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As filed with the U.S. Securities and Exchange Commission on May 15, 2018

Registration No. 333-224301

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 3

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

PLURALSIGHT, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   7370   82-3605465

(State or other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Pluralsight, Inc.

182 North Union Avenue

Farmington, Utah 84025

(801) 784-9007

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Aaron Skonnard

Co-Founder, Chief Executive Officer, and Chairman

182 North Union Avenue

Farmington, Utah 84025

(801) 784-9007

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

  Copies to:  

Robert G. Day

Allison B. Spinner

Rezwan D. Pavri

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road

Palo Alto, California 94304

(650) 493-9300

 

James Budge, Chief Financial Officer

Matthew Forkner, General Counsel

Matthew Tenney, Associate General Counsel

Pluralsight, Inc.

182 North Union Avenue

Farmington, Utah 84025

(801) 784-9007

 

Richard A. Kline

Goodwin Procter LLP

601 Marshall Street

Redwood City, California 94063

(650) 725-3100

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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

 

 

(Do not check if a smaller reporting company)

 

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 7(a)(2)(B) of the Securities Act.  ☐

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy  these  securities  in  any  jurisdiction  where  the  offer  or  sale  is  not  permitted.

 

PROSPECTUS (Subject to Completion)

Issued May 15, 2018

20,700,000 Shares

 

 

LOGO

CLASS A COMMON STOCK

 

 

Pluralsight, Inc. is offering 20,700,000 shares of its Class A common stock. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price of our Class A common stock will be between $12.00 and $14.00 per share.

 

 

We have applied to list our Class A common stock on The Nasdaq Global Select Market under the symbol “PS”.

Following this offering, we will have three classes of authorized common stock: The Class A common stock offered hereby, as well as Class B common stock and Class C common stock. The Class A common stock and Class B common stock will have one vote per share. The Class C common stock will have 10 votes per share. Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, personally and through associated entities, will hold all of our issued and outstanding Class C common stock and will hold approximately 54.4% of the combined voting power of our outstanding capital stock, and the members of Pluralsight Holdings, LLC, other than Mr. Skonnard and his associated entities and Pluralsight, Inc., will hold approximately 23.8% of the combined voting power of our outstanding capital stock, in each case following this offering. As a result, Mr. Skonnard will be able to control or significantly influence any action requiring the general approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction.

We intend to use the net proceeds from this offering to purchase newly issued common limited liability company units, or LLC Units, of Pluralsight Holdings, LLC. As a result, following this offering, we will be a holding company and our principal asset will be LLC Units in Pluralsight Holdings, LLC. We will hold approximately 59,698,098 LLC Units, representing a 45.5% economic interest in Pluralsight Holdings, LLC, and therefore the purchasers in this offering will indirectly have a minority economic interest in Pluralsight Holdings, LLC.

 

 

We are an “emerging growth company” as defined under the federal securities laws. Investing in our Class A common stock involves risks. See the section titled “Risk Factors” beginning on page 28.

 

 

PRICE $             A SHARE

 

 

 

      

Price to

Public

      

Underwriting

Discounts and

Commissions(1)

      

Proceeds to

Pluralsight

 

Per Share

       $                   $                   $           

Total

       $                              $                              $                      

 

(1)

See the section titled “Underwriters” for a description of the compensation payable to the underwriters.

At our request, the underwriters have reserved up to 5% of the shares of Class A common stock offered by this prospectus for sale, at the initial public offering price, to certain individuals associated with us. See the section titled “Underwriters—Directed Share Program.”

We have granted the underwriters the right to purchase up to an additional 3,105,000 shares of Class A common stock to cover over-allotments at the initial public offering price less the underwriting discount.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of Class A common stock to purchasers on             , 2018.

 

 

 

MORGAN STANLEY   J.P. MORGAN   BARCLAYS   BofA MERRILL LYNCH
FIRST ANALYSIS SECURITIES CORP.   NEEDHAM & COMPANY   RAYMOND JAMES   SUNTRUST ROBINSON HUMPHREY

            , 2018

 

 


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LOGO

Technology is changing fast.
Over 60%* of the 2017 Fortune 500 use Pluralsight to keep pace
*As of December 31, 2017


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LOGO

 


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LOGO

Pluralsight enables businesses to develop the technology skills of their workforces at scale.
We enhance the expertise of technology professionals, enabling them to keep pace with technology changes and securely deliver key innovations on time and on budget.
Our technology learning platform empowers businesses to adapt and thrive in the digital age. Our mission is to democratize technology skills, and we are committed to closing the global technology skills gap. We’re unleashing untapped potential and lifting the human condition.


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TABLE OF CONTENTS

 

 

 

 

Through and including                     , 2018 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our Class A common stock.

For investors outside of the United States: neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and observe any restrictions relating to, this offering of the shares of our Class A common stock and the distribution of this prospectus and any such free writing prospectus outside of the United States.

 

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PROSPECTUS SUMMARY

This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in shares of our Class A common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read the entire prospectus carefully, especially the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Organizational Structure,” and “Unaudited Pro Forma Consolidated Financial Information,” and the consolidated financial statements of Pluralsight Holdings, LLC, or Pluralsight Holdings, and the related notes, before deciding to buy shares of our Class A common stock.

As used in this prospectus, unless expressly indicated or the context otherwise requires, references to “Pluralsight,” “we,” “us,” “our,” the “Company,” and similar references refer: (i) prior to the consummation of the Reorganization Transactions described in the section titled “Organizational Structure—Reorganization Transactions” to Pluralsight Holdings and its consolidated subsidiaries and (ii) after the Reorganization Transactions to Pluralsight, Inc. and its consolidated subsidiaries, including Pluralsight Holdings.

PLURALSIGHT

Our Value Proposition

Pluralsight is an enterprise software company committed to closing the global technology skills gap. This gap is holding back companies and entire industries from reaching their full potential.

The skills gap exists because technology is changing faster than the world’s ability to acquire and adapt to new skills. To address this challenge, many companies still use traditional in-person, instructor-led training, or ILT, models, which don’t move fast enough or scale quickly enough to meet the ever-increasing demand.

We disrupt these in-person ILT models by offering a cloud-based technology learning platform that is broadly accessible. Learners on our platform can quickly acquire today’s most valuable technology skills through high-quality learning experiences delivered by subject-matter experts, available on any device at any time. 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.

Our learning experiences empower customers to adapt and thrive in the midst of unprecedented technological change and digital transformation. As a result, technology leaders now see us as their “supply chain for intellectual property.”

Closing the 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 won’t reach. Pluralsight One will be funded by two of our co-founders who have together committed to donate one percent of the Company’s equity from their personal holdings. We will also donate one percent of our profit, time, and product to Pluralsight One endeavors.

Ultimately, our mission is to democratize technology skills. The more individuals we reach through our platform, the bigger our future opportunity becomes as we enable our customers to access an ever-expanding talent pool.

Overview

We are a leading provider of technology skill development solutions. Our cloud-based technology learning platform provides a broad range of tools, including skill assessments, a curated library of courses, learning paths,



 

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and business analytics. Our platform is powered by Iris, our proprietary machine-learning driven skill assessment algorithm and recommendation engine, which enables businesses to more effectively quantify and develop skills across technologies. Through our platform we provide both businesses and individuals with the ability to stay smart, stay relevant, and drive results.

Technology has dramatically changed businesses. Companies of any scale across industries are embracing digital transformation as a way to remain competitive. To be successful through digital transformation, companies have had to dramatically adapt their workforces to incorporate more technology professionals. As the pace of technological change increases, companies are striving to improve the skills of their workforces and stay ahead of the latest technology trends.

Simply hiring more technologists is not enough. Companies need to assess the skill set of employees, address skills gaps on an individual level, and continuously help employees advance by building skills on relevant topics. Technology changes rapidly and businesses are under pressure to keep up with this change. From 2004 to 2016, there was an average of four new major software development frameworks created each year, in addition to newly developed derivations of existing software languages. As a result, computer science courses become obsolete quickly. According to a study by the Economist Intelligence Unit, 94% of executives cite a “moderate” or “severe” digital skills gap in their businesses, and a survey by Tech Pro Research indicates that 59% of IT employees worry that their current skills will become obsolete. To counter this trend, businesses are focused on improving technology skill development and increasing its efficacy.

Our cloud-based technology learning platform provides businesses the solutions that they need to improve employee skills and drive better business outcomes. The key components of our platform include:

 

   

Skill 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. 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 over 6,700 on-demand and online courses across a range of technology subject areas, including cloud, mobile, security, IT, and data. We have 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.

 

   

Learning Paths: Based on either an assessment or a user’s goals, our learning paths are curated to take users through a set of courses designed to help them master a particular subject area.

 

   

Business Analytics: Our business analytics tools enable business customers to evaluate 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.

We developed our proprietary machine-learning technology, Iris, to power our platform and improve the value of our skill assessments and course recommendations. Iris powers our skill assessments algorithm and guides users on how to develop desired skills. Iris uses machine learning, modern testing approaches, advanced statistical analysis, and data to create a smarter, more personalized development journey.

Our platform 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 beginner to advanced skill levels, with significant granularity within each topic so users can access 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.



 

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Our platform is used by businesses to train their software developers, IT professionals, data scientists, data engineers, technical engineers, business users, and technology executives. Our platform is also used by individuals to develop and enhance their technology skills. Small teams often represent the “top of the funnel” for larger deployments, bringing our technology into the workplace and proliferating usage within a business. We deploy a direct sales team focused on landing new business customers and expanding business-wide deployments. We have been successful in attracting businesses, particularly large enterprises, to our platform and expanding their use of our platform over time. As of December 31, 2017, our customers included more than 300 of the 2017 Fortune 500. From 2013 to 2017, the billings from our 2017 Fortune 500 customers, including new 2017 Fortune 500 customers that we acquired after 2013, increased by 9.1 times in the aggregate from the billings we generated from those companies in 2013. For the three months ended March 31, 2018, 82% of our billings came from business customers and 18% came from individual users. Customers subscribe to our platform unassisted through our website or through our direct sales channel. We make adoption easy, with free-trials and transparent pricing for all of our features.

We believe that we have substantial opportunities for growth. According to Training Industry, Inc., or Training Industry, global spend on corporate training initiatives was estimated to be $359 billion in 2016. Evans Data Corporation estimates that in 2017, there were over 102 million members of technical teams globally. Based in part on this information from Evans Data Corporation, we estimate that our current total addressable market exceeds $24 billion.

In recent years, we have reached significant scale in users and authors on our platform. As of December 31, 2017, more than 695,000 users in over 150 countries had access to our platform. Our content is developed and sourced from a network of over 1,400 authors. Today, we have over 6,700 on-demand and online courses on our platform and are adding on average more than 80 new courses each month. Our scale, growth, and rapid adoption are a testament to the applicability and effectiveness of our platform in the market for businesses and individuals.

We have achieved significant growth in recent periods. For the years ended December 31, 2016 and 2017, our billings were $149.2 million and $205.8 million, respectively, representing year-over-year growth of 38%, and our billings from business customers were $104.9 million and $163.0 million, respectively, representing year-over-year growth of 55%. For the three months ended March 31, 2017 and 2018, our billings were $38.9 million and $55.4 million, respectively, representing period-over-period growth of 43%, and our billings from business customers were $29.3 million and $45.3 million, respectively, representing period-over-period growth of 54%. For the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, our revenue was $131.8 million, $166.8 million, $37.2 million, and $49.6 million, respectively. Our net loss was $20.6 million, $96.5 million, $9.8 million, and $23.2 million, respectively, which reflects our substantial investments in the future growth of our business.

We are building our business to generate strong free cash flow over the long term. For the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, cash provided by (used in) operations was $4.5 million, ($12.1 million), $5.0 million, and ($10.4 million), respectively. For the years ended December 31, 2016 and 2017, and the three months ended March 31, 2017 and 2018, our free cash flow was ($7.9 million), ($20.5 million), $2.8 million, and ($13.1 million), respectively, and our free cash flow included cash payments for interest on our long-term debt of $5.5 million, $6.9 million, $1.2 million, and $2.5 million, respectively. We expect our free cash flow to improve as we experience greater scale in our business and improve operational efficiency, as well as eliminate cash paid for interest on our long-term debt following the repayment in full of the outstanding indebtedness under our credit facility in connection with this offering. See the section titled “Selected Consolidated Financial and Other Data—Non-GAAP Financial Measures” for a description of free cash flow and for a reconciliation of free cash flow to net cash provided by (used in) operations, the most directly comparable financial measure calculated in accordance with GAAP.



 

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Industry Background

Companies have to drive innovation through technology to remain competitive

As technology evolves, competition across businesses intensifies. Industry leaders that were once measured by their scale, product quality, and reputation are increasingly measured by the success of their transition into the digital age. Software is displacing manual processes throughout businesses and every company is becoming a technology company. As a result, companies are seeking to hire and retain talent that can drive lasting innovation in technology. Managers need to empower their employees to innovate in order to create or maintain a competitive advantage.

The number of technical positions is growing across all industries

Demand for qualified technology professionals is growing as companies race to become bigger, better, and faster. The number of technology-related functions across industries is expanding as companies move into the digital age. To remain competitive, businesses must adapt to changing needs and ensure that they get the best long-term return on their investment in human capital by hiring and retaining the best talent and helping employees maintain and enhance their skill sets.

Technology skills are in high demand, but become obsolete quickly

The market for technology talent is growing and constantly evolving due to the continuously changing needs of firms and their employees. Simply filling positions, however, is not enough. Technology evolves and becomes obsolete quickly, and new technologies are perpetually emerging. As such, technology professionals must constantly keep their skills current.

Professionals in many other industries, such as medicine, law, and education, are required to undertake continuing education to maintain their professional licenses. There is no such requirement for technology professionals despite how quickly their skills can become obsolete and must be replaced. Businesses need a way to assess the ongoing technological proficiency of their workforces.

High levels of employee skill development result in better performing companies

Employee skill development has a direct impact on a company’s overall performance. According to Deloitte Touche Tohmatsu Limited, or Deloitte, organizations with a strong learning culture are 56% more likely to be the first to market with their products versus their peers, and outperform the profitability of their peers, by 17%. As a result, businesses that fail to proactively improve the skills of their employees often lag behind competitors, and the consequences of this failure can be significant.

The way content is created and delivered impacts the effectiveness on the learner

In-person ILT remains the primary method to deliver content to individuals. This approach often fails to deliver satisfactory results because the creators of the content lack sufficient expertise in the subject or because the learning methods employed are antiquated or ineffective. Certain modern learning approaches provide lasting retention of information. These modern learning approaches provide diversity in delivery and improve efficacy of instruction for students, and include:

 

   

Short segments of digestible content to hold attention;

 

   

Use of visuals to target one of the four forms of learning styles (visual, auditory, written, and kinesthetic);



 

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Learning from other people;

 

   

Delivery of content by subject-matter experts with relevant experience;

 

   

Information delivered when it is most useful; and

 

   

Subject matter that is relatable to an individual.

The ability to incorporate these qualities into technology skill development can have lasting effects on user engagement with content, understanding of key concepts, and long-term knowledge retention.

Businesses need end-to-end solutions to incorporate assessment, skill development, and analytics

Businesses need a way to accurately measure the skills of their employees in order to deliver relevant skill development and appropriately staff teams for success. With the fast pace of technological innovation, frequently assessing skills and elevating employee knowledge will be critical. Businesses need ways to measure employees against peer groups, identify where there are gaps in knowledge, and assign targeted skill development to best suit the needs of individuals. They also need to ensure that the skill development is effective and that employees understand the concepts they have been taught.

The Shortcomings of Existing Solutions

Many current approaches to technology skill development are inadequate. The creators of content often lack sufficient subject-matter expertise, the approaches do not focus on the needs of technology professionals, the learning methods are insufficient for the needs of modern businesses, and the offerings do not effectively enable businesses to measure concept mastery by their employees. Shortcomings of these approaches include:

In-person, instructor-led training is costly and does not scale

Still the most widely used form of corporate skill development, in-person ILT has numerous disadvantages. In-person ILT is costly, not scalable through a large or distributed business, not available on-demand, not tailored to an individual’s needs, and does not typically include capabilities for assessment and on-demand help.

Legacy business e-learning is standardized, not personalized

These solutions typically consist of general, corporate-mandated static courses. These courses quickly become outdated and are designed to be accessed from desktops at work.  This approach typically sacrifices depth and personalization in an attempt to make the content relevant to a large audience.

Consumer-centric e-learning does not provide advanced technology skill development or scale

A number of online learning solutions have emerged for individuals, such as solutions offering crash courses in coding or web design in an attempt to prepare people for entry-level programming jobs. These solutions do not provide advanced levels of technology skill development for technology professionals, or scale to meet the needs of businesses.

Free resources can be shallow, inconsistent, and inaccurate, and are not curated for specific needs

Free courses are available online from sources such as YouTube and can be accessed via Google searches. Free courses may not have been created by subject-matter experts, generally do not provide the level of depth that is required for skill development by technology professionals, and lack efficient discoverability, relevancy to a specific need, quality control, and measurement of success or concept mastery.



 

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The Pluralsight Platform

Our solution consists of a cloud-based technology learning platform that provides businesses with tools to train their workforces and individuals with tools to advance their careers. We enable businesses to evaluate the technical abilities of their teams, align learning to key business objectives, develop talent, and close skills gaps in critical technology areas, such as cloud, mobile, security, IT, and data. With our large network of technology subject-matter experts, extensive and growing course library, and our ability to quantify the impact and value of our solution, we are helping business leaders to succeed in the digital age.

Our platform includes skill assessments, a curated library of courses, learnings paths, and business analytics. We developed our proprietary machine-learning technology, Iris, to power our platform and improve the value of our skill assessments and course recommendations. Iris powers our skill assessments algorithm and guides users on how to develop desired skills. Iris uses machine learning, modern testing approaches, advanced statistical analysis, and data to create a smarter, more personalized development journey.

All of our courses 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.

Skill Assessments

Through our skill assessments, we are able to assess an individual’s proficiency in a topic through adaptive tests, identify gaps in skill sets, benchmark against peers, and provide him or her with a Pluralsight Iris Quotient, or IQ. Pluralsight IQ is a numeric assessment of a skill and includes the skill area or technology, rating, skill level, and benchmarked percentile. Powered by Iris, our skill assessments provide highly indicative results on knowledge in specialized areas within 20 questions in under 10 minutes. Pluralsight IQ provides a modern skill assessment experience that gives businesses a credible, adaptable, and efficient model for validating technology skills.

As part of skill assessments, we also offer certification practice exams through our platform. Users utilize these practice exams to assess and validate their IT, management, and technical skills. Businesses can leverage certification practice exams to help certify their employees in areas of strategic importance to the business.

Course Library

Our course library includes over 6,700 on-demand and online courses across a range of technology subject areas, including cloud, mobile, security, IT, and data. A course generally consists of between two and four hours of video, broken into multiple modules consisting of two- to five-minute clips on specific topics, presented by an author who is an expert on the subject. These videos and modules are searchable, so users can either take an entire course, or target a particular segment for a specific need. At the end of a course, users can take a knowledge check to determine if they have mastered the material and are presented recommendations for future skill development.

We have built our exclusive course library primarily by engaging our world-class community of authors to create content for us and share in our success by receiving revenue-share amounts based on the viewing of their content. Our philosophy is that the more our authors earn, the more they are incentivized to create new content, which drives customer growth and user adoption.

Learning Paths

Based on either an assessment or an individual’s goals, our learning paths are curated to take users through a set of courses designed to help them master a particular subject area. Our learning paths take into account the



 

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skill level of each individual to guide users to the content that is most relevant to them, and not require them to spend time reviewing content that they already know. In addition, periodic learning assessments are available to ensure that users are on target with their learning objectives.

Our platform also allows businesses to create channels, which are a curated list of courses, modules, clips, and links to external resources. Channels can be shared with specific teams and throughout the business to enable custom skill development that aligns to specific objectives, which allows companies to reach their learning goals and business objectives more effectively and efficiently.

Business Analytics

Our business analytics tools enable business customers to evaluate the technical abilities of their teams, align skill development to key business objectives, determine the usage of our platform, examine trends in employee learning and quantify the impact of our personalized learning solution on their teams’ skills. This enables our business customers to develop their employees’ talent and close any skills gap.

Key Benefits of Our Platform

The most relevant skill development for a wide range of technology professionals

We are a company founded by software engineers, and we understand first-hand the importance of keeping up with constantly changing technologies. We are focused on delivering learning content addressing the technology languages, tools, and frameworks used by the majority of technology professionals in the workplace.

Integrated technology learning platform

Our integrated platform combines skill assessments, course library, learning paths, and business analytics to ensure that learners are taking the courses most useful to them and demonstrating comprehension of the subject matter. By gathering such insights from our platform, businesses can understand skills gaps, benchmark employees against consistent standards, and address learning needs in an efficient and targeted manner.

High quality curated content

Our content is the product of our industry-leading authors. We have spent many years identifying, cultivating, and growing our author network, and over 1,400 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 community 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.

Cost effective technology learning platform

We believe our pricing model provides a significant cost advantage compared to traditional technology skill development offerings. Organizations spent an average of $1,273 per employee in 2016 on direct learning expenditures, according to the Association for Talent Development. While we currently only address a portion of our customers’ skill development needs, we believe that technology skill development represents a significant and growing portion of our customers’ skill development expenditures. Additionally, we have expanded, and intend to continue to expand, our course library to address a wider range of our customers’ skill development needs. Our published pricing ranges from $499 to $699 per user per year for business subscriptions, providing what we believe to be a significant cost advantage over alternative solutions.



 

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Optimized for on-demand accessibility

We offer our courses the way users want to consume content. Our cloud-based technology learning platform is an on-demand solution that allows globally distributed users to access courses anytime they want, online or offline from almost any device, maximizing utilization of our product and workplace efficiency. According to a 2015 survey, approximately 80% of our users report using Pluralsight during work, 88% outside of work hours, and 25% during commute and travel times.

Our Market Opportunity

In 2016, an estimated $359 billion was spent on corporate training initiatives, according to Training Industry. The majority of corporate spending today is on in-person ILT and legacy e-learning solutions. We believe as companies adopt more effective, on-demand, and cost-advantageous solutions for employees, we will take a significant share of market spend. Further, Evans Data Corporation estimates that in 2017, there were over 102 million members of technical teams globally. Based in part on this information from Evans Data Corporation, we estimate that our current total addressable market exceeds $24 billion.

Competitive Strengths

Focus on addressing the needs of businesses

We are focused on enhancing skills development for technology professionals within businesses. Our cloud-hosted, multi-tenant application platform is designed for enterprise scalability to accommodate significant growth in user base, support businesses with highly distributed locations, and provide service-level agreements around system availability. We provide services to help ensure our customers realize the full value of our platform.

Target ongoing development of technology professionals

The skill development needs within a business are different from those of recent high school graduates, recreational learners, or individuals changing careers. Our content is focused on ensuring employees can master the latest emerging technologies and improve their skills in existing areas. Our course library includes over 6,700 on-demand and online courses across a range of technology subject areas, including cloud, mobile, security, IT, and data. We have built our extensive course library primarily by engaging our world-class community of authors, who create content for us. Our course library and community of authors enables us to provide high-quality content across a range of technology subject areas so our users can improve their performance in these key areas.

Consistent innovation and product expansion

Since 2012, we have expanded our course library at a compound annual growth rate, or CAGR, of 31% while maintaining high quality, adding major skill development categories, and expanding our end-to-end portfolio to include assessments and analytics. Our cloud-based delivery model combined with our distributed and scalable technology architecture allows us to regularly introduce new content and platform features to our customers quickly and seamlessly.

Advance skill assessments with personalized learning paths

Our ability to analyze, track, and benchmark employees differentiates our platform in the market, drives lasting value to businesses, and supports our high level of revenue retention from our business customers. Through our skill assessments, businesses are able to identify talent within their organizations and assess



 

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proficiency of a topic through adaptive tests, identify gaps in skills, and invest intelligently in their teams’ learning. With every assessment and course completed, Iris absorbs information about the state of technology skills of a specific business customer’s users and further personalizes the platform to each customer’s needs.

Highly efficient content development model

Our content development model allows us to source and distribute content in a highly efficient manner without having to hire content authors as full-time employees. We identify authors that are subject-matter experts in various technology areas, and engage them to develop content for our platform. By publishing their 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 high-quality content, which drives further user adoption and customer growth on our platform. The strength of our platform and our approach to our author relationships enables us to attract and retain leading authors. The number of authors on our platform has increased from over 100 as of December 31, 2012 to over 1,400 as of March 31, 2018.

Blue-chip customer base

Our customers include over 300 of the 2017 Fortune 500. We derived approximately $35.8 million of our billings from our Fortune 500 customers in the year ended December 31, 2017. We believe there exists a significant opportunity to drive sales to large enterprises, including expanding relationships with existing customers and attracting new customers.

Mission-driven culture

Our mission of “democratizing technology skills” inspires everything we do. This is our North Star—it is the why and how behind all of our decisions. We have chosen to grow in a way that we believe will make our mission a reality. This includes creating a values-based culture that empowers our team to do the best, most purposeful work of their careers.

Growth Strategy

Expand deployments within our customer base

We utilize a land-and-expand strategy within businesses, beginning with either small teams or departmental deployments. Our platform is used by individuals, developer groups, IT departments, line of business users, and human resources. 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 significantly expanded our 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.

Geographic expansion

For the three months ended March 31, 2018, we generated 64% of our revenue from customers in the United States. We see a significant opportunity to expand our reach into other regions, particularly where there are large



 

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developer groups for multi-national businesses. We have users in over 150 countries around the world who have access to our platform, and we are building out sales teams in Europe and Asia to further address these large markets impacted by rapidly changing technologies.

Expand course library with new content areas and offer additional platform features

We plan to continue to expand our course library to address the most relevant topics for users. Since January 1, 2013, we have added an average of over 80 new courses every month, with an average of approximately 230 new hours of video per month. We will continue to add additional features to our technology learning platform over time which we believe will provide us the opportunity to generate more revenue from our customers.

Strategic acquisitions

Strategic acquisitions have enabled us to quickly scale our business, expand our course library, add features to our cloud-based technology learning platform, and address new areas of technology in high demand by our customers. Over the past five years, we have made targeted strategic acquisitions, which have allowed us to expand our content catalog, author base, and platform capabilities. We will continue to selectively add content and capabilities through acquisitions that enhance value to our customers.

Pluralsight One

We believe technology has the power to create freedom, equality, and opportunity around the globe. Pluralsight One is our social impact initiative dedicated to closing the technology skills gap. The initiative will support nonprofit organizations and amplify their impact by equipping them and the people they serve with the technology skills needed to solve the world’s greatest challenges. The more individuals we reach through our platform, the bigger our future opportunity becomes as we enable our customers to access an ever-expanding talent pool.

Risks Associated with Our Business

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. Key risks include:

 

   

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.

 

   

If we are not able to 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 would be adversely affected.

 

   

The market in which we participate is competitive, and if we do not compete effectively, our results of operations could be harmed.

 

   

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.

 

   

If we are unable to increase sales of subscriptions to our platform to business customers while mitigating the risks associated with serving such customers, our business, financial condition, and results of operations would suffer.



 

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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 future performance depends in large part on attracting and retaining authors and producing content that addresses our customers’ needs.

 

   

Our quarterly and annual results of operations may vary significantly and may be difficult to predict. If we fail to meet the expectations of investors or securities analysts, our stock price and the value of your investment could decline.

 

   

If our security measures are breached or unauthorized access to customer data is otherwise obtained, 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.

 

   

Privacy, data protection, and information security concerns, and data collection and transfer restrictions and related domestic or foreign regulations, may limit the use and adoption of our platform and adversely affect our business.

 

   

If we fail to retain key employees, including Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, or to recruit qualified technical and sales personnel, our business could be harmed.

 

   

Our principal asset after the completion of this offering will be our interest in Pluralsight Holdings, and we will be dependent upon Pluralsight Holdings and its consolidated subsidiaries for our results of operations, cash flows, and distributions.

 

   

We will be required to pay certain of our Members for certain tax benefits we may claim, and we expect that the payments we will be required to make will be substantial.

 

   

The multi-class structure of our common stock will have the effect of concentrating voting control with Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman; this will limit or preclude your ability to influence corporate matters and may have a negative impact on the price of our Class A common stock.

If we are unable to adequately address these and other risks we face, our business, financial condition, results of operations and prospects may be adversely affected.

Summary of the Reorganization Transactions and the Offering Structure

This offering is being conducted through what is commonly referred to as an “UP-C” structure, which is often used by partnerships and limited liability companies when they decide to undertake an initial public offering. To implement the UP-C structure, we will effect certain organizational changes, which we refer to collectively as the “Reorganization Transactions,” which are described under the section titled “Organizational Structure—Reorganization Transactions.” Unless otherwise stated or the context otherwise requires, all information in this prospectus reflects the completion of these Reorganization Transactions.

Key terms of the UP-C structure are:

 

   

The UP-C structure allows existing owners of a partnership or limited liability company to continue to realize the tax benefits associated with their ownership in an entity that is treated as a partnership for income tax purposes following an initial public offering and provides tax benefits and associated cash flow to both the issuer corporation in the initial public offering and the existing owners of the partnership or limited liability company.

 

   

Prior to the completion of this offering and the Reorganization Transactions, Pluralsight Holdings was owned entirely by the owners of membership units, including incentive units and Class B incentive



 

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units, of Pluralsight Holdings, or the Members, and operated its business through various directly and indirectly wholly-owned subsidiaries. Pluralsight, Inc. was incorporated as a Delaware corporation on December 4, 2017 to serve as the issuer of the Class A common stock offered in this offering.

 

   

Pursuant to the Reorganization Transactions, all outstanding redeemable convertible preferred limited liability company units, incentive units, and Class B incentive units of Pluralsight Holdings will be converted into common limited liability company units and all outstanding common limited liability company units will be reclassified into non-voting limited liability company common units. After the completion of this offering and the Reorganization Transactions, the Members, other than former Members that were corporations that were merged with and into Pluralsight, Inc. and former Members that contributed all of their membership units, including incentive units and Class B incentive units, to Pluralsight, Inc. in exchange for Class A common stock in connection with the Reorganization Transactions will continue to own the single class of issued non-voting common limited liability company units, or LLC Units, of Pluralsight Holdings. We refer to such former Members as the Former Members, and such continuing Members and their permitted transferees as the Continuing Members.

 

   

As part of the Reorganization Transactions, the incentive units and Class B incentive units will be converted as follows:

 

   

15,783,689 incentive units that were outstanding as of March 31, 2018, of which (i) 5,601,184 will be exchanged for 4,721,550 shares of Class A common stock of Pluralsight, Inc. (based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and (ii) 10,182,505 will convert into 7,470,495 LLC Units (based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and each such LLC Unit of Pluralsight Holdings will also receive a distribution of one share of Class B common stock of Pluralsight, Inc.; and

 

   

3,000,000 Class B incentive units that were outstanding as of March 31, 2018, of which (i) 278,355 will be exchanged for 144,154 shares of Class A common stock of Pluralsight, Inc. (based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and (ii) 2,721,645 will convert into 1,409,482 LLC Units (based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and each such LLC Unit of Pluralsight Holdings will also receive a distribution of one share of Class C common stock of Pluralsight, Inc.

 

   

After the completion of this offering, Pluralsight, Inc. will be a holding company and will operate and control the business affairs of Pluralsight Holdings as its sole managing member. Pluralsight, Inc. will include Pluralsight Holdings in our consolidated financial statements.

 

   

Investors in this offering will purchase shares of Pluralsight, Inc.’s Class A common stock.

 

   

Pluralsight, Inc. intends to use the proceeds from the sale of Class A common stock in this offering to purchase LLC Units from Pluralsight Holdings at a purchase price per unit equal to the initial public offering price per share of Class A common stock in this offering net of underwriting discounts and commissions. The aggregate number of LLC Units purchased will be equal to the number of shares of Class A common stock sold to the public in this offering.

 

   

Generally, following the Reorganization Transactions, the Continuing Members, other than Aaron Skonnard and his associated entities, will continue to hold LLC Units with economic, non-voting interests in Pluralsight Holdings and will be issued a number of shares of our Class B common stock equal to the number of LLC Units held by them upon completion of this offering. Generally, following the Reorganization Transactions, Mr. Skonnard and his associated entities will continue to hold LLC



 

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Units with economic, non-voting interests in Pluralsight Holdings and will be issued a number of shares of Pluralsight, Inc.’s Class C common stock equal to the number of LLC Units held by them upon completion of this offering.

 

   

The Class A common stock, Class B common stock, and Class C common stock will generally vote together as a single class on all matters submitted to a vote of stockholders, except as otherwise required by applicable law.

 

   

The Continuing Members holding Class B common stock or Class C common stock will have no rights to receive any distributions in excess of par value or dividends, whether cash or stock, which we refer to as economic interests, in connection with such holdings of the Class B common stock or Class C common stock, and the Class B common stock and Class C common stock will not be publicly traded.

 

   

Continuing Members will have the right to exchange their LLC Units, together with the corresponding shares of Class B common stock or Class C common stock, as applicable (which will be cancelled in connection with such exchange), for, at our option, cash or shares of Pluralsight, Inc.’s Class A common stock or, at our option, have such LLC Units redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by us, pursuant to the terms of Pluralsight Holdings’ fourth amended and restated limited liability company agreement, or the Fourth LLC Agreement.

 

   

Upon completion of the Reorganization Transactions and this offering (based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and assuming no exercise by the underwriters of their over-allotment option to purchase additional shares of Class A common stock:

 

   

Pluralsight, Inc.’s Class A common stock will be held as follows:

 

   

20,700,000 shares (or 23,805,000 shares if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock) by investors in this offering;

 

   

35,280,098 shares by the Former Members;

 

   

3,058,000 shares by Continuing Members, other than Mr. Skonnard and his associated entities; and

 

   

660,000 shares by Mr. Skonnard and his associated entities.

 

   

Pluralsight, Inc.’s Class B common stock (together with the same amount of LLC Units) will be held as follows:

 

   

57,748,401 shares and LLC Units by the Continuing Members, other than Mr. Skonnard and his associated entities.

 

   

Pluralsight, Inc.’s Class C common stock (together with the same amount of LLC Units) will be held as follows:

 

   

13,854,707 shares and LLC Units by Mr. Skonnard and his associated entities.

 

   

The combined voting power in Pluralsight, Inc. will be as follows:

 

   

8.1% for investors in this offering (or 9.2% if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock);

 

   

13.7% for the Former Members (or 13.6% if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock);



 

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23.8% for the Continuing Members, other than Mr. Skonnard and his associated entities (or 23.5% if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock); and

 

   

54.4% for Mr. Skonnard and his associated entities (or 53.7% if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock).

 

   

Pluralsight, Inc. will enter into a Tax Receivable Agreement, or TRA, with Pluralsight Holdings and the Continuing Members. We refer to the Continuing Members and any valid assignees of their rights under the TRA as the TRA Members. Under the TRA, Pluralsight, Inc. will retain 15% of certain tax savings that are available to it under the tax rules applicable to the UP-C structure, and will be required to pay 85% of such tax savings to the TRA Members.



 

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The diagram below depicts our organizational structure immediately following the Reorganization Transactions and the completion of this offering, based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and assuming no exercise by the underwriters of their over-allotment option to purchase additional shares of Class A common stock.

 

 

LOGO

 

(1) 

Includes (i) the shareholders of Former Members that were corporations and that merged into Pluralsight, Inc. and (ii) Former Members who exchanged their LLC Units for Class A common stock in Pluralsight, Inc.

(2) 

Includes all Continuing Members, except Aaron Skonnard and his associated entities.



 

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For financial reporting purposes, Pluralsight Holdings is the predecessor of Pluralsight, Inc. Pluralsight, Inc. will be the financial reporting entity following this offering. Accordingly, this prospectus contains the following historical financial statements:

 

   

Pluralsight, Inc. Other than the balance sheets, dated as of December 31, 2017 and March 31, 2018, the historical financial information of Pluralsight, Inc. has not been included in this prospectus since it is a newly incorporated entity, has no business transactions or activities to date, and had no assets or liabilities during the periods presented in this prospectus.

 

   

Pluralsight Holdings. As Pluralsight, Inc. will have no other interest in any operations other than those of Pluralsight Holdings and its subsidiaries, the historical consolidated financial information included in this prospectus is that of Pluralsight Holdings and its consolidated subsidiaries.

The unaudited pro forma financial information of Pluralsight, Inc. presented in this prospectus has been derived by the application of pro forma adjustments to the historical consolidated financial statements of Pluralsight Holdings and its consolidated subsidiaries included elsewhere in this prospectus.

The pro forma adjustments related to the Reorganization Transactions are described in the notes to the unaudited pro forma consolidated financial information included elsewhere in this prospectus and primarily include the following: (i) the conversion of all outstanding redeemable convertible preferred limited liability company units, incentive units, and Class B incentive units of Pluralsight Holdings into common limited liability company units and the reclassification of all outstanding common limited liability company units into LLC Units and (ii) the amendment and restatement of Pluralsight, Inc.’s certificate of incorporation to, among other things, provide for Class A common stock, Class B common stock, and Class C common stock in order to issue shares of Class B common stock to the Continuing Members (other than Aaron Skonnard and his associated entities) and issue shares of Class C common stock to Aaron Skonnard and his associated entities, with the issuance of such shares equal in each case to the number of LLC Units the Continuing Members own.

The pro forma adjustments related to this offering are described in the notes to the unaudited pro forma consolidated financial information included elsewhere in this prospectus and primarily include the following: (i) the pro forma adjustments related to the Reorganization Transactions set forth above, (ii) the sale and issuance of 20,700,000 shares of our Class A common stock by us in this offering, at the assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses paid or payable by us, and (iii) the use of proceeds from this offering to (a) fully repay the term loan under our credit facility, which, as of March 31, 2018, had an outstanding principal balance of $137.4 million, and the related prepayment premium of 1.5% and accrued interest, and (b) settle outstanding non-transferable equity appreciation rights, or EARs, issued by one of our subsidiaries which will vest and be settled in cash upon the completion of this offering, which amount we estimate will be approximately $0.2 million based on the number of EARs outstanding as of March 31, 2018 for which the service condition had been satisfied and based on an assumed price of our Class A common stock at the time of settlement being equal to $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.

The pro forma adjustments related to the Reorganization Transactions and this offering that are described in the notes to the unaudited pro forma consolidated financial information included elsewhere in this prospectus reflect the 53.5% non-controlling interests in Pluralsight Holdings represented by the LLC Units not held by Pluralsight, Inc. after the completion of the Reorganization Transactions and this offering (excluding LLC Units that are subject to time-based vesting requirements).

See the sections titled “Risk Factors—Risks Related to Our Company and Organizational Structure,” “Organizational Structure,” “Unaudited Pro Forma Consolidated Financial Information,” and “Certain Relationships and Related Party Transactions” for additional information.



 

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Channels for Disclosure of Information

Following the completion of this offering, we intend to announce material information to the public through filings with the Securities and Exchange Commission, or the SEC, the investor relations page on our website (pluralsight.com), press releases, public conference calls, and public webcasts.

Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website. Information contained on or accessible through our website is not incorporated by reference into this prospectus, and inclusion of our website address in this prospectus is an inactive textual reference only. You should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our Class A common stock.

Corporate Information

We were incorporated in Delaware in December 2017. We are a newly formed corporation, have no material assets other than our ownership of the LLC Units of Pluralsight Holdings, and have not engaged in any business or other activities except in connection with the Reorganization Transactions described in the section titled “Organizational Structure.” Our principal executive offices are located at 182 North Union Avenue, Farmington, Utah 84025, and our telephone number is (801) 784-9007. Our corporate website address is pluralsight.com. Information contained on or accessible through our website is not incorporated by reference into this prospectus, and inclusion of our website address in this prospectus is an inactive textual reference only. You should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our Class A common stock.

“Pluralsight,” our logo, and our other registered or common law trademarks, service marks, or trade names appearing in this prospectus are the property of Pluralsight, Inc., Pluralsight Holdings, and their subsidiaries. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.

Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to public companies. These reduced reporting requirements include:

 

   

an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting;

 

   

an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

   

reduced disclosure about our executive compensation arrangements;

 

   

an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or golden parachute arrangements; and

 

   

extended transition periods for complying with new or revised accounting standards.

We may take advantage of these provisions until we are no longer an emerging growth company. We would cease to be an “emerging growth company” upon the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenues; (ii) the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; (iii) the issuance, in any three-year period,



 

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by us of more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of this offering. We may choose to take advantage of some but not all of these reduced reporting requirements. We have taken advantage of certain reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.



 

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THE OFFERING

 

Issuer

  

Pluralsight, Inc.

Class A common stock offered

  

20,700,000 shares

Class A common stock outstanding after this offering

  

59,698,098 shares, or 62,803,098 shares if the underwriters exercise in full their over-allotment option to purchase additional shares from us.

Option to purchase additional shares

  

We have granted the underwriters the option, exercisable for 30 days from the date of this prospectus, to purchase up to 3,105,000 additional shares of our Class A common stock to cover over-allotments, if any.

Class B common stock to be outstanding after this offering

  


57,748,401 shares

Class C common stock to be outstanding after this offering

  


13,854,707 shares

Total common stock to be outstanding after this offering

  


131,301,206 shares, or 134,406,206 shares if the underwriters exercise in full their over-allotment option to purchase additional shares from us.

Voting power held by holders of Class A common stock after giving effect to this offering

  


23.3%

Voting power held by holders of Class B common stock after giving effect to this offering

  


22.6%

Voting power held by holders of Class C common stock after giving effect to this offering

  


54.1%

Use of proceeds

  

We estimate that the net proceeds from this offering will be approximately $244.2 million, or $281.7 million if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock, after deducting estimated underwriting discounts and commissions and estimated offering expenses paid or payable by us, assuming an initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.

 

We intend to use the proceeds from this offering, net of underwriting discounts and commissions, to purchase newly-issued LLC Units from Pluralsight Holdings, as described under the section titled “Organizational Structure—Reorganization Transactions.” We intend to cause Pluralsight Holdings to (i) repay in full its outstanding indebtedness under its credit facility,



 

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which, as of March 31, 2018, had an outstanding principal balance of $137.4 million, and the related prepayment premium of up to 1.5% and accrued interest; (ii) pay the unpaid expenses of this offering; and (iii) settle vested EARs. We may also use a portion of the net proceeds from this offering to satisfy income tax withholding obligations associated with the initial settlement of certain restricted stock units that will settle in November 2018. We also intend to cause Pluralsight Holdings to use the remainder of the net proceeds from the offering, if any, for working capital and other general corporate purposes, as well as the acquisition of, or investment in, complementary products, technologies, solutions, or businesses, although we have no present commitments or agreements to enter into any acquisitions or investments. See the section titled “Use of Proceeds” for additional information.

Voting rights

  

Following the Reorganization Transactions, (i) Continuing Members of Pluralsight Holdings (other than Aaron Skonnard and his associated entities) will hold one share of Class B common stock for each LLC Unit held by them and (ii) Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, and his associated entities will hold one share of Class C common stock for each LLC Unit of Pluralsight Holdings held by them. The shares of Class B common stock and Class C common stock have no economic rights.

 

Each share of Class A common stock and Class B common stock entitles its holder to one vote on all matters to be voted on by stockholders generally.

 

Each share of Class C common stock entitles its holder to 10 votes on all matters to be voted on by stockholders generally. Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, personally and through his associated entities, will hold all of our issued and outstanding Class C common stock and will hold approximately 54.4% of the combined voting power of our outstanding capital stock following this offering. As a result, he will be able to control or significantly influence any action requiring the general approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction. Our directors, executive officers, and beneficial owners of



 

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more than 5% of each class of our outstanding capital stock, and their affiliates, will hold approximately 83.7% of the combined voting power of our outstanding capital stock following this offering. See the sections titled “Principal Stockholders” and “Description of Capital Stock” for additional information.

 

Holders of our Class A common stock, Class B common stock, and Class C common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise set forth in our amended and restated certificate of incorporation or as required by applicable law. See the section titled “Description of Capital Stock” for additional information.

 

When LLC Units and a corresponding number of shares of Class B common stock or Class C common stock, as applicable, are exchanged or redeemed for cash or Class A common stock by a holder of LLC Units pursuant to the Fourth LLC Agreement as described below, such shares of Class B common stock or Class C common stock, as applicable, will be cancelled.

Dividend Policy

  

We do not intend to pay dividends on our Class A common stock in the foreseeable future, except possibly in connection with maintaining certain aspects of our UP-C structure. See the section titled “Risk Factors—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.”

 

Immediately following this offering, Pluralsight, Inc. will be a holding company, and its principal asset will be a controlling equity interest in Pluralsight Holdings. If Pluralsight, Inc. decides to pay a dividend in the future, it would likely need to cause Pluralsight Holdings to make distributions to Pluralsight, Inc. in an amount sufficient to cover such dividend. If Pluralsight Holdings makes such distributions to Pluralsight, Inc., the other holders of LLC Units will be entitled to receive pro rata distributions.

 

Our ability to pay dividends on our Class A common stock may be restricted by the terms of any future debt or preferred securities incurred or issued by us or



 

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our subsidiaries. See the section titled “Dividend Policy” for additional information.

Exchange and Redemption Rights

  

The Continuing Members of Pluralsight Holdings, from time to time following this offering, may, subject to the terms of the Fourth LLC Agreement, exchange their LLC Units, together with the corresponding shares of Class B common stock or Class C common stock, as applicable, for, at our option, cash or shares of Class A common stock, on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications, and other similar transactions, or, at our option, have such LLC Units redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by us. Our decision to make a cash payment in connection with a Continuing Member’s exchange or redemption will be made by a majority of our board members, other than Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman. When an LLC Unit, together with a share of our Class B common stock or Class C common stock, as applicable, is exchanged for cash or a share of our Class A common stock or redeemed for cash or Class A common stock, the corresponding share of our Class B common stock or Class C common stock, as applicable, will be cancelled.

Tax Receivable Agreement

  

Future exchanges or redemptions of LLC Units for shares of our Class A common stock or, at our election, cash (which redemptions will be treated as exchanges for U.S. federal income tax purposes and for purposes of subsequent descriptions of the TRA in this prospectus) are expected to produce favorable tax attributes for us. These tax attributes would not be available to us in the absence of those transactions. Upon the closing of this offering, we will be a party to the TRA. 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. Under the TRA, we generally will be required to pay to TRA Members 85% of the applicable savings, if any, in income tax that we realize, or in some circumstances are deemed to realize, as a result of (1) certain tax attributes that are created as a result of the exchanges of their LLC Units (calculated under certain assumptions), (2) tax benefits related to imputed interest, and (3) payments under the TRA. For purposes of calculating the income tax savings we realize, or are deemed to



 

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realize, under the TRA, we will calculate the income tax savings using the actual applicable U.S. federal income tax rate in effect for the applicable tax period and an assumed weighted-average state and local income tax rate. See the sections titled “Organizational Structure” and “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” for additional information.

Risk factors

  

See the section titled “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our Class A common stock.

Proposed Nasdaq trading symbol

  

“PS”

The number of shares of our common stock that will be outstanding after this offering excludes the following:

 

   

2,702,360 restricted share units, or RSUs, of Pluralsight Holdings that were outstanding as of March 31, 2018, that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering;

 

   

1,856,125 RSUs of Pluralsight Holdings that were granted after March 31, 2018, that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering;

 

   

3,000,000 Class B RSUs of Pluralsight Holdings that were outstanding as of March 31, 2018 and that will remain as RSUs of Pluralsight Holdings following this offering;

 

   

424,242 shares of our Class A common stock issuable upon the exercise of warrants outstanding as of March 31, 2018, with an exercise price of $8.25 per share; and

 

   

29,719,995 shares of our Class A common stock reserved for future issuance under our equity compensation plans, consisting of:

 

   

22,149,995 additional shares of Class A common stock, reserved for future issuance under our 2018 Equity Incentive Plan, or our 2018 Plan (including shares of Class A common stock issuable upon the exercise of stock options and vesting and settlement of RSUs which we intend to grant in connection with this offering as set forth below), plus up to 4,600,000 shares of Class A common stock reserved for issuance under our 2017 Equity Incentive Plan upon vesting and settlement of RSUs that, on or after the date of this offering, expire, forfeit, or otherwise terminate or are withheld by us to cover tax withholding obligations, as well as any annual increases in the number of shares of Class A common stock reserved for future issuance under our 2018 Plan, which will become effective prior to the completion of this offering; and

 

   

The shares reserved for future issuance under the 2018 Plan include 6,044,992 shares of Class A common stock (based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) issuable upon the exercise of stock options which we intend to grant in connection with this offering, provided that any increase in the actual initial public offering price from such assumed initial public offering price will decrease the number of shares subject to options that we intend to grant, and any decrease in the actual initial public offering price from such assumed initial public offering price will increase the number of shares subject to options that we intend to grant; and



 

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The shares reserved for future issuance under the 2018 Plan include approximately 636,875 shares of Class A common stock subject to RSUs which we intend to grant in connection with this offering.

 

   

2,970,000 additional shares of Class A common stock, subject to increase on an annual basis, reserved for future issuance under our 2018 Employee Stock Purchase Plan, or our ESPP, which will become effective prior to the completion of this offering.

Except as otherwise indicated or the context otherwise requires, all information in this prospectus assumes:

 

   

the effectiveness of the Fourth LLC Agreement;

 

   

the completion of the Reorganization Transactions;

 

   

the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering;

 

   

no vesting and settlement of outstanding RSUs of Pluralsight Holdings subsequent to March 31, 2018; and

 

   

no exercise by the underwriters of their over-allotment option to purchase up to an additional 3,105,000 shares of Class A common stock from us in this offering.

In addition, except as indicated or the context otherwise requires, all information in this prospectus reflects a recapitalization of Pluralsight Holdings common units into Class A common units and Class B common units that was completed in June 2017. Each Class A common unit has one vote, and each Class B common unit has 10 votes. In connection with this recapitalization, all Members of Pluralsight Holdings (other than Aaron Skonnard and his associated entities) received Class A common units in exchange for the common units they held, and Aaron Skonnard and his associated entities received Class B common units in exchange for the common units they held.

Based on an assumed initial public offering price of $13.00 per share, we will have an aggregate of 131,301,206 shares of total common stock outstanding following this offering. Any increase or decrease in the initial public offering price from the assumed initial public offering price of $13.00 per share (which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) would result in an increase or decrease, as applicable, of the total number of shares of common stock outstanding following this offering. For example, (i) an initial public offering price of $12.00 per share would result in an aggregate of 130,879,322 shares of total common stock outstanding following this offering and (ii) an initial public offering price of $14.00 per share would result in an aggregate of 131,662,562 shares of total common stock outstanding following this offering.



 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present the summary consolidated financial and other data for Pluralsight Holdings and its consolidated subsidiaries. Pluralsight Holdings is the predecessor of the issuer, Pluralsight, Inc., for financial reporting purposes. The summary consolidated financial and other data of Pluralsight, Inc. has not been presented since Pluralsight, Inc. is a newly incorporated entity, has had no business transactions or activities to date, and had no assets or liabilities during the periods presented in this section.

The following summarized consolidated financial data for Pluralsight Holdings and its consolidated subsidiaries should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this prospectus. The summarized consolidated statement of operations data for the years ended December 31, 2016 and 2017 are derived from the audited consolidated financial statements and related notes of Pluralsight Holdings included elsewhere in this prospectus. The summarized consolidated statements of operations data for the year ended December 31, 2015 have been derived from the consolidated financial statements that are not included in this prospectus. The summarized consolidated statements of operations data for the three months ended March 31, 2017 and 2018, and the summarized consolidated balance sheet data as of March 31, 2018, are derived from the unaudited consolidated financial statements and related notes of Pluralsight Holdings included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements of Pluralsight Holdings and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth in those statements. Our historical results are not necessarily indicative of our future results, and the results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year or any other period.

Consolidated Statements of Operations Data

 

    Year Ended
December 31,
    Three Months Ended
March 31,
 
        2015             2016             2017             2017             2018      
    (in thousands, except per unit amounts)  

Revenue

  $ 108,422     $ 131,841     $ 166,824     $  37,239     $ 49,644  

Cost of revenue(1)(2)

    33,245       40,161       49,828       11,209       14,886  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    75,177       91,680       116,996       26,030       34,758  

Operating expenses:(1)(2)

         

Sales and marketing

    44,872       51,234       103,478       17,826      
29,467
 

Technology and content

    33,146       36,159       49,293       10,205       13,325  

General and administrative

    15,916       18,130       46,971       6,267       11,292  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    93,934       105,523       199,742       34,298       54,084  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (18,757     (13,843     (82,746     (8,268     (19,326

Other (expense) income:

         

Interest expense

    (7,399     (6,320     (11,665     (1,527     (3,710

Loss on debt extinguishment

                (1,882            

Other (expense) income, net

    (18     45       81       48       (13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (26,174     (20,118     (96,212     (9,747     (23,049

Provision for income taxes

    (186     (494     (324     (58     (109
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (26,360   $ (20,612   $ (96,536   $ (9,805   $ (23,158
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: accretion of Series A redeemable convertible preferred units

    (55,300     (6,325     (63,800     (1,650     (19,525
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common units

  $ (81,660   $ (26,937   $ (160,336   $ (11,455   $ (42,683
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per unit, basic and diluted(3)

  $ (1.72   $ (0.57   $ (3.34   $ (0.24   $ (0.88
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common units used in computing basic and diluted net loss per unit(3)

    47,429       47,480       47,957       47,783       48,408  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per unit, basic and diluted (unaudited)(3)

      $ (1.00     $ (0.24
     

 

 

     

 

 

 

Pro forma weighted average common units used in computing basic and diluted net loss per unit (unaudited)(3)

        96,405         96,856  
     

 

 

     

 

 

 


 

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(1)

Includes equity-based compensation expense as follows:

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2015      2016          2017          2017      2018  
     (in thousands)  

Cost of revenue

   $ 39      $ 20      $ 20      $  5      $  

Sales and marketing

     1,896        1,462        2,624        664        539  

Technology and content

     2,203        2,050        1,966        464        381  

General and administrative

     865        2,206        17,171        579        2,453  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity-based compensation

   $ 5,003      $ 5,738      $ 21,781      $ 1,712      $ 3,373  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

Includes amortization of acquired intangible assets as follows:

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2015      2016          2017          2017      2018  
     (in thousands)  

Cost of revenue

   $ 6,555      $ 6,565      $ 7,008      $ 1,642      $ 2,962  

Sales and marketing

     1,077        643        721        161        195  

Technology and content

     611        706        706        176        176  

General and administrative

     130        120        91        27         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total amortization of acquired intangible assets

   $ 8,373      $ 8,034      $ 8,526      $ 2,006      $ 3,333  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(3)

See Note 1 and Note 12 to Pluralsight Holdings’ consolidated financial statements included elsewhere in this prospectus for an explanation of the methods used to calculate basic, diluted, and pro forma net loss per unit.

Consolidated Balance Sheet Data

 

     As of March 31, 2018  
     Actual     Pro
Forma(1)
    Pro Forma
As Adjusted(2)(3)(4)
 
     (in thousands)  

Cash and cash equivalents

   $ 32,359     $ 32,359     $ 138,999  

Working capital(5)

     38,828       38,828       146,974  

Total assets

     234,002       234,002       336,809  

Deferred revenue, current and non-current

     116,868       116,868       116,868  

Long-term debt, net

     135,477       135,477        

Redeemable convertible preferred units

     425,291              

Non-controlling interests

           (31,100     97,219  

Total members’/stockholders’ (deficit) equity

     (483,398     (58,107     181,683  

 

(1)

The pro forma column in the balance sheet data above reflects the pro forma balance sheet data for Pluralsight, Inc. after giving effect to the Reorganization Transactions.

(2)

The pro forma as adjusted column in the balance sheet data above reflects (i) the pro forma adjustments set forth above, (ii) the sale and issuance of 20,700,000 shares of our Class A common stock by us in this offering, at the assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses paid or payable by us, and (iii) the use of proceeds from this offering to (a) repay in full the term loan under our credit facility, which, as of March 31, 2018, had an outstanding principal balance of $137.4 million, and the related prepayment premium of 1.5% and accrued interest, and (b) settle outstanding EARs issued by one of our subsidiaries which will vest and be settled in cash upon the completion of this offering, which amount we estimate will be $0.2 million based on the number of EARs outstanding as of March 31, 2018 for which the service condition had been satisfied and based on an assumed price of our Class A common stock at the time of settlement being equal to $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.

(3)

Each $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, working capital, and total members’/stockholders’ (deficit) equity by $19.3 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and estimated offering expenses paid or payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) cash and cash equivalents, working capital, and total members’/stockholders’ (deficit) equity by $12.1 million, assuming the assumed initial public offering price remains the same, after deducting estimated underwriting discounts and commissions.

(4)

The pro forma as adjusted column reflects $6.1 million of total estimated offering expenses, of which $2.3 million was paid by us as of March 31, 2018.

(5)

Working capital is calculated as current assets less current liabilities, excluding deferred revenue.



 

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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.

 

                Growth Rate  
    Year Ended December 31,     Three Months Ended
March 31,
    Year Ended
December 31,
    Three Months
Ended
March 31,

2018
 
            2015                     2016                     2017             2017     2018     2016     2017    
    (dollars in thousands)              

Business customers (end of period)

    10,517       12,043       14,463       12,580       14,830       15     20     18

Billings

  $ 130,043     $ 149,231     $ 205,807     $ 38,883     $ 55,419       15     38     43

Billings from business customers

  $ 83,663     $ 104,861     $ 162,965     $ 29,327     $ 45,252       25     55     54

% of billings from business customers

    64     70     79     75     82      

Business customers. 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 define billings as our total revenue plus the change in deferred revenue in the period, as presented in our consolidated statements of cash flows.

See the section titled “Selected Consolidated Financial Data—Key Business Metrics” for more information regarding our key business metrics.

Non-GAAP Financial Measures

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2015     2016     2017     2017     2018  
     (dollars in thousands)  

Non-GAAP gross profit

   $ 81,771     $ 98,265     $ 124,024     $ 27,677     $ 37,720  

Non-GAAP gross margin

     75     75     74     74     76

Non-GAAP operating loss

   $ (5,381   $ (71   $ (52,439   $ (4,550   $ (12,620

Free cash flow

   $ 1,699     $ (7,927   $ (20,472   $ 2,763     $ (13,061

Non-GAAP gross profit and non-GAAP gross margin. We define non-GAAP gross profit as gross profit plus equity-based compensation and amortization related to acquired intangible assets. We define non-GAAP gross margin as our non-GAAP gross profit divided by our revenue.

Non-GAAP operating loss. We define non-GAAP operating loss as loss from operations plus equity-based compensation and amortization related to acquired intangible assets.

Free cash flow. We define free cash flow as net cash provided by (used in) operating activities less purchases of property and equipment and purchases of our content library and other intangible assets.

See the section titled “Selected Consolidated Financial Data—Non-GAAP Financial Measures” for more information and reconciliation of our non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.



 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Pluralsight Holdings’ consolidated financial statements and related notes, before making a decision to invest in our Class A common stock. If any of the risks actually occur, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.

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 will depend 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 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 our platform does not achieve widespread adoption 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 are not able to 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 would 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 be able to keep pace with technological change and drive digital transformation. As such, our future success will depend on our ability to ensure that 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 being introduced, our success is dependent 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 assessments to address these areas in a timely manner, which we may not be able to do successfully. For example, certain courses we have developed in the past have received lower than anticipated levels of customer interest and we were unable to 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

 

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for us to rapidly produce the required 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 that we develop will be successful. The success of any enhancement or new feature depends on several factors, including our understanding of market demand, timely execution, successful introduction, and market acceptance. We may not successfully 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 and platform features and enhancements. Any of the foregoing may adversely affect our business and results of operations.

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 to increase in the future. A significant number of companies have developed, or are developing, products and services that currently, or in the future may, 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;

 

   

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 and established customer relationships, access to larger customer bases, and significantly greater resources for the development of their solutions. In addition, 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 also face competition from companies entering our market, including large technology companies that could expand their offerings or acquire one of our competitors, similar to LinkedIn’s acquisition of Lynda.com. 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 be able to 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 also subject to the risk of future disruptive technologies. If new technologies emerge that are able to deliver 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 their solutions at a lower price or for free, which may result in pricing pressures on us. Many of our competitors that offer free solutions are also integrating features found previously only with paid solutions, which puts additional pressure on our pricing and feature development. If we are unable to maintain our pricing levels and competitive differentiation in the market, our results of operations would be negatively impacted.

 

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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 depends, in part, on our ability to increase the 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. In addition, our customers may initially use our platform for a specific use case. Our ability to grow our business depends in part on our ability to persuade customers to expand their use of our platform to address additional use cases. Further, to continue to grow our business, it is important that our customers renew their subscriptions when existing contracts expire and that 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 have elected not to renew their agreements with us, and it is difficult to accurately predict whether we will have future success in retaining customers or expanding our relationships with them. We have experienced significant growth in the number of users of our platform, but we do not know whether we will continue to achieve similar user growth in the future. Our ability to retain our business customers and expand 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. If our customers do not purchase additional subscriptions or renew their existing subscriptions, renew on less favorable terms, or fail to continue to expand their engagement with our platform, our revenue may decline or grow less quickly than anticipated, which would harm our results of operations.

If we are unable to increase sales of subscriptions to our platform to business customers while mitigating the risks associated with serving such customers, our business, financial condition, and results of operations would suffer.

Our growth strategy is largely dependent upon increasing sales of subscriptions to our platform to business customers. As we seek to increase our 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 have 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 that our revenue will continue to grow significantly but the price we charge business customers per user may decline. This may result in reduced margins in the future if our cost of revenue increases. Sales to business customers involve risks that may not be present, or that are present to a lesser extent, with sales to individuals. For example, business customers may request that 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 to use 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 to expand our sales efforts to business customers, we will need to continue to increase 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 are unable to increase sales to business customers while mitigating the risks associated with serving such customers, our business, financial condition, and results of operations will suffer.

 

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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 depend to a significant extent on the ability of our sales and marketing organizations to work together to drive our sales pipeline and cultivate customer and partner relationships to drive revenue growth. We have invested in and plan to continue expanding our sales and marketing organizations, both domestically and internationally. Identifying, recruiting, and training sales personnel will require significant time, expense, and attention. We also plan to dedicate 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 Pluralsight LIVE, and webinars. If we are unable to 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, or if our sales and marketing programs are not effective, 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.

Our future performance depends in large part on attracting and retaining authors and producing content that addresses our customers’ needs.

The majority of our content is created by subject-matter experts, or authors, who are generally not our employees. This presents certain risks to our business, including, among others:

 

   

we may not be able to remain competitive in finding and retaining authors;

 

   

we generally have exclusivity with our authors with respect to the specific subject matter of the courses they create for us, but they may produce content for competitors or on their own with respect to related topics and other subjects;

 

   

our existing authors, particularly our most popular authors, may not continue creating content for us;

 

   

the topics of content created by our authors may not address the needs of our customers;

 

   

the content created by our authors may not meet the quality standards that our customers expect and demand, or effectively differentiate our content from that of our competitors with respect to content quality and breadth;

 

   

the fees that we pay our authors may cease to be competitive with the market for their talent; and

 

   

we may have to reduce the fees for future courses we pay our authors to balance costs.

If any of the risks above occur, customers may seek other solutions for their professional skill development needs and we may not be able to retain them or acquire additional customers to offset any such departures, which would adversely affect our business and results of operations. In addition, our most popular authors are a relatively small group of individuals who have 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 would significantly impact our business and operating results.

Our quarterly and annual results of operations may vary significantly and may be difficult to predict. 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 have 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

 

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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;

 

   

the seasonal buying patterns of our customers;

 

   

the budgeting cycles and internal purchasing priorities of our customers;

 

   

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 or actual or perceived security breaches;

 

   

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 that we may provide, the price of our Class A common stock could decline.

If our security measures are breached or unauthorized access to customer data is otherwise obtained, 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 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, could result in the loss, compromise or corruption of data, 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 liabilities. We have errors and omissions insurance coverage for certain security and privacy damages and claim expenses, but this coverage may be insufficient to compensate us for all liabilities that we may incur.

Our platform and the other systems or networks used in our business are also at risk for breaches as a result of third-party action, or employee, vendor, or contractor error or malfeasance. 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 any security breaches. We have

 

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incurred and expect to continue to incur 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 or to sabotage systems change frequently and generally are not identified until after they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period and, therefore, have a greater 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.

Privacy, data protection, and information security concerns, and data collection and transfer restrictions and related domestic or foreign regulations, may limit the use and adoption of our platform and adversely affect our business.

Use of our platform involves the storage, transmission, and processing of data from our customers and their employees or other personnel, including certain personal or individually identifying information. Personal privacy, information security, and data protection are significant issues in the United States, Europe, and many other jurisdictions where we offer our platform. The regulatory framework governing the collection, processing, storage, and use of business information, particularly information that includes personal data, is rapidly evolving and any failure or perceived failure to comply with applicable privacy, security, or data protection laws, regulations and/or contractual obligations may adversely affect our business.

The U.S. federal and various state and foreign governments have adopted or proposed requirements regarding the collection, distribution, use, security, and storage of personally identifiable information and other data relating to individuals, and federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use, and dissemination of data. Some of these requirements include obligations of companies to notify individuals of security breaches involving particular personal information, which could result from breaches experienced by us or by our vendors, contractors, or organizations with which we have formed strategic relationships. Even though we may have contractual protections with such vendors, contractors, or other organizations, notifications and follow-up actions related to a security breach could impact our reputation, cause us to incur significant costs, including legal expenses, harm customer confidence, hurt our expansion into new markets, cause us to incur remediation costs, or cause us to lose existing customers.

Further, many foreign countries and governmental bodies, including the European Union, or EU, where we conduct business, have laws and regulations concerning the collection and use of personal data obtained from their residents or by businesses operating within their jurisdictions. These laws and regulations often are more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, and security of data that identifies or may be used to identify or locate an individual, such as names, email addresses and, in some jurisdictions, Internet Protocol, or IP, addresses. With regard to transfers of personal data from our European employees and customers to the United States, we historically relied on our adherence to the U.S. Department of Commerce’s Safe Harbor Privacy Principles and compliance with the EU-U.S. and Swiss-U.S. Safe Harbor Frameworks as agreed to and set forth by the U.S. Department of Commerce, the EU, and Switzerland, which established means for legitimizing the transfer of personal data by companies doing business in Europe from the EU and Switzerland to the United States. The EU-U.S. Safe Harbor Framework was deemed an invalid method of compliance with EU restrictions on data transfers in a ruling by the Court of Justice of the European Union in October 2015. We have since taken certain measures to legitimize our transfers of personal data, both internally and on behalf of our customers, from the EU and Switzerland to the United States. In particular, we self-certified under the EU-U.S. Privacy Shield on July 12, 2016, and subsequently self-certified under the Swiss-U.S. Privacy Shield after it was established. These frameworks were established by EU, Swiss, and U.S. authorities to provide mechanisms for companies to transfer EU and Swiss personal data to the United States. It is unclear at this time whether the EU-U.S. or Swiss-U.S. Privacy Shield Frameworks will serve as an appropriate means for us to transfer personal data from the EU or Switzerland to the United States. These frameworks may be subject to legal challenge by data protection

 

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authorities, and we may experience 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. We and our customers face a risk of enforcement actions taken by European data protection authorities regarding data transfers from Europe to the United States.

We also expect that there will continue to be new proposed laws, regulations, and industry standards concerning privacy, data protection, and information security in the United States, the EU, and other jurisdictions. In particular, on April 27, 2016, the EU adopted the General Data Protection Regulation 2016/679, or the GDPR, that will take full effect on May 25, 2018. The GDPR will repeal and replace the EU Data Protection Directive 95/46/EC and it will be directly applicable across EU member states. The GDPR applies to any company established in the EU as well as to those outside the EU if they collect and use personal data through the provision of goods or services to individuals in the EU or monitoring their behavior. The GDPR enhances data protection obligations of businesses and provides direct legal obligations for service providers processing personal data on behalf of customers, including with respect to cooperation with European data protection authorities, implementation of security measures and keeping records of personal data processing activities. Noncompliance with the GDPR can trigger steep fines of up to €20 million or 4% of global annual revenues, whichever is higher. Given the breadth and depth of changes in data protection obligations, preparing to meet the GDPR’s requirements before its application on May 25, 2018 requires significant time and resources. Separate EU laws and regulations (and member states’ implementations thereof) govern the protection of consumers and of electronic communications. We cannot yet determine the impact such future laws, regulations, and standards may have on our business. Such laws and regulations are often subject to differing interpretations and may be inconsistent among jurisdictions. These and other requirements could reduce demand for our platform, increase our costs, impair our ability to grow our business, or 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, in view of new or modified federal, state, or foreign laws and regulations, industry standards, contractual obligations, and other legal obligations, or any changes in their interpretation, we may find it necessary or desirable to fundamentally change our business activities and practices or to expend significant resources to modify our platform and otherwise adapt to these changes. We may be unable to make such changes and modifications in a commercially reasonable manner, or at all, and our ability to develop new content and features could be limited.

The costs of compliance with and other burdens imposed by laws, regulations, and standards may limit the use and adoption of and reduce overall demand for our platform, or lead to significant fines, penalties, or liabilities for any noncompliance. Privacy, information security, and data protection concerns, actual and perceived, may inhibit market adoption of our platform, particularly in certain industries and foreign countries.

If we fail to retain key employees including, Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, or to recruit qualified technical and sales personnel, our business could be harmed.

We believe that our success depends on the continued employment of our senior management and other key employees, particularly Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman. In addition, because our future success is dependent on our ability to continue to enhance and introduce new content and platform features, we are heavily dependent on our ability to attract and retain qualified personnel with the requisite education, background, and industry experience. As we expand our business, 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 customer base. The loss of the services of a significant number of our technology and content or sales personnel 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.

 

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If we fail to effectively manage our growth, our business and results of operations could be harmed.

We have experienced, and may continue to experience, rapid growth and organizational change, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. For example, our headcount has grown from 543 employees as of December 31, 2016 to 890 employees as of March 31, 2018. In addition, we operate globally, sell subscriptions to customers in more than 150 countries, and have employees in various locations in the United States, Europe, and the Asia Pacific region. We plan to continue to expand our operations into other countries in the future, which will place additional demands on our resources and operations. Additionally, we continue to increase the breadth and scope of our platform and our operations. To support this growth, and to manage any future growth effectively, we must continue to improve our IT and financial infrastructures, our operating and administrative systems, and our ability to manage headcount, capital, and internal processes in an efficient manner. Our organizational structure is also becoming more complex as we grow our operational, financial, and management infrastructure and we must continue to improve our internal controls as well as our reporting systems and procedures. We intend to continue to invest to expand our business, including investing in technology and content and 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 learning platform make it difficult to evaluate our future prospects and may increase the risk that we will not continue to grow at or near historical rates.

We have grown rapidly over the last several years, and as a result, our ability to forecast our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth. In addition, although we began operations in 2004, we shifted our business model in 2011 from offering in-person ILT to an entirely online delivery model. Since 2011, we have extended our offering to include new content areas and additional features that have enabled us to expand our addressable market, attract new users, and expand our relationships with businesses. This limited history with our SaaS model and cloud-based platform offering further limits our ability to forecast our future results of operations. As such, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history with our delivery model or platform or operated in a more predictable market. We have encountered in the past, and will 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 successfully, our results of operations could differ materially from our expectations, our growth rates may slow, and our business would 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 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, and thus a significant portion of the billings we report in each quarter, are generated from customer agreements entered 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 but will negatively affect our revenue and other results of operations across future quarters. It is difficult for us to rapidly increase our revenue from additional billings in a given period. Any increases in the average term of

 

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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 to expand our sales efforts with larger business customers, our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense. As a result, the timing of our billings and revenue are difficult to predict and may vary substantially from period to period, which may cause our results of operations to fluctuate significantly.

Our results of operations may fluctuate, in part, because of the resource intensive nature of our sales efforts to larger businesses, from which we derive a significant portion of our billings and revenue, the length and variability of our sales cycle, and difficulty in adjusting our operating expenses in the short term. The length of our sales cycle, from identification of the opportunity to delivery of access to our platform, varies significantly from customer to customer, with sales to larger businesses typically taking longer to complete. In addition, as we continue to increase our sales to larger businesses, we face longer more complex customer requirements, and substantial upfront sales costs. With larger businesses, the decision to subscribe to our platform frequently requires the approvals of multiple management personnel and more technical personnel than would be typical of a smaller organization and, accordingly, sales to larger businesses may require us to invest more time educating these potential customers. Purchases by larger businesses are also frequently subject to budget constraints and unplanned administrative, processing, and other delays, which means we may not be able to come to 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 potential customers leaves his or her 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 have historically received and generated a substantial portion of billings during the last month of each fiscal quarter, often the last two weeks of the 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 will adversely affect our business, results of operations, and financial condition.

We believe our long-term success depends in part on continuing to expand our sales and operations outside of the United States and we are therefore subject to a number of risks associated with international sales and operations.

Sales to customers located outside of the United States represented 37% and 36% of our revenue during the three months ended March 31, 2017 and 2018, respectively. We currently maintain offices and have sales personnel outside the United States in Europe and the Asia Pacific region, and we intend to continue to expand our international operations. In order to maintain and expand our sales internationally, we need to hire and train experienced personnel to staff and manage our foreign operations. To the extent that 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 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;

 

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lack of familiarity and burdens of complying with foreign laws, legal standards, privacy 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;

 

   

unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties, or other trade restrictions;

 

   

limitations on technology infrastructure, which could limit our ability to migrate international operations to our existing systems, which could result in increased costs;

 

   

difficulties in managing and staffing international operations and differing employer/employee relationships and local employment laws;

 

   

fluctuations in exchange rates that may increase the volatility of our foreign-based revenue; 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 also requires significant management attention and financial resources. We have limited experience in marketing, selling, and supporting our platform abroad, which increases the risk that any potential future expansion efforts that we may undertake will not be successful. We plan to invest substantial time and resources to expand our international operations, but we cannot be certain that these investments will produce desired levels of revenue or profitability. These factors and other factors could harm our ability to gain future international revenue and, consequently, materially affect our business, results of operations, and financial condition.

We may face exposure to foreign currency exchange rate fluctuations.

Today, 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. In the future, we plan to begin denominating certain of our customer contracts outside of the United States in local currencies, and over time, an increasing portion of our international customer contracts may be denominated in local currencies. Additionally, as we expand our international operations a larger portion of our operating expenses will be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our results of operations when translated into U.S. dollars. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations. 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 as well as the information stored in these virtual data centers and which 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

 

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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 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 would adversely affect our operations and business.

We have experienced significant growth in the number of users, transactions, and data that our hosting infrastructure supports. We seek 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. For example, in 2014, prior to using AWS, we exceeded the capacity of our network infrastructure and experienced a service outage which lasted for approximately 16 hours. If our hosting infrastructure capacity fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could harm our reputation and adversely affect our revenue growth.

We rely upon SaaS technologies from third parties to operate our business, and interruptions or performance problems with these technologies may adversely affect our business and results of operations.

We rely on hosted SaaS applications from third parties in order to operate critical functions of our business, including content delivery, enterprise resource planning, customer relationship management, billing, project management, and accounting and financial reporting. If these services become unavailable due to extended outages, interruptions, or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to manage finances could be interrupted, and our processes for managing sales of our platform and supporting our customers could be impaired until equivalent services, if available, are identified, obtained, and implemented, all of which could adversely affect our business.

If we are not able to keep pace with technological developments, our business will be harmed.

As our platform is designed to operate on a variety of network, hardware, and software platforms using internet tools and protocols, we will need to continuously modify and enhance our platform to keep pace with changes in internet-related hardware, software, communication, browser, and database technologies. If we are unable to respond in a timely and cost-effective manner to these rapid technological developments, our platform may become obsolete, which would adversely impact our results of operations.

If we fail to develop, maintain, and enhance our brand and reputation cost-effectively, our business and financial condition may be adversely affected.

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 maintaining existing customers and attracting new customers. We believe that 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 ability to provide quality customer support. Brand promotion activities may not yield increased revenue, and even if they do, the increased revenue

 

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may not offset the expenses we incur in building and maintaining our brand and reputation. If we fail to promote and maintain our brand successfully or to maintain loyalty among our customers, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, 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 also tarnish our own 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 may not be successful.

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 that a critical component to our success has been 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. Additionally, as we grow and develop the infrastructure of a public company, we may find it difficult to maintain these important aspects of our company culture. If we fail to preserve our culture, our ability to retain and recruit personnel, our ability to effectively focus on and pursue our corporate objectives, and our business could be harmed.

If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, generate reduced 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 dependent, in part, 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 non-disclosure and 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 have previously experienced, and may in the future be subject to, piracy of our course content. From time to time, individuals have illegally accessed our course materials and posted them online, and individual users within our business customers have obtained access to our content outside the scope of the customer’s subscription, which has 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 inadequate. 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.

 

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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. Our inability to protect our proprietary technology against unauthorized copying or use, as well as 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 that we will be able to license that technology on commercially reasonable terms or at all, and our inability to license this technology could harm our ability to compete.

We may be sued by third parties for alleged infringement of their proprietary rights.

Our success depends in part upon our not infringing the intellectual property rights of others. However, our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry or, in some cases, our technology or content. We obtain much of our content from third-party authors. Although we enter into agreements with our authors in which they represent that their content is not infringing the intellectual property rights of others, such content could be infringing and consequently subject us to liability. Moreover, we have in the past and may in the future leverage open source software in our development processes. Open source software is generally licensed by its authors or other third parties under open source licenses. These licenses may subject us to certain unfavorable conditions, 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 have claimed that we were infringing 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 has incorporated open source software into software that 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 that we pay substantial damages or ongoing revenue share payments, indemnify our customers or distributors, obtain licenses, modify products, or refund fees, any of which would deplete our resources and adversely impact our business.

Real or perceived errors, failures, vulnerabilities, or bugs in our platform could harm our business and results of operations.

Errors, failures, vulnerabilities, or bugs may occur in our platform, especially when updates are deployed or new features are rolled out. In addition, utilization of our platform in complicated, large-scale customer environments may expose 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 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.

 

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Any failure to offer high-quality customer support may harm our relationships with our customers and our results of operations.

Our customers depend on our customer support teams to resolve technical and operational issues if and when they arise. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for customer support. Customer demand for support may also 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. In addition, as we continue to expand our business customer base, we need to be able to provide efficient and effective customer support that meets our business customers’ needs and expectations globally at scale. The number of our business customers has grown significantly, which puts additional pressure on our support organization. In order to meet these needs, we have relied in the past and will continue to rely 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, our ability to grow our operations may be harmed and we may need to hire additional support personnel, which could harm our margins and results of operations. Our sales are highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality customer support, could harm our reputation, our ability to sell our platform to existing and prospective customers, our business, 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.

We may acquire other companies or technologies which 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 we have in the past, we 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 also not achieve the anticipated benefits from the acquired business due to a number of factors, including, among others:

 

   

costs or liabilities associated with the acquisition;

 

   

diversion of management’s attention from other business concerns;

 

   

inability to integrate or benefit from acquired content, technologies, or services in a profitable manner;

 

   

harm to our existing relationships with authors and customers as a result of the acquisition;

 

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difficulty integrating the accounting systems, operations, and personnel of the acquired business;

 

   

difficulty converting the customers of the acquired business onto our platform and contract terms;

 

   

the potential loss of key employees;

 

   

use of resources that are needed in other parts of our business; and

 

   

the use of substantial portions of our available cash or equity to consummate the acquisition.

In the future, if our acquisitions do not yield expected returns, we may be required to take charges for the write-down or impairment of amounts related to goodwill, intangible assets, and our content library, which could negatively impact our results of operations. We may issue additional equity securities in connection with any future acquisitions, that would dilute our existing stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to pay, incur large charges or substantial liabilities, and become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges. These challenges could adversely affect our 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 to make investments to support our growth and may require additional funds to respond to business challenges, including the need to develop new features or 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 significant 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, our ability to continue to support our growth and to respond 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 or no 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 our transition to being a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will 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 subject us to claims, increase the cost of operations, or otherwise harm our business due to changes in the laws, changes in the interpretations of the laws, 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

 

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regulatory requirements may be more stringent than those in the United States. These laws and regulations are subject to change over time and thus we must continue to monitor and dedicate resources to ensure continued compliance. Non-compliance with applicable regulations or requirements 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 materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results and financial condition.

We are also subject to consumer protection laws that may impact our sales and marketing efforts, including laws related to subscriptions, billing, and auto-renewal. These laws, as well as any changes in these laws, could make it more difficult for us to retain existing customers and attract new ones.

We are subject to governmental export and import controls and anti-corruption laws and regulations that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.

Our business activities are subject to various restrictions under U.S. export and similar laws and regulations, including the U.S. Department of Commerce’s Export Administration Regulations and various economic and trade sanctions regulations 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 could limit our ability to provide our customers access to our platform or could limit our customers’ ability to access or use our services in those countries.

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, despite the precautions we take. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to civil or criminal penalties, including the possible loss of export privileges and fines. We may also 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 could limit 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, 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 would likely adversely affect our business, results of operations, and financial results.

We are also subject to various domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, as well as other similar anti-bribery and anti-kickback laws and regulations. These laws and regulations generally prohibit companies and their employees and intermediaries from authorizing, offering, providing, and accepting improper payments or benefits for improper purposes. These laws also require that we keep accurate books and records and maintain compliance procedures designed to prevent any such actions. 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.

 

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Our business could be adversely impacted by changes in internet access for our users or laws specifically governing the internet.

Our platform depends on the quality of our users’ access to the internet. Certain features of our platform require significant bandwidth and fidelity to work effectively. Internet access is frequently provided by companies that have significant market power that could take actions that degrade, disrupt, or increase the cost of user access to our platform, which would negatively impact our business. We could incur greater operating expenses and our ability to acquire and retain customers could be negatively impacted if network operators:

 

   

implement usage-based pricing;

 

   

discount pricing for competitive products;

 

   

otherwise materially change their pricing rates or schemes;

 

   

charge us to deliver our traffic at certain levels or at all;

 

   

throttle traffic based on its source or type;

 

   

implement bandwidth caps or other usage restrictions; or

 

   

otherwise try to monetize or control access to their networks.

In December 2017, the Federal Communications Commission announced it will revise the “net neutrality” rules. The rules were designed to ensure that all online content is treated the same by internet service providers and other companies that provide broadband services. Should the net neutrality rules be relaxed or eliminated, we could incur greater operating expenses, which could harm our results of operations.

As the internet continues to experience growth in the number of users, frequency of use, and amount of data transmitted, the internet infrastructure that we and our users rely on may be unable to 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.

In addition, there are various laws and regulations that 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, in addition to limiting 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. Legislators and regulators may make legal and regulatory changes, or interpret and apply existing laws, in ways that require us to incur substantial costs, expose us to unanticipated civil or criminal liability, or cause us to change our business practices. These changes or increased costs could materially harm our business, results of operations, and financial condition.

Our international operations subject us to potentially adverse tax consequences.

We are subject to income taxes as well as 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 various jurisdictional rules regarding the timing and allocation of revenue and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file and to changes in tax laws. Significant judgment is required in determining 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 have a different interpretation of the law 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.

 

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Our future effective tax rate may be affected by such factors as changes in tax laws, regulations, or rates, changing interpretation of existing laws or regulations, the impact of accounting for equity-based compensation, the impact of accounting for business combinations, changes in our international organization, and changes in overall levels of income before tax. In addition, 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 that 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.

We may have exposure to greater than anticipated tax liabilities 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 excess tax benefits of equity-based compensation, changes in the valuation of deferred tax assets and liabilities and our ability to utilize them, the applicability of withholding taxes, effects from acquisitions, and the evaluation of new information that results in a change to a tax position taken in a prior period.

Our tax position could also be impacted by changes in accounting principles, changes in U.S. federal, state, 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, decisions, policies, and positions. 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. The Tax Act significantly revises U.S. federal income tax law, including by lowering the corporate income tax rate to 21%, limiting the deductibility of interest expense, implementing a modified territorial tax system and imposing a one-time repatriation tax on deemed repatriated earnings and profits of U.S.-owned foreign subsidiaries. While the Tax Act will result in a lower domestic corporate income tax rate, we will be subject to the one-time mandatory tax on previously deferred foreign earnings, which could impact our effective tax rate, although we currently do not expect the impact on our effective tax rate to be material. We have reflected the expected 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 prospectus. However, many consequences of the Tax Act, including whether and how state, local, and foreign jurisdictions will react to such changes are not entirely clear at this time and the U.S. Department of Treasury has broad authority to issue regulations and interpretive guidance that may significantly impact how the Tax Act will apply to us. Any of the foregoing changes could have an adverse impact on our results of operations, cash flows, and financial condition.

Additionally, the Organization for Economic Co-Operation and Development has 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 as it is implemented 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. 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.

 

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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, 2017 we had federal and state NOLs of $14.2 million and $5.5 million, respectively. These NOLs, and NOLs of companies we may acquire (including in connection with the Reorganization Transactions), could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our potential profitability.

In addition, 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, in any taxable year may be limited if we experience 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. This offering and the transactions contemplated hereby may trigger an “ownership change.”

The nature of our business requires the application of complex revenue and expense recognition rules, and any significant changes in current rules 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 Securities and Exchange Commission, or the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. Recent actions and public comments from the FASB and the SEC have focused on the integrity of financial reporting and internal controls over financial reporting. In addition, many companies’ accounting policies and practices are being subject to heightened scrutiny by regulators and the public. Further, the accounting rules and regulations are continually changing in ways that could materially impact our financial statements. For example, in May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, as amended, which will supersede nearly all existing revenue recognition guidance. For public business entities, the standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period; however, we have elected to use the extended transition period available to emerging growth companies under the Jumpstart our Business Startups Act of 2012, or JOBS Act, and we do not anticipate adopting the standard until the fiscal year ended December 31, 2019. We cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward, which could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of the change. In addition, if we were to change our critical accounting estimates, including those related to the recognition of license 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 titled “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

 

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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, and accounting for income taxes including deferred tax assets and liabilities.

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 will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of the listing standards of The Nasdaq Global Select Market, or Nasdaq. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming, and costly, and place 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 will 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. We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue 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. Further, 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 or any difficulties encountered in their implementation or improvement 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 also 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 that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which could have a negative effect on the trading price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq. We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second Annual Report on Form 10-K.

Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and results of operations and could cause a decline in the price of our Class A common stock.

 

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We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our Class A common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial disclosure obligations, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. Pursuant to Section 107 of the JOBS Act, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our Class A common stock less attractive to investors. If we cease to be an “emerging growth company,” we will no longer be able to use the extended transition period for complying with new or revised accounting standards.

We may take advantage of these provisions until we are no longer an “emerging growth company.” We would cease to be an “emerging growth company” upon the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenues; (ii) the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; (iii) the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of this offering. We may choose to take advantage of some but not all of these reduced reporting requirements. If we take advantage of any of these reduced reporting requirements in future filings, the information that we provide our security holders may be different than the information you might get from other public companies in which you hold equity interests. We cannot predict if investors will find our Class A common stock less attractive because we may rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less attractive trading market for our Class A common stock and our stock price may be more volatile.

We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, particularly after we are no longer an “emerging growth company,” which could adversely affect our business, financial condition, and results of operations.

As a public company, and particularly after we cease to be an “emerging growth company,” we will 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. These requirements have increased and will continue to increase our legal, accounting, and financial compliance costs and have made, and will continue to make, some activities more time-consuming and costly. For example, we expect these rules and regulations to 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. After we are no longer an “emerging growth company,” we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. In that regard, we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.

 

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Our results of operations could be adversely affected by natural disasters, public health crises, political crises, or other catastrophic events.

Natural disasters, such as earthquakes, hurricanes, tornadoes, floods, and other adverse weather and climate conditions; unforeseen public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, and other political instability; or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations in any of our offices or the operations of one or more of our third-party providers and vendors, such as AWS. To the extent any of these events occur, our business and results of operations could be adversely affected.

Risks Related to Our Organizational Structure

Our principal asset after the completion of this offering will be our interest in Pluralsight Holdings, and we will be dependent upon Pluralsight Holdings and its consolidated subsidiaries for our results of operations, cash flows, and distributions.

Upon the completion of this offering, we will be a holding company and will have no material assets other than our ownership of the LLC Units of Pluralsight Holdings. As such, we will 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, will be dependent 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, including negative covenants in our debt instruments, will permit such distributions.

Our ability to pay taxes and expenses, including payments under the Tax Receivable Agreement, may be limited by our structure.

Upon the consummation of this offering, our principal asset will be a controlling equity interest in Pluralsight Holdings. As such, we will have no independent means of generating revenue. Pluralsight Holdings will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, will generally not be subject to U.S. federal income tax. Instead, taxable income will be allocated to holders of its LLC Units, including us. Accordingly, we will incur income taxes on our allocable share of any net taxable income of Pluralsight Holdings and will also 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 also will incur expenses related to our operations, plus payments under the TRA, which we expect will be significant. We intend to cause Pluralsight Holdings to make distributions or, in the case of certain expenses, payments in an amount sufficient to allow us to pay our taxes and operating expenses, including distributions to fund any ordinary course payments due under the TRA. However, Pluralsight Holdings’ ability to make such distributions may be subject to various limitations and restrictions. If we do not have sufficient funds to pay tax or other liabilities or to fund our operations (as a result of Pluralsight Holdings’ inability to make distributions due to various limitations and restrictions or as a result of the acceleration of our obligations under the TRA), we may have to borrow funds and thus our liquidity and financial condition could be materially and adversely affected. To the extent that 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. Nonpayment of our obligations for a specified period may constitute a breach of a material obligation under the TRA, and therefore, may accelerate payments due under the TRA resulting in a lump-sum payment.

 

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We will be required to pay the TRA Members for certain tax benefits we may claim, and we expect that the payments we will be required to make will be substantial.

Future 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 such redemptions, anticipated tax basis adjustments are likely to increase (for tax purposes) our depreciation and amortization deductions and therefore reduce 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.

Upon the closing of this offering, we will be 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 (1) certain tax attributes that are created as a result of the exchanges or redemptions of their LLC Units (calculated under certain assumptions), (2) tax benefits related to imputed interest, and (3) 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.

We expect that the payments that we will be required to make to the TRA Members will be substantial. To the extent that we are unable to make timely payments under the TRA for any reason, 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 therefore may accelerate payments due under the TRA. Furthermore, our future obligation to make payments under the TRA could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the TRA. See the section titled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” for a discussion of the Tax Receivable Agreement 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 would 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 that 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

 

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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 have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the TRA.

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 will not benefit the holders of our Class A common stock to the same extent as it will benefit the Continuing Members. We will enter into the TRA with Pluralsight Holdings and the Continuing Members and it will provide 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 (1) 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 titled “Certain Relationships and Related Party Transactions—Fourth Amended and Restated LLC Agreement” and (2) certain other tax benefits related to our making payments under the TRA. See the section titled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” for additional information. Although we will retain 15% of the amount of such tax benefits, this and other aspects of our organizational structure may adversely impact the future 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 that we might otherwise be required to make under the terms of the TRA. However, a challenge to any tax benefits initially claimed by us may not arise for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the TRA and, as a result, there might not be future cash payments to net against. The applicable U.S. federal income tax rules are complex and factual in nature, and there can be no assurance that the IRS or a court will not disagree with our tax reporting positions. As a result, it is possible that we could make cash payments under the TRA that are substantially greater than our actual cash tax savings. See the section titled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

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

 

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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 titled “Certain Relationships and Related Party Transactions—Fourth Amended and Restated LLC Agreement.” In addition, 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, if permitted under our debt agreements, 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 that 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

Immediately following the completion of this offering, the Continuing Members will 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.

After this offering, we will have an aggregate of over 900 million shares of Class A common stock authorized but unissued, including 71,603,108 shares of Class A common stock that will be issuable upon exchange of LLC Units that will be held by the Continuing Members. Under the Fourth LLC Agreement and, subject to certain restrictions set forth therein and as described elsewhere in this prospectus, including lock-up agreements with the underwriters, 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 will have the effect of concentrating voting control with Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman; this will limit or preclude your ability to influence 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, which is the stock we are offering in this offering, has one vote per share. After this offering, Aaron Skonnard, our co-founder, Chief Executive Officer, and Chairman, personally and through his associated entities, will hold all of our issued and outstanding Class C common stock and will hold approximately 54.4% of the combined voting power of our outstanding capital stock (or 53.7% if the underwriters’ exercise in full their over-allotment option to purchase additional shares). As RSUs 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 will 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

 

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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 also delay, defer, or even 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 has control over 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 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 titled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” for additional information. In addition, Mr. Skonnard’s significant ownership in us and resulting ability to effectively control or significantly influence us may discourage someone from making a significant equity investment in us, or could discourage transactions involving a change in control, including transactions in which you as a holder of shares of our Class A common stock might otherwise receive a premium for your shares over the then-current market price.

In addition, in July 2017, Standard & Poor’s announced that they would cease to allow 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 would make 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 be investing in our stock. These policies are new and it is as of yet unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included.

Although we do not expect to rely on the “controlled company” exemption under the rules and regulations of Nasdaq, we expect to 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 will, collectively, hold a majority of the voting power of our outstanding capital stock following the completion of this offering, and therefore we will be 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

 

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or by a nominating committee comprised solely of independent directors, in either case, with board resolutions or a written charter, as applicable, addressing the nominations process and related matters as required under the federal securities laws; and

 

   

the requirement that its compensation committee be composed entirely of independent directors with a written charter addressing the committee’s 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 expect to rely on these exemptions and intend to fully comply with all corporate governance requirements under the rules and regulations of Nasdaq. 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.

There has been no prior public trading market for our Class A common stock, and an active trading market may not develop or be sustained following this offering.

We have applied to list our Class A common stock on Nasdaq under the symbol “PS”. However, there has been no prior public trading market for our Class A common stock. We cannot assure you that an active trading market for our Class A common stock will develop on such exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the liquidity of any trading market, your ability to sell your shares of our Class A common stock when desired, or the prices that you may obtain for your shares of our Class A common stock.

Our stock price may be volatile and may decline regardless of our operating performance.

Our stock price is likely to be volatile. The trading prices of technology companies’ securities have been, and we expect them to continue to be, highly volatile. As a result of this volatility, investors may not be able to sell their Class A common stock at or above the initial public offering price. The market price of our Class A common stock may fluctuate 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;

 

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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

 

   

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.

In addition, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management, and harm our business.

Future sales of shares by existing stockholders could cause our stock price to decline.

Sales of a substantial number of shares of our Class A common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our Class A common stock in the public market following this offering, the market price of our Class A common stock could decline. Immediately after this offering, we will have 59,698,098 outstanding shares of Class A common stock (excluding 71,603,108 shares of our Class A common stock that will be issuable upon exchange of LLC Units). Of these shares, the shares sold in this offering will be immediately freely tradable, unless held by an affiliate, and all of the remaining shares of Class A common stock will be restricted as a result of securities laws or lock-up agreements but will be able to be sold after the offering as described in the section titled “Shares Eligible for Future Sale.” In addition, in connection with this offering, we intend to file one or more registration statements on Form S-8 registering the issuance of 29,719,995 shares of Class A common stock subject to RSUs, options, or other equity awards issued or reserved for future issuance under our equity incentive plans. Shares registered under these registration statements on Form S-8 will be available for sale in the public market subject to vesting arrangements and exercise of options, the lock-up agreements described above and the restrictions of Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, in the case of our affiliates. If these additional shares are sold, or if it is perceived that they will be sold, 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 have any control over 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 would likely decline. In addition, if our results of operations fail to meet the forecast of analysts, our stock price would likely 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.

Purchasers in this offering will immediately experience substantial dilution in net tangible book value.

We anticipate the initial public offering price of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our Class A common stock immediately following this offering. Therefore, if you purchase shares of our Class A common stock in this offering, you will experience immediate dilution of $12.64 per share, based on the assumed initial public offering price of $13.00 per share

 

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(which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), the difference between the price per share you pay for our Class A common stock and the pro forma net tangible book value per share as of March 31, 2018, after giving effect to the issuance of shares of our Class A common stock in this offering. See the section titled “Dilution” for additional information.

We have broad discretion in the use of the net proceeds that we receive in this offering.

The principal purposes of this offering are to increase our financial flexibility, increase our visibility in the marketplace, and create a public market for our Class A common stock. We intend to use the proceeds of this offering, net of underwriting discounts and commissions, to purchase newly-issued LLC Units from Pluralsight Holdings, as described in the section titled “Organizational Structure—Offering Transactions.” We intend to cause Pluralsight Holdings to use these proceeds to (i) repay in full our outstanding indebtedness under our credit facility; (ii) pay the unpaid expenses of this offering; and (iii) settle outstanding non-transferable EARs issued by one of our subsidiaries which will vest and be settled in cash upon the completion of this offering. We may also use a portion of the net proceeds from this offering to satisfy income tax withholding obligations associated with the initial settlement of certain RSUs that will settle in November 2018. Any remaining proceeds will be used for working capital and other general corporate purposes, including the acquisition of, or investment in complementary products, technologies, solutions, or business, although we have no present commitments or agreements to enter into any acquisitions or investments. Accordingly, our management will have broad discretion over the specific use of the remaining proceeds that we receive in this offering and might not be able to obtain a significant return, if any, on investment of these proceeds. Investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition, and results of operations could be harmed.

Our issuance of additional capital stock in connection with financings, acquisitions, investments, our equity incentive plans, or otherwise will dilute all other stockholders.

We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors, and consultants 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 following the completion of this offering.

We generally do not intend to pay dividends to the holders of our Class A common stock following the completion of this offering for the foreseeable future, except possibly in connection with maintaining certain aspects of our UP-C structure. See the section titled “—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.

 

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Deterioration in the consolidated financial condition, earnings, or cash flow of Pluralsight Holdings for any reason could limit or impair its ability to pay cash distributions or other distributions to us. In addition, our ability to pay dividends in the future is dependent upon our receipt of cash from Pluralsight Holdings and its subsidiaries. Pluralsight Holdings and its subsidiaries may be restricted from distributing cash to us by, among other things, law or the documents governing our existing or future indebtedness.

Some provisions of Delaware law and our amended and restated certificate of incorporation and amended and restated bylaws may deter third parties from acquiring us and diminish the value of our Class A common stock.

Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws may provide for, among other things:

 

   

a classified board of directors with staggered three year terms;

 

   

that stockholders may remove directors 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 also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to 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 could also affect the price that some investors are willing to pay for our Class A common stock.

Our amended and restated bylaws will 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 will 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

 

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exclusive forum shall be a state or federal court located within the State of Delaware, in substantially all cases. Our amended and restated bylaws will 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. 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 choice of 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. Alternatively, if a court were to find these provisions of our amended and restated bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could harm our business, financial condition, or results of operations.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements under the sections titled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and in other sections of this prospectus that are 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 prospectus include, but are not limited to, statements about:

 

   

our ability to attract new customers and retain and expand our relationships with existing customers;

 

   

our ability to expand our course library and develop new platform features;

 

   

our future financial performance, including trends in billings, revenue, costs of revenue, gross margin, operating expenses, and free cash flow;

 

   

the demand for, and market acceptance of, our platform or for cloud-based technology learning solutions in general;

 

   

our ability to compete successfully in competitive markets;

 

   

our ability to respond to rapid technological changes;

 

   

our expectations and management of future growth;

 

   

our ability to enter new markets and manage our expansion efforts, particularly internationally;

 

   

our ability to attract and retain key employees and qualified technical and sales personnel;

 

   

our ability to effectively and efficiently protect our brand;

 

   

our ability to timely scale and adapt our infrastructure;

 

   

our ability to maintain, protect, and enhance our intellectual property and not infringe upon others’ intellectual property;

 

   

our ability to successfully identify, acquire, and integrate companies and assets;

 

   

the amount and timing of any payments we make under our Fourth LLC Agreement and the TRA; and

 

   

our anticipated uses of net proceeds from this offering.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

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 titled “Risk Factors” and elsewhere in this prospectus. You should specifically consider the numerous risks outlined in the section titled “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 prospectus.

 

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Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this prospectus 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 prospectus to reflect events or circumstances after the date of this prospectus 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 prospectus, 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 investors are cautioned not to unduly rely upon these statements.

 

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MARKET, INDUSTRY, AND OTHER DATA

Unless otherwise indicated, estimates, and information contained in this prospectus concerning our industry and the market in which we operate, including our general expectations and market position, market opportunity and market size, are based on information from various sources, including the independent industry publications set forth below, and are subject to a number of assumptions and limitations. You are cautioned not to give undue weight to these estimates. Although we are responsible for all of the disclosure contained in this prospectus and we believe the information from the industry publications and other third-party sources included in this prospectus is reliable, we have not independently verified the accuracy or completeness of the data contained in such sources. The content of the below sources, except to the extent specifically set forth in this prospectus, does not constitute a portion of this prospectus and is not incorporated herein.

The sources of certain statistical data, estimates and forecasts contained in this prospectus are the following independent industry publications or reports:

 

   

The Economist Intelligence Unit, The Quest For Digital Skills: A Multi-Industry Executive Survey, 2016;

 

   

Tech Pro Research, Research: 77% Plan Further IT Education to Stave Off Obsolescence, September 1, 2014;

 

   

Deloitte Touche Tohmatsu Limited, Deloitte Review Issue 16, Becoming Irresistible: A New Model for Employee Engagement, January 26, 2015;

 

   

Association for Talent Development, 2017 State of the Industry Report, December 2017;

 

   

International Data Corporation, Worldwide and U.S. IT Education and Training Services Forecast, 2017-2021, November 2017;

 

   

Training Industry, Inc. Size of the Training Industry, April 20, 2017; and

 

   

Evans Data Corporation, Technical Team Total Addressable Market for Morgan Stanley, January 2018.

The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

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ORGANIZATIONAL STRUCTURE

Organizational Structure Following this Offering

The diagram below depicts our organizational structure immediately following the Reorganization Transactions and the completion of this offering assuming no exercise in full by the underwriters of their over-allotment option to purchase additional shares of our Class A common stock.

 

LOGO

 

(1) 

Includes (i) the shareholders of Former Members that were corporations and that merged into Pluralsight, Inc. and (ii) Former Members who exchanged their LLC Units for stock in Pluralsight, Inc.

(2) 

Includes all Continuing Members, except Aaron Skonnard and his associated entities.

Immediately following this offering, Pluralsight, Inc. will be a holding company and its principal asset will be a controlling equity interest in Pluralsight Holdings. As the sole managing member of Pluralsight Holdings, Pluralsight, Inc. will operate and control all of the business and affairs of Pluralsight Holdings and, through Pluralsight Holdings and its subsidiaries, conduct our business. Pluralsight, Inc. will consolidate Pluralsight

 

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Holdings in its consolidated financial statements and will report non-controlling interests related to the LLC Units held by the Continuing Members on its consolidated financial statements.

Investors participating in this offering will, by contrast, hold equity in Pluralsight, Inc., a Delaware corporation that is a domestic corporation for U.S. federal income tax purposes, in the form of shares of our Class A common stock. The Continuing Members and Pluralsight, Inc. will incur U.S. federal, state, and local income taxes on their proportionate share of any taxable income of Pluralsight Holdings as calculated pursuant to the Fourth LLC Agreement. As described below, each of the Continuing Members will also hold a number of shares of Class B common stock or Class C common stock, as applicable, of Pluralsight, Inc. equal to the number of LLC Units held by such person, except to the extent such Continuing Member contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock in connection with the Reorganization Transactions. Although these shares have no economic rights, they will allow such Continuing Members to directly exercise voting power at Pluralsight, Inc., the managing member of Pluralsight Holdings. Under our amended and restated certificate of incorporation, each share of Class B common stock shall be entitled to one vote and each share of Class C common stock shall be entitled to 10 votes. When an LLC Unit is exchanged by a Continuing Member (which we would generally expect to occur in connection with a sale or other transfer), a corresponding share of Class B common stock or Class C common stock, as applicable, held by the exchanging owner will also be exchanged and will be cancelled.

Incorporation of Pluralsight, Inc.

Pluralsight, Inc. was incorporated in Delaware in December 2017. Pluralsight, Inc. has not engaged in any business or other activities except in connection with its incorporation. Pluralsight, Inc.’s amended and restated certificate of incorporation will authorize three classes of common stock, Class A common stock, Class B common stock, and Class C common stock, each having the terms described in the section titled “Description of Capital Stock.” Holders of Class A common stock, Class B common stock, and Class C common stock vote together as a single class on all matters presented to Pluralsight, Inc.’s stockholders for their vote or approval, except as otherwise required by applicable law.

Reorganization Transactions

The amendment and restatement of the third amended and restated limited liability company agreement of Pluralsight Holdings and related transactions described below are collectively referred to as the “Reorganization Transactions.”

Before the completion of this offering, the third amended and restated limited liability company agreement of Pluralsight Holdings will be amended and restated to, among other things, appoint Pluralsight, Inc. as its sole manager, effectuate the conversion of all outstanding redeemable convertible preferred limited liability company units, incentive units, and Class B incentive units and the reclassification of all outstanding limited liability company common units into LLC Units. Additionally, prior to the completion of this offering, certain Members that are corporations will merge with and into Pluralsight, Inc. and certain Members will contribute certain of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock.

As part of the Reorganization Transactions, the incentive units and Class B incentive units will be converted as follows:

 

   

15,783,689 incentive units that were outstanding as of March 31, 2018, of which (i) 5,601,184 will be exchanged for 4,721,550 shares of Class A common stock of Pluralsight, Inc. (based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and (ii) 10,182,505 will convert into 7,470,495 LLC Units (based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and each such LLC Unit will also receive a distribution of one share of Class B common stock of Pluralsight, Inc.; and

 

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3,000,000 Class B incentive units that were outstanding as of March 31, 2018, of which (i) 278,355 will be exchanged for 144,154 shares of Class A common stock of Pluralsight, Inc. (based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and (ii) 2,721,645 will convert into 1,409,482 LLC Units (based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), and each such LLC Unit will also receive a distribution of one share of Class C common stock of Pluralsight, Inc.

As the sole manager of Pluralsight Holdings, Pluralsight, Inc. will have the right to determine if and when distributions will be made to the unitholders of Pluralsight Holdings and the amount of any such distributions (subject to the requirements with respect to the tax distributions described below). If Pluralsight, Inc. authorizes a distribution, such distribution will be made to the holders of LLC Units, including Pluralsight, Inc., pro rata in accordance with their respective ownership of Pluralsight Holdings, provided that Pluralsight, Inc.

Upon the consummation of this offering, Pluralsight, Inc. will be a holding company and its principal asset will be a controlling equity interest in Pluralsight Holdings. As such, Pluralsight, Inc. will have no independent means of generating revenue. Pluralsight Holdings will be treated as a partnership for U.S. federal income tax purposes and, as such, will generally not be subject to U.S. federal income tax. Instead, taxable income will be allocated to holders of LLC Units, including Pluralsight, Inc. Accordingly, Pluralsight, Inc. will incur income taxes on its allocable share of any net taxable income of Pluralsight Holdings. 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, Pluralsight, Inc. also will incur expenses related to its operations, plus payments under the TRA, which Pluralsight, Inc. expects will be significant. Pluralsight, Inc. intends to cause Pluralsight Holdings to make distributions or, in the case of certain expenses, payments in an amount sufficient to allow Pluralsight, Inc. to pay its taxes and operating expenses, including distributions to fund any ordinary course payments due under the TRA.

The Continuing Members of Pluralsight Holdings, from time to time following this offering, may, subject to the terms of the Fourth LLC Agreement, exchange their LLC Units, together with the corresponding shares of Class B common stock or Class C common stock, as applicable, for cash or shares of Class A common stock, on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications, and other similar transactions, or, at Pluralsight, Inc.’s option, have such LLC Units redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by Pluralsight, Inc. When an LLC Unit, together with cash or a share of our Class B common stock or Class C common stock, as applicable, is exchanged for cash or a share of Pluralsight, Inc.’s Class A common stock or, at Pluralsight, Inc.’s option, redeemed for cash or Class A common stock, the corresponding share of our Class B common stock or Class C common stock, as applicable, will be cancelled. The Fourth LLC Agreement will provide that as a general matter a Continuing Member will not have the right to exchange LLC Units if Pluralsight, Inc. determines that such exchange would be prohibited by law or regulation or would violate other agreements with us to which the Continuing Member may be subject, including the Fourth LLC Agreement. Additionally, the Fourth LLC Agreement contains restrictions on redemptions and exchanges intended to prevent Pluralsight Holdings from being treated as a “publicly traded partnership” for U.S. federal income tax purposes. These restrictions are modeled on certain safe harbors provided for under applicable U.S. federal income tax law. Pluralsight, Inc. may impose additional restrictions on exchange that Pluralsight, Inc. determines to be necessary or advisable so that Pluralsight Holdings is not treated as a “publicly traded partnership” for U.S. federal income tax purposes. As a holder exchanges LLC Units and Class B common stock or Class C common stock, as applicable, for cash or shares of Class A common stock or a redemption transaction is effected, the number of LLC Units held by Pluralsight, Inc. will correspondingly be increased as it acquires the exchanged LLC Units or funds the redemption transaction, and a corresponding number of shares of Class B common stock or Class C

 

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common stock, as applicable, are cancelled. See the section titled “Certain Relationships and Related Party Transactions—Fourth Amended and Restated LLC Agreement.”

As noted above, each of the Continuing Members will also hold a number of shares of our Class B common stock or Class C common stock, as applicable, initially equal to the number of LLC Units held by such person, except to the extent such Continuing Member contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock in connection with the Reorganization Transactions. Although these shares have no economic rights, they will allow such Continuing Members to directly exercise voting power at Pluralsight, Inc., the sole manager of Pluralsight Holdings. Under Pluralsight, Inc.’s amended and restated certificate of incorporation, each share of Class B common stock will be entitled to one vote and each share of Class C common stock will be entitled to 10 votes.

This Offering

In connection with the completion of this offering, Pluralsight, Inc. intends to use the proceeds it receives from this offering, net of underwriting discounts and commissions, to purchase LLC Units from Pluralsight Holdings at a purchase price per unit equal to the initial public offering price per share of Class A common stock in this offering net of underwriting discounts and commissions. Assuming that the shares of Class A common stock to be sold in this offering are sold at $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, at the time of this offering, Pluralsight, Inc. will purchase from Pluralsight Holdings 20,700,000 LLC Units for an aggregate of $250.3 million (or 23,805,000 LLC Units for an aggregate of $287.8 million if the underwriters’ exercise in full their option to purchase additional shares of Class A common stock). Pluralsight Holdings will bear or reimburse Pluralsight, Inc. for all of the expenses of this offering. Accordingly, following this offering, Pluralsight, Inc. will hold a number of LLC Units that is equal to the number of shares of Class A common stock that it has issued, a relationship that we believe fosters transparency because it results in a single share of Class A common stock representing the same percentage ownership in Pluralsight Holdings as a single LLC Unit.

Following This Offering

The Continuing Members of Pluralsight Holdings, from time to time following this offering, may, subject to the terms of the Fourth LLC Agreement, exchange their LLC Units, together with the corresponding shares of Class B common stock or Class C common stock, as applicable, for shares of Class A common stock (or cash, at our option), on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends, reclassifications, and other similar transactions, or, at our option, have such LLC Units redeemed by Pluralsight Holdings for cash or Class A common stock contributed to Pluralsight Holdings by us. These exchanges and redemptions are expected to result in increases in the tax basis of the assets of Pluralsight Holdings that otherwise would not have been available. Increases in tax basis resulting from such exchanges may reduce the amount of tax that Pluralsight, Inc. would otherwise be required to pay in the future. This tax basis may also decrease the gains (or increase the losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets.

Pluralsight, Inc. will enter into a TRA with the Continuing Members that will provide for the payment by Pluralsight, Inc. of 85% of the amount of the calculated tax savings, if any, that Pluralsight, Inc. realizes, or in some circumstances is deemed to realize, as a result of this existing and increased tax basis and certain other tax benefits related to it entering into the TRA, including tax benefits attributable to payments under the TRA. These payment obligations are obligations of Pluralsight, Inc. and not of Pluralsight Holdings. See the section titled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” for additional information.

Pluralsight, Inc. may accumulate cash balances in future years resulting from distributions from Pluralsight Holdings exceeding its tax or other liabilities. To the extent Pluralsight, Inc. does not use such cash balances to pay a dividend on or repurchase shares of Class A common stock and instead decides to hold or recontribute such

 

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cash balances to Pluralsight Holdings for use in its operations, Continuing Members who exchange LLC Units and shares of Class B common stock or Class C common stock, as applicable, for shares of Class A common stock in the future could also benefit from any value attributable to such accumulated cash balances.

As a result of the Reorganization Transactions and this offering, upon completion of this offering:

 

   

Our Class A common stock will be held as follows:

 

   

20,700,000 shares (or 23,805,000 shares if the underwriters’ exercise in full their over-allotment option to purchase additional shares of Class A common stock) by investors in this offering;

 

   

35,280,098 shares by the Former Members;

 

   

3,058,000 shares by Continuing Members, other than Mr. Skonnard and his associated entities; and

 

   

660,000 shares by Mr. Skonnard and his associated entities.

 

   

Our Class B common stock (together with the same amount of LLC Units) will be held as follows:

 

   

57,748,401 shares and LLC Units by the Continuing Members, other than Aaron Skonnard and his associated entities.

 

   

Our Class C common stock (together with the same amount of LLC Units) will be held as follows:

 

   

13,854,707 shares and LLC Units by Aaron Skonnard and his associated entities.

 

   

The combined voting power in Pluralsight, Inc. will be as follows:

 

   

8.1% for investors in this offering (or 9.2% if the underwriters’ exercise in full their over-allotment option to purchase additional shares of Class A common stock);

 

   

13.7% for the Former Members (or 13.6% if the underwriters exercise in full their over-allotment option to purchase additional shares of Class A common stock);

 

   

23.8% for the Continuing Members, other than Aaron Skonnard and his associated entities (or 23.5% if the underwriters’ exercise in full their over-allotment option to purchase additional shares of Class A common stock); and

 

   

54.4% for Aaron Skonnard and his associated entities (or 53.7% if the underwriters’ exercise in full their over-allotment option to purchase additional shares of Class A common stock).

 

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of 20,700,000 shares of our Class A common stock in this offering will be approximately $244.2 million, based on an assumed initial offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses paid or payable by us.

If the underwriters’ exercise in full their over-allotment option to purchase additional shares of Class A common stock, based on the same assumptions, we estimate our net proceeds will be approximately $281.7 million after deducting estimated underwriting discounts and commissions and estimated offering expenses paid or payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price would increase or decrease, respectively, the net proceeds to us by approximately $19.3 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of 1,000,000 in the number of shares of our Class A common stock offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $12.1 million, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions payable by us.

The principal purposes of this offering are to increase our financial flexibility, increase our visibility in the marketplace, and create a public market for our Class A common stock.

We intend to use the proceeds from this offering, net of underwriting discounts and commissions, to purchase newly-issued LLC Units from Pluralsight Holdings, as described in the section titled “Organizational Structure—Reorganization Transactions.” We intend to cause Pluralsight Holdings to (i) repay in full its outstanding indebtedness under its credit facility, which credit facility is described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Commitments and Contractual Obligations,” which, as of March 31, 2018, had an outstanding balance of $137.4 million, and the related prepayment premium of up to 1.5%, which was $2.1 million as of March 31, 2018, plus any accrued interest, (ii) pay the unpaid expenses of this offering, which we estimate will be $3.8 million in the aggregate (which is in addition to the $2.3 million of offering expenses that were paid by us as of March 31, 2018), and (iii) settle outstanding non-transferable equity appreciation rights, or EARs, issued by one of our subsidiaries which will vest and be settled in cash upon the completion of this offering, which amount we estimate will be $0.2 million based on the number of EARs outstanding as of March 31, 2018 for which the service condition had been satisfied and based on an assumed price of our Class A common stock at the time of settlement being equal to $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. We may also use a portion of the net proceeds from this offering to satisfy income tax withholding obligations associated with the initial settlement of certain RSUs that will settle in November 2018. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Equity-Based Compensation.” We intend to use the remainder of the net proceeds from the offering, if any, for working capital and other general corporate purposes, including the acquisition of, or investment in complementary products, technologies, solutions, or business, although we have no present commitments or agreements to enter into any acquisitions or investments.

Other than as discussed above, we do not have more specific plans for the net proceeds from this offering. Accordingly, our management will have significant flexibility in applying the net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of these net proceeds. As of the date of this prospectus, we intend to invest the net proceeds in short-term interest-bearing investment-grade securities, certificates of deposit or government securities. The goal with respect to the investment of these net proceeds will be capital preservation and liquidity so that these funds are readily available to fund our operations.

 

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DIVIDEND POLICY

We do not intend to pay any cash dividends on our Class A common stock.

We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. Any future determination to pay dividends on our Class A common stock will be made at the discretion of our board of directors subject to applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions, and capital requirements. Holders of our Class B common stock and Class C common stock are not entitled to participate in any dividends declared by our board of directors. Our ability to pay cash dividends on our capital stock may also be limited by the terms of any future debt or preferred securities or future credit facility.

Immediately following this offering, we will be a holding company, and our principal asset will be a controlling equity interest in Pluralsight Holdings. If, however, we decide to pay a dividend in the future, we would likely need to cause Pluralsight Holdings to make distributions to us in an amount sufficient to cover such dividend. If Pluralsight Holdings makes such distributions to us, the other holders of LLC Units will be entitled to receive pro rata distributions. See the section titled “Risk Factors—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” for additional information.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2018:

 

   

on an actual basis;

 

   

on a pro forma basis, to reflect the Reorganization Transactions; and

 

   

on a pro forma as adjusted basis to reflect (i) the adjustments described above, (ii) the sale and issuance of 20,700,000 shares of Class A common stock pursuant to this offering, based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus and after deducting estimated underwriting discounts and commissions and estimated offering expenses paid or payable by us, (iii) the use of the net proceeds from this offering to (a) repay in full the outstanding indebtedness under our credit facility, which, as of March 31, 2018, had a principal outstanding balance of $137.4 million, and the related prepayment premium of 1.5% and accrued interest, and (b) settle outstanding non-transferable EARs issued by one of our subsidiaries which will vest and be settled in cash upon the completion of this offering, which we estimate will be $0.2 million based on the number of EARs outstanding as of March 31, 2018 for which the service condition had been satisfied and that the price of our Class A common stock at the time of settlement was equal to $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.

The pro forma and pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read the information in this table together with Pluralsight Holdings’ consolidated financial statements and related notes included elsewhere in this prospectus and the sections titled “Selected Consolidated Financial and Other Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

    As of March 31, 2018  
    Actual     Pro
Forma
    Pro Forma
As  Adjusted(1)(2)
 
    (unaudited)  
    (in thousands, except share and per share
data)
 

Cash and cash equivalents

  $ 32,359     $ 32,359     $ 138,999  
 

 

 

   

 

 

   

 

 

 

Long-term debt, net

  $ 135,477     $ 135,477     $  

Redeemable convertible preferred units

    425,291              

Members’/stockholders’ (deficit) equity:

     

Preferred stock, $0.0001 par value per share, no shares authorized, issued, and outstanding, actual; 100,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

                 

Class A common stock, $0.0001 par value per share, 1,000 shares authorized, issued, and outstanding, actual; 1,000,000,000 shares authorized, 38,998,098 shares issued and outstanding, pro forma; and 1,000,000,000 shares authorized, 59,698,098 shares issued and outstanding, pro forma as adjusted

          4       6  

Class B common stock, $0.0001 par value per share, no shares authorized, issued and outstanding, actual; 200,000,000 shares authorized, 57,748,401 shares issued and outstanding, pro forma and pro forma as adjusted

          6       6  

Class C common stock, $0.0001 par value per share, no shares authorized, issued and outstanding, actual; 50,000,000 shares authorized, 13,854,707 shares issued and outstanding, pro forma and pro forma as adjusted

          1       1  

Additional paid-in capital

          244,997       364,760  

Members’ capital

                 

Accumulated other comprehensive income

    30       14       14  

Accumulated deficit

    (483,428     (272,029     (280,323
 

 

 

   

 

 

   

 

 

 

Total members’/stockholders’ (deficit) equity attributable to Pluralsight

    (483,398     (27,007     84,464  
 

 

 

   

 

 

   

 

 

 

Non-controlling interests

          (31,100     97,219  
 

 

 

   

 

 

   

 

 

 

Total capitalization

  $ 77,370     $ 77,370     $ 181,683  
 

 

 

   

 

 

   

 

 

 

 

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(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents and total capitalization by $19.3 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) cash and cash equivalents and total capitalization by $12.1 million, assuming the assumed initial public offering price remains the same, after deducting estimated underwriting discounts and commissions. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

(2)

The pro forma as adjusted column reflects $6.1 million of total estimated offering expenses, of which $2.3 million was paid by us as of March 31, 2018.

If the underwriters elect to exercise their over-allotment option to purchase additional shares of our Class A common stock from us in full, pro forma as adjusted cash and cash equivalents, additional paid-in capital, total members’/stockholders’ (deficit) equity attributable to Pluralsight, non-controlling interests, and total capitalization would be $176.5 million, $389.2 million, $104.7 million, $114.5 million, and $219.2 million, respectively.

The number of shares of our common stock that will be outstanding after this offering excludes the following:

 

   

2,702,360 RSUs of Pluralsight Holdings that were outstanding as of March 31, 2018 that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering;

 

   

1,856,125 RSUs of Pluralsight Holdings that were granted after March 31, 2018 that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering;

 

   

3,000,000 Class B RSUs of Pluralsight Holdings that were outstanding as of March 31, 2018 and that will remain as RSUs of Pluralsight Holdings following this offering;

 

   

424,242 shares of our Class A common stock issuable upon the exercise of warrants outstanding as of March 31, 2018, with an exercise price of $8.25 per share; and

 

   

29,719,995 shares of our Class A common stock reserved for future issuance under our equity compensation plans, consisting of:

 

   

22,149,995 additional shares of Class A common stock, reserved for future issuance under our 2018 Plan (including shares of Class A common stock issuable upon the exercise of stock options and vesting and settlement of RSUs which we intend to grant in connection with this offering as set forth below), plus up to 4,600,000 shares of Class A common stock reserved for issuance under our 2017 Equity Incentive Plan upon vesting and settlement of RSUs that, on or after the date of this offering, expire, forfeit, or otherwise terminate or are withheld by us to cover tax withholding obligations as well as any annual increases in the number of shares of Class A common stock reserved for future issuance under our 2018 Plan, which will become effective in connection with the completion of this offering; and

 

   

The shares reserved for future issuance under the 2018 Plan include 6,044,992 shares of Class A common stock (based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) issuable upon the exercise of stock options which we intend to grant in connection with this offering, provided that any increase in the actual initial public offering price from such assumed initial public offering price will decrease the number of shares subject to options that we intend to grant, and any decrease in the actual initial public offering price from such assumed initial public offering price will increase the number of shares subject to options that we intend to grant; and

 

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The shares reserved for future issuance under the 2018 Plan include approximately 636,875 shares of Class A common stock subject to RSUs which we intend to grant in connection with this offering.

 

   

2,970,000 additional shares of Class A common stock, subject to increase on an annual basis, reserved for future issuance under our ESPP, which will become effective in connection with the completion of this offering.

 

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DILUTION

The Continuing Members will maintain their LLC Units in Pluralsight Holdings after the Reorganization Transactions. Because the Continuing Members do not own any Class A common stock, except to the extent such Continuing Member contributed a portion of their LLC Units to Pluralsight, Inc. in exchange for Class A common stock in connection with the Reorganization Transactions, or have any right to receive distributions from Pluralsight, Inc., we have presented dilution in pro forma net tangible book value per share both before and after this offering assuming that all of the holders of LLC Units (other than Pluralsight, Inc.) had their LLC Units exchanged for newly-issued shares of Class A common stock on a one-to-one basis and the exchange and cancellation of all of their shares of Class B common stock and Class C common stock, as applicable (which are not entitled to receive distributions or dividends, whether cash or stock from Pluralsight, Inc.), in order to more meaningfully present the potential dilutive impact on the investors in this offering. We refer to the assumed exchange of all LLC Units for shares of Class A common stock as described in the previous sentence as the “Assumed Exchange.”

If you invest in our Class A common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the amount per share paid by purchasers of shares of Class A common stock in this offering and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after the completion of this offering.

Pro forma net tangible book deficit per share of Pluralsight, Inc. is determined by dividing our total tangible assets less our total liabilities by the total number of shares of common stock outstanding prior to the completion of this offering. After giving effect to the Reorganization Transactions and the Assumed Exchange, our pro forma net tangible book deficit as of March 31, 2018 was approximately $194.5 million, or $1.83 per share, based on 106,510,782 shares of our common stock deemed to be outstanding as of March 31, 2018 (which excludes 4,090,424 shares of common stock subject to time-based vesting requirements).

After giving further effect to receipt of the net proceeds of our sale of 20,700,000 shares of Class A common stock at an assumed initial offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses paid or payable by us, our pro forma as adjusted net tangible book value as of March 31, 2018 would have been approximately $45.3 million, or $0.36 per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $2.19 per share to our existing stockholders and an immediate dilution of $12.64 per share to investors purchasing Class A common stock in this offering.

The following table illustrates the calculation of our pro forma as adjusted net tangible book value as of March 31, 2018 (in thousands, except per share amounts):

 

     Pluralsight, Inc. Pro
Forma As Adjusted(1)
 

Total assets

   $ 336,809  

Less: Goodwill

     (123,119

Less: Content library, net

     (10,801

Less: Intangible assets, net

     (2,483
  

 

 

 

Total tangible assets

     200,406  

Less: Total liabilities

     (155,126
  

 

 

 

Pro forma as adjusted net tangible book value

   $ 45,280  
  

 

 

 

Pro forma as adjusted net tangible book value per share

   $ 0.36  
  

 

 

 

Total common shares of Pluralsight, Inc. issued and outstanding pro forma, as adjusted

     127,211  
  

 

 

 

 

(1)

See the section titled “Unaudited Pro Forma Consolidated Financial Information” for more information.

 

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The following table illustrates this dilution to new investors on a per share basis:

 

Assumed initial public offering price per share

     $ 13.00  

Pro forma net tangible book deficit per share as of March 31, 2018

   $ (1.83  

Increase in pro forma net tangible book value per share attributable to investors purchasing shares of our Class A common stock in this offering

     2.19    
  

 

 

   

Pro forma as adjusted net tangible book value per share of our Class A common stock immediately after the completion of this offering

       0.36  
    

 

 

 

Dilution in pro forma net tangible book value per share to investors purchasing shares in this offering

     $ 12.64  
    

 

 

 

If the underwriters exercise in full their over-allotment option to purchase additional shares in this offering, the pro forma as adjusted net tangible book value would be $0.64 per share, the increase in the pro forma net tangible book value per share for existing stockholders would be $2.47 per share and the dilution to new investors participating in this offering would be $12.36 per share.

Each $1.00 increase or decrease in the assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the pro forma as adjusted net tangible book value, by $0.15 per share and the dilution per share to new investors by $0.85 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions.

We may also increase or decrease the number of shares we are offering. An increase or decrease of 1,000,000 shares in the number of shares we are offering would increase or decrease, as applicable, our pro forma as adjusted net tangible book value by approximately $12.1 million, or $0.09 per share, and the pro forma dilution per share to investors in this offering by $0.09 per share, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions.

The pro forma information discussed above is illustrative only and will change based on the actual initial public offering price, number of shares and other terms of this offering determined at pricing.

The table below summarizes, as of March 31, 2018, after giving effect to the Assumed Exchange and the sale by us of shares of our Class A common stock in this offering, the number of shares of our common stock, the total consideration, and the average price per share (i) paid to us by our existing stockholders, which are the Members, and (ii) to be paid by new investors participating in this offering at an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses paid or payable by us.

 

     Shares Purchased     Total Consideration     Average
Price

Per
Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

     106,510,782        83.7   $ 203,524,129        43.1   $ 1.91  

Investors purchasing shares of our Class A common stock in this offering

     20,700,000        16.3     269,100,000        56.9     13.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     127,210,782        100   $ 472,624,129        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

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Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares of our Class A common stock from us. If the underwriters exercise in full their option to purchase additional shares, the number of shares held by existing stockholders, which are the Members, will be reduced to 81.7% of the total number of shares of capital stock to be outstanding upon completion of this offering, and the number of shares of common stock held by new investors participating in this offering will be further increased to 18.3% of the total number of shares of capital stock to be outstanding upon completion of the offering.

Each $1.00 increase or decrease in the assumed initial public offering price of $13.00 per share would increase or decrease, as applicable, the total consideration paid by new investors by $20.7 million and increase or decrease, as applicable, the percent of total consideration paid by new investors by 7.1%, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions. We may also increase or decrease the number of shares we are offering. An increase or decrease of 1,000,000 in the number of shares offered by us would increase or decrease, as applicable, total consideration paid by new investors by $13.0 million, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions.

The number of shares of our common stock that will be outstanding after this offering excludes the following:

 

   

2,702,360 RSUs of Pluralsight Holdings that were outstanding as of March 31, 2018 that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering;

 

   

1,856,125 RSUs of Pluralsight Holdings that were granted after March 31, 2018 that will convert into RSUs of Pluralsight, Inc. on a one-for-one basis in connection with this offering;

 

   

3,000,000 Class B RSUs of Pluralsight Holdings that were outstanding as of March 31, 2018 and that will remain as RSUs of Pluralsight Holdings following this offering;

 

   

424,242 shares of our Class A common stock issuable upon the exercise of warrants outstanding as of March 31, 2018, with an exercise price of $8.25 per share; and

 

   

29,719,995 shares of our Class A common stock reserved for future issuance under our equity compensation plans, consisting of:

 

   

22,149,995 additional shares of Class A common stock, reserved for future issuance under our 2018 Plan (including shares of Class A common stock issuable upon the exercise of stock options and vesting and settlement of RSUs which we intend to grant in connection with this offering as set forth below), plus up to 4,600,000 shares of Class A common stock reserved for issuance under our 2017 Equity Incentive Plan upon vesting and settlement of RSUs that, on or after the date of this offering, expire, forfeit, or otherwise terminate or are withheld by us to cover tax withholding obligations as well as any annual increases in the number of shares of Class A common stock reserved for future issuance under our 2018 Plan, which will become effective in connection with the completion of this offering; and

 

   

The shares reserved for future issuance under the 2018 Plan include 6,044,992 shares of Class A common stock (based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) issuable upon exercise of stock options which we intend to grant in connection with this offering, provided that any increase in the actual initial public offering price from such assumed initial public offering price will decrease the number of shares subject to options that we intend to grant, and any decrease in the actual initial public offering price from such assumed initial public offering price will increase the number of shares subject to options that we intend to grant; and

 

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The shares reserved for future issuance under the 2018 Plan include approximately 636,875 shares of Class A common stock subject to RSUs which we intend to grant in connection with this offering.

 

   

2,970,000 additional shares of Class A common stock, subject to increase on an annual basis, reserved for future issuance under our ESPP, which will become effective in connection with the completion of this offering.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present the selected historical consolidated financial information and other data for Pluralsight Holdings and its consolidated subsidiaries. Pluralsight Holdings is the predecessor of the issuer, Pluralsight, Inc., for financial reporting purposes. The selected consolidated financial and other data of Pluralsight, Inc. has not been presented since Pluralsight, Inc. is a newly incorporated entity, has had no business transactions or activities to date, and had no assets or liabilities during the periods presented in this section. The following selected consolidated financial data for Pluralsight Holdings and its consolidated subsidiaries should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this prospectus. The selected consolidated statement of operations data for the years ended December 31, 2016 and 2017, and the selected consolidated balance sheet data as of December 31, 2016 and 2017, are derived from the audited consolidated financial statements and related notes of Pluralsight Holdings included elsewhere in this prospectus. The selected consolidated statements of operations data for the year ended December 31, 2015, and the selected consolidated balance sheet data as of December 31, 2015, have been derived from the consolidated financial statements that are not included in this prospectus. The selected consolidated statements of operations data for the three months ended March 31, 2017 and 2018, and the selected consolidated balance sheet data as of March 31, 2018, are derived from the unaudited consolidated financial statements and related notes of Pluralsight Holdings included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements of Pluralsight Holdings and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth in those statements. Our historical results are not necessarily indicative of our future results, and the results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year or any other period.

Consolidated Statements of Operations Data

 

    Year Ended
December 31,
    Three Months Ended
March 31,
 
        2015             2016             2017             2017             2018      
    (in thousands, except per unit amounts)  

Revenue

  $ 108,422     $ 131,841     $ 166,824     $ 37,239     $ 49,644  

Cost of revenue(1)(2)

    33,245       40,161       49,828       11,209       14,886  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    75,177       91,680       116,996       26,030       34,758  

Operating expenses:(1)(2)

         

Sales and marketing

    44,872       51,234       103,478       17,826       29,467  

Technology and content

    33,146       36,159       49,293       10,205       13,325  

General and administrative

    15,916       18,130       46,971       6,267       11,292  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    93,934       105,523       199,742       34,298       54,084  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (18,757     (13,843     (82,746     (8,268     (19,326

Other (expense) income:

         

Interest expense

    (7,399     (6,320     (11,665     (1,527     (3,710

Loss on debt extinguishment

                (1,882            

Other (expense) income, net

    (18     45       81       48       (13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (26,174     (20,118     (96,212     (9,747     (23,049

Provision for income taxes

    (186     (494     (324     (58     (109
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (26,360   $ (20,612   $ (96,536   $ (9,805   $ (23,158
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: accretion of Series A redeemable convertible preferred units

    (55,300     (6,325     (63,800     (1,650     (19,525
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common units

  $ (81,660   $ (26,937   $ (160,336   $ (11,455   $ (42,683
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per unit, basic and diluted(3)

  $ (1.72   $ (0.57   $ (3.34   $ (0.24   $ (0.88
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common units used in computing basic and diluted net loss per unit(3)

    47,429       47,480       47,957       47,783       48,408  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per unit, basic and diluted (unaudited)(3)

      $ (1.00     $ (0.24
     

 

 

     

 

 

 

Pro forma weighted average common units used in computing basic and diluted net loss per unit (unaudited)(3)

        96,405         96,856  
     

 

 

     

 

 

 

 

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(1)

Includes equity-based compensation expense as follows:

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2015      2016      2017      2017      2018  
     (in thousands)  

Cost of revenue

   $ 39      $ 20      $ 20      $ 5      $  

Sales and marketing

     1,896        1,462        2,624        664        539  

Technology and content

     2,203        2,050        1,966        464        381  

General and administrative

     865        2,206        17,171        579        2,453  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity-based compensation

   $ 5,003      $ 5,738      $ 21,781      $ 1,712      $ 3,373  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

Includes amortization of acquired intangible assets as follows:

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2015      2016      2017      2017      2018  
     (in thousands)  

Cost of revenue

   $ 6,555      $ 6,565      $ 7,008      $ 1,642      $ 2,962  

Sales and marketing

     1,077        643        721        161        195  

Technology and content

     611        706        706        176        176  

General and administrative

     130        120        91        27         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total amortization of acquired intangible assets

   $ 8,373      $ 8,034      $ 8,526      $ 2,006      $ 3,333  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(3)

See Note 1 and Note 12 to Pluralsight Holdings’ consolidated financial statements included elsewhere in this prospectus for an explanation of the methods used to calculate basic, diluted and pro forma net loss per unit.

Consolidated Balance Sheet Data

 

     As of December 31,     As of
March 31,

2018
 
     2015     2016     2017    
     (in thousands)  

Cash and cash equivalents

   $ 8,389     $ 19,397     $ 28,267     $ 32,359  

Working (deficit) capital(1)

     (7,664     19,212       31,199       38,828  

Total assets

     192,984       214,972       236,420       234,002  

Deferred revenue, current and non-current

     55,795       72,683       111,301       116,868  

Redeemable convertible preferred units

     305,294       341,966       405,766       425,291  

Total members’/stockholders’ deficit

     (286,134     (307,230     (445,077     (483,398

 

(1)

Working (deficit) capital is calculated as current assets less current liabilities, excluding deferred revenue.

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.

 

                                  Growth Rate  
    Year Ended
December 31,
    Three Months Ended
March 31,
    Year Ended
December 31,
    Three Months Ended
March 31,

2018
 
    2015     2016     2017     2017     2018     2016     2017    
    (dollars in thousands)              

Business customers (end of period)

    10,517       12,043       14,463       12,580       14,830       15     20     18

Billings

  $ 130,043     $ 149,231     $ 205,807     $ 38,883     $ 55,419       15     38     43

Billings from business customers

  $ 83,663     $ 104,861     $ 162,965     $ 29,327     $ 45,252       25     55     54

% of billings from business customers

    64     70     79     75     82      

 

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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 represent our total revenue plus the change in deferred revenue in the period, as presented in our consolidated statements of cash flows. Billings in any particular period represent amounts invoiced to our customers and reflect subscription renewals and upsells to existing customers plus sales to new customers. Our pricing and subscription periods vary for business customers and individual customers. Subscription periods for our business customers generally range from one to three years, with a majority being one year, as we only recently began offering subscription periods greater than 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.

Non-GAAP Financial Measures

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2015     2016     2017     2017     2018  
     (dollars in thousands)  

Non-GAAP gross profit

   $ 81,771     $ 98,265     $ 124,024     $ 27,677     $ 37,720  

Non-GAAP gross margin

     75     75     74     74     76

Non-GAAP operating loss

   $ (5,381   $ (71   $ (52,439   $ (4,550   $ (12,620

Free cash flow

   $ 1,699     $ (7,927   $ (20,472   $ 2,763     $ (13,061

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 and amortization related to acquired intangible assets. 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 they eliminate the impact of certain non-cash expenses and allow a direct comparison of these measures between periods without the impact of non-cash expenses. We believe these non-GAAP measures are useful in evaluating our operating performance compared to that of other companies in our industry, as these

 

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metrics generally eliminate the effects of certain non-cash items that may vary from company to company for reasons unrelated to overall profitability.

See the section below titled “—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using our non-GAAP gross profit and non-GAAP gross margin as 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 and amortization related to acquired intangible assets. We believe non-GAAP operating loss provides investors with useful information on period-to-period performance as evaluated by management and comparison with our past financial performance. We believe non-GAAP operating loss is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance.

See the section below titled “—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using our non-GAAP operating loss as a financial measure and for a reconciliation of our non-GAAP operating loss to loss from operations, the most directly comparable financial measure calculated in accordance with GAAP.

Free cash flow

We define free cash flow as net cash provided by (used in) operating activities less purchases of property and equipment and purchases of our content library and other intangible assets. We consider free cash flow to be an important measure because it measures the amount of cash we spend or generate and reflects changes in our working capital. For the years ended December 31, 2015, 2016, and 2017, and for the three months ended March 31, 2017 and 2018, our free cash flow included cash paid for interest on our long-term debt of $6.5 million, $5.5 million, $6.9 million, $1.2 million, and $2.5 million, respectively. For the years ended December 31, 2016 and 2017, and for the three months ended March 31, 2018, 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, as well as eliminate cash paid for interest on our long-term debt following the repayment in full of the outstanding indebtedness under our credit facility in connection with this offering. We expect to generate positive free cash flow over the long term.

See the section below titled “—Reconciliation of Non-GAAP Financial Measures” for information regarding the limitations of using free cash flow as a financial measure and for a reconciliation of free cash flow to net cash provided by (used in) operations, the most directly comparable financial measure calculated in accordance with GAAP.

Reconciliation of Non-GAAP Financial Measures

We use non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, and free cash flow in conjunction with traditional GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, and free cash flow should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.

 

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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 provided by (used in) operating activities, respectively. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, and free cash flow in conjunction with their respective related GAAP financial measures.

The following table provides a reconciliation of gross profit to non-GAAP gross profit:

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2015     2016     2017     2017     2018  
     (dollars in thousands)  

Gross profit

   $ 75,177     $ 91,680     $ 116,996     $ 26,030     $ 34,758  

Equity-based compensation

     39       20       20       5        

Amortization of acquired intangible assets

     6,555       6,565       7,008       1,642       2,962  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit

   $ 81,771     $ 98,265     $ 124,024     $ 27,677     $ 37,720  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     69     70     70     70     70

Non-GAAP gross margin

     75     75     74     74     76

The following table provides a reconciliation of loss from operations to non-GAAP operating loss:

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2015     2016     2017     2017     2018  
     (dollars in thousands)  

Loss from operations

   $ (18,757   $ (13,843   $ (82,746   $ (8,268   $ (19,326

Equity-based compensation

     5,003       5,738       21,781       1,712       3,373  

Amortization of acquired intangible assets

     8,373       8,034       8,526       2,006       3,333  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP operating loss

   $ (5,381   $ (71   $ (52,439   $ (4,550   $ (12,620
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table provides a reconciliation of net cash provided by (used in) operating activities to free cash flow:

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2015     2016     2017     2017     2018  
     (dollars in thousands)  

Net cash provided by (used in) operating activities

   $ 11,942     $ 4,468     $ (12,139   $ 4,954     $ (10,424

Less: purchases of property and equipment

     (7,954     (10,142     (5,951     (1,568     (1,868

Less: purchases of content library

     (2,289     (2,253     (2,382     (623     (769
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

   $ 1,699     $ (7,927   $ (20,472   $ 2,763     $ (13,061
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The unaudited pro forma consolidated balance sheet as of March 31, 2018 and unaudited pro forma consolidated statements of operations for the year ended December 31, 2017, and the three months ended March 31, 2018, present our consolidated financial position and results of operations to reflect (i) the Reorganization Transactions, (ii) the sale and issuance of Class A common stock pursuant to this offering, and (iii) the use of proceeds from this offering to (a) repay in full our term loan under our credit facility and (b) settle outstanding non-transferable EARs issued by one of our subsidiaries which will vest and be settled in cash upon the completion of this offering. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2017, and the three months ended March 31, 2018, assume the Reorganization Transactions and this offering were completed on January 1, 2017. The unaudited pro forma consolidated balance sheet as of March 31, 2018 assumes the Reorganization Transactions and this offering were completed on March 31, 2018.

The unaudited pro forma consolidated financial information has been prepared based on our historical financial statements and the assumptions and adjustments as described in the notes to the unaudited pro forma consolidated financial information. The pro forma adjustments are based upon available information and methodologies that are factually supportable and directly attributable to the Reorganization Transactions or this offering. In addition, the unaudited pro forma consolidated statements of operations reflect only those adjustments that are expected to have a continuing impact on our results of operations. The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and do not purport to represent our consolidated results of operations or consolidated financial position that would actually have occurred had the Reorganization Transactions and this offering referred to above been consummated on the dates assumed or to project our consolidated results of operations or consolidated financial position for any future date or period.

As a public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur additional annual expenses related to these steps and, among other things, additional directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. We have not included any pro forma adjustments relating to these costs.

As described in greater detail under the sections titled “Organizational Structure” and “Certain Relationships and Related Party Transactions—Tax Receivable Agreement,” in connection with the completion of this offering, we will enter into the TRA with the TRA Members, which will provide for the payment by Pluralsight, Inc. to the TRA Members of 85% of the applicable savings, if any, that Pluralsight, Inc. may realize, or be deemed to realize (using the actual applicable U.S. federal income tax rate in effect for the tax period and an assumed, weighted-average state and local income tax rate based on applicable period apportionment factors), as a result of (1) certain tax attributes that are created as a result of the exchanges of their LLC Units (calculated under certain assumptions), (2) tax benefits related to imputed interest, and (3) payments under the TRA. Due to the uncertainty in the amount and timing of future exchanges of LLC Units by the TRA Members, and the uncertainty of when those exchanges will ultimately result in tax savings as we currently do not generate taxable income, the unaudited pro forma consolidated financial information assumes that no exchanges of LLC Units have occurred and therefore no increases in tax basis in Pluralsight, Inc.’s assets or other tax benefits that may be realized thereunder have been assumed in the unaudited pro forma consolidated financial information. However, if all of the TRA Members were to exchange their LLC Units, we would recognize a deferred tax asset of approximately $260.7 million and a liability of approximately $221.6 million, assuming (i) that the TRA Members redeemed or exchanged all of their LLC Units immediately after the completion of this offering at the assumed initial public offering price of $13.00 per share of our Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, (ii) no material changes in relevant tax law, (iii) a constant corporate tax rate of 23.0%, and (iv) that we earn sufficient taxable income in each year to realize on a current basis all tax benefits that are subject to the TRA. For each 5% increase (decrease) in the amount of LLC Units exchanged by the TRA Members, our deferred tax asset would increase (decrease) by approximately $21.0

 

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million and the related liability would increase (decrease) by approximately $17.8 million, assuming that the price per share and corporate tax rate remain the same. These amounts are estimates and have been prepared for informational purposes only. The actual amount of deferred tax assets and related liabilities that we will recognize will differ based on, among other things, the timing of the exchanges, the price of shares of our Class A common stock at the time of the exchange, and the tax rates then in effect.

The unaudited pro forma consolidated financial information should be read together with the sections titled “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Pluralsight Holdings’ historical consolidated financial statements and related notes thereto included elsewhere in this prospectus.

 

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UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of March 31, 2018

 

    Pluralsight
Holdings
Actual
    Reorganization
Transactions
Adjustments
        As
Adjusted

Before
Offering
    Initial
Public

Offering
Adjustments
          Pluralsight,
Inc.

Pro Forma
As Adjusted
 
    (in thousands)  

Assets

             

Current assets:

             

Cash and cash equivalents

  $ 32,359     $       $ 32,359     $ 106,640       (2),(7),(8)     $ 138,999  

Accounts receivable, net

    30,998               30,998               30,998  

Prepaid expenses and other current assets

    7,071               7,071               7,071  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total current assets

    70,428               70,428       106,640         177,068  

Property and equipment, net

    22,014               22,014               22,014  

Content library, net

    10,801               10,801               10,801  

Intangible assets, net

    2,483               2,483               2,483  

Goodwill

    123,119               123,119               123,119  

Deferred tax asset(6)

                                 

Other assets

    5,157               5,157       (3,833     (3)       1,324  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total assets

  $ 234,002     $       $ 234,002     $ 102,807       $ 336,809  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Liabilities, redeemable convertible preferred units, and members’/stockholders’ (deficit) equity

             

Current liabilities:

             

Accounts payable

  $ 8,065     $       $ 8,065     $ (115     (3)     $ 7,950  

Accrued expenses

    15,835               15,835       (1,391     (3)       14,444  

Accrued author fees

    7,700               7,700               7,700  

Deferred revenue

    109,919               109,919               109,919  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total current liabilities

    141,519               141,519       (1,506       140,013  

Deferred revenue, net of current portion

    6,949               6,949               6,949  

Long-term debt, net

    135,477               135,477       (135,477     (7)        

Facility financing obligation

    7,509               7,509               7,509  

Payable to related parties pursuant to tax receivable agreement(6)

                                 

Other liabilities

    655               655               655  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total liabilities

    292,109               292,109       (136,983       155,126  

Redeemable convertible preferred units

    425,291       (425,291   (1)                    

Members’/stockholders (deficit) equity:

             

Preferred stock, $0.0001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding, pro forma as adjusted

                                 

Class A common stock, $0.0001 par value per share, 1,000,000,000 shares authorized, 59,698,098 shares issued and outstanding, pro forma as adjusted(10)

          4     (1)     4       2       (2)       6  

Class B common stock, $0.0001 par value per share, 200,000,000 shares authorized, 57,748,401 shares issued and outstanding, pro forma as adjusted(10)

          6     (1)     6               6  

Class C common stock, $0.0001 par value per share, 50,000,000 shares authorized, 13,854,707 shares issued and outstanding, pro forma as adjusted(10)

          1     (1),(4)     1               1  

Additional paid-in capital

          244,997     (4),(5)     244,997       119,763       (2),(3),(8),(9)       364,760  

Members’ capital

              (1),(4),(5)                    

Accumulated other comprehensive income

    30       (16   (5)     14               14  

Accumulated deficit

    (483,428     211,399     (1),(4),(5)     (272,029     (8,294     (7),(8),(9)       (280,323
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total members’/stockholders’ (deficit) equity attributable to Pluralsight

    (483,398     456,391         (27,007     111,471         84,464  

Non-controlling interests

          (31,100   (5)     (31,100     128,319       (5)       97,219  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total members’/stockholders’ (deficit) equity

    (483,398     425,291         (58,107     239,790         181,683  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total liabilities, redeemable convertible preferred units, and members’/stockholders’ (deficit) equity

  $ 234,002     $       $ 234,002     $ 102,807       $ 336,809  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

See accompanying notes to unaudited pro forma consolidated balance sheet

 

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Notes to Unaudited Pro Forma Consolidated Balance Sheet

 

(1)

Reflects the Reorganization Transactions, including (i) the accretion of Series A redeemable convertible preferred units to fair value of $13.00 per unit, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, (ii) the conversion of redeemable convertible preferred units, incentive units, and Class B incentive units into common limited liability company units and the reclassification of all outstanding common limited liability company units into LLC Units, (iii) the issuance of Class A common stock to Former Members in exchange for LLC Units and, solely to the extent they contributed a portion of their LLC Units to Pluralsight, Inc., certain Continuing Members, (iv) the issuance of Class B common stock to the Continuing Members (other than Aaron Skonnard and his affiliates), and (v) the issuance of Class C common stock to Aaron Skonnard and his affiliates.

 

(2)

Reflects the net effect on cash of the receipt of proceeds of $244.2 million from this offering, based on the assumed sale of 20,700,000 shares of Class A common stock at an assumed initial public offering of $13.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses paid or payable by us. A $1.00 increase or decrease in the assumed initial public offering price of $13.00 per share would increase or decrease the net proceeds we receive from this offering by approximately $19.3 million, assuming the number of shares offered by us as set forth on the cover page of this prospectus remains the same and after deducting offering expenses. Each increase (decrease) of 1,000,000 shares in the number of shares of Class A common stock offered by us would increase (decrease) the amount of our cash, total assets and total members’/stockholders’ (deficit) equity by approximately $12.1 million, assuming an initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions.

 

(3)

Deferred costs associated with this offering, including certain legal, accounting and other related costs, have been recorded in other assets on the consolidated balance sheet. Upon completion of this offering, these deferred costs and any corresponding accruals for deferred costs not yet paid will be charged against the proceeds from this offering with a corresponding reduction to additional paid-in capital. As of March 31, 2018, $2.3 million of the offering costs had been paid.

 

(4)

As a corporation, we will no longer record members’ capital in the consolidated balance sheet. To reflect the corporation structure of our equity, we will separately present the value of our common stock and additional paid-in capital. The portion of members’ deficit associated with additional paid-in capital was estimated as the remainder of capital contributions we have received less amounts attributed to the par value of common stock and the amount allocated to non-controlling interests (see Note 5 below).

 

(5)

After the offering and Reorganization Transactions, Pluralsight, Inc.’s only material asset will be the direct and indirect ownership of 46.5% of the LLC Units (excluding 562,268 LLC Units that are subject to time-based vesting requirements) and sole voting interest in Pluralsight Holdings and Pluralsight, Inc.’s only business will be to act as the manager of Pluralsight Holdings. As a result of this voting interest and control, as well as the obligation to absorb losses of, and receive benefits from, Pluralsight Holdings that could be significant, we have determined that, after the Reorganization Transactions, Pluralsight Holdings will be a variable interest entity and that we will be the primary beneficiary of Pluralsight Holdings. Therefore, pursuant to FASB ASC 810, Consolidation, we will consolidate the financial results of Pluralsight Holdings into our consolidated financial statements. The ownership interests of the Continuing Members will be accounted for as non-controlling interests in Pluralsight, Inc.’s consolidated financial statements after this offering. Immediately following this offering, the non-controlling interests of Pluralsight Holdings will represent 53.5% of the outstanding LLC Units (excluding 3,528,156 LLC Units that are subject to time-based vesting requirements) calculated as follows (in thousands):

 

     Number      Percent  

Interest in Pluralsight Holdings held by Pluralsight, Inc.

     59,135,830        46.5

Non-controlling interests in Pluralsight Holdings held by the Continuing Members

     68,074,952        53.5
  

 

 

    

 

 

 
     127,210,782        100.0
  

 

 

    

 

 

 

If the underwriters were to exercise their option to purchase additional shares of our Class A common stock in full, Pluralsight, Inc. would own 47.8% economic interest of Pluralsight Holdings and the Continuing Members would own the remaining 52.2% of the economic interest of Pluralsight Holdings.

 

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The adjustment to additional paid-in capital for the acquisition of non-controlling interests of Pluralsight Holdings (see Note 4 above) is as follows (in thousands):

 

Conversion of redeemable convertible preferred units into LLC Units, after giving effect to the accretion of Series A redeemable convertible preferred units (see Note 1 above)

   $ 527,041  

Less: Pro forma equity attributable to par value of common stock of Pluralsight, Inc.

     11  

Less: Pro forma equity attributable to 53.5% non-controlling interests of Pluralsight Holdings

     (282,055
  

 

 

 
   $ 244,997  
  

 

 

 

The adjustment to accumulated deficit for the acquisition of non-controlling interests of Pluralsight Holdings (see Note 4 above) is as follows (in thousands):

 

Accretion of Series A redeemable convertible preferred units to fair value (see Note 1 above)

   $ (101,750

Less: Pro forma deficit attributable to 53.5% non-controlling interests of Pluralsight Holdings

     313,149  
  

 

 

 
   $ 211,399  
  

 

 

 

 

(6)

Due to the uncertainty in the amount and timing of future exchanges of LLC Units by Continuing Members, the unaudited pro forma consolidated financial information assumes that no exchanges of interests have occurred and therefore no increases in tax basis in Pluralsight Holdings’ assets or other tax benefits that may be realized thereunder have been assumed in the unaudited pro forma consolidated financial information. Assuming exchanges occur in future periods, we will not be obligated to make any payments under the TRA until the tax benefits arising from such transactions that gave rise to the payment are realized. For financial reporting purposes, we will assess the tax attributes of Pluralsight, Inc. in accordance with ASC 740, Income Taxes, to determine if it is more likely than not that we will realize the benefit of any deferred tax assets. Following that assessment, we may recognize a liability under the TRA, reflecting the expected future realization of such tax benefits. Amounts payable under the TRA are contingent upon, among other things, (i) generation of sufficient future taxable income during the term of the TRA and (ii) future changes in tax laws. In addition, we do not expect obligations under the TRA to impact earnings per share because those obligations will be recorded against Pluralsight, Inc.’s equity in accordance with ASC 810, Consolidation, as these are common control transactions.

 

(7)

Reflects the repayment in full of our term loan under our credit facility, which had an outstanding principal balance of $137.4 million, and the related prepayment premium of 1.5%. The term loan is stated net of debt issuance costs of $1.9 million, a portion of which will be reflected as a loss on extinguishment upon repayment of the loan. The prepayment premium and loss from the reduction of debt issuance costs are nonrecurring in nature and, as such, have not been included as an adjustment in the unaudited pro forma consolidated statements of operations. The prepayment premium is reduced to 1.0% of the outstanding balance if the repayment occurs after the first anniversary of the debt issuance, which occurs in June 2018. Although we intend to repay in full the outstanding indebtedness under the term loan with the proceeds of the offering, we will have the discretion to determine the timing of repayment.

 

(8)

Reflects the settlement of outstanding non-transferable EARs issued by one of our subsidiaries, which will vest and be settled in cash upon the completion of this offering, which we estimate will be $0.2 million based on the number of EARs outstanding as of March 31, 2018 for which the service condition had been satisfied and that the price of our Class A common stock at the time of settlement was equal to $13.00, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. This adjustment is nonrecurring in nature and, as such, has not been included as an adjustment in the unaudited pro forma consolidated statements of operations.

 

(9)

Our RSUs vest upon the satisfaction of both a time condition and a liquidity condition. Upon completion of this offering, the liquidity condition will have been met and a cumulative adjustment to equity-based compensation will be recorded for the portion of the award for which the derived service period has been rendered. The number of RSUs and Class B RSUs outstanding as of March 31, 2018 was 2,702,360 and 3,000,000, respectively. This adjustment reflects the estimated compensation charge of $6.3 million to be recognized in connection with the satisfaction of the liquidity condition.

 

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(10)

The following table illustrates the number of shares of common stock issued and outstanding on an actual basis as of March 31, 2018, on a pro forma basis following the completion of the Reorganization Transactions, and on a pro forma as adjusted basis following the completion of this offering:

 

     Class A
Common
Stock
    Class B
Common
Stock
    Class C
Common
Stock
    Total  

Shares of Pluralsight, Inc. issued and outstanding, actual

     1,000       —         —         1,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares of Pluralsight, Inc. issued and outstanding, pro forma

     38,998,098       57,748,401       13,854,707       110,601,206  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares issued in connection with this offering

     20,700,000       —         —         20,700,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares of Pluralsight, Inc. issued and outstanding, pro forma as adjusted

     59,698,098       57,748,401       13,854,707       131,301,206  
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Shares subject to time-based vesting requirements

     (562,268     (2,118,674     (1,409,482     (4,090,424
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares of Pluralsight, Inc. issued and outstanding, pro forma as adjusted

     59,135,830       55,629,727       12,445,225       127,210,782  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2017

 

     Pluralsight
Holdings
Actual
    Reorganization
Transactions
Adjustments
           As
Adjusted

Before
Offering
    Initial
Public

Offering
Adjustments
         Pluralsight,
Inc.

Pro Forma
As
Adjusted
 
     (in thousands, except per unit/share data)  

Revenue

   $ 166,824     $        $ 166,824     $        $ 166,824  

Cost of revenue

     49,828                49,828       31     (6),(7)      49,859  
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Gross profit

     116,996                116,996       (31        116,965  

Operating expenses:

                

Sales and marketing

     103,478                103,478       5,366     (6),(7)      108,844  

Technology and content

     49,293                49,293       3,444     (6),(7)      52,737  

General and administrative

     46,971                46,971       14,746     (6),(7)      61,717  
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Total operating expenses

     199,742                199,742       23,556          223,298  
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Loss from operations

     (82,746              (82,746     (23,587        (106,333

Other (expense) income:

                

Interest expense

     (11,665              (11,665     10,350     (3)      (1,315

Loss on debt extinguishment

     (1,882              (1,882     920     (3)      (962

Other income, net

     81                81                81  
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Loss before income taxes

     (96,212              (96,212     (12,317        (108,529

Provision for income taxes

     (324           (1)        (324              (324
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Net loss

   $ (96,536   $        $ (96,536   $ (12,317      $ (108,853
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Less: net loss attributable to non-controlling interests

           (51,660     (2)        (51,660     (6,592        (58,252
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Net loss attributable to Pluralsight, Inc.

   $ (96,536   $ 51,660        $ (44,876   $ (5,725      $ (50,601
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Less: accretion of Series A redeemable convertible preferred units

     (63,800     63,800       (5)                        
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Net loss attributable to common units/shares

   $ (160,336   $ 115,460        $ (44,876   $ (5,725      $ (50,601
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Net loss per unit/share, basic and diluted

   $ (3.34            (4)    $ (0.86
  

 

 

               

 

 

 

Weighted average common units/shares used in computing basic and diluted net loss per unit/share

     47,957                   59,136  
  

 

 

               

 

 

 

See accompanying notes to unaudited pro forma consolidated statements of operations

 

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2018

 

     Pluralsight
Holdings
Actual
    Reorganization
Transactions
Adjustments
           As
Adjusted
Before
Offering
    Initial
Public
Offering
Adjustments
         Pluralsight,
Inc.
Pro Forma
As
Adjusted
 
     (in thousands, except per unit/share data)  

Revenue

   $ 49,644     $        $ 49,644     $        $ 49,644  

Cost of revenue

     14,886                14,886       10     (6),(7)      14,896  
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Gross profit

     34,758                34,758       (10        34,748  

Operating expenses:

                

Sales and marketing

     29,467                29,467       1,585     (6),(7)      31,052  

Technology and content

     13,325                13,325       948     (6),(7)      14,273  

General and administrative

     11,292                11,292       5,160     (6),(7)      16,452  
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Total operating expenses

     54,084                54,084       7,693          61,777  
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Loss from operations

     (19,326              (19,326     (7,703        (27,029

Other (expense) income:

                

Interest expenses

     (3,710              (3,710     3,366     (3)      (344

Other expense, net

     (13              (13              (13
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Loss before income taxes

     (23,049              (23,049     (4,337        (27,386

Provision for income taxes

     (109           (1)        (109              (109
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Net loss

   $ (23,158   $        $ (23,158   $ (4,337      $ (27,495
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Less: net loss attributable to non-controlling interests

           (12,393     (2)        (12,393     (2,321        (14,714
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Net loss attributable to Pluralsight, Inc.

   $ (23,158   $ 12,393        $ (10,765   $ (2,016      $ (12,781
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Less: accretion of Series A redeemable convertible preferred units

     (19,525     19,525       (5)                        
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Net loss attributable to common units/shares

   $ (42,683   $ 31,918        $ (10,765   $ (2,016      $ (12,781
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

 

Net loss per unit/share, basic and diluted

   $ (0.88            (4)    $ (0.22
  

 

 

               

 

 

 

Weighted average common units/shares used in computing basic and diluted net loss per unit/share

     48,408                   59,136  
  

 

 

               

 

 

 

See accompanying notes to unaudited pro forma consolidated statements of operations

 

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Notes to Unaudited Pro Forma Consolidated Statements of Operations

 

(1)

Following this offering and the Reorganization Transactions, Pluralsight, Inc. will be subject to U.S. federal income taxes, in addition to state and local taxes, with respect to its allocable share of any net taxable income of Pluralsight Holdings. As Pluralsight Holdings has historically generated losses, and on a pro forma basis, will continue to have losses following this offering and the Reorganization Transactions, the unaudited pro forma consolidated statements of operations do not reflect adjustments to our provision for income taxes as it has been determined that it is more-likely-than-not that our NOLs will not be realized.

 

(2)

After the offering and the Reorganization Transactions, Pluralsight, Inc. will become the sole manager of Pluralsight Holdings and will have a minority economic interest in Pluralsight Holdings but will have 100% of the voting power and control of the management of Pluralsight Holdings. Following this offering, the non-controlling interests, representing the Continuing Members of Pluralsight Holdings other than Pluralsight, Inc. will be 53.5% (excluding 3,528,156 LLC Units that are subject to time-based vesting requirements).

 

(3)

Reflects a decrease in interest expense of $10.4 million and a decrease of interest included in loss on debt extinguishment of $0.9 million for the year ended December 31, 2017, and a decrease in interest expense of $3.4 million for the three months ended March 31, 2018, assuming the repayment in full of our long-term debt occurred on January 1, 2017.

 

(4)

Pro forma basic loss per share is computed by dividing the net loss attributable to holders of Class A common stock by the weighted-average shares of Class A common stock outstanding during the period. As we have incurred losses for all periods presented, pro forma diluted loss per share is equal to pro forma basic loss per share because the effect of potentially dilutive securities would be anti-dilutive. Shares of Class B common stock and Class C common stock do not participate in earnings of Pluralsight, Inc. As a result, the shares of Class B common stock and Class C common stock are not considered participating securities and are not included in the weighted-average shares outstanding for purposes of computing pro forma net loss per share.

 

(5)

Upon conversion of redeemable convertible preferred units into common units, the holders of Series A redeemable convertible preferred units will forfeit any redemption rights. This adjustment reflects the removal of the effect of the accretion of Series A redeemable convertible preferred units to redemption value.

 

(6)

We intend to grant stock options in connection with this offering from our 2018 Plan that we anticipate will cover an aggregate of 6,044,992 shares of Class A common stock, based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. The actual number of shares subject to each stock option will be calculated based on the actual initial public offering price per share of our Class A common stock. The stock options will have an exercise price equal to the initial public offering price, which for purposes of the pro forma financial information has also been assumed to be $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. These stock options will be effective as of immediately following the determination of the initial public offering price of our Class A common stock. The stock options are expected to vest ratably in equal six month periods over a period of two years from the date of grant. The grant date fair values of the stock options were determined using the Black-Scholes valuation model using the following assumptions:

 

Expected volatility

     55

Expected dividend yield

     None  

Expected term (in years)

     4.4  

Risk-free interest rate

     2.50

 

 

In addition, we intend to grant 636,875 RSUs in connection with this offering from our 2018 Plan, based on an assumed initial public offering price of $13.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, 120,000 of which will vest within one year of the completion of this offering, and are not reflected in the unaudited pro forma statements of operations as they are not expected to have a continuing impact on the financial statements of Pluralsight, Inc. The remaining RSUs are expected to vest over four years from the date of grant. The grant date fair value of the RSUs will be equal to the initial public offering price.

 

 

The adjustments assume the stock options and RSUs were granted on January 1, 2017.

 

(7)

Our RSUs vest upon the satisfaction of both a time condition and a liquidity condition. Upon completion of this offering, the liquidity condition will have been met. This adjustment reflects the estimated equity-based compensation expense that would have been recognized for RSUs had the offering occurred on January 1, 2017.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Consolidated Financial and Other Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sections titled “Risk Factors” and “Information Regarding Forward-Looking Statements” included elsewhere in this prospectus.

Overview

We are a leading provider of technology skill development solutions for businesses and individuals. We enable businesses to innovate in an era of rapid technological change and digital transformation by equipping their employees with the latest technology skills. We provide businesses with visibility into the technical strengths of their workforce, allowing them to better align resources, provide targeted skill development in line with company goals, and advance the skills of individuals and teams.

We started operations in 2004 and focused initially on in-person ILT. Anticipating the increasing demand for online solutions, we began offering online courses in 2008 and shifted entirely to an online delivery model in 2011. Since 2011, we have extended our offering to include new content areas and additional features that have enabled us to expand our addressable market, attract new users, and deepen our foothold within businesses. We have expanded our platform both organically through internal initiatives and through acquisitions, which have all been focused on adding capabilities to our offerings. All of our features and content areas are fully integrated into our platform, allowing a seamless and unified experience for our customers.

The following is a timeline of certain key events in our history:

 

 

LOGO

 

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We derive substantially all of our revenue from the sale of subscriptions to our platform and a small portion of our revenue from providing professional services, which generally consist of content creation and other consulting services. We offer three subscription levels to our platform: individual, professional, and enterprise, which vary by the capabilities provided. Our published pricing ranges from $499 to $699 per user per year for business subscriptions. We offer individual users subscriptions to our platform for $29 per month or $299 per year.

 

 

LOGO

Our additions and improvements to our product offering have allowed us to accelerate our revenue growth and enabled us to deepen our relationships with our business customers. We sell subscriptions to our platform primarily to business customers through our direct sales team, as well as through our website. We also sell subscriptions to our platform to individual customers directly through our website. In addition, small teams often represent the “top of the funnel” for larger deployments, bringing our technology into their workplaces and proliferating usage of our platform within their companies. For the three months ended March 31, 2018, 82% of our billings came from business customers, compared to 75% for the three months ended March 31, 2017. We expect business customers to represent an increasing percentage of our billings and revenue in the future.

 

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We are focused on attracting businesses, particularly large enterprises, to our platform and expanding their use of our platform over time. Our efforts to expand sales to large enterprises are particularly evident among companies within the Fortune 500. As of December 31, 2017, our business customers included more than 300 of the 2017 Fortune 500. As the chart below illustrates, the billings from our business custome