Non-GAAP Financial Measures

Pluralsight has provided in this press release financial information that has not been prepared in accordance with generally accepted accounting principles in the United States (GAAP). Pluralsight uses the non-GAAP financial measures of non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, adjusted pro forma net loss, adjusted pro forma net loss per share, and free cash flow in analyzing its financial results and believes that the use of these metrics is useful to investors as an additional tool to evaluate ongoing operating results and trends and in comparing Pluralsight’s financial results with other companies in its industry, many of which present similar non-GAAP financial measures.

The presentation of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for comparable GAAP financial measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. A reconciliation of our historical non-GAAP financial measures to their most directly comparable GAAP measures have been provided in the financial statement tables included in this press release, and investors are encouraged to review these reconciliations.

Non-GAAP gross profit. We define non-GAAP gross profit as gross profit plus equity-based compensation, amortization of acquired intangible assets, and employer payroll taxes on employee stock transactions.

Non-GAAP gross margin. We define non-GAAP gross margin as 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, amortization of acquired intangible assets, and employer payroll taxes on employee stock transactions.

Adjusted pro forma net loss and adjusted pro forma net loss per share. We define adjusted pro forma net loss as net loss attributable to Pluralsight, Inc. adjusted for the reallocation of loss attributable to non-controlling interests from the assumed exchange of LLC Units of Pluralsight Holdings for newly-issued shares of Class A common stock of Pluralsight, Inc. and further adjusted for equity-based compensation, amortization of acquired intangible assets, employer payroll taxes on employee stock transactions, and loss on debt extinguishment. We define adjusted pro forma net loss per share as adjusted pro forma net loss divided by the weighted-average shares of Class A common stock outstanding, assuming the full exchange of all outstanding LLC Units of Pluralsight Holdings for newly-issued shares of Class A common stock of Pluralsight, Inc.

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

PLURALSIGHT, INC.

Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

		Three Months Ended December 31,								Year Ended December 31,
		2018				2017				2018				2017
Revenue		$	67,260			$	47,408			$	232,029			$	166,824
Cost of revenue(1)(2)		16,443				14,150				62,550				49,828
Gross profit		50,817				33,258				169,479				116,996
Operating expenses(1)(2):
Sales and marketing		43,851				33,224				153,643				103,478
Technology and content		18,953				15,314				65,998				49,293
General and administrative		20,213				12,198				68,351				46,971
Total operating expenses		83,017				60,736				287,992				199,742
Loss from operations		(32,200		)		(27,478		)		(118,513		)		(82,746		)
Other (expense) income:
Interest expense		(350		)		(3,289		)		(6,826		)		(11,665		)
Loss on debt extinguishment		—				—				(4,085		)		(1,882		)
Other income (expense), net		815				(43		)		1,504				81
Loss before income taxes		(31,735		)		(30,810		)		(127,920		)		(96,212		)
Provision for income taxes		(158		)		(108		)		(664		)		(324		)
Net loss		$	(31,893	)		$	(30,918	)		$	(128,584	)		$	(96,536	)
Less: Net loss attributable to non-controlling interests		(16,633		)		—				(44,917		)		—
Net loss attributable to Pluralsight, Inc.		$	(15,260	)		$	(30,918	)		$	(83,667	)		$	(96,536	)
Less: Accretion of Series A redeemable convertible preferred units		—				(6,600		)		(176,275		)		(63,800		)
Net loss attributable to common shares		$	(15,260	)		$	(37,518	)		$	(259,942	)		$	(160,336	)
Net loss per share, basic and diluted (3)		$	(0.24	)						$	(0.65	)
Weighted-average common shares used in computing basic and diluted net loss per share (3)		63,494								62,840

(1) Includes equity-based compensation expense as follows: