing, project management, and accounting and financial reporting. If these services become unavailable due to extended outages, interruptions, or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to manage finances could be interrupted, and our processes for managing sales of our platform and supporting our customers

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could be impaired until equivalent services, if available, are identified, obtained, and implemented, all of which may negatively impact our results of operations and harm our business.
If we do not keep pace with technological developments, our business may be harmed.
Our platform is designed to operate on a variety of network, hardware, and software platforms using internet tools and protocols, which requires us to continuously modify and enhance our platform to keep pace with changes in internet-related hardware, software, communication, browser, and database technologies. If we fail to respond in a timely and cost-effective manner to these rapid technological developments, our platform may become obsolete, which could adversely impact our results of operations. For example, if we fail to ensure our video courses are fully enabled and readily available on multiple platforms, such as computers, tablets and other mobile devices, our business may be harmed.
If we fail to develop, maintain, and enhance our brand and reputation cost-effectively, our business and financial condition may be adversely impacted.
We believe that developing, maintaining, and enhancing awareness and integrity of our brand and reputation in a cost-effective manner are important to achieving widespread acceptance of our platform and are important elements in retaining existing customers and attracting new customers. We believe the importance of our brand and reputation will increase as competition in our market further intensifies. Successful promotion of our brand will depend on the effectiveness of our marketing efforts, our ability to provide a reliable and useful platform at competitive prices, the perceived value of our platform, and our provisioning of quality customer support. However, brand promotion activities may not yield increased revenue, and even if they do, the increased revenue may not offset the expenses we incur in building and maintaining our brand and reputation. If we fail to promote and manage our brand successfully, cultivate loyalty among our customers, or incur substantial expenses in an unsuccessful attempt to promote and grow our brand awareness and strength, we may fail to retain our existing customers and partners, or attract new customers and partners, and our business and financial condition may be adversely affected. Any negative publicity relating to our employees, partners, or other parties associated with us or them, may tarnish our reputation simply by association and may reduce the value of our brand. Damage to our brand and reputation may result in reduced demand for our platform and increased risk of losing market share to our competitors. Any efforts to restore the value of our brand and rebuild our reputation may be costly and unsuccessful.
If we cannot maintain our company culture as we grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute to our success and our business may be harmed.
We believe a critical component to our success is our company culture. Our company is aligned behind our culture and key values, and we have invested substantial time and resources in building our team within this company culture. As we grow and develop the infrastructure of a public company, we may find it difficult to sustain these important aspects of our company culture worldwide. If we fail to preserve and nurture our culture, our retainment and recruitment of personnel, ability to effectively focus on and pursue our corporate objectives, and business could be harmed.
The relocation of our headquarters may not be executed as we envision.
We are relocating our headquarters from Farmington, Utah to Draper, Utah in 2020. In connection with this relocation, we could experience unexpected costs or business disruption and diversion of management attention, which could negatively impact our business operations and result in additional costs. The relocation may have a significant adverse effect on our ability to motivate and retain current employees. Further, managerial and operational challenges could arise, such as ineffective transfer of institutional knowledge from current employees to newly-hired employees, if we experience significantly greater attrition among current employees than expected in connection with the relocation, which could harm our business.

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If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, generate less revenue or experience slower growth rates, and incur costly litigation to protect our rights.
The skill development industry is characterized by a large number of copyrights, trademarks, trade secrets, and other intellectual property rights. Our success is partly dependent upon protecting our proprietary information and technology. We rely on a combination of trademarks, copyrights, trade secrets, intellectual property assignment agreements, license agreements, confidentiality procedures, non-disclosure agreements, and employee invention assignment agreements to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect and mitigate unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our platform and use information that we regard as proprietary to create solutions that compete with ours. In addition, we experienced, and may in the future be subject to, piracy of our course content. In the past, individuals illegally accessed our course materials and posted them online, and individual users within our business customers obtained access to our content outside the scope of the customer’s subscription, which caused us to lose potential revenue opportunities, and such activities may recur in the future. Policing piracy of our content and unauthorized use of our platform is difficult and the steps we take to combat such actions may prove ineffective. Some license provisions protecting against unauthorized use, copying, transfer, and disclosure of our platform may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and mechanisms for enforcement of intellectual property rights in some foreign countries may be insufficient. To the extent we expand our international activities, our exposure to unauthorized copying and use of our platform and proprietary information may increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our technology and intellectual property.
We rely, in part, on trade secrets, proprietary know-how, and other confidential information to maintain our competitive position. Although we enter into intellectual property assignment agreements or license agreements with our authors, confidentiality and invention assignment agreements with our employees and consultants, and confidentiality agreements with the parties with whom we have strategic relationships and business alliances, no assurance can be given that these agreements will be effective in controlling access to, and distribution of, our platform and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our platform.
To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Unsuccessfully protecting our proprietary technology against unauthorized copying or use, and any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our platform, impair the functionality of our platform, delay introductions of new platform features, result in our substituting inferior or more costly technologies into our platform, or injure our reputation. In addition, we may be required to license additional technology from third parties to develop and market new platform features or services, and we cannot guarantee we will be able to license that technology on commercially reasonable terms or at all, and our inability to license this technology could weaken our competitive abilities.
We may be sued by third parties for alleged infringement of their proprietary rights.
Our success depends in part upon our not infringing the intellectual property rights of others. However, our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry or, in some cases, our technology or content. We obtain much of our content from third-party authors. Although we enter into agreements with our authors in which they represent that their content is not infringing the intellectual property rights of others, such content could be infringing and consequently subject us to liability. Moreover, we have in the past and may in the future leverage open source software in our development processes. Open source software is generally licensed by its authors or other third parties under open source licenses. These licenses may subject

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us to certain unfavorable conditions, including that we make publicly available source code for modifications or derivative works we create based upon, incorporating or using the open source software, or that we license such modifications or derivative works under the terms of the particular open source license.
In the past, third parties claimed we infringed their intellectual property rights. Such claims may reoccur in the future, and we may actually be found to be infringing on such rights. Additionally, if a third-party software provider incorporated open source software into software we license from such provider, we may be required to disclose any of our source code that incorporates or is a modification of any such licensed software. Any claims or litigation could cause us to incur significant expenses, and if successfully asserted against us, could require we pay substantial damages or ongoing revenue share payments, indemnify our customers or distributors, obtain licenses, modify products, or refund fees, any of which could deplete our resources and adversely impact our business.
We are engaged in legal proceedings that could cause us to incur unforeseen expenses and occupy a significant amount of our management’s time and attention.
From time to time, we are subject to litigation or claims, including securities class actions, which are typically expensive to defend. Resolving, disputing and litigating legal claims could cause us to incur unforeseen expenses and occupy a significant amount of management’s time and attention, which could negatively affect our business operations and financial condition. For example, a class action complaint was filed in August 2019 by a stockholder in the U.S. District Court for the Southern District of New York against us, and some of our officers alleging violation of securities laws and seeking unspecified damages. The action was transferred to the U.S. District Court for the District of Utah in October 2019. We believe this lawsuit is without merit and intend to defend the case vigorously. We are unable to estimate a range of loss, if any, that could result were there to be an adverse final decision. If an unfavorable outcome were to occur in this case, it is possible that the impact could be material to our results of operations in the period(s) in which any such outcome becomes probable and estimable. While we have insurance for the class actions and other types of claims, there is no assurance that our available insurance will be sufficient to cover these claims.
Real or perceived errors, failures, vulnerabilities, or bugs in our platform could harm our business and results of operations.
Errors, failures, vulnerabilities, or bugs may occur in our platform, especially when updates are deployed or new features are rolled out. In addition, utilization of our platform in complicated, large-scale customer environments may expose previously unknown errors, failures, vulnerabilities, or bugs in our platform. Any such errors, failures, vulnerabilities, or bugs may not be found until after they are deployed to our customers. As a provider of technology learning solutions, our brand and reputation is particularly sensitive to such errors, failures, vulnerabilities, or bugs. Real or perceived errors, failures, vulnerabilities, or bugs in our platform could result in negative publicity, loss of competitive position, loss or corruption of customer data, loss of or delay in market acceptance of our products, or claims by customers for losses sustained by them, all of which could harm our business and results of operations.
Any failure to offer high-quality customer support may harm our relationships with our customers and results of operations.
Our customers depend on our customer support teams to resolve technical and operational issues if and when they arise. We may not respond quickly enough to accommodate short-term increases in customer demand for customer support. Customer demand for support may increase as we expand the features available on our platform. Increased customer demand for customer support, without corresponding revenue, could increase costs and harm our results of operations. As we continue expanding our business customer base, we need to continue providing efficient and effective customer support that meets our business customers’ needs and expectations globally at scale. The number of our business customers grew significantly, which puts additional pressure on our support organization. In order to meet these needs, we relied in the past, and will continue relying on, self-service customer support to resolve common or frequently asked questions, which supplement our customer support teams. If we are unable to provide efficient and effective customer support globally at scale, including through the use of self-service support, the growth of our operations may be harmed and we may need to hire additional support personnel, which could negatively impact our margins and results of operations. Our sales are highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality customer support, or a market

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perception that we do not maintain high-quality customer support, could adversely affect our business, reputation, sales of our platform to existing and prospective customers, results of operations, and financial condition.
Adverse economic conditions in the United States and international countries may adversely impact our business and results of operations.
Unfavorable general economic conditions, such as a recession or economic slowdown in the United States or in one or more of our other major markets, could adversely affect demand for our platform. Changing macroeconomic conditions may affect our business in a number of ways. For example, spending patterns of businesses are sensitive to the general economic climate. Subscriptions for our platform may be considered discretionary by many of our current and potential customers. As a result, businesses considering whether to purchase or renew subscriptions to our products may be influenced by macroeconomic factors.
There is significant uncertainty about the future relationship between the United States and other countries with respect to trade policies, treaties, government relations, and tariffs. The current U.S. presidential administration called for substantial changes to U.S. foreign trade policy with China and other countries, including the possibility of imposing greater restrictions on international trade and significant increases in tariffs on goods imported into the United States. Many of our customers who conduct business in China may be impacted by these policies. If the United States’ relationship with China deteriorates or results in trade protection measures, retaliatory actions, tariffs, or increased barriers, policies that favor domestic industries, or heightened import or export licensing requirements or restrictions, then our operations and business may be adversely affected due to such changes in the economic and political ecosystem.
Our business could be negatively impacted by changes in the United States political environment.
There is significant ongoing uncertainty with respect to potential legislation, regulation and government policy at the federal level, as well as the state and local levels in the United States. Any such changes could significantly impact our business as well as the markets in which we compete. Specific legislative and regulatory proposals discussed during election campaigns and more recently that might materially impact us include, but are not limited to, changes to import and export regulations, income tax regulations and the U.S. federal tax code and public company reporting requirements. To the extent changes in the political environment have a negative impact on us or on our markets, our business, results of operation and financial condition could be materially and adversely impacted in the future.
Recent and future acquisitions of other companies or technologies could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and harm our results of operations.
As part of our business strategy, we have in the past and may in the future seek to acquire or invest in businesses, people, or technologies that we believe could complement or expand our platform, enhance our content library or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are ultimately consummated.
Any integration process may result in unforeseen operating difficulties and require significant time and resources and, although we have been successful in the past, we may not be able to integrate the acquired personnel, operations, and technologies successfully or effectively manage the combined business in connection with any future acquisition.
We may not achieve the anticipated benefits from an acquired business due to a number of factors, such as:
costs or liabilities associated with the acquisition;
diversion of management’s attention from other business concerns;
inability to integrate or benefit from acquired content, technologies, or services in a profitable manner;
harm to our existing relationships with authors and customers as a result of the acquisition;
difficulty integrating the accounting systems, operations, and personnel of the acquired business;
difficulty converting the customers of the acquired business onto our platform and contract terms;

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the potential loss of key employees;
use of resources that are needed in other parts of our business; and
the use of substantial portions of our available cash or equity to consummate the acquisition.
In the future, if our acquisitions do not yield expected returns, we may be required to take charges for the write-down or impairment of amounts related to goodwill, intangible assets, and our content library, which could negatively impact our results of operations. We may issue additional equity securities in connection with any future acquisitions, which could dilute our existing stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to pay, incur large charges or substantial liabilities, and become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges. These challenges could adversely affect our business, financial conditions, results of operations, and prospects.
We might require additional capital to support our growth and this capital might not be available on acceptable terms, if at all.
We intend to continue investing in our growth and may require additional funds to respond to business challenges, including the need to develop new features, enhance our existing platform or acquire complementary businesses, technologies, and content. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, supporting our growth and responding to business challenges could be significantly impaired.
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage issues related to our status as a public company that are subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could harm our business, financial condition, and results of operations.
Our business is subject to a variety of U.S. and international laws that could give rise to claims, increase the cost of operations, or otherwise harm our business due to changes in the laws and their interpretations, greater enforcement of the laws, or investigations into compliance with the laws.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing copyright laws, employment and labor laws, workplace safety, consumer protection laws, privacy and data protection laws, anti-bribery laws, import and export controls, federal securities laws, and tax laws and regulations. In certain foreign jurisdictions, these regulatory requirements may be more stringent than those in the United States. These laws and regulations are subject to change over time and we must continuously monitor and dedicate resources to ensure ongoing compliance. Non-compliance with applicable laws or regulations could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results, and financial condition could be adversely affected. In addition, responding to any action would likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results and financial condition.

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We are also subject to consumer protection laws that may impact our sales and marketing efforts, including laws related to subscriptions, billing, and auto-renewal. These laws, as well as any changes in these laws, could make it more difficult for us to retain existing customers and attract new ones.
We are subject to governmental export and import controls and anti-corruption laws and regulations that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
Our business activities are subject to various restrictions under U.S. export and similar laws and regulations, including the U.S. Department of Commerce’s Export Administration Regulations and various economic and trade sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. The U.S. export control laws and U.S. economic sanctions laws include restrictions or prohibitions on the sale or supply of certain products and services to U.S. embargoed or sanctioned countries, governments, persons and entities. In addition, various countries regulate the import of certain technology and have enacted or could enact laws that limit provisioning our customers access to our platform or limit our customers’ access or use of our services in those countries. Further, the current U.S. presidential administration has been critical of existing trade agreements and may impose more stringent export and import controls.
Although we take precautions to prevent our platform from being provided in violation of such laws, our platform could be provided inadvertently in violation of such laws. If we fail to comply with these laws and regulations, we and some of our employees could be subject to civil or criminal penalties, including the loss of export privileges and fines. We also may be adversely affected through penalties, reputational harm, loss of access to certain markets, or otherwise. In addition, various countries regulate the import and export of certain encryption and other technology, including import and export permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our platform or our users’ ability to access our platform in those countries. Changes in our platform, or future changes in export and import regulations may prevent our users with international operations from utilizing our platform globally or, in some cases, prevent the export or import of our platform to certain countries, governments, or persons altogether. Any change in export or import regulations, economic sanctions, or related legislation, increased export and import controls stemming from the current U.S. presidential administration’s policies, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our platform by, or in our decreased ability to export or sell subscriptions to our platform to, existing or potential users with international operations. Any decreased use of our platform or limitation on our ability to export or sell our platform could adversely affect our business, results of operations, and financial results.
We are subject to various domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, and other similar anti-bribery and anti-kickback laws and regulations. Although we take precautions to prevent violations of these laws, our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in foreign jurisdictions.
Our business could be adversely impacted by changes in internet access for our users.
Our platform depends on the quality of our users’ access to the internet. Certain features of our platform, including the display of our video courses, require significant bandwidth and fidelity to work effectively. Internet access is frequently provided by companies having significant market power that could take actions to degrade, disrupt, or increase the cost of user access to our platform, which could negatively impact our business. We could incur greater operating expenses and our efforts to acquire and retain customers could be negatively impacted if network operators:
implement usage-based pricing;
discount pricing for competitive products;
otherwise materially change their pricing rates or schemes;
charge us to deliver our traffic at certain levels or at all;
throttle traffic based on its source or type;

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implement bandwidth caps or other usage restrictions; or
otherwise monetize or control access to their networks.
As the internet continues to experience growth in the number of users, frequency of use, and amount of data transmitted, the internet infrastructure we and our users rely on may no longer support the demands placed upon it. The failure of the internet infrastructure that we or our users rely on, even for a short period of time, could undermine our operations and harm our results of operations.
Our business could be affected by new governmental regulations regarding the internet.
Various laws and regulations could impede the growth of the internet or other online services, and new laws and regulations may be adopted in the future. These laws and regulations could limit internet neutrality, involve taxation, tariffs, privacy, data protection, information security, content, copyrights, distribution, electronic contracts and other communications, consumer protection, and the characteristics and quality of services, any of which could decrease the demand for, or the usage of, our platform. To date, government regulations have not materially restricted use of the internet in most parts of the world. However, the legal and regulatory environment pertaining to the internet is uncertain and governments may impose regulation in the future. New laws may be passed, courts may issue decisions affecting the internet, existing but previously inapplicable or unenforced laws may be deemed to apply to the internet, regulatory agencies may begin to more rigorously enforce such formerly unenforced laws, or existing legal safe harbors may be narrowed, both by U.S. federal or state governments or by governments of foreign jurisdictions.
The adoption of any new laws or regulations, or the narrowing of any safe harbors, could hinder growth in the use of the internet and online services generally, and decrease acceptance of the internet and online services as a means of communication, e-commerce, and advertising. In addition, such changes in laws could increase our costs of doing business or prevent us from delivering our services over the internet or in specific jurisdictions, which could harm our business and our results of operations.
Our international operations subject us to potentially adverse tax consequences.
We are subject to income taxes and non-income-based taxes, such as payroll, sales, use, value-added, property and goods and services taxes, in both the United States and various foreign jurisdictions. Our domestic and international tax liabilities are subject to jurisdictional rules regarding the timing and allocation of revenue and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions we file and to changes in relevant tax laws. Significant judgment is required to determine our worldwide provision for income taxes and other tax liabilities. From time to time, we may be subject to income and non-income tax audits. While we believe we have complied with all applicable income tax laws, there can be no assurance that a governing tax authority will not interpret the law differently and assess us with additional taxes. Should we be assessed with additional taxes, there could be a material adverse effect on our business, results of operations, and financial condition.
Our future effective tax rate may be affected by such factors as changes in tax laws, regulations, rates, our international organization, and overall levels of income before tax, changing interpretation of existing laws or regulations, and the impact of accounting for equity-based compensation and accounting for business combinations. In the ordinary course of our global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, we cannot ensure that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.
Our exposure to tax liabilities may be greater than anticipated and may be affected by changes in tax laws or interpretations, any of which could adversely impact our results of operations.
We are subject to income taxes in the United States and various jurisdictions outside of the United States. Our effective tax rate could fluctuate due to changes in the mix of earnings and losses in countries with differing statutory tax rates. Our tax expense could also be impacted by changes in non-deductible expenses, changes in the tax treatment of equity-based compensation, changes in the valuation of deferred tax assets and liabilities and our ability to utilize

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them, the applicability of withholding taxes, effects from acquisitions, and the evaluation of new information that results in a change to a tax position taken in a prior period.
Changes in accounting principles, changes in U.S. federal, state, local or international tax laws applicable to corporate multinationals, other fundamental law changes currently being considered by many countries, including the United States, and changes in taxing jurisdictions’ administrative interpretations, positions, decisions, and policies could also impact our tax position. For example, on December 22, 2017, tax reform legislation referred to as the Tax Cuts and Jobs Act, or the Tax Act, was enacted in the United States. We have reflected the impact of the Tax Act in our financial statements in accordance with our understanding of the Tax Act and guidance available as of the date of this Annual Report on Form 10-K. Although the impact of the Tax Act was not material on our consolidated financial statements, many consequences of the Tax Act, including whether and how state, local, and foreign jurisdictions continue reacting to such changes are unclear and the U.S. Department of Treasury may continue issuing regulations and interpretive guidance that may significantly impact how the Tax Act applies to us. Any of the foregoing changes could adversely impact our results of operations, cash flows, and financial condition.
Additionally, the Organization for Economic Co-Operation and Development released guidance covering various topics, including transfer pricing, country-by-country reporting, and definitional changes to permanent establishment that could ultimately impact our tax liabilities in various jurisdictions.
Our results of operations may be harmed if we are required to collect sales or other related taxes for our subscription services in jurisdictions where we have not historically done so.
We collect sales and value-added tax as part of our subscription agreements in a number of jurisdictions. Sales and use, value-added, and similar tax laws and rates vary greatly by jurisdiction. One or more states or countries may seek to impose additional sales, use, or other tax collection obligations on us, including for past sales by us. Furthermore, the U.S. Supreme Court’s ruling in South Dakota v. Wayfair that a U.S. state may require an online retailer with no in-state property or personnel to collect and remit sales tax on sales to the state’s residents may permit wider enforcement of sales tax collection requirements. A successful assertion by a state, country, or other jurisdiction that we should have been or should be collecting additional sales, use, or other taxes on our platform could, among other things, result in substantial tax liabilities for past sales, create significant administrative burdens for us, discourage customers from purchasing our platform, or otherwise harm our business, results of operations, and financial condition.
We may not be able to utilize a significant portion of our net operating loss or research tax credit carryforwards, which could adversely affect our potential profitability.
We have federal and state net operating loss carryforwards, or NOLs, due to prior period losses, which if not utilized will begin to expire in 2030 for both federal and state purposes, respectively. As of December 31, 2019 we had federal and state NOLs of $259.8 million and $111.9 million, respectively. These NOLs, and NOLs of companies we may acquire could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our potential profitability.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, our ability to utilize NOLs or other tax attributes, such as research tax credits and excess business interest, in any taxable year may be limited to the extent we have experienced an “ownership change.” Such an “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage over a three-year period. Past or future transactions among our stockholders may trigger an “ownership change.”
The nature of our business requires the application of complex accounting rules, including revenue and expense recognition rules, and any significant changes in current rules, or interpretations thereof, could affect our financial statements and results of operations.
The accounting rules and regulations that we must comply with are complex and subject to interpretation by the Financial Accounting Standards Board, or the FASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. Recent actions and public comments from the FASB and the SEC focused on the integrity of financial reporting and internal controls over financial reporting. Many companies’ accounting policies and

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practices are being subject to heightened scrutiny by regulators and the public. In addition, the accounting rules and regulations are continually changing in ways that could materially impact our financial statements. We cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward, which could significantly affect our reported financial results, and could affect the reporting of transactions completed before the announcement of the change. Further, if we were to change our critical accounting estimates, including those related to the recognition of subscription revenue and other revenue sources, our results of operations could be significantly affected.
If our judgments or estimates relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in our stock price.
The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the results of which form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A common stock. Significant judgments, estimates, and assumptions used in preparing our consolidated financial statements include, or may in the future include, those related to revenue recognition, equity-based compensation expense, sales commissions costs, long-lived assets, business combinations, and accounting for income taxes including deferred tax assets and liabilities.
We previously identified a material weakness in our internal control over financial reporting that resulted in the restatement of certain of our financial statements, and we may identify material weaknesses in the future.
We previously reported a material weakness in internal control over financial reporting for the year ended December 31, 2018 associated with the accounting for non-standard share-based payment awards. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
As discussed in section entitled “Controls and Procedures,” we took a number of measures to remediate the material weakness described above, and based on these measures, management has tested the internal control activities and found them to be effective and has concluded that the material weakness described above has been remediated as of December 31, 2019. However, if additional material weaknesses or significant deficiencies in our internal control occur in the future, it may adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner. If we fail to report our results in a timely and accurate manner, we may be required to pay additional interest under our convertible notes, which could adversely impact our liquidity and financial condition. Although we continually review and evaluate internal control systems to allow management to report on the sufficiency of our internal control over financial reporting, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting. If we identify one or more new material weaknesses or are unable to timely remediate our existing material weakness, we may not assert that our internal controls are effective. If we can not assert that our internal control over financial reporting is effective, investors could lose confidence in the accuracy and completeness of our financial reports, which could have a material adverse effect on the price of our common stock and possibly impact our ability to obtain future financing on acceptable terms. Additionally, our management’s attention has been, and may further be, diverted from the operation of our business as a result of the time and attention required to address the remediation of any material weakness in our internal controls.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations

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of the listing standards of Nasdaq. The requirements of these rules and regulations increased our legal, accounting, and financial compliance costs, made some activities more difficult, time-consuming, and costly, and placed significant strain on our personnel, systems, and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. Our efforts to enhance and improve our internal control over financial reporting are ongoing. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we expended, and anticipate continuing to expend, significant resources, including accounting-related costs and significant management oversight.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Moreover, we previously identified a material weakness in our internal control over financial reporting related to the establishment of accounting policies for non-standard equity-based compensation awards, and weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, any difficulties encountered in their implementation or improvement, or any failure to remediate our material weakness, could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting, which we are required to include in our periodic reports filed with the SEC. Ineffective disclosure controls, procedures and internal control over financial reporting could cause investors to lose confidence in our reported financial and other information, which could negatively affect the trading price of our Class A common stock. If we do not meet these requirements, we may not remain listed on Nasdaq. As a public company, we are required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with this Annual Report on Form 10-K.
Our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting. In the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating, it may issue an adverse report. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material negative effect on our business and results of operations and cause a decline in the price of our Class A common stock.
We continue incurring increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our business, financial condition, and results of operations.
As a public company, we incur greater legal, accounting, and other expenses than we incurred as a private company. We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and the rules and regulations of Nasdaq. Recently, we devoted substantial management effort and incurred significant expenses toward ensuring compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We also hired additional accounting and financial professionals with appropriate public company experience and technical accounting knowledge.
These requirements, and any modifications, increase our legal, accounting, and financial compliance costs and make some activities more time-consuming and costly. For example, these rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to maintain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.
Our results of operations could be adversely affected by natural disasters, public health crises, political crises, or other catastrophic events.
Natural disasters, such as earthquakes, hurricanes, tornadoes, floods, and other adverse weather and climate conditions; unforeseen public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks,

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war, and other political instability; or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations in any of our offices or the operations of one or more of our third-party providers and vendors, such as AWS. To the extent any of these events occur, our business and results of operations could be adversely affected.
Risks Related to Future Debt and Convertible Senior Notes
Servicing our future debt may require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our indebtedness.
In March 2019, we issued $633.5 million aggregate principal amount of 0.375% convertible senior notes due in 2024, or the Notes. Making scheduled payments of the principal of, paying interest on, or refinancing our indebtedness, including the Notes, depends on our future performance and financial condition, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue generating cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we do not generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at the time. In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives or may restrict the way in which we operate our business. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our debt.
In the event we or our subsidiaries incur substantially more debt in the future, some of which may be secured debt, our exposure to these risks could intensify. We are not restricted under the terms of the indenture governing the Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt, repurchasing our stock, pledging our assets, making investments, paying dividends, guaranteeing debt, or taking a number of other actions any of which, if taken, could diminish our payments on the Notes when due.
We may not raise the funds necessary to make periodic interest payments, pay the principal amount at maturity, settle conversions of the Notes in cash or repurchase the Notes upon a fundamental change, and our future debt may contain limitations on paying cash upon conversion of the Notes or repurchasing the Notes.
Holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, upon conversion of the Notes, unless we elect to deliver solely shares of our Class A common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted. Moreover, we will be required to repay the Notes in cash at their maturity unless earlier converted, redeemed or repurchased. Meeting our obligations to holders of the Notes will depend on the earnings and cash flows of Pluralsight Holdings. However, if Pluralsight Holdings does not provide cash to us to meet our obligations under the Notes, we may not have enough available cash on hand or obtain financing at the time we are required to make payments with respect to notes at maturity, upon surrender for repurchase or upon conversion. In addition, our ability to repurchase the Notes or to pay cash upon conversions of the Notes or at maturity may be limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to repurchase Notes at a time when the repurchase is required by the indenture governing the Notes or pay any cash payable on future conversions of the Notes or at maturity as required by such indenture would constitute a default under such indenture. A default under the indenture, or upon a fundamental change itself, could lead to a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof.
The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert the Notes at any time during specified periods at their option. Unless we elect to satisfy our conversion obligation by

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delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share) and one or more holders elect to convert their Notes, we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
Conversion of the Notes may dilute the ownership interest of our stockholders or may otherwise depress the prices of our Class A common stock.
The conversion of some or all of the Notes may dilute the ownership interests of our stockholders. Upon conversion of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock. If we elect to settle our conversion obligation in shares of our Class A common stock or a combination of cash and shares of our Class A common stock, any sales in the public market of our Class A common stock issuable upon such conversion could adversely affect prevailing market prices of our Class A common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our Class A common stock could depress the price of our Class A common stock.
The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.
Under the FASB Accounting Standards Codification 470-20, Debt with Conversion and Other Options, or ASC 470-20, an entity must separately account for the liability and equity components of convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. ASC 470-20 requires the value of the conversion option of the Notes, representing the equity component, be recorded as additional paid-in capital within stockholders’ equity in our consolidated balance sheet and as a discount to the Notes, which reduces their initial carrying value. The carrying value of the Notes, net of the discount recorded, will be accreted up to the principal amount of the Notes from the issuance date until maturity, which will result in non-cash charges to interest expense in our consolidated statement of operations. Accordingly, we will report lower net income or higher net loss in our financial results because ASC 470-20 requires interest to include both the current period’s accretion of the debt discount and the instrument’s coupon, which could adversely affect our reported or future financial results, the trading price of our Class A common stock and the trading price of the Notes.
In addition, under certain circumstances, convertible debt instruments (such as the Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the Notes are not included in the calculation of diluted earnings per share except to the extent the conversion value of the Notes exceeds their principal amount, and the effect of the conversion on diluted earnings per share is not antidilutive. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of Class A common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. For example, the FASB published an exposure draft recently that proposed to amend these accounting standards to eliminate the treasury stock method for convertible instruments and require application of the “if-converted” method, which may have the effect of diluting our reported earnings per share. The exposure draft also proposed to no longer require separate accounting for the liability and equity components of convertible debt instruments. This could have the impact of reducing non-cash interest expense, and thereby increasing net income. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the Notes, then our diluted earnings per share could be adversely affected.
Certain provisions in the indenture governing the Notes may delay or prevent an otherwise beneficial takeover attempt of us.
Certain provisions in the indenture governing the Notes may make it more difficult or expensive for a third party to acquire us. For example, the indenture governing the Notes will require us to repurchase the Notes for cash upon the occurrence of a fundamental change (as defined in the indenture governing the Notes) of us and, in certain circumstances, to increase the conversion rate for a holder that converts its Notes in connection with a make-whole

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fundamental change. A takeover of us may trigger the requirement that we repurchase the Notes and/or increase the conversion rate, which could make it more costly for a potential acquirer to engage in such a takeover. These additional costs may delay or prevent a takeover of us that would otherwise be beneficial to investors.
The capped call transactions may affect the value of the Notes and our Class A common stock.
In connection with the capped call transactions, the counterparties, or their respective affiliates, may purchase shares of our Class A common stock, and/or enter into or modify various derivative transactions with respect to our Class A common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes. This activity could cause or prevent market price fluctuation of our Class A common stock or the Notes. We cannot make any prediction as to the discretion or magnitude of any potential effect that the transactions described above may have on the price of the Notes or the shares of our Class A common stock.
We are subject to counterparty risk with respect to the capped call transactions.
The counterparties to the capped call transactions are financial institutions and we will be subject to the risk that one or more of the counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the capped call transactions. Our exposure to the credit risk of the counterparties will not be secured by any collateral. Some recent global economic conditions resulted in the actual or perceived failure or financial difficulties of many financial institutions. If a counterparty to one or more capped call transaction becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under such transaction. Our exposure will depend on many factors but, generally, it will increase if the market price or the volatility of our Class A common stock increases. Upon a default or other failure to perform, or a termination of obligations, by a counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our Class A common stock. We can provide no assurances as to the financial stability or viability of the counterparties.
Risks Related to Our Organizational Structure
Our principal asset is our interest in Pluralsight Holdings, and we depend on Pluralsight Holdings and its consolidated subsidiaries for our results of operations, cash flows, and distributions since we have no means to independently generate them.
We are a holding company and have no material assets other than our ownership of the LLC Units of Pluralsight Holdings. As such, we have no independent means of generating revenue or cash flow, and our ability to pay our taxes and operating expenses or declare and pay dividends in the future, if any, depend upon the results of operations and cash flows of Pluralsight Holdings and its consolidated subsidiaries and distributions we receive from Pluralsight Holdings. There can be no assurance that our subsidiaries will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions will permit such distributions.
Our ability to pay taxes and expenses, including payments under the Tax Receivable Agreement, or TRA, may be limited by our structure.
Our principal asset is a controlling equity interest in Pluralsight Holdings. As such, we have no independent means of generating revenue. Pluralsight Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, is generally not subject to U.S. federal income tax. Instead, taxable income is allocated to holders of its LLC Units, including us. Accordingly, we incur income taxes on our allocable share of any net taxable income of Pluralsight Holdings and incur expenses related to our operations. Pursuant to the Fourth LLC Agreement, Pluralsight Holdings will make cash distributions to the owners of LLC Units in an amount sufficient to fund their tax obligations in respect of the cumulative taxable income in excess of cumulative taxable losses of Pluralsight Holdings that is allocated to them, to the extent previous tax distributions from Pluralsight Holdings have been insufficient. In addition to tax expenses, we incur expenses related to our operations, plus payments under the TRA, which we expect could be significant given the tax benefits associated with exchanges of LLC Units are more-likely-than-not to be realized. We intend to cause Pluralsight Holdings to make distributions or, in the case of certain expenses, payments in an amount sufficient to allow us to pay our taxes and operating expenses, including distributions to fund any ordinary course payments due under the TRA. However, Pluralsight Holdings’ ability to make such distributions may be subject to

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various limitations and restrictions. If we do not have sufficient funds to pay tax or other liabilities or to fund our operations (as a result of Pluralsight Holdings’ inability to make distributions due to various limitations and restrictions or as a result of the acceleration of our obligations under the TRA), we may have to borrow funds and our liquidity and financial condition could be materially and adversely affected.
To the extent we do not make payments under the TRA when due, as a result of having insufficient funds or otherwise, interest will generally accrue at a rate equal to LIBOR plus 100 basis points or in some cases LIBOR plus 600 basis points until paid. The UK’s Financial Conduct Authority, the authority regulating LIBOR, announced in July 2017 its intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is uncertain whether new methods of calculating LIBOR will be established to prolong its use after 2021. If we determine, or it is otherwise publicly announced, that LIBOR is no longer a widely recognized benchmark rate, the TRA requires us to establish a replacement interest rate, or Replacement Rate, to be applied in a manner consistent with market practice. Nonpayment of our obligations for a specified period may constitute a breach of a material obligation under the TRA, and may cause acceleration of payments due under the TRA resulting in a lump-sum payment. See the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” incorporated by reference to our 2020 Proxy Statement for additional information.
We will be required to pay the TRA Members for certain tax benefits we may claim, and we expect the payments we will be required to make will be substantial.
Exchanges or redemptions of LLC Units for cash or shares of our Class A common stock are expected to produce favorable tax attributes for us. When we acquire LLC Units from the Continuing Members through these exchanges or redemptions, anticipated tax basis adjustments are likely to increase (for tax purposes) our depreciation and amortization deductions, thereby reducing the amount of income tax we would be required to pay in the future in the absence of this increased basis. This increased tax basis may also decrease the gain (or increase the loss) on future dispositions of certain assets to the extent the tax basis is allocated to those assets. Under the TRA, we generally expect to retain the benefit of 15% of the applicable tax savings after our payment obligations below are taken into account.
We are a party to the TRA. Under the TRA, we generally will be required to pay to the TRA Members 85% of the applicable savings, if any, in income tax that we realize, or that we are deemed to realize, as a result of (i) certain tax attributes that are created as a result of the exchanges or redemptions of their LLC Units (calculated under certain assumptions), (ii) tax benefits related to imputed interest, and (iii) payments under such TRA.
The increase in tax basis, as well as the amount and timing of any payments under these agreements, will vary depending upon a number of factors, including the timing of exchanges or redemptions, the price of our Class A common stock at the time of the exchange or redemption, whether such exchanges or redemptions are taxable, the amount and timing of the taxable income we generate in the future, the U.S. federal and state tax rates then applicable, and the portion of our payments under the TRA constituting imputed interest. Payments under the TRA are expected to give rise to certain additional tax benefits attributable to either further increases in basis or in the form of deductions for imputed interest, depending on the circumstances. Any such benefits are covered by the TRA and will increase the amounts due thereunder. In addition, the TRA will provide for interest, generally at a rate equal to LIBOR plus 100 basis points, accrued from the due date (without extensions) of the corresponding tax return to the date of payment specified by the TRA. If the discontinuation of LIBOR as discussed above materializes as expected by 2022, we are required under the TRA to replace the use of LIBOR in the TRA with a Replacement Rate to be applied in a manner consistent with market practice.
As a result of the exchanges made under our structure, we may incur a TRA liability. We have not recorded, and do not expect to record, a TRA liability until the tax benefits associated with the exchanges are more-likely-than-not to be realized. Had the tax benefits been more-likely-than not to be realized, the estimated TRA liability that could result from past exchanges would have been $270.9 million as of December 31, 2019.
We expect our required payments to the TRA Members will be substantial. To the extent we do not make timely payments under the TRA, the unpaid amounts will be deferred and will accrue interest until paid by us. Nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and may cause acceleration of payments due under the TRA. Furthermore, our future obligation to make payments under the TRA could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax

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benefits that may be deemed realized under the TRA. See the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement,” incorporated by reference to our 2020 Proxy Statement for a discussion of the TRA and the related likely benefits to be realized by the TRA Members.
Payments under the TRA will be based on the tax reporting positions that we determine. Although we are not aware of any issue that could cause the U.S. Internal Revenue Service, or IRS, to challenge a tax basis increase or other tax attributes subject to the TRA, if any subsequent disallowance of tax basis or other benefits were so determined by the IRS, generally we would not be reimbursed for any payments previously made under the applicable TRA (although we would reduce future amounts otherwise payable under such TRA). As a result, payments could be made under the TRA in excess of the tax savings we realize in respect of the attributes to which the TRA relate.
The amounts that we may be required to pay to the TRA Members under the Tax Receivable Agreement may be accelerated in certain circumstances and may also significantly exceed the actual tax benefits that we ultimately realize.
The TRA provides that if certain mergers, asset sales, other forms of business combination, or other changes of control were to occur or if, at any time, we elect an early termination of the TRA, then the TRA will terminate and our obligations, or our successor’s obligations, to make future payments under the TRA would accelerate and become immediately due and payable. The amount due and payable in those circumstances is determined based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA. We may need to incur debt to finance payments under the TRA to the extent our cash resources are insufficient to meet our obligations under the TRA as a result of timing discrepancies or otherwise. In these situations, our obligations under the TRA could substantially and negatively impact our liquidity and delay, defer or prevent certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the TRA. See the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” incorporated by reference to our 2020 Proxy Statement for additional information.
Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon Continuing Members that will not benefit Class A common stockholders to the same extent as it will benefit the Continuing Members.
Our organizational structure, including the TRA, confers certain benefits upon the Continuing Members that does not benefit the holders of our Class A common stock to the same extent as it benefits the Continuing Members. The TRA with Pluralsight Holdings and the Continuing Members provides for the payment by us to the TRA Members of 85% of the amount of tax benefits, if any, that we realize, or in some circumstances are deemed to realize, as a result of (i) the increases in the tax basis of assets of Pluralsight Holdings resulting from any redemptions or exchanges of LLC Units from the Continuing Members as described under the section entitled “Certain Relationships and Related Party Transactions—Fourth Amended and Restated LLC Agreement”, incorporated by reference to our 2020 Proxy Statement and (ii) certain other tax benefits related to our making payments under the TRA. See the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” incorporated by reference to our 2020 Proxy Statement for additional information. Although we will retain 15% of the amount of such tax benefits, this and other aspects of our organizational structure may adversely impact the trading market for the Class A common stock.
Generally, we will not be reimbursed for any payments made to TRA Members under the Tax Receivable Agreement in the event that any tax benefits are disallowed.
If the IRS challenges the tax basis or other tax attributes that give rise to payments under the TRA and the tax basis or other tax attributes are subsequently required to be adjusted, generally the recipients of payments under the TRA will not reimburse us for any payments we previously made to them. Instead, any excess cash payments made by us to a TRA Member will be netted against any future cash payments we might otherwise be required to make under the terms of the TRA. However, a challenge to any tax benefits initially claimed by us may not arise for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the TRA and, as a result, there might not be future cash payments to net against. The applicable U.S. federal income tax rules are complex and factual in nature, and there can be no assurance that the IRS or a court will not disagree with our tax reporting

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positions. As a result, it is possible that we could make cash payments under the TRA that are substantially greater than our actual cash tax savings. See the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” incorporated by reference to our 2020 Proxy Statement.
The disparity between the U.S. corporate tax rate and the U.S. tax rate applicable to non-corporate members of Pluralsight Holdings may complicate our ability to maintain our intended capital structure, which could impose transaction costs on us and require management attention.
If and when we generate taxable income, Pluralsight Holdings will generally make quarterly tax distributions to each of its members, including us, based on each member’s allocable share of net taxable income (calculated under certain assumptions) multiplied by an assumed tax rate. The assumed tax rate for this purpose will be the highest effective marginal combined federal, state, and local income tax rate that may potentially apply to any member for the applicable fiscal year. The Tax Act recently significantly reduced the highest marginal federal income tax rate applicable to corporations such as Pluralsight, Inc., relative to non-corporate taxpayers. As a result of this disparity, we expect to receive tax distributions from Pluralsight Holdings significantly in excess of our actual tax liability and our obligations under the TRA, which could result in our accumulating a significant amount of cash. This would complicate our ability to maintain certain aspects of our capital structure. Such cash, if retained, could cause the value of an LLC Unit to deviate from the value of a share of Class A common stock, contrary to the one-to-one relationship described in the section entitled “Certain Relationships and Related Party Transactions—Fourth Amended and Restated LLC Agreement”, which is incorporated by reference to our 2020 Proxy Statement, for additional information. Such cash, if used to purchase additional LLC Units, could result in deviation from the one-to-one relationship between Class A common stock outstanding and LLC Units of Pluralsight Holdings held by Pluralsight, Inc. unless a corresponding number of additional shares of Class A common stock are distributed as a stock dividend. We may choose to pay dividends to all holders of Class A common stock with any excess cash. These considerations could have unintended impacts on the pricing of our Class A common stock and may impose transaction costs and require management efforts to address on a recurring basis. To the extent we do not distribute such excess cash as dividends on our Class A common stock and instead, for example, hold such cash balances or lend them to Pluralsight Holdings, the Continuing Members in Pluralsight Holdings during a period in which we hold such cash balances could benefit from the value attributable to such cash balances as a result of redeeming or exchanging their LLC Units and obtaining ownership of Class A common stock (or a cash payment based on the value of Class A common stock). In such case, these Continuing Members could receive disproportionate value for their LLC Units exchanged during this time frame.
Risks Related to Our Class A Common Stock
The Continuing Members have the right to have their LLC Units exchanged for shares of Class A common stock and any disclosure of such exchange or the subsequent sale of such Class A common stock may cause volatility in our stock price.
As of December 31, 2019, we have an aggregate of 37,480,617 shares of Class A common stock that are issuable upon exchange of LLC Units that are held by the Continuing Members. Under the Fourth LLC Agreement, the Continuing Members will be entitled to have their LLC Units exchanged for shares of our Class A common stock.
We cannot predict the timing, size, or disclosure of any future issuances of our Class A common stock resulting from the exchange of LLC Units or the effect, if any, that future issuances, disclosure, if any, or sales of shares of our Class A common stock may have on the market price of our Class A common stock. Sales or distributions of substantial amounts of our Class A common stock, or the perception that such sales or distributions could occur, may cause the market price of our Class A common stock to decline.
The multi-class structure of our common stock has the effect of concentrating voting control with Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, which limits or precludes your influence as a stockholder on corporate matters and may have a negative impact on the price of our Class A common stock.
Our Class C common stock has 10 votes per share, our Class B common stock has one vote per share, and our Class A common stock, our publicly traded stock, has one vote per share. Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, personally and through his associated entities, holds all our issued and outstanding Class C common stock, and as of December 31, 2019, holds approximately 53.6% of the combined voting power of

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our outstanding capital stock. As restricted share units of Pluralsight Holdings held by Mr. Skonnard vest over time, he will receive additional LLC Units and Class C common stock with 10 votes per share. As a result, Mr. Skonnard and his associated entities have the ability to control or significantly influence any action requiring the general approval of our stockholders, including the election and removal of our directors, amendments to our amended and restated certificate of incorporation and amended and restated bylaws, the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction. Many of these actions may be taken even if they are opposed by other stockholders. This concentration of ownership and voting power may delay, defer, or prevent an acquisition by a third party or other change of control of us and may make some transactions more difficult or impossible without his support, even if such events are in the best interests of other stockholders. This concentration of voting power with Mr. Skonnard and his associated entities may have a negative impact on the price of our Class A common stock.
As our Chief Executive Officer, Mr. Skonnard controls our day-to-day management and the implementation of major strategic investments of our company, subject to authorization and oversight by our board of directors. As a board member and officer, Mr. Skonnard owes fiduciary duties to us and our stockholders, including those of care and loyalty, and must act in good faith and with a view to the interests of the corporation. As a stockholder, even a controlling stockholder, Mr. Skonnard is entitled to vote his shares, and shares over which he has voting control, in his own interests, which may not always be in the interests of our stockholders generally. Because Mr. Skonnard, personally and through his associated entities, holds his economic interest in our business primarily through Pluralsight Holdings, rather than through the public company, he may have conflicting interests with holders of shares of our Class A common stock. For example, Mr. Skonnard may have a different tax position from us, which could influence his decisions regarding whether and when we should dispose of assets or incur new or refinance existing indebtedness, especially in light of the existence of the TRA, and whether and when we should undergo certain changes of control within the meaning of the TRA or terminate the TRA. In addition, the structuring of future transactions may take into consideration these tax or other considerations even where no similar benefit would accrue to us. See the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” incorporated by reference to our 2020 Proxy Statement for additional information. In addition, Mr. Skonnard’s significant ownership in us and resulting ability to effectively control or significantly influence us may discourage someone from making a significant equity investment in us, or could discourage transactions involving a change in control, including transactions in which you as a holder of shares of our Class A common stock might otherwise receive a premium for your shares over the then-current market price.
In addition, in July 2017, Standard & Poor’s announced that they would cease allowing most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Affected indices include the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500. Under the announced policies, our multi-class capital structure makes us ineligible for inclusion in any of these indices, and as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track these indices will not invest in our stock. Because of our dual class structure, we may be excluded from these indexes and we cannot assure you that other stock indexes will not take similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indexes, exclusion from stock indexes would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors.
Although we do not rely on the “controlled company” exemption under the rules and regulations of Nasdaq, we have the right to use such exemption and therefore we could in the future avail ourselves of certain reduced corporate governance requirements.
Aaron Skonnard and his associated entities, collectively, hold a majority of the voting power of our outstanding capital stock, and therefore we are considered a “controlled company” as that term is set forth in the rules and regulations of Nasdaq. Under these rules, a company of which more than 50% of the voting power is held by a person or group of persons acting together is a “controlled company” and may elect not to comply with certain rules and regulations of Nasdaq regarding corporate governance, including:
the requirement that a majority of its board of directors consist of independent directors;
the requirement that its director nominees be selected or recommended for the board’s selection by a majority of the board’s independent directors in a vote in which only independent directors participate or by a nominating

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committee comprised solely of independent directors, in either case, with board resolutions or a written charter, as applicable, addressing the nominations process and related matters as required under the federal securities laws; and
the requirement that its compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
These requirements would not apply to us if, in the future, we choose to avail ourselves of the “controlled company” exemption. Although we qualify as a “controlled company,” we do not currently rely on these exemptions and we fully comply with all corporate governance requirements under the rules and regulations of Nasdaq, including any phase-in periods specified thereunder. However, if we were to utilize some or all of these exemptions, we would not comply with certain of the corporate governance standards of Nasdaq, which could adversely affect the protections for other stockholders.
Our stock price may continue being volatile, and it may decline regardless of our operating performance.
Prior to our IPO, there was no public market for shares of our Class A common stock. On May 17, 2018, we sold shares of our Class A common stock to the public at $15.00 per share. From May 17, 2018, the date that shares of our Class A common stock began trading on Nasdaq, through December 31, 2019, the market price for our Class A common stock has ranged from $14.84 per share to $38.37 per share. The market price of our Class A common stock may continue fluctuating significantly in response to numerous factors, many of which are beyond our control, including, among others:
actual or anticipated fluctuations in our revenue and other results of operations, including as a result of the addition or loss of any number of customers;
announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;
the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections;
failure of securities analysts to initiate or maintain coverage of us, changes in ratings and financial estimates and the publication of other news by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
changes in operating performance and stock market valuations of SaaS-based software or other technology companies, or those in our industry in particular;
the size of our public float;
price and volume fluctuations in the trading of our Class A common stock and in the overall stock market, including as a result of trends in the economy as a whole;
new laws or regulations or new interpretations of existing laws or regulations applicable to our business or industry, including data privacy, data protection, and information security;
lawsuits threatened or filed against us for claims relating to intellectual property, employment issues, or otherwise;
actual or perceived security breaches;
changes in our board of directors or management;
short sales, hedging, and other derivative transactions involving our Class A common stock;
sales of large blocks of our Class A common stock including sales by our executive officers, directors, and significant stockholders; and

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other events or factors, including changes in general economic, industry, and market conditions, and trends, as well as any natural disasters, which may affect our operations.
Following a period of volatility in the market price of our securities, we became the subject of securities litigation. We may experience more such litigation following future periods of volatility. This type of litigation may result in substantial costs and a diversion of management’s attention and resources, which could adversely affect our business and financial condition.
Future sales of shares by existing stockholders could cause our stock price to decline.
Sales of a substantial number of shares of our Class A common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our Class A common stock in the public market, the market price of our Class A common stock could decline.
If securities or industry analysts do not publish research or reports about our business, or if they downgrade our common stock, the price of our Class A common stock could decline.
The trading market for our Class A common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not influence or control these analysts. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price could decline. In addition, if our results of operations fail to meet the forecast of analysts, our stock price could decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our stock price and trading volume to decline.
Our issuance of additional capital stock in connection with financings, acquisitions, investments, our equity incentive plans, or otherwise could dilute all other stockholders.
We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. For example, we expect to grant equity awards under our equity incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies, and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our Class A common stock to decline.
We generally do not intend to pay dividends.
We generally do not intend to pay dividends to the holders of our Class A common stock for the foreseeable future, except possibly in connection with maintaining certain aspects of our UP-C structure. See the section entitled “—Risks Related to Our Organizational Structure—The disparity between the U.S. corporate tax rate and the U.S. tax rate applicable to non-corporate members of Pluralsight Holdings may complicate our ability to maintain our intended capital structure, which could impose transaction costs on us and require management attention.” Our ability to pay dividends on our Class A common stock may be restricted by the terms of any future debt incurred or preferred securities issued by us or our subsidiaries or law. Payments of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our business, financial condition, and results of operations, current and anticipated cash needs, plans for expansion and any legal or contractual limitation on our ability to pay dividends. As a result, any capital appreciation in the price of our Class A common stock may be your only source of gain on your investment in our Class A common stock.
If, however, we decide to pay a dividend in the future, we would likely need to cause Pluralsight Holdings to make distributions to Pluralsight, Inc. in an amount sufficient to cover cash dividends, if any, declared by us.
Deterioration in the consolidated financial condition, earnings, or cash flow of Pluralsight Holdings for any reason could limit or impair its ability to pay cash distributions or other distributions to us. In addition, our ability to pay dividends in the future is dependent upon our receipt of cash from Pluralsight Holdings and its subsidiaries. Pluralsight Holdings and its subsidiaries may be restricted from distributing cash to us by, among other things, law or the documents governing our existing or future indebtedness.

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Some provisions of Delaware law and our amended and restated certificate of incorporation and amended and restated bylaws may deter third parties from acquiring us and diminish the value of our Class A common stock.
Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would benefit our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws provide for, among other things:
a classified board of directors with staggered three-year terms;
the removal of directors by stockholders only for cause;
our multi-class structure, which provides Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, personally and through his associated entities, the ability to control or significantly influence the outcome of matters requiring stockholder approval;
the ability of our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change in control;
advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at stockholder meetings;
a prohibition on stockholders calling special stockholder meetings; and
certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws that may be amended only by the affirmative vote of the holders of at least two-thirds in voting power of all outstanding shares of our stock entitled to vote thereon, voting together as a single class.
These anti-takeover defenses could discourage, delay, or prevent a transaction involving a change in control of our company. These provisions could discourage proxy contests, make it more difficult for stockholders to elect directors of their choosing, and cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock, and affect the price that some investors are willing to pay for our Class A common stock.
Our amended and restated bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or other employees.
Our amended and restated bylaws provide that, for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees of ours or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws, or (iv) any other action asserting a claim that is governed by the internal affairs doctrine, the exclusive forum shall be a state or federal court located within the State of Delaware, in substantially all cases. Our amended and restated bylaws also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the sole and exclusive forum for any action asserting a claim arising pursuant to the Securities Act, such a provision known as a “Federal Forum Provision.” Any person or entity purchasing or otherwise acquiring any interest in our shares of capital stock shall be deemed to have notice of and consented to these provisions. These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees.
In light of the decision issued by the Delaware Court of Chancery in Matthew Sciabacucchi v. Matthew B. Salzberg et al., C.A. No. 2017-0931-JTL (Del. Ch.), finding Federal Forum Provisions are not valid under Delaware law, we do

41


not intend to enforce the Federal Forum Provision in our amended and restated bylaws unless and until such time there is a final determination by the Delaware Supreme Court regarding the validity of such provisions. To the extent the Delaware Supreme Court makes a final determination that provisions such as the Federal Forum Provision are not valid as a matter of Delaware law, our board of directors intends to amend our amended and restated bylaws to remove the Federal Forum Provision.
If we face relevant litigation and are unable to enforce these provisions, we may incur additional costs associated with resolving such matters in other jurisdictions, which could harm our business, financial condition, or results of operations.

42


Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters occupies approximately 117,000 square feet in Utah under leases that expire at various times through 2021. Of the four leases in Utah, one of them in connection to 43,145 square feet includes an option to renew the lease agreement for an additional five-year term, which must be exercised by the end of February 2020. We currently have no intention of exercising this option. We also lease offices around the world, including in Boston, Ireland, and Australia.
In August 2018, we entered into a lease agreement to rent an office building consisting of approximately 348,000 gross square feet to be constructed in Draper, Utah expected to become our new corporate headquarters. We will begin to pay basic annual rent in monthly installments on the earlier to occur of the date we open for business in the leased premises or June 24, 2020 (which date may be extended by construction delays). The term of the lease continues for 15 years from the rent commencement date. We have a right to extend the term of the lease for up to three additional five-year periods.
We believe that our existing facilities are sufficient for our current needs. In the future, we may need to add new facilities and expand our existing facilities as we add employees, grow our infrastructure, and evolve our business, and we believe that suitable additional or substitute space will be available on commercially reasonable terms to meet our future needs.
Item 3. Legal Proceedings.
We are, from time to time, subject to legal proceedings and claims arising from the normal course of business activities, and an unfavorable resolution of any of these matters could materially affect our future business, results of operations, financial condition, and cash flows. The information required by this item is provided in Note 12 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.
Future litigation may be necessary, among other things, to defend ourselves or our users by determining the scope, enforceability, and validity of third-party proprietary rights or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Item 4. Mine Safety Disclosures.
Not applicable.


43


PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information for Our Class A Common Stock

Our Class A common stock began trading on Nasdaq under the symbol “PS” on May 17, 2018. Our Class B and Class C common stock are not listed or traded on any stock exchange.
Holders of Record

As of December 31, 2019, there were 59 holders of record of our Class A common stock, 58 holders of record of our Class B common stock, and 6 holders of record of our Class C common stock. We believe there are a significantly larger number of beneficial owners of our common stock because many shares are held by brokers and other institutions on behalf of stockholders.
Dividend Policy

We do not intend to pay cash dividends in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans

The information required by this item with respect to our equity compensation plans is incorporated by reference in our 2020 Proxy Statement to be filed with the SEC within 120 days of the year ended December 31, 2019.

Stock Performance Graph

The following performance graph and related information shall not be deemed to be "soliciting material" or "filed" for purposes of Section 18 of the Exchange Act nor shall such information be incorporated by reference into any filing of Pluralsight, Inc. under the Exchange Act or the Securities Act, except to the extent we specifically incorporate it by reference in such filing.
The graph set forth below compares the cumulative total return to stockholders on our Class A common stock relative to the cumulative total returns of the Standard & Poor’s 500 Index (the S&P 500) and the S&P 500 Information Technology Index between May 17, 2018 (the date our Class A common stock commenced trading on Nasdaq) through December 31, 2019. All values assume a $100 initial investment and data for the S&P 500 and the S&P 500 Information Technology Index assume reinvestment of dividends. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock.

44


https://cdn.kscope.io/aea7b45569fbdbc5bd77bf27705d6dca-stockperformancechart2019.jpg
Company/Index
 
May 17, 2018(1)
 
June 30, 2018
 
Sept. 30, 2018
 
December 31, 2018
 
March 31, 2019
 
June 30, 2019
 
Sept. 30, 2019
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pluralsight
 
$
100

 
$
122

 
$
160

 
$
118

 
$
159

 
$
152

 
$
84

 
$
86

S&P 500
 
$
100

 
$
100

 
$
107

 
$
92

 
$
104

 
$
108

 
$
109

 
$
119

S&P 500 Information Technology
 
$
100

 
$
101

 
$
109

 
$
90

 
$
107

 
$
113

 
$
117

 
$
133

 
(1) Base period

Recent Sales of Unregistered Securities and Use of Proceeds

Recent Sales of Unregistered Securities

During the year ended December 31, 2019, pursuant to the terms of the Fourth LLC Agreement, certain Continuing Members of Pluralsight Holdings exchanged 34,892,796 shares of Class B common stock, along with their corresponding LLC Units, for an equivalent number of shares of Class A common stock. Such shares were issued in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933.

Use of Proceeds
None.
Issuer Purchases of Equity Securities
None.



45


Item 6.    Selected Financial Data.
The following tables present the selected historical consolidated financial information and other data for Pluralsight, Inc. and its consolidated subsidiaries. Pluralsight Holdings is our predecessor, for financial reporting purposes, and its consolidated financial statements are our consolidated financial statements. The following selected consolidated financial data for Pluralsight, Inc. and its consolidated subsidiaries should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The selected consolidated statements of operations data for the years ended December 31, 2019, 2018, and 2017, and the selected consolidated balance sheet data as of December 31, 2019 and 2018, are derived from the audited consolidated financial statements and related notes of Pluralsight, Inc. included elsewhere in this Annual Report on Form 10-K. The selected consolidated statement of operations data for the years ended December 31, 2016 and 2015, and the selected consolidated balance sheet data as of December 31, 2017, 2016, and 2015 have been derived from the consolidated financial statements that are not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of our future results.
Consolidated Statements of Operations Data
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(in thousands, except per share amounts)
Revenue
$
316,910

 
$
232,029

 
$
166,824

 
$
131,841

 
$
108,422

Cost of revenue(1)(2)
71,353

 
62,615

 
49,828

 
40,161

 
33,245

Gross profit
245,557

 
169,414

 
116,996

 
91,680

 
75,177

Operating expenses(1)(2):
 
 
 
 
 
 
 
 
 
Sales and marketing
207,085

 
158,409

 
103,478

 
51,234

 
44,872

Technology and content
102,902

 
69,289

 
49,293

 
36,159

 
33,146

General and administrative
85,560

 
78,418

 
46,971

 
18,130

 
15,916

Total operating expenses
395,547

 
306,116

 
199,742

 
105,523

 
93,934

Loss from operations
(149,990
)
 
(136,702
)
 
(82,746
)
 
(13,843
)
 
(18,757
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(23,565
)
 
(6,826
)
 
(11,665
)
 
(6,320
)
 
(7,399
)
Loss on debt extinguishment
(950
)
 
(4,085
)
 
(1,882
)
 

 

Other income (expense), net
11,749

 
1,504

 
81

 
45

 
(18
)
Loss before income taxes
(162,756
)
 
(146,109
)
 
(96,212
)
 
(20,118
)
 
(26,174
)
Provision for income taxes
(823
)
 
(664
)
 
(324
)
 
(494
)
 
(186
)
Net loss
$
(163,579
)
 
$
(146,773
)
 
$
(96,536
)
 
$
(20,612
)
 
$
(26,360
)
Less: Net loss attributable to non-controlling interests
(50,921
)
 
(49,660
)
 

 

 

Net loss attributable to Pluralsight, Inc.
$
(112,658
)
 
$
(97,113
)
 
$
(96,536
)
 
$
(20,612
)
 
$
(26,360
)
Less: Accretion of Series A redeemable convertible preferred units

 
(176,275
)
 
(63,800
)
 
(6,325
)
 
(55,300
)
Net loss attributable to shares of Class A common stock
$
(112,658
)
 
$
(273,388
)
 
$
(160,336
)
 
$
(26,937
)
 
$
(81,660
)
Net loss per share, basic and diluted(3)
$
(1.19
)
 
$
(0.72
)
 
 
 
 
 
 
Weighted-average common shares used in computing basic and diluted net loss per share(3)
94,515

 
62,840

 
 
 
 
 
 

46


______________
(1)
Includes equity-based compensation expense as follows:
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
Cost of revenue
$
548

 
$
205

 
$
20

 
$
20

 
$
39

Sales and marketing
30,677

 
19,096

 
2,624

 
1,462

 
1,896

Technology and content
21,430

 
12,038

 
1,966

 
2,050

 
2,203

General and administrative
37,782

 
41,153

 
17,171

 
2,206

 
865

Total equity-based compensation
$
90,437

 
$
72,492

 
$
21,781

 
$
5,738

 
$
5,003

(2)
Includes amortization of acquired intangible assets as follows:
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
Cost of revenue
$
3,645

 
$
7,586

 
$
7,008

 
$
6,565

 
$
6,555

Sales and marketing
129

 
389

 
721

 
643

 
1,077

Technology and content
705

 
706

 
706

 
706

 
611

General and administrative

 

 
91

 
120

 
130

Total amortization of acquired intangible assets
$
4,479

 
$
8,681

 
$
8,526

 
$
8,034

 
$
8,373

(3)
Represents net loss per share of Class A common stock and weighted-average shares of Class A common stock outstanding for the portion of the periods following the Reorganization Transactions and Pluralsight, Inc.’s IPO described in Note 1 and Note 17 to Pluralsight, Inc.’s consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Consolidated Balance Sheet Data
 
As of December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
Cash and cash equivalents
$
90,515

 
$
194,306

 
$
28,267

 
$
19,397

 
$
8,389

Short-term and long-term investments
438,039

 

 

 

 

Total assets
1,031,953

 
447,463

 
236,420

 
214,972

 
192,984

Deferred revenue, current and noncurrent
234,654

 
172,581

 
111,301

 
72,683

 
55,795

Convertible senior notes, net
470,228

 

 

 

 

Long-term debt, net

 

 
116,037

 
74,069

 
83,862

Redeemable convertible preferred units

 

 
405,766

 
341,966

 
305,294

Non-controlling interests
63,175

 
107,167

 

 

 

Total stockholders’ equity/members’ deficit
246,160

 
208,593

 
(445,077
)
 
(307,230
)
 
(286,134
)

47


Key Business Metrics
We monitor business customers, billings, and certain related key business metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Business customers (end of period)
17,942

 
16,756

 
14,463

 
12,043

 
10,517

Billings
$
379,051

 
$
293,583

 
$
205,807

 
$
149,231

 
$
130,043

Billings from business customers
$
330,143

 
$
248,159

 
$
162,965

 
$
104,861

 
$
83,663

% of billings from business customers
87
%
 
85
%
 
79
%
 
70
%
 
64
%
Business Customers
We use the number of business customers to measure and monitor the growth of our business and the success of our sales and marketing activities and believe that the growth of our business customer base is indicative of our long-term billings and revenue growth potential. We define a business customer as a unique account in our customer relationship management system that had an active paying subscription at the end of the period presented. Each unique account in our customer relationship management system is considered a unique business customer as the system does not create unique accounts for individual customers, and, in some cases, there may be more than one business customer within a single organization.
Billings
We use billings to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers and our ability to sell subscriptions to our platform to both existing and new customers. Billings represents our total revenue plus the change in deferred revenue in the period, as presented in our consolidated statements of cash flows, less the change in contract assets and unbilled accounts receivable in the period. Billings in any particular period represents amounts invoiced to our customers and reflect subscription renewals and upsells to existing customers plus sales to new customers. Our pricing and subscription periods vary for business customers and individual customers. Subscription periods for our business customers generally range from one to three years, with a majority being one year. We typically invoice our business customers in advance in annual installments. Subscription periods for our individual customers range from one month to one year, and we typically invoice them in advance in monthly or annual installments.
We use billings from business customers and our percentage of billings from business customers to measure and monitor our ability to sell subscriptions to our platform to business customers. We believe that billings from business customers will be a significant source of future revenue growth and a key factor affecting our long-term performance. We expect our billings from business customers to continue to increase as a percentage of billings over the long term.
As our billings continue to grow in absolute terms, we expect our billings growth rate to decline over the long term as we achieve scale in our business. As we recognize revenue from subscription fees ratably over the term of the contract, due to the difference in timing of billings received and when we recognize revenue, changes to our billings and billings growth rates are not immediately reflected in our revenue and revenue growth rates.
Dollar-Based Net Retention Rate
We use our dollar-based net retention rate to measure our ability to retain and expand the revenue generated from our existing business customers. Our dollar-based net retention rate compares our subscription revenue from the same set of customers across comparable periods. We calculate our dollar-based net retention rate on a trailing four-quarter basis. To calculate our dollar-based net retention rate, we first calculate the subscription revenue in one quarter from a cohort of customers that were customers at the beginning of the same quarter in the prior fiscal year, or cohort customers. We repeat this calculation for each quarter in the trailing four-quarter period. The numerator for dollar-based net retention

48


rate is the sum of subscription revenue from cohort customers for the four most recent quarters, or numerator period, and the denominator is the sum of subscription revenue from cohort customers for the four quarters preceding the numerator period. Dollar-based net retention rate is the quotient obtained by dividing the numerator by the denominator. Our dollar-based net retention rate was 123%, 128%, and 117% at December 31, 2019, 2018, and 2017, respectively.
Non-GAAP Financial Measures
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Non-GAAP gross profit
$
249,773

 
$
177,221

 
$
124,024

 
$
98,265

 
$
81,771

Non-GAAP gross margin
79
%
 
76
%
 
74
%
 
75
%
 
75
%
Non-GAAP operating loss
$
(49,893
)
 
$
(54,349
)
 
$
(52,439
)
 
$
(71
)
 
$
(5,381
)
Free cash flow
$
(28,236
)
 
$
(18,032
)
 
$
(20,472
)
 
$
(7,927
)
 
$
1,699

Non-GAAP Gross Profit and Non-GAAP Gross Margin
Non-GAAP gross profit is a non-GAAP financial measure that we define as gross profit plus equity-based compensation, amortization of acquired intangible assets, and employer payroll taxes related to employee stock transactions. We define non-GAAP gross margin as our non-GAAP gross profit divided by our revenue. We believe non-GAAP gross profit and non-GAAP gross margin are useful to investors as these metrics generally eliminate the effects of certain items that may vary from company to company for reasons unrelated to overall profitability or operating performance.
See the section below entitled “—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using our non-GAAP gross profit and non-GAAP gross margin as a financial measure and for a reconciliation of our non-GAAP gross profit to gross profit, the most directly comparable financial measure calculated in accordance with GAAP.
Non-GAAP Operating Loss
Non-GAAP operating loss is a non-GAAP financial measure that we define as loss from operations plus equity-based compensation, amortization of acquired intangible assets, employer payroll taxes related to employee stock transactions, secondary offering costs, and acquisition-related costs. We believe non-GAAP operating loss provides investors with useful information on period-to-period performance as evaluated by management and in comparison with our past financial performance. We believe non-GAAP operating loss is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance.
See the section below entitled “—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using our non-GAAP operating loss as a financial measure and for a reconciliation of our non-GAAP operating loss to loss from operations, the most directly comparable financial measure calculated in accordance with GAAP.
Free Cash Flow
We define free cash flow as net cash (used in) provided by operating activities less purchases of property and equipment and purchases of our content library. We consider free cash flow to be an important measure because it measures the amount of cash we spend or generate and reflects changes in our working capital. In recent years, our free cash flow was negative as a result of our continued investments to support the growth of our business. We expect our free cash flow to improve as we experience greater scale in our business and improve operational efficiency. We expect to generate positive free cash flow over the long term.

49


See the section below entitled “—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using free cash flow as a financial measure and for a reconciliation of free cash flow to net cash (used in) provided by operations, the most directly comparable financial measure calculated in accordance with GAAP.
Reconciliation of Non-GAAP Financial Measures
We use non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, and free cash flow in conjunction with traditional GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, and free cash flow should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.
We compensate for these limitations by providing a reconciliation of non-GAAP gross profit, non-GAAP operating loss, and free cash flow to the related GAAP financial measures, gross profit, loss from operations, and net cash (used in) provided by operating activities, respectively. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, and free cash flow in conjunction with their respective related GAAP financial measures.
The following table provides a reconciliation of gross profit to non-GAAP gross profit:
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Gross profit
$
245,557

 
$
169,414

 
$
116,996

 
$
91,680

 
$
75,177

Equity-based compensation
548

 
205

 
20

 
20

 
39

Amortization of acquired intangible assets
3,645

 
7,586

 
7,008

 
6,565

 
6,555

Employer payroll taxes on employee stock transactions
23

 
16

 

 

 

Non-GAAP gross profit
$
249,773

 
$
177,221

 
$
124,024

 
$
98,265

 
$
81,771

Gross margin
77
%
 
73
%
 
70
%
 
70
%
 
69
%
Non-GAAP gross margin
79
%
 
76
%
 
74
%
 
75
%
 
75
%
The following table provides a reconciliation of loss from operations to non-GAAP operating loss:
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
Loss from operations
$
(149,990
)
 
$
(136,702
)
 
$
(82,746
)
 
$
(13,843
)
 
$
(18,757
)
Equity-based compensation
90,437

 
72,492

 
21,781

 
5,738

 
5,003

Amortization of acquired intangible assets
4,479

 
8,681

 
8,526

 
8,034

 
8,373

Employer payroll taxes on employee stock transactions