Without any profits to promote, Pluralsight instead urged investors to watch how its billings to customers were growing, stockholders allege — as executives credited the size and productivity of their salesforce.
But after its billings slowed, the Draper-based company revealed in a July 31, 2019, filing that it had been “slower in hiring additional sales representatives than planned” to market its subscriptions to training software and online classes.
The next day, its share price dropped nearly 40% — and two large investment funds sued, arguing Pluralsight made misleading statements about its sales staff. The company denied the allegations, and a Utah federal judge later dismissed the lawsuit.
Now, the 10th U.S. Circuit of Appeals in Denver has revived some of the claims. Here is what’s still at stake, as investors return to court to try to prove their case.
How were investors allegedly misled?
In the past, Pluralsight had “about 80 quota-bearing [representatives] and little infrastructure around our sales reps,” then-Chief Financial Officer James Budge allegedly told investors at 2019 conference.
The number of “quota-bearing reps went from about 80 at that time to today we have about 250,” he explained on Jan. 16, 2019, according to the lawsuit.
Six months later, Pluralsight revealed in a Securities and Exchange Commission filing that its billings had grown by 23% in the second quarter of 2019 — a significant drop from the growth in the five previous quarters.
On an earnings call with CEO Aaron Skonnard on the same day as that filing, Budge blamed delays in hiring sales reps.
“We’re about 250 quota-bearing reps right now. And that’s about the number of bodies we wanted to have at this time in the year, but they didn’t come into the year early enough,” he said, according to the lawsuit’s transcription of the call. “...[W]e’re a few months behind there, that’s been the big impact.”
An analyst asked, “Why didn’t we hear this on last quarter’s call?” and Budge replied, “Well, we were still hitting our numbers,” referring to billings, the lawsuit alleges.
The next day, Pluralsight’s stock dropped from $30.69 to $18.56 a share, the lawsuit said.
And at the investors conference a year later, in January 2020, Budge allegedly said Pluralsight “came out of 2018 going into 2019 with about 200 quota-bearing sales reps. ... We just didn’t have enough reps.”
That statement, the court said, “strongly suggests Pluralsight could not have had ‘about 250′ quota-bearing sales representatives on January 16, 2019.”
“This would have required Pluralsight to ramp up an additional 50 sales representatives in just two weeks, an unlikely scenario,” Judge Veronica Rossman wrote, “given that Pluralsight’s stated goal was to have 300 quota-bearing sales representatives by the end of the year.”
The allegations “support a reasonable belief” that Budge’s statement on Jan. 16, 2019, was false or misleading, Rossman wrote.
The ruling allows the two funds that sued to return to the trial court with that claim, and with two related claims: that Skonnard and Budge are liable under securities laws, and that they engaged in illegal insider trading.
The two groups — the Indiana Public Retirement System and Public School Teachers’ Pension and Retirement Fund of Chicago — also alleged Pluralsight, Skonnard and Budge made 17 other misleading statements.
Pluralsight had become public in 2018, and had its second offering of stock in March 2019. The two investment groups alleged those misleading statements could have inflated its stock price during the offering.
But the appellate court said the other 17 statements were either accurate “or expressions of corporate optimism that would not mislead reasonable investors.”
What does Pluralsight say?
Pluralsight argued Budge’s descriptions of the workforce were not “inherently inconsistent.” The actual number could have been somewhere between 200 and 250, for example, making “about 200″ and “about 250″ both accurate, the company said.
But the test, the judge wrote, was whether a statement was misleading — and the lawsuit alleges multiple points to support its allegation that Budge was reckless with facts. He admitted during the earnings call that he knew about the shortfall in salesforce capacity, for example, and he knew it was vital to Pluralsight’s stock price.
It also alleges Skonnard and Budge did “highly suspicious trading” during the time period between January and July 2019, when the shortfall and the slower pace of billings was disclosed.
Skonnard, for example, sold $22 million in shares during that time period, compared to $4.5 million afterward, the lawsuit alleges. Both Skonnard and Budge sold their stock at prices roughly 75% higher than the price after July 2019.
Pluralsight argued the stock sales followed a customary 180-day lock-up period after an initial public offering of stock, and emphasized the men retained the majority of their stock.
The company also said some of the sales were scheduled in advance as automatic trades. But that practice, the judge wrote, does not prevent an officer from “making false statements to artificially inflate the stock price to trigger those automatic trades — and that is what plaintiffs allege occurred here.”
What other claims were revived?
The lawsuit also alleges Pluralsight failed to make required disclosures on stock offering documents — specifically, that the company was months behind its sales capacity plan.
The Utah judge had dismissed that claim, finding there was insufficient evidence to argue Pluralsight knew the gap in the salesforce would impact billings.
While that reasoning was wrong, the appellate judges said, Pluralsight has other arguments against the claim that the judge should now consider.
A spokesperson for the Indiana Public Retirement System declined to comment on the ongoing litigation.
Pluralsight could ask for a rehearing, but such petitions are rarely granted. Asked for comment, a spokesperson told The Salt Lake Tribune that the company “does not publicly comment on ongoing litigation.”
The company had a net loss of $163.5 million in 2019 and $164 million in 2020, according to SEC documents.
In April 2021, Pluralsight announced it had been acquired by Vista Equity Partners, which meant its stock ceased trading and the company is no longer listed on any public stock market. Vista paid about $3.8 billion for the company, according to Pitchbook.
Pluralsight agreed to a 10-year contract with the Governor’s Office of Economic Opportunity in 2017 to create a total of 2,464 jobs over that time period.
In exchange, the company could earn up to more than $21 million in tax rebates over that period. Pluralsight employed between 500 and 1000 people in Utah in 2021, according to an analysis of Department of Workforce Data by the Kem C. Gardner Institute of the University of Utah.
Leto Sapunar is a Report for America corps member covering business accountability and sustainability for The Salt Lake Tribune. Your donation to match our RFA grant helps keep him writing stories like this one; please consider making a tax-deductible gift of any amount today by clicking here.