Revenue for the fourth quarter of 2019 was $149.6 million compared to a guided range of $145.0 million to $147.0 million. This represents an 8.2% increase compared to the prior year. Revenue growth on a constant currency basis was 8.4%.

Subscription revenue for the fourth quarter of 2019 was $141.7 million compared to a guided range of $141.0 million to $143.0 million. This represents a 12.2% increase compared to the prior year. Subscription revenue growth on a constant currency basis was 12.4%.

Operating income for the fourth quarter of 2019 was $10.6 million, yielding a margin of 7.1%, compared to $2.6 million and margin of 1.9% in the same period of the prior year.

Non-GAAP operating income for the fourth quarter of 2019 was $28.3 million, yielding a margin of 18.9%, compared to $19.4 million and margin of 14.1% in the same period of the prior year.

Net income for the fourth quarter of 2019 was $9.4 million, or a $0.15 diluted net income per share, compared to $(3.2) million and $(0.05) diluted net loss per share in the same period of the prior year.

Non-GAAP net income for the fourth quarter of 2019 was $28.3 million, or a $0.43 diluted net income per share, compared to $15.4 million and $0.24 diluted net loss per share in the same period of the prior year.

Unlevered free cash flow for the fourth quarter of 2019 was $54.7 million, yielding a margin of 36.6%, compared to $33.7 million, yielding a margin of 24.4%, in the prior year.

Revenue for the full year of 2019 was $576.5 million compared to a guided range of $572.0 million to $574.0 million. Revenue growth on a constant currency basis was 8.5%.

Subscription revenue for the full year of 2019 was $543.0 million compared to a guided range of $542.0 million to $544.0 million. Subscription revenue growth on a constant currency basis was 16.2%.

Annual recurring revenue as of December 31, 2019 was $575.0 million, compared to a guided range of $581.0 million to $590.0 million. This represents a 12.7% increase compared to the prior year. Annual recurring revenue growth on a constant currency basis was 13.0%.

Operating income for the full year of 2019 was $11.9 million, yielding a margin of 2.1%, compared to $(7.8) million and margin of (1.4)% in the same period of the prior year.

Non-GAAP operating income for the full year of 2019 was $88.8 million, yielding a margin of 15.4% compared to guided range of $85.5 million and $87.5 million.

Net loss for the full year of 2019 was $(4.1) million, or a $(0.07) diluted net loss per share, compared to $(33.8) million and $(0.58) diluted net loss per share in the same period of the prior year.

Non-GAAP net income for the full year of 2019 was $77.0 million, or a $1.17 diluted net income per share, compared to $47.0 million and $0.74 diluted net loss per share in the same period of the prior year.

Unlevered free cash flow for the full year of 2019 was $90.2 million, yielding a margin of 15.6%, compared to a guided range of $86 million and $92 million.

The Company joined forces with Facebook to enhance the value of virtual reality training at work through Oculus integration in its learning management solution.

The Company acquired Clustree in order to accelerate the development of a skills engine to help organizations identify, develop, and deploy their talent for the roles needed today and in the future.

The Company joined Velocity Network Foundation to accelerate the development of a universal blockchain-powered network that will put people in control of their career credentials and provide organizations with transparent insights into their workforce potential.

August 23, 2019 - August 31, 2019

September 1, 2019 - September 30, 2019

October 1, 2019 - October 31, 2019

November 1, 2019 - November 30, 2019

December 1, 2019 - December 31, 2019

Total

Revenue between $147.0 million and $150.0 million, representing year-over-year growth at the mid-point of 6.0%², or 6.7%^3,4 on a constant currency basis.

Subscription revenue between $143.0 million and $145.0 million, representing year-over-year growth at the mid-point of 9.7%², or 10.5%^3,4 on a constant currency basis.

Financial measures presented on a constant currency basis, non-GAAP operating income, non-GAAP operating income margin, non-GAAP net income, non-GAAP diluted net income per share, unlevered free cash flow, and unlevered free cash flow margin are non-GAAP financial measures. Please see the discussion in the section titled “Non-GAAP Financial Measures” and the reconciliations at the end of this press release.

²

³

⁴

non-GAAP cost of revenue, which is defined as cost of revenue less amortization of intangible assets and stock-based compensation,

annual recurring revenue, which is defined as the annualized recurring value of all active contracts at the end of a reporting period,

unlevered free cash flow, which is defined as net cash provided by operating activities minus capital expenditures and capitalized software costs plus cash paid for interest,

unlevered free cash flow margin, which is defined as unlevered free cash flow divided by revenue,

non-GAAP net income and non-GAAP diluted net income per share, which exclude, for the periods in which they are presented, stock-based compensation, amortization of intangible assets, accretion of debt discount and amortization of debt issuance costs, unrealized fair value adjustment on strategic investment, restructuring costs, acquisition costs, and excludes the impacts of unamortized stock-based compensation expense in applying the treasury method for determining the non-GAAP weighted average number of dilutive shares outstanding,

non-GAAP gross profit and non-GAAP gross margin, which exclude stock-based compensation and amortization of intangible assets reflected in cost of revenue,

non-GAAP operating income and non-GAAP operating income margin, which are defined as income (loss) from operations excluding stock-based compensation, amortization of intangible assets, restructuring costs, and acquisition costs,

non-GAAP operating expenses, which exclude stock-based compensation, amortization of intangible assets, restructuring costs, and acquisition costs, and

non-GAAP sales and marketing expense, non-GAAP research and development expense, and non-GAAP general and administrative expense, each of which excludes stock-based compensation attributable to the corresponding GAAP financial measures.

Stock-based compensation. The Company excludes stock-based compensation expense because it is non-cash in nature, and management believes that its exclusion provides additional insight into the Company’s operational performance and also provides a useful comparison of the Company’s operating results to prior periods and its peer companies. Additionally, determining the fair value of certain stock-based awards involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of such awards.

Amortization of intangible assets. The Company excludes amortization of acquired intangible assets because the expense is a non-cash item and management believes that its exclusion provides meaningful supplemental information regarding the Company’s operational performance and allows for a useful comparison of its operating results to prior periods and its peer companies.

Accretion of debt discount and amortization of debt issuance costs. For GAAP purposes, the Company is required to recognize the effective interest expense on its senior convertible notes and amortize the issuance costs over the term of the notes. The difference between the effective interest expense and the contractual interest expense and the amortization expense of issuance costs are excluded from management’s assessment of the Company’s operating performance because management believes that these non-cash expenses are not indicative of ongoing operating performance. In addition, the exclusion of these items provides a useful comparison of the Company’s operating results to prior periods and its peer companies.

Fair value adjustment on strategic investments. The Company views the increase or decrease in the fair value of its strategic investments as not indicative of operational performance during any particular period and believes that the exclusion of these gains or losses provides investors with a supplemental view of the Company’s operational performance.

Restructuring. The Company excludes costs related to restructuring because the expense is not indicative of its continuing operations and believes that the exclusion of these costs provides investors with a supplemental view of the Company’s operational performance.

Acquisition costs. The Company excludes costs related to acquisitions because the expense is not indicative of its continuing operations and believes that the exclusion of these costs provides investors with a supplemental view of the Company’s operational performance.

Assets

Current assets:

Cash and cash equivalents

Short-term investments

Accounts receivable, net

Deferred commissions, current portion

Prepaid expenses and other current assets

Total current assets

Capitalized software development costs, net

Property and equipment, net

Operating right-of-use assets

Deferred commissions, net of current portion

Long-term investments

Intangible assets, net

Goodwill

Other assets, net

Total assets

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

Accrued expenses

Deferred revenue, current portion

Operating lease liabilities, current portion

Other liabilities

Total current liabilities

Convertible notes, net

Deferred revenue, net of current portion

Operating lease liabilities, net of current portion

Facility financing obligation

Other liabilities, non-current

Total liabilities

Stockholders’ equity:

Common stock

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive income

Total stockholders’ equity

Total liabilities and stockholders’ equity

Revenue

Cost of revenue ^{1, 2}

Gross profit

Operating expenses:

Sales and marketing ¹

Research and development ¹

General and administrative ¹

Restructuring ¹

Total operating expenses

Income (loss) from operations

Other income (expense):

Interest income

Interest expense

Other, net

Other expense, net

Income (loss) before income tax provision

Income tax provision

Net income (loss)

Net income (loss) per share, basic

Net income (loss) per share, diluted

Weighted average common shares outstanding, basic

Weighted average common shares outstanding, diluted

Includes stock-based compensation as follows:

Cost of revenue

Sales and marketing

Research and development

General and administrative

Restructuring

Total

Cost of revenue includes amortization of intangible assets as follows:

Cost of revenue

Cash flows from operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

Accretion of debt discount and amortization of debt issuance costs

Purchased investment premium, net of amortization

Net foreign currency and other gain

Stock-based compensation expense

Deferred income taxes

Changes in operating assets and liabilities:

Accounts receivable

Deferred commissions

Prepaid expenses and other assets

Accounts payable

Accrued expenses

Deferred revenue

Other liabilities

Net cash provided by operating activities

Cash flows from investing activities

Purchases of marketable investments

Purchases of non-marketable investments

Maturities of investments

Capital expenditures

Capitalized software costs

Cash paid for acquisition, net of cash acquired

Net cash (used in) provided by investing activities

Cash flows from financing activities

Payments of debt issuance costs and proceeds from convertible notes

Repayment of debt

Proceeds from employee stock plans

Repurchases of common stock

Payment of tax withholdings for employee stock plans

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental cash flow data

Cash paid for interest

Cash paid for income taxes

Non-cash investing and financing activities:

Assets acquired under capital leases and other financing arrangements

Capitalized assets financed by accounts payable and accrued expenses

Capitalized stock-based compensation

Reconciliation of cost of revenue, gross profit and gross margin:

Revenue

Cost of revenue

Gross profit

Gross margin

Cost of revenue

Adjustments to cost of revenue:

Stock-based compensation

Amortization of intangible assets

Total adjustments to cost of revenue

Non-GAAP costs of revenue

Non-GAAP gross profit

Non-GAAP gross margin

Reconciliation of operating income (loss) and operating income margin:

Income (loss) from operations

Operating margin

Adjustments to loss from operations:

Stock-based compensation

Amortization of intangible assets

Restructuring ¹

Acquisition costs ²

Total adjustments to income (loss) from operations

Non-GAAP operating income

Non-GAAP operating income margin

Restructuring costs includes $6.2 million of stock-based compensation for the twelve months ended December 31, 2018.

Costs related to the Company’s acquisition of Workpop Inc. and Grovo Learning, Inc.

Net income (loss)

Adjustments to net income (loss)

Stock-based compensation

Amortization of intangible assets

Acquisition costs ¹

Accretion of debt discount and amortization of debt issuance costs ²

Fair value adjustment on strategic investments ³

Restructuring ⁴

Total adjustments to net income (loss)

Non-GAAP net income

Non-GAAP basic net income per share

Non-GAAP diluted net income per share

Weighted-average common shares outstanding, basic

Non-GAAP weighted-average common shares outstanding, diluted

Costs related to the Company’s acquisition of Workpop Inc. and Grovo Learning, Inc.

Debt discount accretion and debt issuance cost amortization has been recorded in connection with our issuance of $300.0 million in convertible notes on December 8, 2017. These expenses represent non-cash charges that have been recorded in accordance with the authoritative accounting literature for such transactions.

Fair value adjustment recorded for our strategic investments in privately-held companies.

Restructuring costs include $6.2 million of stock-based compensation for the twelve months ended December 31, 2018.

Reconciliation of unlevered free cash flow:

Net cash provided by operating activities

Capital expenditures

Capitalized software costs

Cash paid for interest

Unlevered free cash flow

Unlevered free cash flow margin

SELECTED METRICS:

Number of customers¹

% y/y

% q/q

Number of employees

% y/y

% q/q

Annual dollar retention rate

Annual recurring revenue (in thousands)

Net cash (used in) provided by operating activities (in thousands)

Unlevered free cash flow (in thousands)

Unlevered free cash flow margin

FINANCIAL DATA (in thousands, except percentages):

Revenue

Subscription revenue

% y/y growth

% y/y growth constant currency

Subscription revenue % of total revenue

(Loss) income from operations

MARGIN DATA:

Gross margin

Sales and marketing % of revenue

Research and development % of revenue

General and administrative % of revenue

Restructuring % of revenue

Operating margin

NON-GAAP MARGIN DATA:

Non-GAAP gross margin

Non-GAAP sales and marketing % of revenue

Non-GAAP research and development % of revenue

Non-GAAP general and administrative % of revenue

Non-GAAP operating margin

Non-GAAP research and development plus capitalized software % of revenue

FOREIGN EXCHANGE RATES:

GBP to USD average period rate

GBP to USD end of period spot rate

EUR to USD average period rate

EUR to USD end of period spot rate

Includes contracted customers of our enterprise people development platform and excludes customers and users of Cornerstone for Salesforce, PiiQ, Workpop Inc. and Grovo Learning, Inc.