UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
1934
For the quarterly period ended OctoberJuly 31, 20222023
or
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
1934
For the transition period from ____________ to ____________
Commission File Number: 001-38960
Skillsoft Corp.
(Exact name of registrant as specified in its charter)
|
|
|
|
| |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
|
7887 E. Belleview Ave, Suite 600
Greenwood Village, Colorado 80111
(Address of principal executive offices) (Zip Code)
Tel: (603) 324-3000(603) 821-3902
(Registrant’sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, par value $0.0001 per share | SKIL | New York Stock Exchange |
Warrants, each whole warrant exercisable for one share of Class A common stock |
SKIL.WS | New York Stock Exchange |
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
|
|
Large accelerated filer ☐ | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of registrant’s common stock outstanding as of DecemberSeptember 6, 20222023 was 164,445,401.160,862,599.
SKILLSOFT CORP.
FORM 10-Q
FOR THE QUARTER ENDED OctoberJuly 31, 20222023
INDEX
CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q”) includes statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created by those laws. All statements, other than statements of historical facts, that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our outlook, our product development and planning, our pipeline, future capital expenditures, share repurchases, financial results, the impact of regulatory changes, existing and evolving business strategies and acquisitions and dispositions, demand for our services, competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, and our ability to successfully implement our plans, strategies, objectives, expectations and intentions are forward-looking statements. Also, when we use words such as “may,” “will,” “would,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “forecast,” “seek,” “outlook,” “target,” goal,” “probably,” or similar expressions, we are making forward-looking statements. Such statements are based upon the current beliefs and expectations of Skillsoft’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. All forward-looking disclosure is speculative by its nature.nature, and we caution you against unduly relying on these forward-looking statements.
There are important risks, uncertainties, events and factors
Factors that could cause our actual results or performancecontribute to differ materially fromsuch differences include those in the forward-looking statements contained in this document, including:
Additional information regarding factors that could cause results to differ can be founddescribed under “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K10‑K for ourthe fiscal year ended January 31, 2022 (filed April 18, 2022)2023. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements included in the Annual Report and in our other periodic filings with the Securities and Exchange Commission. Actual resultsThe forward-looking statements contained in this Form 10-Q represent our estimates only as of the date of this filing and events in future periodsshould not be relied upon as representing our estimates as of any subsequent date. While we may differ materially from those expressed or implied by theelect to update these forward-looking statements in this Form 10-Q.
2
Table of Contentsthe future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements, or otherwise, except as required by law.
Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. Given the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved. Annualized, pro forma, projected and estimated numbers are used for illustrative purposepurposes only, are not forecasts and may not reflect actual results. Additionally, statements as to market share, industry data and our market position are based on the most currently availablecurrent data available to us and our estimates regarding market position or other industry data included in this document or otherwise discussed by us involve risks and uncertainties and are subject to change based on various factors, including as set forth above.
Our forward-looking statements speak only as of the date made and we do not undertake to update these forward-looking statements unless required by applicable law. With regard to these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur, and we caution you against unduly relying on these forward-looking statements.
PART I – FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)in thousands, except number of shares)
| | | | | | ||||||||||
| | Successor | | Successor | |||||||||||
|
| October 31, 2022 |
| January 31, 2022 | |||||||||||
July 31, 2023 | January 31, 2023 | ||||||||||||||
ASSETS |
| |
| |
| |
| ||||||||
Current assets: |
| |
| |
| |
| ||||||||
Cash and cash equivalents | | $ | 174,708 | | $ | 138,176 | $ | 147,927 | $ | 170,359 | |||||
Restricted cash | |
| 7,322 | |
| 14,015 | 4,918 | 7,197 | |||||||
Accounts receivable, less reserves of approximately $393 and $125 as of October 31, 2022 and January 31, 2022 respectively | |
| 102,440 | |
| 173,876 | |||||||||
Accounts receivable, net of allowance for credit losses of approximately $225 and $221 as of July 31, 2023 and January 31, 2023, respectively | 110,499 | 183,592 | |||||||||||||
Prepaid expenses and other current assets | |
| 38,027 | |
| 37,082 | 49,014 | 44,596 | |||||||
Current assets associated with discontinued operations | | | — | | | 64,074 | |||||||||
Total current assets | |
| 322,497 | |
| 427,223 | 312,358 | 405,744 | |||||||
Property and equipment, net | |
| 10,657 | |
| 11,475 | 7,244 | 10,150 | |||||||
Goodwill | |
| 462,080 | |
| 795,811 | 457,967 | 457,744 | |||||||
Intangible assets, net | |
| 769,680 | |
| 793,859 | 667,875 | 738,066 | |||||||
Right of use assets | |
| 14,046 | |
| 17,988 | 9,277 | 14,633 | |||||||
Fair value of hedge instruments | | | 5,249 | | — | ||||||||||
Other assets | |
| 11,192 | |
| 10,780 | 23,353 | 16,350 | |||||||
Non-current assets associated with discontinued operations | | | — | | | 164,812 | |||||||||
Total assets | | $ | 1,595,401 | | $ | 2,221,948 | $ | 1,478,074 | $ | 1,642,687 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |
|
| |
|
| |||||||||
Current liabilities: | |
|
| |
|
| |||||||||
Current maturities of long-term debt | | $ | 6,404 | | $ | 4,800 | $ | 6,404 | $ | 6,404 | |||||
Borrowings under accounts receivable facility | |
| 41,461 | |
| 74,629 | 40,092 | 39,693 | |||||||
Accounts payable | |
| 20,950 | |
| 24,159 | 14,139 | 18,338 | |||||||
Accrued compensation | |
| 18,858 | |
| 40,822 | 24,587 | 34,325 | |||||||
Accrued expenses and other current liabilities | |
| 31,578 | |
| 47,757 | 30,145 | 41,474 | |||||||
Lease liabilities | |
| 4,271 | |
| 6,387 | 3,883 | 4,198 | |||||||
Deferred revenue | |
| 197,907 | |
| 259,701 | 224,143 | 280,676 | |||||||
Current liabilities associated with discontinued operations | | | 8,000 | | | 87,467 | |||||||||
Total current liabilities | |
| 329,429 | |
| 545,722 | 343,393 | 425,108 | |||||||
| | | | | | ||||||||||
Long-term debt | |
| 582,870 | |
| 462,185 | 579,639 | 581,817 | |||||||
Warrant liabilities | |
| 2,119 | |
| 28,199 | 1,109 | 4,754 | |||||||
Deferred tax liabilities | |
| 77,055 | |
| 99,395 | 68,123 | 73,976 | |||||||
Long term lease liabilities | |
| 11,976 | |
| 11,750 | |||||||||
Long-term lease liabilities | 10,357 | 11,947 | |||||||||||||
Deferred revenue - non-current | |
| 667 | |
| 1,248 | 2,440 | 1,778 | |||||||
Other long-term liabilities | |
| 17,410 | |
| 11,125 | 10,081 | 11,551 | |||||||
Long-term liabilities associated with discontinued operations | | | — | | | 2,426 | |||||||||
Total long-term liabilities | |
| 692,097 | |
| 616,328 | 671,749 | 685,823 | |||||||
Commitments and contingencies | |
| — | | |
| — | ||||||||
Shareholders’ equity: | |
|
| |
|
| |||||||||
Shareholders’ common stock - Class A common shares, $0.0001 par value: 375,000,000 shares authorized and 164,316,842 shares issued and outstanding at October 31, 2022 and 133,258,027 shares issued and outstanding at January 31, 2022 | |
| 14 | | | 11 | |||||||||
Shareholders’ common stock- Class A common shares, $0.0001 par value: 375,000,000 shares authorized and 160,467,809 shares issued and outstanding at July 31, 2023, and 163,655,881 shares issued and outstanding at January 31, 2023 | 14 | 14 | |||||||||||||
Additional paid-in capital | |
| 1,511,940 | |
| 1,306,146 | 1,535,648 | 1,521,574 | |||||||
Accumulated deficit | |
| (918,714) | |
| (247,229) | (1,048,416 | ) | (972,193 | ) | |||||
Treasury stock at cost, 645,428 shares at October 31, 2022 | | | (1,433) | | — | ||||||||||
Accumulated other comprehensive (loss) income | |
| (17,932) | |
| 970 | |||||||||
Treasury shares | (10,891 | ) | (2,845 | ) | |||||||||||
Accumulated other comprehensive income (loss) | (13,423 | ) | (14,794 | ) | |||||||||||
Total shareholders’ equity | |
| 573,875 | |
| 1,059,898 | 462,932 | 531,756 | |||||||
Total liabilities and shareholders’ equity | | $ | 1,595,401 | | $ | 2,221,948 | $ | 1,478,074 | $ | 1,642,687 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SKILLSOFT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)in thousands, except per share amounts)
| | | | | | | |
| | Successor | | Successor | | ||
| | Three Months | | Three Months | | ||
| | Ended | | Ended | | ||
|
| October 31, 2022 |
| October 31, 2021 | | ||
Revenues: |
| |
|
| | | |
Total revenues | | $ | 139,390 | | $ | 140,153 | |
Operating expenses: | |
| | | | | |
Costs of revenues | |
| 36,655 | | | 39,052 | |
Content and software development | |
| 17,252 | | | 10,462 | |
Selling and marketing | |
| 44,680 | | | 35,046 | |
General and administrative | |
| 28,281 | | | 27,452 | |
Amortization of intangible assets | |
| 43,438 | | | 34,406 | |
Impairment of goodwill and intangible assets | | | 570,887 | | | — | |
Recapitalization and acquisition-related costs | | | 4,889 | | | 3,407 | |
Restructuring | | | 2,010 | | | 775 | |
Total operating expenses | | | 748,092 | | | 150,600 | |
Operating loss | | | (608,702) | | | (10,447) | |
Other income (expense), net | | | 1,601 | | | (661) | |
Fair value adjustment of warrants | | | 9,128 | | | (36,838) | |
Fair value adjustment of hedge instruments | | | 20,314 | | | — | |
Interest income | | | 69 | | | 9 | |
Interest expense | | | (14,556) | | | (6,997) | |
Loss before benefit from income taxes | |
| (592,146) | | | (54,934) | |
Benefit from income taxes | | | (8,832) | | | (6,168) | |
Loss from continuing operations | | | (583,314) | | | (48,766) | |
Gain on sale of business | | | 53,756 | | | — | |
Income from discontinued operations, net of tax | | | 1,215 | | | 5,911 | |
Net loss | | $ | (528,343) | | $ | (42,855) | |
| | | | | | | |
Gain (loss) per share: | |
|
| | |
| |
Ordinary – Basic and Diluted (Successor) - continuing operations | | | (3.54) | | | (0.37) | |
Ordinary – Basic and Diluted (Successor) - discontinued operations | | | 0.33 | | | 0.04 | |
Ordinary – Basic and Diluted (Successor) | | | (3.21) | | | (0.32) | |
Weighted average common share outstanding: | |
|
| | |
| |
Ordinary – Basic and Diluted (Successor) | |
| 164,368 | |
| 133,116 | |
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues: | ||||||||||||||||
Total revenues | $ | 141,187 | $ | 140,574 | $ | 276,741 | $ | 275,413 | ||||||||
Operating expenses: | ||||||||||||||||
Costs of revenues | 40,467 | 34,998 | 78,291 | 73,008 | ||||||||||||
Content and software development | 17,863 | 19,693 | 34,898 | 36,026 | ||||||||||||
Selling and marketing | 40,411 | 41,848 | 86,338 | 81,410 | ||||||||||||
General and administrative | 25,085 | 26,367 | 50,381 | 55,711 | ||||||||||||
Amortization of intangible assets | 39,221 | 45,200 | 77,466 | 84,758 | ||||||||||||
Impairment of goodwill and intangible assets | — | 70,475 | — | 70,475 | ||||||||||||
Acquisition-related costs | 937 | 8,452 | 2,328 | 21,764 | ||||||||||||
Restructuring | 2,501 | 4,323 | 7,719 | 8,279 | ||||||||||||
Total operating expenses | 166,485 | 251,356 | 337,421 | 431,431 | ||||||||||||
Operating income (loss) | (25,298 | ) | (110,782 | ) | (60,680 | ) | (156,018 | ) | ||||||||
Other income (expense), net | (934 | ) | 80 | (1,309 | ) | 1,132 | ||||||||||
Fair value adjustment of warrants | 793 | 6,846 | 3,645 | 16,952 | ||||||||||||
Fair value adjustment of hedge instruments | 6,935 | (15,065 | ) | 7,205 | (15,065 | ) | ||||||||||
Interest income | 871 | 10 | 1,516 | 170 | ||||||||||||
Interest expense | (16,255 | ) | (11,470 | ) | (32,191 | ) | (23,007 | ) | ||||||||
Income (loss) before provision for (benefit from) income taxes | (33,888 | ) | (130,381 | ) | (81,814 | ) | (175,836 | ) | ||||||||
Provision for (benefit from) income taxes | (1,889 | ) | (3,065 | ) | (6,273 | ) | (25,402 | ) | ||||||||
Income (loss) from continuing operations | (31,999 | ) | (127,316 | ) | (75,541 | ) | (150,434 | ) | ||||||||
Gain (loss) on sale of business | — | — | (682 | ) | — | |||||||||||
Income (loss) from discontinued operations, net of tax | — | 5,817 | — | 7,292 | ||||||||||||
Net income (loss) | $ | (31,999 | ) | $ | (121,499 | ) | $ | (76,223 | ) | $ | (143,142 | ) | ||||
Net income (loss) per share: | ||||||||||||||||
Ordinary – Basic and diluted - continuing operations | $ | (0.20 | ) | $ | (0.78 | ) | $ | (0.47 | ) | $ | (0.98 | ) | ||||
Ordinary – Basic and diluted - discontinued operations | — | 0.04 | — | 0.05 | ||||||||||||
Ordinary – Basic and diluted | $ | (0.20 | ) | $ | (0.74 | ) | $ | (0.47 | ) | $ | (0.93 | ) | ||||
Weighted average common shares outstanding: | ||||||||||||||||
Ordinary – Basic and diluted | 160,098 | 164,089 | 160,836 | 153,442 |
*Not applicable
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCOMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)in thousands)
| | | | | | | | | | |
| | Year to Date Results | ||||||||
| | Fiscal 2023 | | Fiscal 2022 | ||||||
| | Successor | | Successor | | | Predecessor (SLH) | |||
| | Nine Months | | From | | | From | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||
|
| October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||
Revenues: |
| |
| | |
| | | | |
Total revenues | | $ | 414,803 | | $ | 215,620 | | | $ | 102,494 |
Operating expenses: | |
| | |
| | | | | |
Costs of revenues | |
| 109,662 | |
| 61,342 | | | | 22,043 |
Content and software development | |
| 53,276 | |
| 16,679 | | | | 15,012 |
Selling and marketing | |
| 126,089 | |
| 54,739 | | | | 34,401 |
General and administrative | |
| 83,994 | |
| 44,281 | | | | 16,471 |
Amortization of intangible assets | |
| 128,196 | |
| 52,899 | | | | 46,492 |
Impairment of goodwill and intangible assets | | | 641,362 | | | — | | | | — |
Recapitalization and acquisition-related costs | | | 26,653 | | | 13,305 | | | | 6,641 |
Restructuring | | | 10,289 | | | 1,062 | | | | (576) |
Total operating expenses | | | 1,179,521 | | | 244,307 | | | | 140,484 |
Operating loss | | | (764,718) | | | (28,687) | | | | (37,990) |
Other income (expense), net | | | 2,733 | | | (1,653) | | | | (167) |
Fair value adjustment of warrants | | | 26,080 | | | (19,723) | | | | 900 |
Fair value adjustment of hedge instruments | | | 5,249 | | | — | | | | — |
Interest income | | | 239 | | | 18 | | | | 60 |
Interest expense | | | (37,541) | | | (16,322) | | | | (16,763) |
Loss before benefit from income taxes | |
| (767,958) | |
| (66,367) | | | | (53,960) |
Benefit from income taxes | |
| (34,234) | | | (8,165) | | | | (3,521) |
Loss from continuing operations | | | (733,724) | | | (58,202) | | | | (50,439) |
Gain on sale of business | | | 53,756 | | | — | | | | — |
Income from discontinued operations, net of tax | | | 8,483 | | | 3,494 | | | | 1,175 |
Net loss | | $ | (671,485) | | $ | (54,708) | | | $ | (49,264) |
| | | | | | | | | | |
Income (loss) per share: | |
|
| |
|
| | | |
|
Class A and B – Basic and Diluted (SLH) - Continuing operations | |
| * | |
| * | | | | (12.61) |
Class A and B – Basic and Diluted (SLH) - Discontinued operations | | | * | | | * | | | | 0.29 |
Class A and B – Basic and Diluted (SLH) | |
| * | |
| * | | | $ | (12.32) |
Ordinary – Basic and Diluted (Successor) - Continuing operations | | | (4.67) | | | (0.44) | | | | * |
Ordinary – Basic and Diluted (Successor) - Discontinued operations | | | 0.40 | | | 0.03 | | | | * |
Ordinary – Basic and Diluted (Successor) | | $ | (4.27) | | $ | (0.41) | | | | * |
Weighted average common share outstanding: | |
|
| |
|
| | | |
|
Class A and B – Basic and Diluted (SLH) | |
| * | |
| * | | |
| 4,000 |
Ordinary – Basic and Diluted (Successor) | |
| 157,137 | |
| 133,116 | | | | * |
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Comprehensive income (loss): | ||||||||||||||||
Net income (loss) | $ | (31,999 | ) | $ | (121,499 | ) | $ | (76,223 | ) | $ | (143,142 | ) | ||||
Foreign currency adjustment, net of tax | 496 | (1,477 | ) | 1,371 | (3,725 | ) | ||||||||||
Total comprehensive income (loss) | $ | (31,503 | ) | $ | (122,976 | ) | $ | (74,852 | ) | $ | (146,867 | ) |
*Not applicable
The accompanying notes are an integral part of these condensed consolidated financial statements.
SKILLSOFT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSSHAREHOLDERS’ EQUITY
(IN THOUSANDS)in thousands, except number of shares)
| | | | | | |
| | Quarter to Date Results | ||||
| | Fiscal 2023 | | Fiscal 2022 | ||
| | Successor | | Successor | ||
| | Three Months | | Three Months | ||
| | Ended | | Ended | ||
|
| October 31, 2022 |
| October 31, 2021 | ||
Comprehensive loss: |
| |
| | |
|
Net loss | | $ | (528,343) | | $ | (42,855) |
Other comprehensive (loss) income — Foreign currency adjustment, net of tax | |
| (17,287) | |
| (772) |
Comprehensive loss | | $ | (545,630) | | $ | (43,627) |
Accumulated | Total | |||||||||||||||||||||||||||||||
Ordinary Shares | Additional | Accumulated | Other | Shareholders' | ||||||||||||||||||||||||||||
Number | In | Paid-in | Equity | Treasury | Comprehensive | Equity | ||||||||||||||||||||||||||
of Shares | Treasury | Par Value | Capital | (Deficit) | Shares | Income (Loss) | (Deficit) | |||||||||||||||||||||||||
Balance January 31, 2022 | 133,258,027 | — | $ | 11 | $ | 1,306,146 | $ | (247,229 | ) | $ | - | $ | 970 | $ | 1,059,898 | |||||||||||||||||
Share-based compensation | — | — | — | 6,898 | — | — | — | 6,898 | ||||||||||||||||||||||||
Common stock issued | 179,167 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Shares repurchased for tax withholding upon vesting of restricted stock-based awards | (51,316 | ) | — | — | (309 | ) | — | — | — | (309 | ) | |||||||||||||||||||||
Common stock issued in connection with Codecademy acquisition | 30,374,427 | — | 3 | 182,547 | — | — | — | 182,550 | ||||||||||||||||||||||||
Fair value of share-based awards attributed to Codecademy acquisition | — | — | — | 538 | — | — | — | 538 | ||||||||||||||||||||||||
Translation adjustment | — | — | — | — | — | — | (2,248 | ) | (2,248 | ) | ||||||||||||||||||||||
Net income (loss) | — | — | — | — | (21,643 | ) | — | — | (21,643 | ) | ||||||||||||||||||||||
Balance April 30, 2022 | 163,760,305 | — | 14 | 1,495,820 | (268,872 | ) | — | (1,278 | ) | 1,225,684 | ||||||||||||||||||||||
Share-based compensation | — | — | — | 10,017 | — | — | — | 10,017 | ||||||||||||||||||||||||
Common stock issued | 828,831 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Shares repurchased for tax withholding upon vesting of restricted stock-based awards | (281,136 | ) | — | — | (1,409 | ) | — | — | — | (1,409 | ) | |||||||||||||||||||||
Translation adjustment | — | — | — | — | — | — | (1,477 | ) | (1,477 | ) | ||||||||||||||||||||||
Net income (loss) | — | — | — | — | (121,499 | ) | — | — | (121,499 | ) | ||||||||||||||||||||||
Balance July 31, 2022 | 164,308,000 | — | $ | 14 | $ | 1,504,428 | $ | (390,371 | ) | $ | - | $ | (2,755 | ) | $ | 1,111,316 |
| | | | | | | | | | |
| | Year to Date Results | ||||||||
| | Fiscal 2023 | | Fiscal 2022 | ||||||
| | Successor | | Successor | | | Predecessor (SLH) | |||
| | Nine Months | | From | | | From | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||
|
| October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||
Comprehensive loss: |
| |
| | |
| | | |
|
Net loss | | $ | (671,485) | | $ | (54,708) | | | $ | (49,264) |
Other comprehensive (loss) income — Foreign currency adjustment, net of tax | |
| (21,012) | | | 134 | | | | (430) |
Comprehensive loss | | $ | (692,497) | | $ | (54,574) | | | $ | (49,694) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SKILLSOFT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’SHAREHOLDERS’ EQUITY - continued
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
| | | | | | | | | | | | | | | | | | | | | |
|
| |
| |
| | |
| | |
| | |
| |
| |
| | | |
| | Ordinary Shares | | | | | | | | | | | | | | ||||||
| | | | | | | | | | | | | | | | | Accumulated Other | | | | |
| | Number of | | In | | | | | Additional Paid- | | Accumulated | | Treasury | | Comprehensive | | Total Shareholders' | ||||
| | Shares | | Treasury | | Par Value | | In Capital | | Deficit | | Shares | | Loss | | Equity | |||||
Balance January 31, 2021 (Predecessor (SLH)) |
| 4,000,000 | | — |
| $ | 40 |
| $ | 674,333 |
| $ | (93,722) | | — |
| $ | (682) |
| $ | 579,969 |
Translation adjustment |
| — | | — |
| | — |
| | — |
| | — | | — |
| | (228) |
| | (228) |
Net loss |
| — | | — |
| | — |
| | — |
| | (37,405) | | — |
| | — |
| | (37,405) |
Balance April 30, 2021 (Predecessor (SLH)) |
| 4,000,000 | | — |
| | 40 |
| | 674,333 |
| | (131,127) | | — |
| | (910) |
| | 542,336 |
Translation adjustment |
| — | | — |
| | — |
| | — |
| | — | | — |
| | (202) |
| | (202) |
Net loss |
| — | | — |
| | — |
| | — |
| | (11,859) | | — |
| | — |
| | (11,859) |
Balance June 11, 2021 (Predecessor (SLH)) |
| 4,000,000 | | — |
| | 40 |
| | 674,333 |
| | (142,986) | | — |
| | (1,112) |
| | 530,275 |
| | | | | | | | | | | | | | | | | | | | | |
Balance June 12, 2021 (Successor) |
| 51,559,021 | | — |
| | 3 | |
| 305,447 | |
| (200,423) | | — | |
| — |
| | 105,027 |
Issuance of shares, PIPE Investment |
| 53,000,000 | | — |
| | 5 | |
| 608,161 | |
| — | | — | |
| — |
| | 608,166 |
Issuance of shares, Skillsoft Merger consideration | | 28,500,000 | | — |
| | 3 | |
| 306,372 | |
| — | | — | |
| — | | | 306,375 |
Issuance of shares, Global Knowledge acquisition | | — | | — |
| | — | |
| 14,000 | |
| — | | — | |
| — | | | 14,000 |
Reclassify Public Warrants to equity | | — | | — | | | — | | | 56,120 | | | — | | — | | | — | | | 56,120 |
Reclassify Private Placement Warrants - CEO to equity | | — | | — | | | — | | | 2,800 | | | — | | — | | | — | | | 2,800 |
Cash payout for fractional shares | | — | | — | | | — | | | (1) | | | — | | — | | | — | | | (1) |
Share-based compensation | | — | | — |
| | — | |
| 4,817 | |
| — | | — | |
| — | | | 4,817 |
Translation adjustment | | — | | — |
| | — | |
| — | |
| — | | — | |
| 906 | | | 906 |
Net loss | | — | | — |
| | — | |
| — | |
| (11,854) | | — | |
| — | | | (11,854) |
Balance July 31, 2021 (Successor) |
| 133,059,021 | | — |
| $ | 11 |
| $ | 1,297,716 |
| $ | (212,277) | | — |
| $ | 906 |
| $ | 1,086,356 |
Share-based compensation | | — | | — | | | — | | | 4,217 | | | — | | — | | | — | | | 4,217 |
Common Stock Issued | | 166,667 | | — | | | — | | | — | | | — | | — | | | | | | — |
Shares repurchased for tax withholding upon vesting of restricted stock-based awards | | (61,162) | | — | | | — | | | (614) | | | — | | — | | | | | | (614) |
Translation adjustment | | — | | — | | | — | | | — | | | — | | — | | | (772) | | | (772) |
Net loss | | — | | — | | | — | | | — | | | (42,855) | | — | | | — | | | (42,855) |
Balance October 31, 2021 (Successor) |
| 133,164,526 | | — |
| $ | 11 |
| $ | 1,301,319 |
| $ | (255,132) | | — |
| $ | 134 |
| $ | 1,046,332 |
in thousands, except number of shares)
Accumulated | Total | |||||||||||||||||||||||||||||||
Ordinary Shares | Additional | Accumulated | Other | Shareholders' | ||||||||||||||||||||||||||||
Number | In | Paid-in | Equity | Treasury | Comprehensive | Equity | ||||||||||||||||||||||||||
of Shares | Treasury | Par Value | Capital | (Deficit) | Shares | Income (Loss) | (Deficit) | |||||||||||||||||||||||||
Balance January 31, 2023 | 165,286,156 | (1,630,275 | ) | $ | 14 | $ | 1,521,574 | $ | (972,193 | ) | $ | (2,845 | ) | $ | (14,794 | ) | $ | 531,756 | ||||||||||||||
Share-based compensation | — | — | — | 9,128 | — | — | — | 9,128 | ||||||||||||||||||||||||
Common stock issued | 450,767 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Shares repurchased for tax withholding upon vesting of restricted stock-based awards | (162,628 | ) | — | — | (289 | ) | — | — | — | (289 | ) | |||||||||||||||||||||
Repurchase of common stock | — | (4,365,255 | ) | — | — | — | (8,046 | ) | — | (8,046 | ) | |||||||||||||||||||||
Translation adjustment | — | — | — | — | — | — | 875 | 875 | ||||||||||||||||||||||||
Net income (loss) | — | — | — | — | (44,224 | ) | — | — | (44,224 | ) | ||||||||||||||||||||||
Balance April 30, 2023 | 165,574,295 | (5,995,530 | ) | 14 | 1,530,413 | (1,016,417 | ) | (10,891 | ) | (13,919 | ) | 489,200 | ||||||||||||||||||||
Share-based compensation | — | — | — | 5,827 | — | — | — | 5,827 | ||||||||||||||||||||||||
Common stock issued | 1,353,856 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Shares repurchased for tax withholding upon vesting of restricted stock-based awards | (464,812 | ) | — | — | (592 | ) | — | — | — | (592 | ) | |||||||||||||||||||||
Repurchase of common stock | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Translation adjustment | — | — | — | — | — | — | 496 | 496 | ||||||||||||||||||||||||
Net income (loss) | — | — | — | — | (31,999 | ) | — | — | (31,999 | ) | ||||||||||||||||||||||
Balance July 31, 2023 | 166,463,339 | (5,995,530 | ) | $ | 14 | 1,535,648 | $ | (1,048,416 | ) | $ | (10,891 | ) | $ | (13,423 | ) | $ | 462,932 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)CASH FLOWS
| | | | | | | | | | | | | | | | | | | | | |
| | Ordinary Shares | | | | | | | | | | | | | |||||||
| | | | | | | | | | | | | | | | | Accumulated Other | | Total | ||
| | Number of | | In | | | | | Additional Paid- | | Accumulated | | Treasury | | Comprehensive | | Shareholders' | ||||
| | Shares | | Treasury | | Par Value | | In Capital | | Deficit | | Shares | | Income | | Equity | |||||
Balance January 31, 2022 (Successor) |
| 133,258,027 | | — | | $ | 11 | | $ | 1,306,146 | | $ | (247,229) | | — | | $ | 970 |
| $ | 1,059,898 |
Share-based compensation | | — | | — | | | — | | | 6,898 | | | — | | — | | | — | | | 6,898 |
Common stock issued | | 179,167 | | — | | | — | | | — | | | — | | — | | | — | | | — |
Shares repurchased for tax withholding upon vesting of restricted stock-based awards | | (51,316) | | — | | | — | | | (309) | | | — | | — | | | — | | | (309) |
Common stock issued in conjunction with Codecademy acquisition | | 30,374,427 | | — | | | 3 | | | 182,547 | | | — | | — | | | — | | | 182,550 |
Fair value adjustment for equity awards attributed to Codecademy acquisition | | — | | — | | | — | | | 538 | | | — | | — | | | — | | | 538 |
Translation adjustment |
| — | | — |
| | — | |
| — | |
| — | | — | |
| (2,248) |
| | (2,248) |
Net loss |
| — | | — |
| | — | |
| — | |
| (21,643) | | — | |
| — |
| | (21,643) |
Balance April 30, 2022 (Successor) |
| 163,760,305 | | — |
| | 14 | | | 1,495,820 | | | (268,872) | | — | | | (1,278) |
| | 1,225,684 |
Share-based compensation |
| — | | — |
| | — | |
| 10,017 | |
| — | | — | |
| — |
| | 10,017 |
Common stock issued |
| 828,831 | | — |
| | — | |
| — | |
| — | | — | |
| — |
| | — |
Shares repurchased for tax withholding upon vesting of restricted stock-based awards |
| (281,136) | | — |
| | — | | | (1,409) | | | — | | — | | | — |
| | (1,409) |
Translation adjustment |
| — | | — |
| | — | |
| — | |
| — | | — | |
| (1,477) |
| | (1,477) |
Net loss |
| — | | — |
| | — | |
| — | |
| (121,499) | | — | |
| — |
| | (121,499) |
Balance July 31, 2022 (Successor) | | 164,308,000 | | — | | $ | 14 | | $ | 1,504,428 | | $ | (390,371) | | — | | $ | (2,755) | | $ | 1,111,316 |
Share-based compensation |
| — | | — |
| | — | |
| 8,396 | |
| — | | — | |
| — |
| | 8,396 |
Common stock issued | | 1,031,191 | | — | | | — | | | — | | | — | | — | | | — | | | — |
Shares repurchased for tax withholding upon vesting of restricted stock-based awarded | | (376,921) | | — | | | — | | | (884) | | | — | | — | | | — | | | (884) |
Repurchase of common stock | | — | | (645,428) | | | — | | | — | | | — | | (1,433) | | | — | | | (1,433) |
Translation adjustment |
| — | | — |
| | — | |
| — | |
| — | | — | |
| (17,287) |
| | (17,287) |
Deconsolidation of SumTotal | | — | | — | | | — | | | — | | | — | | — | | | 2,110 | | | 2,110 |
Net loss |
| — | | — |
| | — | |
| — | |
| (528,343) | | — | |
| — |
| | (528,343) |
Balance October 31, 2022 (Successor) |
| 164,962,270 | | (645,428) |
| $ | 14 | | $ | 1,511,940 | | $ | (918,714) | | (1,433) | | $ | (17,932) |
| $ | 573,875 |
(in thousands)
Six Months Ended July 31, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (76,223 | ) | $ | (143,142 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Share-based compensation | 14,955 | 16,915 | ||||||
Depreciation and amortization | 2,761 | 3,897 | ||||||
Amortization of intangible assets | 77,466 | 91,103 | ||||||
Provision for credit loss expense (recovery) | 4 | 113 | ||||||
Provision for (benefit from) income taxes – non-cash | (6,913 | ) | (36,535 | ) | ||||
Non-cash interest expense | 1,024 | 1,053 | ||||||
Non-cash lease and property and equipment impairment charges | 4,808 | — | ||||||
(Gain) loss on sale of business | 682 | — | ||||||
Fair value adjustment to warrants | (3,645 | ) | (16,952 | ) | ||||
Impairment of goodwill | - | 70,475 | ||||||
Unrealized (gain) loss on derivative instrument | (7,205 | ) | 15,065 | |||||
Change in assets and liabilities, net of effects from acquisitions: | ||||||||
Right-of-use assets | 145 | 1,977 | ||||||
Accounts receivable | 73,172 | 82,783 | ||||||
Prepaid expenses and other current assets | (520 | ) | (7,492 | ) | ||||
Accounts payable | (4,241 | ) | (2,559 | ) | ||||
Accrued expenses, including long-term | (17,379 | ) | (23,066 | ) | ||||
Lease liabilities | (1,081 | ) | 96 | |||||
Deferred revenues | (55,825 | ) | (66,734 | ) | ||||
Net cash provided by (used in) operating activities | 1,985 | (13,003 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (3,406 | ) | (3,528 | ) | ||||
Internally developed software - capitalized costs | (5,951 | ) | (5,721 | ) | ||||
Sale of SumTotal, net of cash transferred | (5,137 | ) | — | |||||
Acquisition of Codecademy, net of cash received | — | (198,633 | ) | |||||
Net cash used in investing activities | (14,494 | ) | (207,882 | ) | ||||
Cash flows from financing activities: | ||||||||
Shares repurchased for tax withholding upon vesting of restricted stock-based awards | (881 | ) | (1,718 | ) | ||||
Payments to acquire treasury stock | (8,046 | ) | — | |||||
Proceeds from issuance of term loans, net of fees | — | 157,088 | ||||||
Proceeds from accounts receivable facility, net of borrowings | 399 | (39,154 | ) | |||||
Principal payments on Term loans | (3,202 | ) | (3,202 | ) | ||||
Net cash provided by (used in) financing activities | (11,730 | ) | 113,014 | |||||
Effect of exchange rate changes on cash and cash equivalents | (472 | ) | (4,646 | ) | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (24,711 | ) | (112,517 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of period | 177,556 | 168,923 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 152,845 | $ | 56,406 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash and cash equivalents | $ | 147,927 | $ | 43,344 | ||||
Restricted cash | 4,918 | 5,300 | ||||||
Cash attributable to discontinued operations | — | 7,762 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 152,845 | $ | 56,406 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
SKILLSOFT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTSSUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
(IN THOUSANDS)in thousands)
| | | | | | | | | | | |
|
| Fiscal 2023 | | Fiscal 2022 | | ||||||
| | Successor | | Successor | | | Predecessor (SLH) | | |||
| | Nine Months | | From | | | From | | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | | |||
| | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | | |||
Cash flows from operating activities: | | | | | | | | | | | |
Net loss | | $ | (671,485) | | $ | (54,708) | | | $ | (49,264) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | |
| | | |
| | |
Share-based compensation | |
| 25,311 | | | 9,034 | | |
| — | |
Depreciation and amortization | | | 5,323 | | | 4,309 | | | | 3,572 | |
Amortization of intangible assets | | | 134,541 | | | 57,087 | | | | 50,902 | |
Change in bad debt reserve | | | 275 | | | (668) | | | | (174) | |
Benefit from income taxes – non-cash | | | (43,115) | | | (9,937) | | | | (5,886) | |
Non-cash interest expense | | | 1,550 | | | 913 | | | | 487 | |
Fair value adjustment to warrants | | | (26,080) | | | 19,723 | | | | (900) | |
Right-of-use asset | | | 4,302 | | | 3,473 | | | | 748 | |
Impairment of goodwill | | | 641,362 | | | — | | | | — | |
Unrealized gain on derivative instrument | | | (5,249) | | | — | | | | — | |
Gain on sale of business | | | (53,756) | | | — | | | | — | |
Changes in current assets and liabilities, net of effects from acquisitions: | | | | | | | | | | | |
Accounts receivable | |
| 76,821 | | | (8,446) | | |
| 88,622 | |
Prepaid expenses and other current assets | |
| (617) | | | (5,002) | | |
| 3,379 | |
Accounts payable | |
| (3,052) | | | (1,636) | | |
| (6,417) | |
Accrued expenses, including long-term | |
| (23,378) | | | 13,962 | | |
| (18,592) | |
Lease liability | |
| (2,261) | | | (4,046) | | |
| (1,301) | |
Deferred revenue | |
| (84,053) | | | (24,599) | | |
| (31,365) | |
Net cash (used in) provided by operating activities | |
| (23,561) | |
| (541) | | |
| 33,811 | |
Cash flows from investing activities: | |
|
| |
|
| | |
|
| |
Purchase of property and equipment | |
| (4,713) | | | (4,351) | | |
| (641) | |
Internally developed software - capitalized costs | |
| (8,639) | | | (2,293) | | |
| (2,350) | |
Sale of SumTotal, net of cash transferred | | | 171,995 | | | — | | | | — | |
Acquisition of Codecademy, net of cash acquired | | | (198,842) | | | — | | | | — | |
Acquisition of Global Knowledge, net of cash received | | | — | | | (156,926) | | | | — | |
Acquisition of Skillsoft, net of cash received | | | — | | | (386,035) | | | | — | |
Acquisition of Pluma, net of cash received | |
| — | | | (18,646) | | |
| — | |
Net cash used in investing activities | |
| (40,199) | |
| (568,251) | | |
| (2,991) | |
Cash flows from financing activities: | |
|
| |
|
| | |
|
| |
Shares repurchased for tax withholding upon vesting of restricted stock-based awarded | | | (2,603) | | | (614) | | | | — | |
Purchase of treasury stock | | | (1,433) | | | — | | | | — | |
Proceeds from equity investment (PIPE) | |
| — | | | 530,000 | | |
| — | |
Proceeds from issuance of term loans, net of fees | |
| 157,088 | | | 464,290 | | |
| — | |
Principal payments on capital lease obligation | |
| — | | | (407) | | |
| (370) | |
(Payments on) proceeds from accounts receivable facility, net of borrowings | |
| (33,168) | | | (23,198) | | |
| 16,577 | |
Principal payments on term loans | | | (36,194) | | | — | | | | — | |
Repayment of First and Second Out loans | |
| — | |
| (605,591) | | |
| (1,300) | |
Net cash provided by financing activities | |
| 83,690 | |
| 364,480 | | |
| 14,907 | |
Effect of exchange rate changes on cash and cash equivalents | |
| (6,823) | |
| (820) | | |
| 203 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | |
| 13,107 | |
| (205,132) | | |
| 45,930 | |
Cash, cash equivalents and restricted cash, beginning of period | |
| 168,923 | |
| 288,483 | | |
| 74,443 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 182,030 | | $ | 83,351 | | | $ | 120,373 | |
Supplemental disclosure of cash flow information: | | | | | | | | | | | |
Cash and cash equivalents | | $ | 174,708 | | $ | 80,671 | | | $ | 117,299 | |
Restricted cash | | | 7,322 | | | 2,680 | | | | 3,074 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 182,030 | | $ | 83,351 | | | $ | 120,373 | |
Six Months Ended July 31, | ||||||||
2023 | 2022 | |||||||
Supplemental disclosure of cash flow information and non-cash investing and financing activities: | ||||||||
Cash paid for interest | $ | 32,804 | $ | 21,347 | ||||
Cash paid (received) for income taxes, net of refunds | 5,111 | 1,256 | ||||||
Unpaid capital expenditures | — | 57 | ||||||
Shares issued in connection with business combination | — | 182,550 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
SKILLSOFT CORP.
UNAUDITED SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
(IN THOUSANDS)
| | | | | | | | | | | |
|
| Fiscal 2023 | | Fiscal 2022 | | ||||||
| | Successor | | Successor | | | Predecessor (SLH) |
| |||
| | Nine Months | | From | | | From | | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | | |||
| | October 31, 2022 | | October 31, 2022 | | | June 11, 2021 | | |||
Supplemental disclosure of cash flow information and non-cash investing and financing activities: |
| | | | | | | | |
|
|
Cash paid for interest | | $ | 33,490 | | $ | 5,030 | | | $ | 16,439 | |
Cash paid for income taxes, net of refunds | | $ | 3,245 | | $ | 1,505 | | | $ | 1,161 | |
Unpaid capital expenditures | | $ | 24 | | $ | 123 | | | $ | 39 | |
Fair value of shares issued in connection with Codecademy acquisition | | $ | 182,550 | | $ | — | | | $ | — | |
Share issued in connection with business combinations | | $ | — | | $ | 306,375 | | | $ | | |
PIPE subscription liability and warrants reclassified to equity | | $ | — | | $ | 134,286 | | | $ | — | |
Debt issued in connection with business combinations | | $ | — | | $ | 90,000 | | | $ | — | |
Warrants issued in connection with business combinations | | $ | — | | $ | 14,000 | | | $ | — | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
11
SKILLSOFT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and
(1) Description of Business and Basis of Presentation
The Company
Skillsoft Corp. (“Successor”)
On October 12, 2020, Software Luxembourg Holding S.A. (“Software Luxembourg” or “Predecessor (SLH)”) and Churchill Capital Corp II, a Delaware corporation (“Churchill”), entered into an Agreement and Plan of Merger (the “Skillsoft Merger Agreement”). Pursuant to the terms of the Skillsoft Merger Agreement, a business combination between Churchill and Software Luxembourg was effected through the merger of Software Luxembourg with and into Churchill (the “Skillsoft Merger”), with Churchill being the surviving company. At the effective time of the Skillsoft Merger (the “Effective Time”), (a) each Class A share of Software Luxembourg (“SLH Class A Shares”) outstanding immediately prior to the Effective Time, was automatically canceled and Churchill issued as consideration therefor (i) such number of shares of Churchill’s Class A common stock, par value $0.0001 per share (the “Churchill Class A common stock”) as would be transferred pursuant to the Class A First Lien Exchange Ratio (as defined in the Skillsoft Merger Agreement), and (ii) Churchill’s Class C common stock, par value $0.0001 per share (the “Churchill Class C common stock”), as would be transferred pursuant to the Class C Exchange Ratio (as defined in the Skillsoft Merger Agreement), and (b) each Class B share of Software Luxembourg was automatically canceled and Churchill issued as consideration therefor such number of shares of Churchill Class A common stock equal to the Per Class B Share Merger Consideration (as defined in the Skillsoft Merger Agreement). Immediately following the Effective Time, Churchill redeemed all of the shares of Class C common stock issued to the holders of SLH Class A Shares for an aggregate redemption price of (i) $505,000,000 in cash and (ii) indebtedness under the Existing Second Out Credit Agreement (as defined in the Skillsoft Merger Agreement), as amended by the Existing Second Out Credit Agreement Amendment (as defined in the Skillsoft Merger Agreement), in the aggregate principal amount equal to $20,000,000.
As part of the closing of the Skillsoft Merger, the Company (as defined below) consummated PIPE investments and issued 53,000,000 shares of its Class A common stock and warrants to purchase 16,666,667 shares of its Class A common Stock for aggregate gross proceeds of $530 million. In connection with the consummation of these investments, the Company reclassified amounts recorded for stock subscriptions and warrants which previously had been accounted for as liabilities of $78.2 million as additional paid in capital.
On June 11, 2021 (“acquisition date”), Churchill completed its acquisition of Software Luxembourg, and changed its corporate name from Churchill to Skillsoft Corp. (“Skillsoft”). In addition, the Company changed its fiscal year end from December 31 to January 31. Also on June 11, 2021, the Company completed the acquisition of Albert DE Holdings Inc. (“Global Knowledge” or “GK” and such acquisition, the “Global Knowledge Merger”), a worldwide leader in IT and professional skills development.
Software Luxembourg Holding (“Predecessor (SLH)”)
Software Luxembourg, a public limited liability company incorporated and organized under the laws of the Grand Duchy of Luxembourg, was established on August 27, 2020 for the purpose of acquiring the ownership interest in Pointwell Limited (“Pointwell”), an Irish private limited company, through a plan of reorganization under Chapter 11 subsequent to August 27, 2020.
Successor and Predecessor Periods
The Skillsoft Merger was considered a business combination under ASC 805, Business Combinations and is accounted for using the acquisition method of accounting, whereby Churchill was determined to be the accounting acquirer and Software Luxembourg Holding was determined to be the predecessor for financial reporting purposes. References to “Successor” or “Successor Company” relate to the condensed consolidated financial position and results of operations of Skillsoft subsequent to June 11, 2021, the date when the acquisitions of Predecessor (SLH) and Global Knowledge were completed. References to “Predecessor (SLH)” relate to the condensed consolidated financial position and results of operations of Software Luxembourg Holding S.A. between August 28, 2020 and June 11, 2021 (its last date of operations prior to the merger). Operating results for the acquired business on June 11, 2021 were credited to the Predecessor (SLH) in the accompanying condensed consolidated statement of operations. The funds received from the PIPE investments and transferred for the business combinations closing on June 11, 2021 were recorded in the Successor period of the condensed consolidated statement of cash flows.
12
In the accompanying footnotes references to “the Company” relate to Successor and Predecessor (SLH) for the same periods.
Description of Business
The Company provides, through itscombined company operates as Skillsoft Global Knowledge,Corp. (“Skillsoft”, “we”, “us”, “our” and Codecademy brands, enterprise learning solutions designedthe “Company”) and has been listed on the New York Stock Exchange under the ticker symbol “SKIL” since June 14, 2021. Through a portfolio of high-quality content, a platform that is personalized and connected to preparecustomer needs, and a broad ecosystem of partners, Skillsoft drives continuous growth and performance for employees and their organizations forby overcoming critical skills gaps, unlocking human potential, and transforming the future of work, overcome critical skill gaps, drive demonstrable behavior-change,workforce. With more than 150,000 expert-led skills-building courses in modalities ranging from video and unlock the potential in their people.audio to instructor-led training and practice labs, Skillsoft offers a comprehensive suite of premium, original, and authorized partner content, featuring one of the broadest and deepest libraries of leadership & business, technology & developer, and compliance curricula. With accesstransformative learning experiences for leaders to a broad spectrum of learning options (including video, audio, books, bootcamps, live events, practice labs, coaching and instructor led training), organizations can meaningfully increase learner engagement and retention. Skillsoft’s offerings are delivered primarily through Percipio, the Company’s award-winning, AI-driven, immersive learning platform purpose builtfrontline workers, readers to make learning easier, more accessible, and more effective.hands-on learners.
References in the accompanying footnotes to the Company’s fiscal year refer to the fiscal year ended January 31 of that year (e.g., fiscal 20222023 is the fiscal year ended January 31, 20222023).
Basis of Financial Statement Preparation
The accompanying condensed consolidated financial statements include the accounts of Skillsoft (Successor) and Software Luxembourg (Predecessor (SLH)) and theirits wholly owned subsidiaries. These financial statements are unaudited. However, in the opinion of management, the condensed consolidated financial statements reflect all normal and recurring adjustments necessary for their fair statement. Interim results are not necessarily indicative of results expected for any other interim period or a full year. We prepared the accompanying unaudited condensed consolidated financial statements in accordance with the instructions for Form 10-Q10-Q and Article 810 of Regulation S-XS-X and, therefore, include all information and footnotes necessary for a complete presentation of operations, comprehensive income (loss), financial position, changes in stockholders’shareholders’ equity (deficit) and cash flows in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The financial statements contained in these interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K10-K for the fiscal year ended January 31, 2022 and the updated financial information and related disclosure to reflect the exclusion of the financial operations for SumTotal for the fiscal year ended January 31, 2022 on Form 8-K filed with SEC on December 5, 2022.2023.
The Company is an “emerging growth company,” as defined in Section 2(a)2(a) of the Securities Act, of 1933, as amended, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS” Act)Act”), and it has and mayin the future 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 independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from our estimates.
(2)(2) Summary of Significant Accounting Policies
The Company’s significant accounting policies are discussed in Note 2—Summary of Significant Accounting Policies to the financial statements included in the Company’s Annual Report on Form 10-K10-K for the fiscal year ended January 31, 2022. There have been no changes to2023 and should be read in connection with the reading of these policies during the nine months ended October 31, 2022.interim unaudited financial statements.
(3) Business Combination
Recently Adopted Accounting GuidanceRyzac, Inc. (“Codecademy”)
On October 28, 2021, the Financial Accounting Standards Boards (“FASB”) issued ASU 2021-08 – Business Combinations (Topic 805):Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 requires an acquirer in a business combination to recognize and measure deferred revenue from acquired contracts using the revenue recognition guidance in Accounting Standards Codification Topic 606, rather than the prior requirement to record deferred revenue at fair value. ASU 2021-08 allows for immediate adoption on a retrospective basis for all business combinations that have occurred since the beginning of the annual period that includes the interim period of adoption. The Company elected to adopt ASU 2021-08 early on a retrospective basis, effective at the beginning of the Successor period on June 11, 2021.
The adoption of ASU 2021-08 also resulted in the increase of goodwill by $123.5 million attributable to the acquisitions of Software Luxembourg, Global Knowledge and Pluma Inc. during the period ended July 31, 2021, as a result of the revised measurement of deferred revenue for acquisitions.
(3) Business Combinations
(a) Software Luxembourg Holdings S.A. (“Predecessor (SLH)”)
On June 11, 2021, Software Luxembourg Holding S.A. merged with and into Churchill Capital Corp II which subsequently changed its name to Skillsoft Corp.
The Skillsoft Merger was considered a business combination under ASC 805, Business Combinations and was accounted for using the acquisition method of accounting, whereby Churchill was determined to be the accounting acquirer based on its rights to nominate six members of the initial Board of Directors, the size of its voting interest and its rights to appoint the Chief Executive Officer of Skillsoft Corp. and other members of management of the combined company prior to closing.
Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values.
The following summarizes the purchase consideration (in thousands):
| | | | |
Description |
| Amount | | |
Class A common stock issued | | $ | 258,000 | |
Class B common stock issued* | |
| 48,375 | |
Cash payments | | | 505,000 | |
Second Out Term Loan | | | 20,000 | |
Cash settlement of seller transaction costs | | | 1,308 | |
Total Purchase Price | | $ | 832,683 | |
*Shares of Class B common stock were converted into Successor Class A common stock at the time of the Skillsoft Merger.
14
The Company recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):
| | | | | | | | |
| Preliminary Purchase | | | | Final Purchase | |||
Description | Price Allocation | | Adjustments (1)(2) |
| Price Allocation | |||
Cash, cash equivalents and restricted cash | $ | 120,273 | | $ | — | | $ | 120,273 |
Current assets | | 118,847 | | | 706 | | | 119,553 |
Property and equipment |
| 10,825 | |
| 1,632 | |
| 12,457 |
Intangible assets | | 769,799 | | | (4,701) | | | 765,098 |
Long term assets |
| 18,629 | |
| — | |
| 18,629 |
Total assets acquired | | 1,038,373 | | | (2,363) | | | 1,036,010 |
Current liabilities |
| (49,056) | |
| (350) | |
| (49,406) |
Debt, including accounts receivable facility |
| (552,977) | |
| — | |
| (552,977) |
Deferred revenue |
| (123,300) | |
| (113,917) | |
| (237,217) |
Deferred and other tax liabilities |
| (99,699) | |
| 15,920 | |
| (83,779) |
Long term liabilities |
| (18,325) | |
| 1 | |
| (18,324) |
Total liabilities assumed | | (843,357) | | | (98,346) | | | (941,703) |
Net assets acquired | | 195,016 | | | (100,709) | | | 94,307 |
Goodwill | | 637,667 | | | 100,709 | | | 738,376 |
Total purchase price | $ | 832,683 | | $ | — | | $ | 832,683 |
The values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):
| | | | | | |
Description |
| Amount |
| Life | ||
Trademark/tradename – Skillsoft | | $ | 84,700 |
| indefinite | |
Trademark/tradename – SumTotal | |
| 5,800 |
| 9.6 | years |
Courseware | | | 186,600 |
| 5 | years |
Proprietary delivery and development software | | | 114,598 | | 2.5-7.6 | years |
Publishing Rights | |
| 41,100 |
| 5 | years |
Customer relationships | |
| 271,400 |
| 12.6 | years |
Backlog | |
| 60,900 |
| 4.6 | years |
Total | | $ | 765,098 |
|
| |
Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships and backlog were valued using the income approach. The trade names were valued using the relief from royalty method. The content and software were valued using the replacement cost approach.
Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of the Predecessor (SLH) resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The majority of goodwill is not deductible for tax purposes.
The acquired intangible assets and goodwill are subject to review for impairment if indicators of impairment develop and, in the case of goodwill and indefinite-lived intangible assets, at least annually.
The Company incurred $9.8 million in acquisition-related expenses, which primarily consisted of transaction fees and legal, accounting and other professional services that are included in “Recapitalization and acquisition-related costs” in the audited consolidated statement
15
of operations for the year ended January 31, 2022. Approximately $4.3 million was reported in the period from February 1, 2021 to June 11, 2021 (Predecessor (SLH)) and $5.5 million was reported in the period from June 12, 2021 to January 31, 2022 (Successor).
(b) Albert DE Holdings, Inc. (“Global Knowledge” or “GK”)
On June 11, 2021, GK and its subsidiaries were acquired by Skillsoft, in conjunction with, and just subsequent to, its merger with Churchill Capital Corp II (then becoming the merged Company).
The acquisition was accounted for as a business combination under ASC 805, Business Combinations, utilizing the acquisition method. Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values.
The following summarized the purchase consideration (in thousands):
| | | |
Description |
| Amount | |
Cash consideration | | $ | 170,199 |
Warrants Issued | |
| 14,000 |
Joinder Term Loans | | | 70,000 |
Cash settlement of seller transaction costs | | | 4,251 |
Total Purchase Price | | $ | 258,450 |
The Company recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):
| | | | | | | | |
| Preliminary Purchase | | | | Final Purchase | |||
Description | Price Allocation | | Adjustments (1)(2) |
| Price Allocation | |||
Cash, cash equivalents | $ | 17,524 | | $ | 157 | | $ | 17,681 |
Current assets |
| 47,849 | |
| (2,378) | |
| 45,471 |
Property and equipment | | 5,531 | | | 1,625 | | | 7,156 |
Intangible assets | | 185,800 | | | 200 | | | 186,000 |
Long term assets |
| 12,401 | |
| (3,106) | |
| 9,295 |
Total assets acquired | | 269,105 | | | (3,502) | | | 265,603 |
Current liabilities |
| (74,463) | |
| 10,952 | |
| (63,511) |
Deferred revenue |
| (23,018) | |
| (8,191) | |
| (31,209) |
Deferred and other tax liabilities | | (16,934) | | | (8,875) | | | (25,809) |
Long term liabilities | | (4,248) | | | 2,177 | | | (2,071) |
Total liabilities assumed | | (118,663) | | | (3,937) | | | (122,600) |
Net assets acquired | | 150,442 | | | (7,439) | | | 143,003 |
Goodwill | | 108,008 | | | 7,439 | | | 115,447 |
Total Purchase Price | $ | 258,450 | | $ | — | | $ | 258,450 |
16
The values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):
| | | | | | |
Description |
| Amount |
| Life | ||
Trademark/tradename | | $ | 25,400 |
| 17.6 | years |
Courseware | |
| 1,500 |
| 3 | years |
Proprietary delivery and development software | | | 2,500 |
| 0.6 | years |
Vendor relationships | | | 43,900 | | 2.6 | years |
Customer relationships | |
| 112,700 |
| 10.6 | years |
Total | | $ | 186,000 |
|
| |
Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships and vendor relationships were valued using the income approach. The trade name was valued using the relief from royalty method. The courseware and proprietary delivery software were valued using the replacement cost approach.
Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of GK resulted in the recognition of goodwill. The majority of goodwill is not deductible for tax purposes.
The acquired intangible assets and goodwill are subject to review for impairment if indicators of impairment develop and otherwise at least annually.
The Company incurred $1.0 million in acquisition-related expenses, which primarily consisted of transaction fees and legal, accounting and other professional services that are included in “Recapitalization and acquisition-related costs” in the audited consolidated statement of operations for the year ended January 31, 2022. Approximately $1.0 million was reported in the period from June 12, 2021 to January 31, 2022 (Successor). The Company incurred an additional $1.5 million in GK integration related expenses in the nine months ended October 31, 2022, which is included in “Recapitalization and acquisition-related costs” in the accompanying condensed consolidated statement of operations.
(c) Ryzac, Inc. (“Codecademy”)
On April 4, 2022, the Company acquired Ryzac, IncInc. (“Codecademy”). Codecademy is a learning platform providing high-demand technical skills to approximately 40 million registered learners in nearly every country worldwide. The platform offers interactive, self-paced courses and hands-on learning in 14 programming languages across multiple domains such as application development, data science, cloud and cybersecurity.
The acquisition was accounted for as a business combination under ASC 805,Business Combinations,, utilizing the acquisition method. Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values.
The following summarizes the purchase consideration (in thousands):
| | | | ||||
Description |
| Amount | Amount | ||||
Cash payments | | $ | 202,119 | $ | 202,119 | ||
Class A common stock issued | | | 182,550 | 182,550 | |||
Cash settlement of seller transaction costs and other | | | 1,315 | 1,315 | |||
Total Purchase Price | | $ | 385,984 | ||||
Total purchase price | $ | 385,984 |
17
The Company preliminarily recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):
| | | | | | | | | |
| | | | | | | | | |
| | Preliminary Purchase | | | | | Updated Purchase | ||
Description | | Price Allocation | | | Adjustments | | Price Allocation | ||
Cash, cash equivalents and restricted cash | | $ | 4,262 | | | (209) | | $ | 4,053 |
Current assets | | | 3,671 | | | | | | 3,671 |
Property and equipment | |
| 385 | | | | |
| 385 |
Intangible assets | | | 112,000 | | | | | | 112,000 |
Total assets acquired | | | 120,318 | | | (209) | | | 120,109 |
Current liabilities | |
| (4,290) | | | | |
| (4,290) |
Deferred revenue | |
| (18,396) | | | | |
| (18,396) |
Deferred tax liabilities | |
| (21,615) | | | 1,019 | |
| (20,596) |
Total liabilities assumed | | | (44,301) | | | 1,019 | | | (43,282) |
Net assets acquired | | | 76,017 | | | 810 | | | 76,827 |
Goodwill | | | 309,967 | | | (810) | | | 309,157 |
Total purchase price | | $ | 385,984 | | | — | | $ | 385,984 |
Final Purchase | ||||
Description | Price Allocation | |||
Cash, cash equivalents and restricted cash | $ | 4,053 | ||
Current assets | 3,671 | |||
Property and equipment | 385 | |||
Intangible assets | 119,000 | |||
Total assets acquired | 127,109 | |||
Current liabilities | (6,166 | ) | ||
Deferred revenue | (18,396 | ) | ||
Deferred tax liabilities | (21,621 | ) | ||
Total liabilities assumed | (46,183 | ) | ||
Net assets acquired | 80,926 | |||
Goodwill | 305,058 | |||
Total purchase price | $ | 385,984 |
The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):
| | | | | | |
Description |
| Amount |
| Life | ||
Tradename | | $ | 44,000 |
| 13.8 | years |
Developed Technology | |
| 40,000 |
| 5 | years |
Content | | | 18,000 |
| 5 | years |
Customer relationships | |
| 10,000 |
| 5.8 | years |
Total | | $ | 112,000 |
|
| |
Description | Amount | Life (in years) | ||||||
Trade name | $ | 44,000 | 13.8 | |||||
Developed technology | 43,000 | 5.0 | ||||||
Content | 17,000 | 5.0 | ||||||
Customer relationships | 15,000 | 5.8 | ||||||
Total | $ | 119,000 |
Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships were valued using the income approach. The trade name was valued using the relief from royalty method. The courseware and proprietary delivery software were valued using the replacement cost approach.
Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of Codecademy resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The majority of goodwill is not deductible for tax purposes.
The acquired intangible assets
In the three and goodwill are subject to review for impairment if indicators of impairment develop and otherwise at least annually.
Thesix months ended July 31, 2022, the Company incurred $10.2$2.5 million and $7.7 million, respectively, in acquisition-related expenses,costs, which primarily consisted of transaction fees and legal, accounting, and other professional services thatservices. These costs are included in “Recapitalization and acquisition-related expenses”the "acquisition-related costs" in the accompanying condensed consolidated statementstatements of operations. Approximately $2.5 million and $7.7 million was reported in the three and nine months ended October 31, 2022 (Successor), respectively.
18
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information summarizesbelow is presented in accordance with Regulation S-X, Article 11 to enhance comparability for all periods by including operating results for Codecademy as if the results of continuing operations for the Company as though the acquisitions of Skillsoft, Global Knowledge and Codecademymerger had occurredclosed on February 1, 2021 (in2022 (in thousands):
| | | | | | | | | | | | |
Unaudited Pro Forma Statement of Operations | ||||||||||||
| | Three months | | Three months | | Nine months | | Nine months | ||||
| | ended | | ended | | ended | | ended | ||||
|
| October 31, 2022 | | October 31, 2021 | | October 31, 2022 | | October 31, 2021 | ||||
Revenue | | $ | 139,390 | | $ | 151,266 | | $ | 422,861 | | $ | 440,600 |
Net loss from continuing operations | |
| (16,134) | |
| (57,878) | |
| (100,472) | |
| (111,805) |
Unaudited Pro Forma | Unaudited Pro Forma | |||||||
Statement of Operations | Statement of Operations | |||||||
Three Months Ended July 31, | Six Months Ended July 31, | |||||||
2022 | 2022 | |||||||
Revenue | $ | 140,574 | $ | 283,471 | ||||
Net loss from continuing operations | (116,984 | ) | (161,375 | ) |
The unaudited pro forma financial information does not assume any impacts from revenue, cost, or other operating synergies that could be generated as a result of the acquisitions.acquisition. The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisitionsacquisition been consummated on February 1, 2021.
Other Acquisitions
On June 30, 2021,2022. The unaudited pro forma financial information includes adjustments to reflect intangible asset amortization based on the Company acquired Pluma, Inc.economic values derived from definite-lived intangible assets and interest expense on the new debt financing. The acquisition enhances the Company’s leadership development offerings, adds a new modality to its blended learning model, and allows the Company to now offer a premium individualized coaching experience. Cash paid for Pluma in the Successor period was lowerpro forma results of operations also exclude acquisition-related costs other than the agreed upon purchase price of Pluma for $22 million due to a contractual holdback and working capital adjustment. The fair value of the net assets acquired included $17.8 million of goodwill and $8.7 million of identified intangible assets, which had a weighted average life of 7.4 years. The goodwill is not deductible for tax purposes. The business is reported as part of the Company’s Skillsoft reportable segment. Pro forma information and acquisition expenses have not been presented because such information is not materialtransaction costs specific to the financial statements.
Measurement Period
The preliminary purchase price allocation for the Codecademy acquisition described above are based on initial estimates and provisional amounts. In accordance with ASC 805-10-25-13, if the initial accounting for a business combination is incomplete by the end of the reporting periodoccurring in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the acquirer shall adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existedApril 2022. These transaction costs are presented as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. For the Codecademy acquisition, whichthey occurred in the three months ended April 30, 2022, the Company is still evaluating and refining inputs and estimates inherent in (i) the valuationFebruary 2022.
(4)(4) Discontinued Operations
On June 12, 2022, Skillsoft entered into a Stock Purchase Agreement (the “Purchase Agreement”), by and among Skillsoft, Skillsoft (US) Corporation (“Seller”), Amber Holding Inc. (“SumTotal”), and Cornerstone OnDemand, Inc. (“Buyer”), pursuant to which, subject to the certain terms and conditions contained therein, Seller agreed to sell, and Buyer agreed to purchase, all of Seller’s right, title and interest in and to one hundred percent (100%) of the outstanding shares of capital stock of SumTotal.
The sale was completed on August 15, 2022. Skillsoft received netNet proceeds of $180.0from the sale were $174.9 million, and reserved $8.0 million forafter final working capital contingency which is subject to customary adjustments as set forth in the Purchase Agreement, including adjustments based on the working capital, cash and indebtedness of SumTotal and its direct and indirect subsidiaries as of the closing date.April 2023.
In accordance with ASC 810, the Company recorded a gain on sale upon completion of the transaction. The gain was calculated by measuring the difference between the fair value of consideration received less the carrying amount of the assets and liabilities sold. The Company calculated a gain of $53.8 million which is reported as Gain on sale of business in the Statement of Operations. The gain is preliminary and subject to finalization of post-closing adjustments pursuant to the Purchase Agreement.
19
In connection with the sale, the parties to the Purchase Agreement entered into certain other agreements, including a transition services agreement pursuant to which each of Seller and Buyer agreed to provide the other party with certain transition services for a limited period following the closing.
The Company determined that the sale of the SumTotal business met the criteria to be classified as discontinued operations, and its assets and liabilities held for sale, as of June 12, 2022. Accordingly, the Company classified the assets and liabilities of the discontinued operations as held for sale in ourits consolidated balance sheets at the lower of carrying amount or fair value less cost to sell. Classification for the assets and liabilities in comparative periods retained their previous classification as current or long-term. No losses were recognized upon classification of the discontinued operationsoperations' assets and liabilities as held for sale. Depreciation and amortization ceased on assets classified as held for sale. The operating results of SumTotal are reported as discontinued operations, for all periods presented, as the disposition reflects a strategic shift that has, or will have, a major effect on ourthe Company’s operations and financial results.
The financial results of SumTotal are presented as Income from discontinued operations, net of tax onin our condensed consolidated Statementstatements of Operations.operations. The following table presents financial results of SumTotal for all periods presentedthe three and six months ended July 31, 2022 in our condensed consolidated Statementstatements of Operationsoperations (in thousands):
| | | | | | | ||||||||
|
| Quarter to Date Results | ||||||||||||
| | Fiscal 2023 | | Fiscal 2022 | ||||||||||
| | Successor | | Successor | ||||||||||
| | Three Months | | Three Months | ||||||||||
| | Ended | | Ended | ||||||||||
|
| October 31, 2022 |
| October 31, 2021 | ||||||||||
Three Months | Six Months | |||||||||||||
Ended | Ended | |||||||||||||
July 31, 2022 | July 31, 2022 | |||||||||||||
Revenues: |
| |
|
| | | ||||||||
Total revenues | | $ | 4,178 | | $ | 30,406 | $ | 27,453 | $ | 56,528 | ||||
Operating expenses: | |
| | | | | ||||||||
Costs of revenues | |
| 1,250 | | | 9,839 | 8,152 | 17,776 | ||||||
Content and software development | |
| 956 | | | 5,975 | 4,849 | 11,289 | ||||||
Selling and marketing | |
| 800 | | | 4,892 | 5,385 | 10,707 | ||||||
General and administrative | |
| 67 | | | 668 | 289 | 663 | ||||||
Amortization of intangible assets | |
| — | | | 2,658 | 2,049 | 6,345 | ||||||
Recapitalization and acquisition-related costs | | | 1,056 | | | 280 | ||||||||
Acquisition-related costs | 422 | 553 | ||||||||||||
Restructuring | | | (159) | | | 2 | 172 | 201 | ||||||
Total operating expenses | | | 3,970 | | | 24,314 | 21,318 | 47,534 | ||||||
Operating income from discontinued operations | | | 208 | | | 6,092 | 6,135 | 8,994 | ||||||
Other income (expense), net | | | 2,223 | | | 50 | 507 | 458 | ||||||
Interest income | | | — | | | 9 | 6 | 12 | ||||||
Interest expense | | | (101) | | | (513) | (576 | ) | (1,320 | ) | ||||
Income from discontinued operations before income taxes | |
| 2,330 | | | 5,638 | ||||||||
Provision for income taxes | |
| 1,115 | | | (273) | ||||||||
Net income from discontinued operations | | $ | 1,215 | | $ | 5,911 | ||||||||
Income (loss) from discontinued operations before income taxes | 6,072 | 8,144 | ||||||||||||
Provision for (benefit from) income taxes | 255 | 852 | ||||||||||||
Net income (loss) from discontinued operations | $ | 5,817 | $ | 7,292 |
In addition, the amounts described in other footnotes within these condensed consolidated financial statements have been updated to reflect the amounts applicable to continuing operations, unless otherwise noted.
20
| | | | | | | | | | |
|
| Year to Date Results | ||||||||
| | Fiscal 2023 | | Fiscal 2022 | ||||||
| | Successor | | Successor | | | Predecessor (SLH) | |||
| | Nine Months | | From | | | From | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||
|
| October 31, 2022 |
| October 31, 2021 | | | June 11, 2021 | |||
Revenues: |
| |
|
| | | | | |
|
Total revenues | | $ | 60,706 | | $ | 45,952 | | | $ | 37,142 |
Operating expenses: | |
| | | | | | | | |
Costs of revenues | |
| 19,027 | | | 15,555 | | | | 13,838 |
Content and software development | |
| 12,246 | | | 9,637 | | | | 9,072 |
Selling and marketing | |
| 11,507 | | | 7,432 | | | | 7,539 |
General and administrative | |
| 730 | | | 913 | | | | 746 |
Amortization of intangible assets | |
| 6,345 | | | 4,188 | | | | 4,410 |
Recapitalization and acquisition-related costs | | | 1,609 | | | 377 | | | | 297 |
Restructuring | | | 42 | | | 31 | | | | (127) |
Total operating expenses | | | 51,506 | | | 38,133 | | | | 35,775 |
Operating income from discontinued operations | | | 9,200 | | | 7,819 | | | | 1,367 |
Other income (expense), net | | | 2,681 | | | 345 | | | | (326) |
Interest income | | | 12 | | | 12 | | | | 4 |
Interest expense | | | (1,443) | | | (1,044) | | | | (57) |
Income from discontinued operations before income taxes | |
| 10,450 | | | 7,132 | | | | 988 |
Provision for (benefit from) income taxes | |
| 1,967 | | | 3,638 | | | | (187) |
Net income from discontinued operations | | $ | 8,483 | | $ | 3,494 | | | $ | 1,175 |
The following table presents the aggregate carrying amounts of the classes of assets and liabilities of discontinued operations of SumTotal (in thousands):
| | | | | | | |
| | Successor | | | Successor | ||
|
| October 31, 2022 |
|
| January 31, 2022 | ||
Carrying amount of assets included as part of discontinued operations |
| |
| |
| |
|
Cash and cash equivalents | | $ | — | | | $ | 16,496 |
Restricted cash | |
| — | | |
| 236 |
Accounts receivable | |
| — | | |
| 38,587 |
Prepaid expenses and other current assets | |
| — | | |
| 8,755 |
Current assets of discontinued operations | |
| — | | |
| 64,074 |
Property and equipment, net | |
| — | | |
| 6,609 |
Goodwill | |
| — | | |
| 75,693 |
Intangible assets, net | |
| — | | |
| 75,628 |
Right of use assets | |
| — | | |
| 1,937 |
Other assets | |
| — | | |
| 4,945 |
Long-term assets of discontinued operations | | | — | | | | 164,812 |
Total assets classified as discontinued operations in the condensed consolidated balance sheet | | $ | — | | | $ | 228,886 |
| |
|
| | |
|
|
Carrying amounts of liabilities included as part of discontinued operations: | |
|
| | |
|
|
Accounts payable | | $ | — | | | $ | 1,502 |
Accrued compensation | |
| — | | |
| 10,293 |
Accrued expenses and other current liabilities | |
| — | | |
| 3,260 |
Lease liabilities | |
| — | | |
| 508 |
Deferred revenue | |
| — | | |
| 71,904 |
Current liabilities of discontinued operations | |
| — | | |
| 87,467 |
Deferred tax liabilities | |
| — | | |
| 516 |
Long term lease liabilities | |
| — | | |
| 1,605 |
Other long-term liabilities | |
| — | | |
| 305 |
Current liabilities of discontinued operations | |
| — | | |
| 2,426 |
Total liabilities classified as discontinued operations in the condensed consolidated balance sheet | | $ | — | | | $ | 89,893 |
| |
|
| | |
|
|
21
(5) Intangible Assets
Intangible assets consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | October 31, 2022 (Successor) | | January 31, 2022 (Successor) | ||||||||||||||||||||||||||||||||||||||
|
| Gross |
| | |
| Net |
| Gross |
| | |
| Net | ||||||||||||||||||||||||||||
| | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying | ||||||||||||||||||||||||||||||
| | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount | ||||||||||||||||||||||||||||||
July 31, 2023 | January 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||||||||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||||||||||||||||||||
Developed software/ courseware | | $ | 370,252 | | $ | 103,111 | | $ | 267,141 | | $ | 303,171 | | $ | 43,956 | | $ | 259,215 | $ | 379,281 | $ | 164,242 | $ | 215,039 | $ | 374,057 | $ | 123,219 | $ | 250,838 | ||||||||||||
Customer contracts/ relationships | |
| 327,686 | |
| 33,149 | |
| 294,537 | |
| 332,300 | |
| 10,436 | |
| 321,864 | 338,313 | 64,945 | 273,368 | 336,182 | 42,026 | 294,156 | ||||||||||||||||||
Vendor relationships | |
| 38,235 | |
| 29,645 | |
| 8,590 | | | 43,900 | | | 21,219 | | | 22,681 | 40,439 | 37,864 | 2,575 | 39,887 | 36,666 | 3,221 | ||||||||||||||||||
Trademarks and trade names | |
| 45,500 | |
| 2,753 | |
| 42,747 | |
| 1,500 | |
| 104 | |
| 1,396 | 44,000 | 3,202 | 40,798 | 44,000 | 1,454 | 42,546 | ||||||||||||||||||
Publishing rights | |
| 41,100 | |
| 11,394 | |
| 29,706 | |
| 41,100 | |
| 5,229 | |
| 35,871 | 41,100 | 17,559 | 23,541 | 41,100 | 13,449 | 27,651 | ||||||||||||||||||
Backlog | |
| 49,700 | |
| 25,811 | |
| 23,889 | |
| 49,700 | |
| 4,906 | |
| 44,794 | 49,700 | 39,360 | 10,340 | 49,700 | 32,780 | 16,920 | ||||||||||||||||||
Skillsoft trademark | |
| 84,700 | | | — | |
| 84,700 | |
| 84,700 | | | — | |
| 84,700 | 84,700 | — | 84,700 | 84,700 | — | 84,700 | ||||||||||||||||||
Global Knowledge trademark | |
| 22,113 | | | 3,743 | |
| 18,370 | | | 25,400 | | | 2,062 | | | 23,338 | 23,403 | 5,889 | 17,514 | 23,080 | 5,046 | 18,034 | ||||||||||||||||||
Total | | $ | 979,286 | | $ | 209,606 | | $ | 769,680 | | $ | 881,771 | | $ | 87,912 | | $ | 793,859 | ||||||||||||||||||||||||
Total intangible assets | $ | 1,000,936 | $ | 333,061 | $ | 667,875 | $ | 992,706 | $ | 254,640 | $ | 738,066 |
Amortization expense related to the existing finite-lived intangible assets is expected to be as follows (in thousands):
| | | |
Fiscal Year |
| Amortization Expense | |
2023 (remaining 3 months) | | $ | 41,907 |
2024 | |
| 149,210 |
2025 | | | 129,121 |
2026 | | | 124,947 |
2027 | |
| 79,912 |
Thereafter | |
| 159,883 |
Total | | $ | 684,980 |
For fiscal years ended January 31: | Amortization Expense | |||
2024 (six months remaining) | $ | 75,353 | ||
2025 | 132,178 | |||
2026 | 128,356 | |||
2027 | 81,756 | |||
2028 | 41,957 | |||
Thereafter | 123,575 | |||
Total future amortization | $ | 583,175 |
Amortization expense related to intangible assets in the aggregate was $43.4$39.2 million, $77.5 million, $45.2 million and $128.2$84.8 million for the three and ninesix months ended OctoberJuly 31, 2022 (Successor)2023 and $34.4 million, $52.9 millionthe three and $46.5 million for the threesix months ended OctoberJuly 31, 2021, the period from June 12, 2021 through October 31, 2021 (Successor), and February 1, 2021 through June 11, 2021 (Predecessor (SLH))2022, respectively.
Impairment of Goodwill and Intangible AssetsReview Requirements
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible andThe Company reviews intangible assets acquired. Goodwillsubject to amortization if any adverse conditions exist or a change in fresh-start accounting results when the reorganization value of the emerging entity exceeds what can be attributed to specific tangiblecircumstances has occurred that would indicate impairment or identified intangible assets.a change in remaining useful life. The Company testsreviews indefinite lived intangible assets, including goodwill, foron the annual impairment during the fourth quarter every year in accordance with ASC 350, Intangibles — Goodwill test date (“ASC 350” January 1). or more frequently if there are indicators of impairment.
In connection with the impairment evaluation, the Company may first consider qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not (i.e., a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. Performing a quantitative goodwill impairment test is not necessary if an entity determines based on this assessment that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company fails or elects to bypass the qualitative assessment, the goodwill impairment test must be performed. This test requires a comparison of the carrying value of the reporting unit to its estimated fair value. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded, not to exceed the amount of goodwill allocated to the reporting unit. In determining reporting units, the Company first identifies its operating segments, and then assesses whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component.
Intangible assets arising from business combinations are generally recorded based upon estimates of the future performance and cash flows from the acquired business. The Company uses an income approach to determine the estimated fair value of certain identifiable intangible assets including customer relationships and trade names and uses a cost approach for other identifiable intangible assets,
22
including developed software/courseware. The income approach determines fair value by estimating the after-tax cash flows attributable to an identified asset over its useful life (Level 3 inputs) and then discounting these after-tax cash flows back to a present value. The cost approach determines fair value by estimating the cost to replace or reproduce an asset at current prices and is reduced for functional and economic obsolescence. Developed technology represents patented and unpatented technology and know-how. Customer contracts and relationships represents established relationships with customers, which provide a ready channel for the sale of additional content and services. Trademarks and tradenames represent acquired product names and marks that the Company intends to continue to utilize.
The Company reviews intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in remaining useful life. Conditions that would indicate impairment and trigger a more frequent impairmentcompleted the qualitative assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affectdiscussed above for the value of an asset, or an adverse action or assessment by a regulator. The Company reviews indefinite-lived intangible assets, including goodwill and certain trademarks, during the fourth quarter of each year for impairment, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist and reassesses their classification as indefinite-lived assets.
During the threesix months ended July 31, 2022, the Company’s Global Knowledge instructor led training (“ILT”) business experienced a significant decline in bookings2023 and GAAP revenue compared to the corresponding period in the prior year. Management believed the poor performance was due to a variety of factors, including (i) reduced corporate spending as customers brace for the potential of a recessionary environment, (ii) difficulty maintaining adequate sales capacity in a challenging labor market for employers and (iii) evolving customer preferences with respect to training and ILT in a post COVID environment.
In light of the circumstances and indicators of impairment described above, management first considered whether any impairment was present for the Global Knowledge long-lived assets group, concludingconcluded that no such impairments were present after conducting an undiscounted cash flow recoverability test.
In accordance with ASC 350, management next considered whether there were anynot indicators of impairment for Global Knowledge goodwill, concluding that triggering events had occurred, necessitating an interim goodwill impairment test as of July 31, 2022. In comparing the estimated fair value of the Global Knowledgeour reporting unit to its carrying value, the Company considered the results of both a discounted cash flow (“DCF”) analysis and a market multiples approach. The results of the impairment test performed indicated that the carrying value of the Global Knowledge reporting unit exceeded its estimated fair value. Based on the results of the goodwill impairment testing procedures, the Company recorded a $70.5 million goodwill impairment for the three and six months ended July 31, 2022. The Company believes that its procedures for estimating gross future cash flows for each intangible asset are reasonable and consistent with current market conditions for each of the dates when impairment testing was performed.units.
During the three months ended October 31, 2022, the Company experienced a substantial decline in its stock price resulting in the total market value of its shares of stock outstanding (“market capitalization”) being less than the carrying value of its reporting units. Management considered the impact of current macroeconomic conditions on the Company’s projected operating results and assumptions used in the income approach or discounted cash flow method and market approach models that impact the fair value of the Company’s reporting units. The macroeconomic conditions considered include deterioration in the equity markets evidenced by sustained declines in the Company’s stock price, those of its peers, and major market indices, which reduced the market multiples, along with an increase in the weighted-average cost of capital primarily driven by an increase in interest rates. In addition, the Company lowered its projected operating results primarily due to the foreign exchange impact, underperformance of Global Knowledge business, and macroeconomic uncertainty. After considering all available evidence in the evaluation of goodwill impairment indicators, management determined it appropriate to perform an interim quantitative assessment of the Skillsoft content and Global Knowledge reporting units as of October 31, 2022.
In comparing the estimated fair value of the Skillsoft content and Global Knowledge reporting units to the carrying value, management considered the results of both a DCF analysis and a market multiples approach. The results of the impairment test performed indicated that the carrying value of the Skillsoft content and Global Knowledge reporting units exceeded the estimated fair value. Based on the results of the goodwill impairment testing procedures, the Company recorded a $569.3 million goodwill impairment for Skillsoft content segment and additional goodwill impairment for Global Knowledge segment, totalling $570.9 million, during the three months ended October 31, 2022.
23
In light of the circumstances and indicators of impairment described above, management considered whether any impairment was present for the Skillsoft content and Global Knowledge long-lived assets group, concluding that no such impairments were present after conducting an undiscounted cash flow recoverability test. The Company believes that its procedures for estimating gross future cash flows for each intangible asset are reasonable and consistent with current market conditions for each of the dates when impairment testing was performed.
A roll forward of goodwill is as follows:
| | | | | | | | | |
Description |
| Skillsoft |
| GK |
| Consolidated | |||
Goodwill, net January 31, 2022 (Successor) | | $ | 680,500 | | $ | 115,311 | | $ | 795,811 |
Foreign currency translation adjustment | | | (102) | | | (730) | | | (832) |
Acquisition of Codecademy | | | 309,967 | | | — | | | 309,967 |
Measurement period adjustments | | | — | | | (614) | | | (614) |
Goodwill, net April 30, 2022 (Successor) | | $ | 990,365 | | $ | 113,967 | | $ | 1,104,332 |
Foreign currency translation adjustment | | | (36) | | | (422) | | | (458) |
Impairment of goodwill | | | — | | | (70,475) | | | (70,475) |
Measurement period adjustments | | | (819) | | | 126 | | | (693) |
Goodwill, net July 31, 2022 (Successor) | | $ | 989,510 | | $ | 43,196 | | $ | 1,032,706 |
Foreign currency translation adjustment | | | (46) | | | 99 | | | 53 |
Impairment of goodwill | | | (569,256) | | | (1,631) | | | (570,887) |
Measurement period adjustments | | | 208 | | | — | | | 208 |
Goodwill, net October 31, 2022 (Successor) | | $ | 420,416 | | $ | 41,664 | | $ | 462,080 |
Description | Content & Platform | Instructor-Led Training | Consolidated | |||||||||
Goodwill, net January 31, 2023 | $ | 417,340 | $ | 40,404 | $ | 457,744 | ||||||
Foreign currency translation adjustment | (635 | ) | 858 | 223 | ||||||||
Goodwill, net July 31, 2023 | $ | 416,705 | $ | 41,262 | $ | 457,967 |
As of OctoberJuly 31, 2022 and January 31, 2022,2023, there were $72.1was $569.3 million and $0.0$72.1 million respectively, of accumulated impairment losses for the Content & Platform (formerly referred to as Skillsoft Content) and Instructor-Led Training (formerly referred to as Global Knowledge segment.Knowledge) segments, respectively.
As
If current discount rates rise or if relevant market-based inputs for our impairment assessment worsen during the remainder of October 31, 2022fiscal 2024, and January 31, 2022, there wereif our stock price and market capitalization remain at current levels for a prolonged period of time, we will need to reassess intangible impairment at the end of each quarter. Subsequent reviews of goodwill and intangibles could result in impairment during fiscal 2024. Factors that could result in an impairment include, but are not limited to, the following:
● | Prolonged period of our estimated fair value of our reporting units exceeding our market capitalization; |
● | Lower expectations for future profitability of bookings or EBITDA, which in part, could be impacted by legislative, regulatory or tax changes that affect the cost of, or demand for, products and services as well as the loss of key personnel; |
● | Deterioration in key assumptions used in our income approach estimates of fair value, such as higher discount rates from higher stock market volatility; and |
● | Valuations of significant mergers or acquisitions of companies that provide relevant market-based inputs for our impairment assessment that could support less favorable conclusions regarding the estimated fair value of our reporting units. |
(6) $569.3 Taxes million, and $0.0 million, respective of accumulated impairment losses for the Skillsoft segment.
(6) Taxes
For the three months and ninesix months ended OctoberJuly 31, 2022 (Successor)2023, the Company recorded a tax benefit on continuing operations of $8.8$1.9 million and $34.2$6.3 million, respectively, on a pretax loss of $592.1$33.9 million and $768.0$82.5 million, respectively. The tax benefit reflects the impact of non-deductible items, current period changes in the Company’s valuation allowance on its deferred tax assets, changes in uncertain tax positions and the impact of foreign rate differential.
For the three months ended October 31, 2021 (Successor) the Company recorded a tax benefit on continuing operations of $6.2 million on pretax loss of $54.9 million. For the successor period from June 12, 2021 through October 31, 2021, the Company recorded a tax benefit on continuing operations of $8.2 million on pretax loss of $66.4 million. The tax benefit reflects the impact of non-deductible items, current period changes in the Company’s valuation allowance on its deferred tax assets and the impact of foreign rate differential.
For the predecessor period from February 1, 2021 through June 11, 2021,three and six months ended July 31, 2022, the Company recorded a tax benefit on continuing operations of $3.5$3.1 million and $25.4 million, respectively, on a pretax loss of $54.0 million.$130.4 million and $175.8 million, respectively. The tax benefit for these periods reflectedreflects the impact of non-deductible items, current period changes in the Company’s valuation allowance on its deferred tax assets and the impact of foreign rate differential.
(7) Restructuring
(7) Restructuring
In connection with strategic initiatives implemented during the three and six months ended July 31, 2023 and July 31, 2022, the Company’s acquisition integration processmanagement approved and workplace flexibility policy, it has continued its initiatives and commitmentinitiated plans to reduce its costscost structure and better align operating expenses with existing economic conditions and itsthe Company’s operating model. During the three and nine months ended October 31, 2022 (Successor), the Company recorded restructuring charges of $2.0 million and $10.3 million, respectively, for the severance costs and the abandonment of right-of-use assets.
In January 2021, the Company committed to a restructuring plan that encompassed a series of measures intended to improve its operating efficiency, competitiveness and business profitability. These included workforce reductions and consolidation of facilities as it is
24
adopting new work arrangements for certain locations. The Company recorded restructuring charges of $0.8$2.5 million and $1.1$7.7 million during the three and six months ended OctoberJuly 31, 2021 (Successor) and the period of June 12, 2021 to October 31, 2021 (Successor)2023, respectively, and recoveries$4.3 million and $8.3 million for the three and six months ended July 31, 2022, respectively. These restructuring charges are presented separately in the accompanying condensed consolidated statements of $0.6 million duringoperations and include primarily the periodseverance costs of February 1, 2021 to June 11, 2021 (Predecessor (SLH)terminated employees and lease termination and lease impairment charges.
(8), as a result of severance cost estimate changes.
(8) Leases, Commitments and Contingencies
Leases
The Company measured Skillsoft and Global Knowledge’s legacy lease agreements as if the leases were new at the acquisition date and applied the provisions of Topic 842. This resulted in the recognition of right-of-use (ROU) assets and lease liabilities of $14.0 million and $16.2 million, respectively, as of October 31, 2022. All leases are classified as operating leases.
The Company’s lease portfolio includes office space, training centers, and vehicles to support its research and development activities, sales operations and other corporate and administrative functions in North America, Europe and Asia. The Company’s leases have remaining terms of one year to eleventen years. Some of the Company’s leases include options to extend or terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.
Operating lease ROUright-of-use ("ROU") assets and liabilities are recognized based on the present value of the future minimum lease payments over the expected lease term. As the Company’s operating leases generally do not provide an implicit rate, the Company uses an estimated incremental borrowing rate in determining the present value of future payments. The Company elected the package of practical expedients permitted under the transition guidance which were applied consistently to allincremental borrowing rate represents an estimate of the Company’s leases that commenced beforeinterest rate the Company would incur at the acquisition date.date to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular location and currency environment. The Company also elected the short-term lease recognition exemptionweighted average incremental borrowing rate for all qualifyingits operating leases where ROU assetsas of July 31, 2023 and lease liabilities are not recognized for leases with the remaining terms of less than one year.January 31, 2023 was 5.8% and 5.5%, respectively.
The operating leases are included in the captioncaptions “Right of use assets”, “Lease Liabilities”liabilities”, and “Long-term lease liabilities” on the Company’s condensed consolidated balance sheets as of OctoberJuly 31, 2022.2023 and January 31, 2023. The weighted-average remaining lease term of the Company’s operating leases is 6.06.1 years as of OctoberJuly 31, 2022.2023. Lease costs for minimum lease payments are recognized on a straight-line basis over the lease term. The lease costs were $1.1$2.9 million and related cash payments were $2.3$1.4 million for the period from February 1, 2021 to June 11, 2021 (Predecessor (SLH))six months ended July 31, 2023. The lease costs were $3.7 million and related cash payments were $4.4$4.2 million for the period from June 12, 2021 to October 31, 2021 (Successor). The lease costs were $5.0 million and related cash payments were $5.9 million for the ninesix months ended OctoberJuly 31, 2022 (Successor). Lease costs are included within the content and software development, selling and marketing, and general and administrative lines on the condensed consolidated statements of operations, and the operating leases related cash payments were included in the operating cash flows and the finance leases related cash payments were included in the financing cash flows on the condensed consolidated statements of cash flows. Short-term lease costs and variable lease costs are not material.
25
See Note 7 for discussion related to restructuring charges associated with lease termination and lease impairment charges.
The table below reconciles the undiscounted future minimum lease payments under non-cancellable leases to the total lease liabilities recognized on the condensed consolidated balance sheets as of OctoberJuly 31, 2022 (Successor)2023:
| | | | ||||
Fiscal Year Ended January 31 (in thousands): |
| Operating Leases | Operating Leases | ||||
2023 (excluding nine months ended October 31, 2022) | | $ | 1,297 | ||||
2024 | |
| 4,486 | ||||
2024 (six months remaining) | $ | 2,492 | |||||
2025 | | | 3,061 | 3,705 | |||
2026 | | | 1,952 | 2,469 | |||
2027 | |
| 2,152 | 2,337 | |||
2028 | 1,548 | ||||||
Thereafter | |
| 4,774 | 4,198 | |||
Total future minimum lease payments | |
| 17,722 | 16,749 | |||
Less effects of discounting | |
| (1,488) | ||||
Effects of discounting | (2,509 | ) | |||||
Total lease liabilities | | $ | 16,234 | $ | 14,240 | ||
| | | | ||||
Reported as of October 31, 2022 | |
|
| ||||
Lease liabilities | | $ | 4,271 | ||||
Current lease liabilities | $ | 3,883 | |||||
Long-term lease liabilities | |
| 11,976 | 10,357 | |||
Total lease liabilities | | $ | 16,247 | $ | 14,240 |
Litigation
FromThe Company is, from time to time, the Company is a party to or may be threatened with litigationgeneral legal proceedings and claims, which arise in the ordinary course of its business. The Company regularly analyzesbusiness including those relating to commercial and contractual disputes, employment matters, intellectual property, and other business matters. When appropriate, management consults with legal counsel and other appropriate experts to assess claims. If, in management’s opinion, we have incurred a probable loss as determined in accordance with GAAP, an estimate is made of the loss and the appropriate accrual is reflected in our condensed consolidated financial statements. Currently, there are no material amounts accrued. While it is not possible to quantify the financial impact or predict the outcome of all pending claims and litigation, management does not anticipate that the outcome of any current information, including, as applicable,proceedings or known claims, either individually or in aggregate, will materially affect the Company’s defense and insurance coverage and, as necessary, provides accruals for probable and estimable liabilities for the eventual dispositionfinancial position, results of these matters.operations or cash flows.
On March 14, 2022, a putative Company stockholder filed a complaint in the United States District Court for the Eastern District of New York, captioned Newton v. Skillsoft Corp., et al., No. 1:22-cv-01383 (E.D.N.Y.), against the Company and the members of its Board of Directors. On May 29, 2022, this case was dismissed. The complaint generally alleged that the definitive proxy statement filed by the Company with the SEC in connection with the Codecademy acquisition contained misstatements and omissions in violation of Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder by the SEC.
The items noted above, and any potential liability, do not currently meet the accounting criteria of probable and estimable. Therefore the Company has not accrued any related liability as of October 31, 2022.
Guarantees
The Company’s software license arrangements and hosting services are typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable and substantially in accordance with the Company’s product documentation under normal use and circumstances. The Company’s arrangements also include certain provisions for indemnifying customers against liabilities if its products or services infringe a third party’s intellectual property right.
The Company has entered into service level agreements with some of its hosted application customers warranting certain levels of uptime reliability and such agreements permit those customers to receive credits against monthly hosting fees or terminate their agreements in the event that the Company fails to meet those levels for an agreed upon period of time.
To date, the Company has not incurred any material costs as a result of such indemnifications or commitments and has not accrued any liabilities related to such obligations in the accompanying condensed consolidated financial statements.
26
(9)(9) Long-Term Debt
Debt consisted of the following (in thousands):
| | | | | | |
| | October 31, 2022 | | January 31, 2022 | ||
Term Loan - current portion | | $ | 6,404 | | $ | 4,800 |
Current maturities of long-term debt | | $ | 6,404 | | $ | 4,800 |
| | | | | | |
Term Loan - long-term portion | | | 596,202 | | | 474,000 |
Less: Original Issue Discount - long-term portion | |
| (8,640) | | | (6,724) |
Less: Deferred Financing Costs - long-term portion | |
| (4,691) | | | (5,091) |
Long-term debt | | $ | 582,871 | | $ | 462,185 |
July 31, 2023 | January 31, 2023 | |||||||
Term Loan - current portion | $ | 6,404 | $ | 6,404 | ||||
Current maturities of long-term debt | 6,404 | 6,404 | ||||||
Term Loan - long-term portion | 591,399 | 594,601 | ||||||
Original issue discount - long-term portion | (7,622 | ) | (8,286 | ) | ||||
Deferred financing costs - long-term portion | (4,138 | ) | (4,498 | ) | ||||
Long-term debt | $ | 579,639 | $ | 581,817 |
On July 16,2021, Skillsoft Finance II, Inc. (“Skillsoft Finance II”), a subsidiary of Skillsoft Corp., entered into a Credit Agreement (the “Credit Agreement”), by and among Skillsoft Finance II, as borrower, Skillsoft Finance I, Inc., as holdings (“Holdings”), the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent, pursuant to which the lenders provided a $480 million term loan facility (the “Term Loan Facility”) to Skillsoft Finance II, the proceeds of which, together with cash on hand, were used to refinance existing debt. The Term Loan (Successor)Facility is scheduled to mature on July 16,2028 (the “Maturity Date”).
In connection with the closing of the Codecademy acquisition, Skillsoft Finance II entered into Amendment No.1 to the Credit Agreement, dated as of April 4, 2022 (the “First Amendment”), among Skillsoft Finance II, Holdings, certain subsidiaries of Skillsoft Finance II, as guarantors, Citibank N.A., as administrative agent, and the financial institutions party thereto as Term B-1 Lenders, which amended the Credit Agreement (as amended by the First Amendment, the “Amended Credit Agreement”).
The First Amendment provides for the incurrence of up to $160 million of Term B-1 Loans (the “Term B-1 Loans”) under the Amended Credit Agreement. In addition, the First Amendment, among other things, (a) provides for early opt-in to Secured Overnight Financing Rate ("SOFR") for the existing term loans under the Credit Agreement (such existing term loans together with the Term B-1 Loans, the “Initial Term Loans”) and (b) provides for the applicable margin for the Initial Term Loans at 4.25% with respect to base rate borrowings and 5.25% with respect to SOFR borrowings.
The Company received $153.2 million of net proceeds (net of $4.0 million of financing costs and $2.8 million of original issuance discounts) from the Term Loan Facility on April 4, 2022. The Company used the net proceeds and cash on hand for the closing of the Codecademy acquisition on April 4, 2022.
The refinancing was accounted for as a modification for certain lenders and an extinguishment for other lenders and debt issuance costs and lender fees were accounted for in proportion to whether the related principal balance was considered modified or extinguished. Accordingly, both newly incurred and deferred financing costs and original issuance discounts of $0.1 million and $2.8 million, respectively, will be amortized as additional interest expense over the term of the Initial Term Loans.
Prior to the maturity thereof, the Initial Term Loans will be subject to quarterly amortization payments of 0.25% of the principal amount.
On August 15, 2022, pursuant to the Purchase Agreement entered on June 12, 2022 by and among Skillsoft, Skillsoft (US) Corporation (“Seller”), Amber Holding Inc. (“SumTotal”), and Cornerstone OnDemand, Inc. (“Buyer”), Seller completed the sale of one hundred percent (100%) of the outstanding shares of capital stock of SumTotal to Buyer. As a result of the asset sale, the Company made a mandatory prepayment of $31.4 million to the lenders in August 2022. The remaining net cash proceeds attributable to the sale of SumTotal were subject to reinvestment provisions and could not be used for general corporate purposes. As defined in the Amended Credit Agreement, no additional repayment was required.
All obligations under the Amended Credit Agreement, and the guarantees of those obligations (as well as certain cash management obligations and interest rate hedging or other swap agreements), are secured by substantially all of Skillsoft Finance II’s personal property as well as the assets of each subsidiary guarantor.
Amounts outstanding under the Term Loan Facility bear interest, at the option of Skillsoft Finance II, at a rate equal to (a) SOFR (subject to a floor of 0.75%) plus a credit premium based on the tenor of the interest period plus 5.25% for SOFR Loans or (b) the highest of (i) the Federal Funds Effective Rate plus 10.50%, (ii) the “prime rate” quoted by the administrative agent, (iii) Adjusted Term SOFR plus 1.00% and (iv) 1.75%, plus 3.75% for alternative base rate loans. As of July 31, 2023, the balance of $597.8 million of Initial Term Loans bears interest at a rate equal to SOFR plus a credit premium of 0.11% plus a spread of 5.25%, per annum, with a SOFR floor of 0.75%, and quarterly principal repayments of $1.6 million until maturity.
Voluntary prepayment is permitted under the Term Loan Facility. Loan parties are subject to various affirmative and negative covenants and reporting obligations under the Amended Credit Agreement. These include, among other things, limitations on indebtedness, liens, sale and leaseback transactions, investments, fundamental changes, assets sales, restricted payments, affiliate transactions, and restricted debt payments. Events of default under the Term Loan Facility include non-payment of amounts due to the lenders, violation of covenants, materially incorrect representations, defaults under other material indebtedness, judgments and specified insolvency-related events, certain ERISA events, and invalidity of loan or collateral documents, subject to, in certain instances, specified thresholds, cure periods and exceptions. As of July 31, 2023, the Company is in compliance with all covenants.
The Company’s debt outstanding as of July 31, 2023 matures as shown below (in thousands):
For fiscal years ended January 31: | ||||
2024 (six months remaining) | $ | 3,202 | ||
2025 | 6,404 | |||
2026 | 6,404 | |||
2027 | 6,404 | |||
2028 | 6,404 | |||
Thereafter | 568,985 | |||
Total payments | 597,803 | |||
Current portion | (6,404 | ) | ||
Unamortized original issue discount and issuance costs | (11,760 | ) | ||
Long-term portion | $ | 579,639 |
Accounts Receivable Facility
On December 20, 2018, the Company entered into a $75.0 million receivables credit agreement, with a termination date of the earliest of 5 years from closing or 45 days before the revolving credit facility maturity or 180 days before the maturity of any term indebtedness greater than $75 million. There are four classes of available receivables with advance rates between 50.0% and 85.0%. The lenders require the Company to deposit receipts from pledged receivables to a restricted concentration account. Cash collected against receivables pledged as collateral for borrowings must be transferred to the restricted concentration account within two business days of receipt by the Company. The Company accounts for these transactions as borrowings, as the assets pledged contain the rights to future revenues. Under these agreements, the Company receives the net present value of the accounts receivable balances used to calculate the borrowing base. The interest rate on borrowings outstanding under these agreements was 8.43% at July 31, 2023. Borrowings and repayments under these agreements are presented as cash flows from financing activities in the accompanying unaudited condensed consolidated statements of cash flows.
On September 19, 2019, the Company amended the receivables credit agreement to include Class “B” lending. This increased the facility borrowing capacity up to $90.0 million. In conjunction with this, it increased the advance rate to 95% across the four classes of available receivables. All other terms and conditions remained materially the same.
On August 27, 2020, the Company amended its accounts receivable facility. In connection with the amendment, additional capacity under the previous accounts receivable facility which had been extended by the private equity sponsor of the Company’s prior owner was eliminated, reducing the maximum capacity of the facility from $90 million to $75 million. The advance rate was also reduced from 90% to between 50.0% and 85.0% based on the class categorization of the receivable. The maturity date for the remaining $75 million facility was extended to the earlier of (i) December 27, 2024 or (ii) 90 days prior to the maturity of any corporate debt. The Company submits a monthly reconciliation on each month’s settlement date detailing what was collected from the prior month's borrowing base and what additional receivables are being pledged during the new borrowing base period to replenish them. If additional receivables are pledged to replenish receipts, the funds from the concentration account will be returned to the Company by the administrative agent. The reserve balances were $3.9 million at July 31, 2023 and are classified as restricted cash on the balance sheet. As of July 31, 2023, $40.1 million was drawn from our accounts receivable facility.
(10) Shareholders’ Equity
Common Stock
As of July 31, 2023, the Company’s authorized share capital consisted of 375,000,000 shares of Class A common stock and 10,000,000 shares of preferred stock, with a par value $0.0001 each, and 160,467,809 shares of Class A common stock were issued and outstanding. As of July 31, 2023, the Company had no shares of Class C common stock outstanding. The number of authorized shares of Class A common stock or preferred stock authorized for issuance may be increased by the affirmative vote of the holders of a majority in voting power of the Company’s capital stock entitled to vote thereon. Except as required by law, holders of shares of Class C common stock are not entitled to vote any such shares.
Subject to applicable law, the Company may declare dividends to be paid ratably to holders of Class A common stock out of the Company’s assets that are legally available to be distributed as dividends in the discretion of the Company’s board of directors. Holders of Class C common stock are generally not entitled to dividends.
Warrants
Refer to Note 11, for information related to the equity classified warrants.
Share Repurchases and Repurchase Authorization
On September 7, 2022, the Board of Directors authorized Skillsoft to repurchase up to $30.0 million of its Class A common stock, which expired September 7, 2023. Under the program, the Company was authorized to purchase shares in the open market, in private negotiated transactions, or by other means from time to time. The share repurchase program did not obligate the Company to purchase any minimum number of shares. Under the program, the Company repurchased 4,365,255 of its shares for $8.0 million during the six months ended July 31, 2023. From inception through the quarter ended July 31, 2023, we repurchased 5,995,530 of our shares for $10.9 million.
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss) associated with foreign currency translation adjustments (in thousands) consisted of the following:
Three Months Ended July 31, | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
Before Tax | Income Tax | Net | Before Tax | Income Tax | Net | |||||||||||||||||||
Balance as of beginning-of-period | $ | (13,919 | ) | $ | — | $ | (13,919 | ) | $ | (1,278 | ) | $ | — | $ | (1,278 | ) | ||||||||
Translation adjustment | 496 | — | 496 | (1,477 | ) | — | (1,477 | ) | ||||||||||||||||
Balance as of end-of-period | $ | (13,423 | ) | $ | — | $ | (13,423 | ) | $ | (2,755 | ) | $ | — | $ | (2,755 | ) |
Six Months Ended July 31, | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
Before Tax | Income Tax | Net | Before Tax | Income Tax | Net | |||||||||||||||||||
Balance as of beginning-of-period | $ | (14,794 | ) | $ | — | $ | (14,794 | ) | $ | 970 | $ | — | $ | 970 | ||||||||||
Translation adjustment | 1,371 | — | 1,371 | (3,725 | ) | — | (3,725 | ) | ||||||||||||||||
Balance as of end-of-period | $ | (13,423 | ) | $ | — | $ | (13,423 | ) | $ | (2,755 | ) | $ | — | $ | (2,755 | ) |
(11) Warrants
In connection with the formation of the Company and subsequent acquisitions of Software Luxembourg Holdings S.A. and Albert DE Holdings Inc., warrants to purchase common stock were issued to investors, sellers of Albert DE Holdings Inc. and an executive of the Company. Warrants that are not subject to ASC 718, Stock Compensation and (i) contained features that could cause the warrant to be puttable to the Company for cash or (ii) had terms that prevented the conversion of the warrant from being fixed in all circumstances, are classified as a liability on the Company’s balance sheet and measured at fair value, with changes in fair value being recorded in the income statement, whereas all other warrants meet the equity scope exception and are classified as equity and not remeasured.
A summary of liability classified warrants is as follows (in thousands, except per share amounts):
Underlying | Fair Value | ||||||||||||||
Common | Strike | Redemption | Expiration | at July 31, | |||||||||||
Type | Shares | Price | Price | Date | 2023 | ||||||||||
Private Placement Warrants – Sponsor | 15,846 | $ | 11.50 | None | 6/11/2026 | $ | 1,109 |
Simultaneously with the closing of the initial public offering, Churchill Capital (the “Sponsor”) purchased an aggregate of 15,800,000 Private Placement Warrants. An additional 1,500,000 warrants were issued at the closing of the business combination with Software Luxembourg Holding S.A. on June 11, 2021 in connection with the repayment of a promissory note due to the Sponsor. One million of the Private Placement Warrants were transferred to the incoming CEO as described below. These warrants held by the Sponsor include provisions that provide for potential changes to the settlement amounts on redemptions and were dependent upon the characteristics of the holder of the warrant. As of July 31, 2023, 453,596 Private Placement Warrants had been transferred to public holders (included in "Public Warrants" in the table below). Because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares, the warrants are precluded from being indexed to the entity’s stock and are classified as a liability measured at fair value, with changes in fair value each period reported in earnings.
A summary of equity classified warrants is as follows (in thousands, except per share amounts):
Underlying | |||||||||||||
Common | Strike | Redemption | Expiration | ||||||||||
Type | Shares | Price | Price | Date | |||||||||
Public Warrants | 23,454 | $ | 11.50 | $ | 18.00 | 6/11/2026 | |||||||
Private Placement Warrants (PIPE) | 16,667 | 11.50 | 18.00 | 6/11/2026 | |||||||||
Private Placement Warrants (Global Knowledge) | 5,000 | 11.50 | None | 10/12/2025 | |||||||||
Private Placement Warrants (CEO) | 1,000 | 11.50 | None | 6/11/2026 | |||||||||
Total | 46,121 |
A description of each category of warrants issued and outstanding is as follows:
● | Public Warrants – Pursuant to the initial public offering, the Company sold units that consisted of one share of Class A common stock and one-third of one redeemable warrant (“Public Warrants”), resulting in the issuance of 23,000,000 warrants. Prior to the business combination with Software Luxembourg Holding S.A. on June 11, 2021 (the “Skillsoft Merger"), Churchill Capital Corp II had classified these warrants as liabilities due to tender offer provisions which state that in the event of a tender or exchange offer made to and accepted by holders of more than 50% of the outstanding shares of a single class of common stock, all holders of the warrants would be entitled to receive cash for their warrants. Accordingly, there were potential scenarios outside the control of the Company (which had more than one class of outstanding common stock prior to the Skillsoft Merger), where all warrant holders would be entitled to cash, while only certain holders of the underlying shares of common stock would be entitled to cash, requiring the warrants to be classified as a liability measured at fair value, with changes in fair value reported each period in earnings. Upon the completion of the Skillsoft Merger on June 11,2021, when only one class of voting shares remained outstanding, the warrants met equity classification criteria as net cash settlement can only be triggered in circumstances in which the holders of the shares underlying the contract also would receive cash in the event of a fundamental change in the ownership of the Company, such as a change in control. Accordingly, the fair value of the warrants was transferred to equity and cumulative losses recognized from changes in fair value remain in the Company’s accumulated deficit balance. During the three and six months ended July 31, 2023, there was no activity related to the Private Placement Warrants or Public Warrants. |
● | Private Placement Warrants (PIPE) – In connection with the second step investment made by the anchor PIPE investor, 16,666,667 warrants were issued to a PIPE investor to purchase Class A common stock. The PIPE Private Placement Warrants are issued in the same form as the Public Warrants. |
● | Private Placement Warrants (Global Knowledge) – Upon completion of the acquisition of Albert DE Holdings Inc. (the "Global Knowledge Merger"), 5,000,000 warrants were issued to the former owner of Global Knowledge. These warrants are similar to the Private Placement Warrants except the warrants are not subject to the redemption provisions described below if transferred. |
● | Private Placement Warrants (CEO) - Effective at the closing of the Skillsoft Merger and Global Knowledge Merger, the Sponsor committed to transfer 1,000,000 fully vested Private Placement Warrants to the CEO pursuant to his employment agreement with the Company. The warrants are subject to ASC 718, Stock Compensation. |
Public Warrants and PIPE Private Placement Warrants (hereinafter referred to as “Redeemable Warrants”) are currently exercisable and may only be exercised for a whole number of shares. The Company may redeem these warrants:
● | in whole and not in part; |
● | at a price of $0.01 per warrant; |
● | upon not less than 30 days’ prior written notice of redemption; |
● | if, and only if, the reported last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30‑trading day period ending on the third business day prior to the notice of redemption to the warrant holders; and |
● | if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying the warrants. |
If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company calls the Redeemable Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A common stock at a price below their exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.
The Sponsor and CEO Private Placement Warrants have the same terms as the Public Warrants, except they will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Sponsor Private Placement Warrants are transferred to someone other than the initial purchasers or their permitted transferees, they will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. The Global Knowledge Private Placement Warrants are not redeemable, even upon a transfer in ownership.
(12) Stock-based compensation
Equity Incentive Plans
In June 2021, Skillsoft Corp adopted the 2020 Omnibus Incentive Plan (“2020 Plan”). The 2020 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, other equity-based awards, and cash-based incentive awards to employees, directors, and consultants of the Company. Under the 2020 Plan, 13,105,902 shares were initially made available for issuance. The 2020 Plan includes an annual increase on January 1 each year beginning on January 1,2022, in an amount equal to 5.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year. The Compensation Committee may act prior to January 1 of a given year to provide that there will be noJanuary 1 increase for such year or that the increase for such year will be a lesser number of shares of common stock than provided for in the 2020 Plan. As of July 31, 2023, a total of 2,922,303 shares of common stock were available for issuance under the 2020 Plan.
Stock Options
Under the 2020 Plan all employees are eligible to receive incentive share options and all employees, directors and consultants are eligible to receive non-statutory share options. The options generally vest over four years and have a term of ten years. Vested options under the plan generally expire not later than 90 days following termination of employment or service or twelve months following an optionee's death or disability. The fair value of stock options is determined on the grant date and amortized over the vesting period on a straight-line basis.
The following summarizes the stock option activity for the six months ended July 31, 2023:
Weighted - | ||||||||||||||||
Weighted - | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic Value | ||||||||||||||
Shares | Price | Term (Years) | (in thousands) | |||||||||||||
Outstanding, January 31, 2023 | 2,321,976 | $ | 10.74 | 8.4 | $ | — | ||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | — | — | — | — | ||||||||||||
Forfeited | (463,976 | ) | 10.69 | — | — | |||||||||||
Expired | — | — | — | — | ||||||||||||
Outstanding, July 31, 2023 | 1,858,000 | 10.75 | 7.9 | — | ||||||||||||
Vested and exercisable, July 31, 2023 | 727,125 | 10.75 | 7.9 | — |
The total unrecognized equity-based compensation costs related to the stock options was $3.0 million based on the $2.29 weighted average grant date fair value of the options, which is expected to be recognized over a weighted-average period of 1.9 years.
Time-Based Restricted Stock Units
Restricted stock units (“RSUs”) represent a right to receive one share of the Company’s common stock that is both non-transferable and forfeitable unless and until certain conditions are satisfied. Other than restricted stock units granted to our non-employee directors, which vest upon the earlier of the anniversary of the grant date and the Company’s next annual meeting of stockholders, restricted stock units generally vest ratably over a three or four-year period, subject to continued employment through each anniversary. The fair value of restricted stock units is determined on the grant date and is amortized over the vesting period on a straight-line basis.
The following summarizes the time-based RSU activity for the six months ended July 31, 2023:
Weighted - | Aggregate | |||||||||||
Average Grant | Intrinsic Value | |||||||||||
Shares | Date Fair Value | (in thousands) | ||||||||||
Unvested balance, January 31, 2023 | 12,166,123 | $ | 6.01 | $ | 23,359 | |||||||
Granted (1) | 8,785,999 | 1.52 | — | |||||||||
Vested | (1,804,645 | ) | 6.98 | — | ||||||||
Forfeited | (2,214,225 | ) | 6.08 | — | ||||||||
Unvested balance, July 31, 2023 | 16,933,252 | 3.57 | 22,352 |
(1)In May 2023, 291,000 shares were granted to replace 388,000 shares of market-based RSUs. This modification resulted in stock-based compensation expense increasing by less than $0.1 million per quarter over a two-year period.
The total unrecognized stock-based compensation costs related to time-based RSUs was $51.8 million, which is expected to be recognized over a weighted-average period of 2.5 years.
Market-based Restricted Stock Units
Market-based restricted stock units (“MBRSUs”) vest over a three-year or four-year performance period, subject to continued employment through each anniversary and achievement of market conditions, specifically the Company's stock price and an objective relative total shareholder return. The fair value of MBRSUs that include vesting based on market conditions are estimated using the Monte Carlo valuation method. Compensation cost for these awards is recognized based on the grant date fair value which is recognized over the vesting period using the accelerated attribution method.
The following summarizes the MBRSUs activity for the six months ended July 31, 2023:
Weighted - | Aggregate | |||||||||||
Average Grant | Intrinsic Value | |||||||||||
Shares | Date Fair Value | (in thousands) | ||||||||||
Unvested balance, January 31, 2023 | 2,258,458 | $ | 6.75 | $ | 4,336 | |||||||
Granted | 2,307,500 | 2.26 | — | |||||||||
Vested | — | — | — | |||||||||
Forfeited | (476,055 | ) | 7.89 | — | ||||||||
Canceled (1) | (388,000 | ) | 8.60 | — | ||||||||
Unvested balance, July 31, 2023 | 3,701,903 | 3.72 | 4,887 |
(1)In May 2023, 388,000 shares of market-based RSUs were canceled and replaced with 291,000 shares of time-based RSUs. This modification resulted in stock-based compensation expense increasing by less than $0.1 million per quarter over a two-year period.
The total unrecognized stock-based compensation costs related to MBRSUs was $7.0 million, which is expected to be recognized over a weighted-average period of 1.1 years.
Stock-based Compensation Expense
The following summarizes the classification of stock-based compensation expense in the condensed consolidated statements of operations (in thousands):
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Cost of revenues | $ | 238 | $ | 37 | $ | 335 | $ | 51 | ||||||||
Content and software development | 1,744 | 2,849 | 3,756 | 4,424 | ||||||||||||
Selling and marketing (1) | (667 | ) | 1,541 | 1,015 | 3,018 | |||||||||||
General and administrative | 4,512 | 5,590 | 9,849 | 11,017 | ||||||||||||
Total | $ | 5,827 | $ | 10,017 | $ | 14,955 | $ | 18,510 |
(1) Stock-based compensation expense during the three months ended July 31, 2023 was reduced by $2.1 million due to forfeitures of share-based payment awards.
(13) Revenue
Revenue Components and Performance Obligations
Subscription services
The Company offers subscriptions that provide customers access to a broad-based spectrum of learning options including access to cloud-based learning content and individualized coaching. The Company’s cloud-based subscription solutions normally do not provide customers with the right to take possession of the software supporting the platform or to download course content without continuing to incur fees for hosting services and, as a result, are accounted for as service arrangements. Access to the platform and course content represents a series of distinct services as the Company continually provides access to, and fulfills its obligation to, the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. Accordingly, the fixed consideration related to subscription revenue is usually recognized on a straight-line basis over the contract term, beginning on the date that the service is made available to the customer. The Company’s subscription contracts typically vary from one year to three years. The Company’s cloud-based solutions arrangements are mostly non-cancellable, non-refundable, and are invoiced in advance of the subscription services being provided.
Virtual, on-demand and classroom
The Company’s virtual, on-demand and classroom training provides customers with technical training. Revenue is recognized in the period in which the services are performed. Billing is in advance of the services being provided or immediately after the services have been provided.
Professional services
The Company also sells professional services related to its cloud solutions which are typically considered distinct performance obligations and are recognized over time as services are performed. For fixed-price contracts, revenue is recognized based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided (proportional performance method). These services usually consist of implementation, integration, and general consulting. Mostly, the Company’s professional service engagements are short in duration. Billing is commonly in advance of the services being provided.
Disaggregated Revenue and Geography Information
The following is a summary of revenues by type for the three and six months ended July 31, 2023 and July 31, 2022 (in thousands):
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
SaaS and subscription services | $ | 98,032 | $ | 94,247 | $ | 191,851 | $ | 179,316 | ||||||||
Virtual, on-demand and classroom | 37,999 | 41,821 | 74,980 | 86,874 | ||||||||||||
Professional services | 5,156 | 4,506 | 9,910 | 9,223 | ||||||||||||
Total net revenues | $ | 141,187 | $ | 140,574 | $ | 276,741 | $ | 275,413 |
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue: | ||||||||||||||||
United States | $ | 92,936 | $ | 92,603 | $ | 182,023 | $ | 176,039 | ||||||||
Europe, Middle East and Africa | 35,741 | 35,775 | 70,276 | 74,416 | ||||||||||||
Other Americas | 7,331 | 7,419 | 14,327 | 15,976 | ||||||||||||
Asia-Pacific | 5,179 | 4,777 | 10,115 | 8,982 | ||||||||||||
Total net revenues | $ | 141,187 | $ | 140,574 | $ | 276,741 | $ | 275,413 |
Other than the United States, no single country accounted for more than 10% of revenue for all periods presented.
Deferred Revenue
Deferred revenue activity for the six months ended July 31, 2023 was as follows (in thousands):
Deferred revenue at January 31, 2023 | $ | 282,454 | ||
Billings deferred | 220,870 | |||
Recognition of prior deferred revenue | (276,741 | ) | ||
Deferred revenue at July 31, 2023 | $ | 226,583 |
Deferred revenue performance obligations relate predominantly to time-based SaaS and subscription services that are billed in advance of services being rendered.
Deferred Contract Acquisition Costs
Deferred contract acquisition cost activity for the six months ended July 31, 2023 was as follows (in thousands):
Deferred contract acquisition costs at January 31, 2023 | $ | 24,594 | ||
Contract acquisition costs | 14,166 | |||
Recognition of contract acquisition costs | (9,451 | ) | ||
Deferred contract acquisition costs at July 31, 2023 | $ | 29,309 |
(14) Fair Value Measurements
FASB ASC Topic 820,Fair Value Measurements and Disclosures (“ASC 820”) establishes a fair value hierarchy that prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The three levels of the fair value hierarchy established by ASC 820 in order of priority are as follows:
● | Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
● | Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
● | Level 3: Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available. |
The following summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of July 31, 2023 and are categorized using the fair value hierarchy (in thousands):
Level 2 | Level 3 | |||||||||||
Description | Measurements | Measurements | Total | |||||||||
Interest rate swaps - asset (liability) | $ | 5,651 | $ | — | $ | 5,651 | ||||||
Liability classified warrants | — | (1,109 | ) | (1,109 | ) | |||||||
Total assets and (liabilities) recorded at fair value | $ | 5,651 | $ | (1,109 | ) | $ | 4,542 |
Interest Rate Swap
On June 17, 2022, the Company entered into two fixed-rate interest rate swap agreements to change the SOFR-based component of the interest rate on a portion of the Company’s variable rate debt to a fixed rate (the “Interest Rate Swaps”). The Interest Rate Swaps have a combined notional amount of $300.0 million and a maturity date of June 5, 2027. The objective of the Interest Rate Swaps is to eliminate the variability of cash flows in interest payments on the first $300.0 million of variable rate debt attributable to changes in benchmark one-month SOFR interest rates. The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark SOFR interest rates over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to offset changes in cash flows of the variable rate debt. The Interest Rate Swaps are not designated as a cash flow hedge and changes in the fair value of the interest rate swaps are recorded in earnings each period. For the three and six months ended July 31, 2023, the Company recognized a non-cash gain of $6.9 million and $7.2 million, respectively, attributable to the Interest Rate Swaps. For the three and six months ended July 31, 2022, the Company recognized a loss of $15.1 million attributable to the Interest Rate Swaps.
The inputs for determining fair value of the Interest Rate Swaps are classified as Level 2 inputs. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces. The counterparties to these derivative contracts are highly rated financial institutions which we believe carry only a minimal risk of nonperformance.
Warrants
A summary of liability-classified warrants is as follows (in thousands, except per share amounts):
Underlying | |||||||||||||||
Common | Strike | Redemption | Expiration | Fair Value at | |||||||||||
Type | Shares | Price | Price | Date | July 31, 2023 | ||||||||||
Private Placement Warrants – Sponsor | 15,846 | $ | 11.50 | None | 6/11/2026 | $ | 1,109 |
The Company classifies Sponsor Private Placement Warrants as liabilities in accordance with ASC Topic 815. Refer to Note 11 "Warrants" for more detail. The inputs for determining fair value of these warrants are classified as Level 3 inputs. The Company estimates the fair value of the Sponsor Private Placement Warrants using a Black-Scholes option pricing model and the following assumptions:
July 31, 2023 | ||||
Risk-free interest rates | 4.5 | % | ||
Expected dividend yield | 0.0 | % | ||
Volatility factor | 70.0 | % | ||
Expected lives (years) | 2.9 | |||
Value per unit | $ | 0.07 |
Changes in the fair value of liability-classified warrants classified as Level 3 due to significant unobservable inputs used to determine fair value were as follows:
Three Months Ended | Six Months Ended | |||||||
July 31, 2023 | July 31, 2023 | |||||||
Balance as of beginning-of-period | $ | 1,902 | $ | 4,754 | ||||
Unrealized gains | (793 | ) | (3,645 | ) | ||||
Balance as of July 31, 2023 | $ | 1,109 | $ | 1,109 |
Other Fair Value Instruments
The Company currently invests excess cash balances primarily in money market funds invested in United States Treasury securities and United States Treasury securities repurchase agreements, as well as cash deposits held at major banks. The carrying amounts of cash and cash equivalents, trade receivables, trade payables and accrued liabilities, as reported on the condensed consolidated balance sheet as of July 31, 2023, approximate their fair value because of the short maturity of those instruments.
Our long-term debt is a financial instrument, and the fair value of the Company’s outstanding principal as of July 31, 2023 was $540.3 million. This fair value is determined based on inputs that are classified as Level 2 within the fair value hierarchy.
(15) Segment Information
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker ("CODM"), in determining how to allocate resources and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company’s CODM evaluates results using the operating segment structure as the primary basis for which the allocation of resources and financial results are assessed.
The Company has organized its business into two segments: Content & Platform (formerly referred to as Skillsoft content) and Instructor-Led Training (formerly referred to as Global Knowledge). All of the Company’s segments market and sell their offerings globally to businesses of many sizes, government agencies, educational institutions and resellers with a worldwide sales force positioned to offer the combinations that best meet customer needs. The CODM primarily uses revenues and operating income as measures to evaluate financial results and allocation of resources. The Company allocates certain operating expenses to the reportable segments, including general and administrative costs based on the usage and relative contribution provided to the segments. There are no intercompany revenue transactions reported between the Company’s reportable segments.
The Content & Platform business engages in the sale, marketing and delivery of its content learning solutions, in areas such as Leadership and Business, Technology and Developer and Compliance. This includes individualized coaching as well as technical skill areas assumed in the Codecademy acquisition. In addition, Content & Platform offers Percipio, an intelligent artificial intelligence ("AI")-driven online learning platform that delivers an immersive learning experience through software as a service ("SaaS") solutions. It leverages its highly engaging content, curated into nearly 700 learning paths (channels) that are continuously updated to ensure customers always have access to the latest information.
The Instructor-Led Training business offers training solutions covering information technology and business skills for corporations and their employees. Instructor-Led Training guides its customers throughout their lifelong technology learning journey by offering relevant and up-to-date skills training through instructor-led (in-person “classroom” or online “virtual”) and self-paced (“on-demand”), vendor certified, and other proprietary offerings. Instructor-Led Training offers a wide breadth of training topics and delivery modalities both on a transactional and subscription basis.
The following presents summary results for each of the businesses for the three and six months ended July 31, 2023 and July 31, 2022:
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Content & Platform | ||||||||||||||||
Revenues | $ | 103,188 | $ | 98,753 | $ | 201,761 | $ | 188,539 | ||||||||
Operating expenses | 122,077 | 136,602 | 251,601 | 265,024 | ||||||||||||
Operating income (loss) | (18,889 | ) | (37,849 | ) | (49,840 | ) | (76,485 | ) | ||||||||
Instructor-Led Training | ||||||||||||||||
Revenues | 37,999 | 41,821 | 74,980 | 86,874 | ||||||||||||
Operating expenses | 44,408 | 114,754 | 85,820 | 166,407 | ||||||||||||
Operating income (loss) | (6,409 | ) | (72,933 | ) | (10,840 | ) | (79,533 | ) | ||||||||
Consolidated | ||||||||||||||||
Revenues | 141,187 | 140,574 | 276,741 | 275,413 | ||||||||||||
Operating expenses | 166,485 | 251,356 | 337,421 | 431,431 | ||||||||||||
Operating income (loss) | (25,298 | ) | (110,782 | ) | (60,680 | ) | (156,018 | ) | ||||||||
Total non-operating income (loss) | (63 | ) | 80 | 207 | 1,132 | |||||||||||
Interest expense, net | (16,255 | ) | (11,460 | ) | (32,191 | ) | (22,837 | ) | ||||||||
Fair value adjustment of warrants | 793 | 6,846 | 3,645 | 16,952 | ||||||||||||
Fair value adjustment of hedge | 6,935 | (15,065 | ) | 7,205 | (15,065 | ) | ||||||||||
(Provision for) benefit from income taxes | 1,889 | 3,065 | 6,273 | 25,402 | ||||||||||||
Net income (loss) from continuing operations | (31,999 | ) | (127,316 | ) | (75,541 | ) | (150,434 | ) | ||||||||
Gain (loss) on sale of business | — | — | (682 | ) | — | |||||||||||
Income (loss) from discontinued operations, net of tax | — | 5,817 | — | 7,292 | ||||||||||||
Net income (loss) | $ | (31,999 | ) | $ | (121,499 | ) | $ | (76,223 | ) | $ | (143,142 | ) |
Content & Platform segment depreciation for the three and six months ended July 31, 2023 was $0.6 million and $1.4 million, respectively. Content & Platform segment depreciation for the three and six months ended July 31, 2022 was $0.9 million and $1.8 million, respectively.
Instructor-Led Training segment depreciation for the three and six months ended July 31, 2023 was $0.5 million and $0.9 million, respectively. Instructor-Led Training segment depreciation for the three and six months ended July 31, 2022 was $0.3 million and $0.9 million, respectively.
The Company’s segment assets primarily consist of cash and cash equivalents, accounts receivable, prepaid expenses, deferred taxes, property and equipment, goodwill and intangible assets. The following sets forth the Company’s segment assets as of July 31, 2023 and January 31, 2023 (in thousands):
July 31, 2023 | January 31, 2023 | |||||||
Content & Platform | $ | 1,282,884 | $ | 1,434,920 | ||||
Instructor-Led Training | 195,190 | 207,767 | ||||||
Total assets | $ | 1,478,074 | $ | 1,642,687 |
The following sets forth the Company’s long-lived tangible assets by geographic region as of July 31, 2023 and January 31, 2023 (in thousands):
July 31, 2023 | January 31, 2023 | |||||||
United States | $ | 3,703 | $ | 7,117 | ||||
Rest of world | 3,541 | 3,033 | ||||||
Total long-lived tangible assets | $ | 7,244 | $ | 10,150 |
(16) Net Loss Per Share
Basic earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding restricted stock-based awards, stock options, and shares issuable under the employee stock purchase plan using the treasury stock method.
The following sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net income (loss) from continuing operations | $ | (31,999 | ) | $ | (127,316 | ) | $ | (75,541 | ) | $ | (150,434 | ) | ||||
Net income (loss) from discontinued operations | — | 5,817 | (682 | ) | 7,292 | |||||||||||
Net income (loss) | $ | (31,999 | ) | $ | (121,499 | ) | $ | (76,223 | ) | $ | (143,142 | ) | ||||
Weighted average common shares outstanding: | ||||||||||||||||
Ordinary – Basic and diluted | 160,098 | 164,089 | 160,836 | 153,442 | ||||||||||||
Net income (loss) per share: | ||||||||||||||||
Ordinary – Basic and diluted - continuing operations | $ | (0.20 | ) | $ | (0.78 | ) | $ | (0.47 | ) | $ | (0.98 | ) | ||||
Ordinary – Basic and diluted - discontinued operations | — | 0.04 | — | 0.05 | ||||||||||||
Ordinary – Basic and diluted | $ | (0.20 | ) | $ | (0.74 | ) | $ | (0.47 | ) | $ | (0.93 | ) |
During the three and six months ended July 31, 2023 and July 31, 2022, the Company incurred net losses and, therefore, the effect of the Company’s potentially dilutive securities was not included in the calculation of diluted loss per share as the effect would be anti-dilutive. The following contains share/unit totals with a potentially dilutive impact (in thousands):
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Warrants to purchase common shares | 61,967 | 61,967 | 61,967 | 61,967 | ||||||||||||
Stock options | 2,028 | 2,826 | 2,090 | 2,826 | ||||||||||||
RSUs | 21,872 | 14,408 | 17,530 | 14,408 | ||||||||||||
Total | 85,867 | 79,201 | 81,587 | 79,201 |
(17) Related Party Transactions
Agreementwith Largest Shareholder
In December 2021, Skillsoft entered into a commercial agreement to provide off-the-shelf Skillsoft products to the Company’s largest shareholder, MIH Learning B.V., and its affiliates for $0.7 million over three years.
Codecademy Transaction
An affiliate of our largest shareholder, MIH Learning B.V. also owned approximately 23.8% of the outstanding equity of Codecademy which we acquired on April 4, 2022.
Consulting Services
In December 2021, Skillsoft engaged The Klein Group, LLC (the “Klein Group”) to act as a consultant to advise the Company of a potential transaction with Codecademy, to assist management in its evaluation of the business opportunity and structuring and negotiation of a potential transaction. Pursuant to this engagement, Skillsoft paid the Klein Group a transaction fee equal to $2.0 million in connection with the Codecademy acquisition. Michael Klein, a member of our Board, is the ChiefExecutive Officer of the Klein Group and the Klein Group is closely affiliated with our second largest shareholder.
(18) Subsequent Events
The Company has completed an evaluation of all subsequent events after the balance sheet date of July 31, 2023 through the date this Quarterly Report on Form 10-Q was filed with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of July 31, 2023, and events which occurred subsequently but were not recognized in the financial statements. The Company has concluded that no subsequent events have occurred that require disclosure, except as disclosed within these financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the financial condition as of July 31, 2023, compared with January 31, 2023, and the results of operations for the three and six months ended July 31, 2023, compared with the corresponding period in fiscal 2023 of Skillsoft Corp. and its consolidated subsidiaries. Unless otherwise stated or the context otherwise requires, “Skillsoft,” “Company,” “we,” “our” or “us” refers to Skillsoft Corp. and its consolidated subsidiaries.
The MD&A is provided as a supplement to, and should be read in conjunction with, the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements (“Notes”) presented in “Part I – Item 1. Financial Statements”; our Form 10-K for the year ended January 31, 2023 (“2023 Form 10-K”); and other reports filed with the Securities and Exchange Commission (“SEC”). For more detailed information on the risks and uncertainties associated with the Company’s business activities, see the risks described in “Part I – Item 1A. Risk Factors” in our 2023 Form 10-K.
Unless otherwise noted, amounts referenced in this discussion, other than in reference to share numbers, are in thousands.
General
At Skillsoft, we propel organizations and people to grow together through transformative learning experiences.
Through a portfolio of high-quality content, a platform that is personalized and connected to customer needs, and a broad ecosystem of partners, Skillsoft drives continuous growth and performance for employees and their organizations by overcoming critical skills gaps, unlocking human potential, and transforming the workforce. With more than 150,000 expert-led skills-building courses in modalities ranging from video and audio to instructor-led training and practice labs, Skillsoft offers transformative learning experiences for leaders to frontline workers, readers to hands-on learners.
Skillsoft supports approximately 70% of the Fortune 1000 with today's sought-after competencies: leadership and business skills, technology and developer skills, and essential safety and risk management compliance. We leverage various learning modalities adaptable to different preferences, schedules, and learning styles — from books to videos, full courses to micro-learning, audiobooks to live bootcamps and coaching. Content is continuously updated with the latest insights, information, and training methods.
Today's learners want the right learning experience, delivered when, where, and how they want it. That's why our approach is mobile-first, and our expert-curated, cloud-based content is served on an open platform that reaches learners wherever they are.
Our community of approximately 90 million learners in more than 150 countries around the globe learn in more than 30 languages. As often as they need or want, typical learners turn to Skillsoft to acquire critical job skills in the flow of work, and grow as leaders, employees, and people. We have helped fuel performance and career growth for more than 20 years.
For more details, refer to “Part I – Item 1. Business” in our 2023 Form 10-K.
Significant Transactions
The two transactions discussed below both occurred during fiscal 2023.
Completion of the Codecademy Acquisition
On April 4, 2022, the Company acquired Codecademy, a leading online learning platform for technical skills. Codecademy is an innovative and popular learning platform providing high-demand technical skills to approximately 40 million registered learners in nearly every country worldwide. The platform offers interactive, self-paced courses and hands-on learning in 14 programming languages across multiple domains such as application development, data science, cloud and cybersecurity. Total consideration for the acquisition was approximately $386.0 million, consisting of the issuance of 30,374,427 common shares and a net cash payment of $203.4 million.
Discontinued Operations
On June 12, 2022, we entered into the Purchase Agreement to sell our SumTotal business to a third party for $200 million in cash, subject to adjustments as set forth in the Purchase Agreement. The sale was completed on August 15, 2022. Net proceeds from the sale were $174.9 million, after final working capital adjustments in April 2023. The disposal of SumTotal assets met the criteria to be reported as held for sale and discontinued operations. As a result, SumTotal’s results of operations are presented, net of tax, separate from the results of continuing operations for all periods presented.
Results of Operations
Our results of operations as reported in our condensed consolidated financial statements for these periods are prepared in accordance with GAAP.
The following sets forth certain items from our condensed consolidated statements of operations as a percentage of total revenues for the periods indicated:
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues: | ||||||||||||||||
Total revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Operating expenses: | ||||||||||||||||
Costs of revenues | 28.7 | % | 24.9 | % | 28.3 | % | 26.5 | % | ||||||||
Content and software development | 12.7 | % | 14.0 | % | 12.6 | % | 13.1 | % | ||||||||
Selling and marketing | 28.6 | % | 29.8 | % | 31.2 | % | 29.6 | % | ||||||||
General and administrative | 17.8 | % | 18.8 | % | 18.2 | % | 20.2 | % | ||||||||
Amortization of intangible assets | 27.8 | % | 32.2 | % | 28.0 | % | 30.8 | % | ||||||||
Impairment of intangible assets | 0.0 | % | 50.1 | % | 0.0 | % | 25.6 | % | ||||||||
Acquisition-related costs | 0.7 | % | 6.0 | % | 0.8 | % | 7.9 | % | ||||||||
Restructuring | 1.8 | % | 3.1 | % | 2.8 | % | 3.0 | % | ||||||||
Total operating expenses | 118.1 | % | 178.8 | % | 121.9 | % | 156.6 | % | ||||||||
Operating loss | (18.1 | )% | (78.8 | )% | (21.9 | )% | (56.6 | )% | ||||||||
Other income (expense), net | (0.7 | )% | 0.1 | % | (0.5 | )% | 0.4 | % | ||||||||
Fair value adjustment of warrants | 0.6 | % | 4.9 | % | 1.3 | % | 6.2 | % | ||||||||
Fair value of hedge instruments | 4.9 | % | (10.7 | )% | 2.6 | % | (5.5 | )% | ||||||||
Interest income | 0.6 | % | 0.0 | % | 0.5 | % | 0.1 | % | ||||||||
Interest expense | (11.5 | )% | (8.2 | )% | (11.6 | )% | (8.4 | )% | ||||||||
Income (loss) before provision for (benefit from) income taxes | (24.2 | )% | (92.7 | )% | (29.6 | )% | (63.8 | )% | ||||||||
Provision for (benefit from) income taxes | (1.3 | )% | (2.2 | )% | (2.3 | )% | (9.2 | )% | ||||||||
Income (loss) from continuing operations | (22.9 | )% | (90.5 | )% | (27.3 | )% | (54.6 | )% | ||||||||
Gain (loss) on sale of business | 0.0 | % | 0.0 | % | (0.2 | )% | 0.0 | % | ||||||||
Income (loss) from discontinued operations, net of tax | 0.0 | % | 4.1 | % | 0.0 | % | 2.6 | % | ||||||||
Net income (loss) | (22.9 | )% | (86.4 | )% | (27.5 | )% | (52.0 | )% |
Revenues
We provide, through our Content & Platform and Instructor-Led Training segments, enterprise learning solutions designed to prepare organizations for the future of work, overcome critical skills gaps, drive demonstrable behavior-change, and unlock the potential in their people.
Content & Platform generates revenues from its comprehensive suite of premium, original, and authorized partner content, featuring one of the deepest libraries of leadership and business, technology and development, and compliance curricula. With access to a broad spectrum of learning options (including video, audio, books, bootcamps, live events, and practice labs), organizations can meaningfully increase learner engagement and retention. Content & Platform offerings are predominantly delivered through Percipio, our award-winning, artificial intelligence ("AI")-driven, immersive learning platform purpose built to make learning easier, more accessible, and more effective. In addition, we also have proprietary platforms used for our Codecademy and Skillsoft Coaching offerings. Our learning solutions are typically sold on a subscription basis for a fixed term.
Our Instructor-Led Training segment generates revenues from virtual, in-classroom, and on-demand training solutions in information technology geared at foundational, practitioner and expert information technology professionals. Instructor-Led Training’s digital and in-classroom learning solutions provide enterprises, government agencies, and educational institutions a broad selection of customizable courses to meet their technology and development needs.
Subscription and Non-Subscription Revenue
Software as a service ("SaaS") Subscription Revenue. Represents revenue generated from contracts specifying a minimum fixed fee for services delivered over the life of the contract. The initial term of enterprise contracts is generally one to three years and is usually non-cancellable for the term of the subscription. The fixed fee is commonly paid upfront on an annual basis. These contracts typically consist of subscriptions to our various offerings which provide access to our SaaS platforms, associated content and services, over the contract term.
Non-Subscription Revenue. Primarily comprised of instructor-led training offerings, which consist of both in-person and virtual environments. Instructor-led training, including virtual offerings, are first scheduled, then delivered later, with revenue realized on the delivery date. Non-subscription revenues also include professional services related to implementation of our offerings and subsequent, ongoing consulting engagements. Our non-subscription services complement our subscription business in creating strong and comprehensive customer relationships.
The following is a summary of our revenues by product and service type for the periods indicated:
Dollar | Dollar | |||||||||||||||||||||||||||||||
Three Months Ended July 31, | Increase/ | Percent | Six Months Ended July 31, | Increase/ | Percent | |||||||||||||||||||||||||||
(In thousands, except percentages) | 2023 | 2022 | (Decrease) | Change | 2023 | 2022 | (Decrease) | Change | ||||||||||||||||||||||||
SaaS and subscription revenues: | ||||||||||||||||||||||||||||||||
Content & Platform | $ | 97,875 | $ | 94,247 | $ | 3,628 | 3.8 | % | $ | 191,501 | $ | 179,316 | $ | 12,185 | 6.8 | % | ||||||||||||||||
Total subscription revenues | 97,875 | 94,247 | 3,628 | 3.8 | % | 191,501 | 179,316 | 12,185 | 6.8 | % | ||||||||||||||||||||||
Non-subscription revenues: | ||||||||||||||||||||||||||||||||
Instructor-Led Training | 37,999 | 41,821 | (3,822 | ) | (9.1 | )% | 74,980 | 86,874 | (11,894 | ) | (13.7 | )% | ||||||||||||||||||||
Content & Platform | 5,313 | 4,506 | 807 | 17.9 | % | 10,260 | 9,223 | 1,037 | 11.2 | % | ||||||||||||||||||||||
Total non-subscription revenues | 43,312 | 46,327 | (3,015 | ) | (6.5 | )% | 85,240 | 96,097 | (10,857 | ) | (11.3 | )% | ||||||||||||||||||||
Total revenues | $ | 141,187 | $ | 140,574 | $ | 613 | 0.4 | % | $ | 276,741 | $ | 275,413 | $ | 1,328 | 0.5 | % |
The increase in total revenues, when comparing the three months ended July 31, 2023 and 2022, was primarily the result of organic growth in our Content & Platform segment due to higher bookings in the prior year, as revenue from our subscription offerings is typically recognized over the twelve months that follow a booking. This increase was partially offset by a decline in bookings and revenues in our Instructor-Led Training segment primarily due to changes in training programs at two large technology partners during fiscal 2023. The increase in total revenues, when comparing the six months ended July 31, 2023 and 2022, was also impacted by the aforementioned items as well as the result of the inclusion of Codecademy’s revenues earned subsequent to its acquisition on April 4, 2022.
Operating expenses
Summary of operating expenses
The following provides select operating expenses, which are discussed in the associated captions that immediately follow:
Dollar | Dollar | |||||||||||||||||||||||||||||||
Three Months Ended July 31, | Increase/ | Percent | Six Months Ended July 31, | Increase/ | Percent | |||||||||||||||||||||||||||
(In thousands, except percentages) | 2023 | 2022 | (Decrease) | Change | 2023 | 2022 | (Decrease) | Change | ||||||||||||||||||||||||
Cost of revenues | $ | 40,467 | $ | 34,998 | $ | 5,469 | 15.6 | % | $ | 78,291 | $ | 73,008 | $ | 5,283 | 7.2 | % | ||||||||||||||||
Content and software development expenses | 17,863 | 19,693 | (1,830 | ) | (9.3 | )% | 34,898 | 36,026 | (1,128 | ) | (3.1 | )% | ||||||||||||||||||||
Selling and marketing expenses | 40,411 | 41,848 | (1,437 | ) | (3.4 | )% | 86,338 | 81,410 | 4,928 | 6.1 | % | |||||||||||||||||||||
General and administrative expenses | 25,085 | 26,367 | (1,282 | ) | (4.9 | )% | 50,381 | 55,711 | (5,330 | ) | (9.6 | )% | ||||||||||||||||||||
Amortization of intangible assets | 39,221 | 45,200 | (5,979 | ) | (13.2 | )% | 77,466 | 84,758 | (7,292 | ) | (8.6 | )% | ||||||||||||||||||||
Impairment of goodwill and intangible assets | — | 70,475 | (70,475 | ) | (100.0 | )% | — | 70,475 | (70,475 | ) | (100.0 | )% | ||||||||||||||||||||
Acquisition-related costs | 937 | 8,452 | (7,515 | ) | (88.9 | )% | 2,328 | 21,764 | (19,436 | ) | (89.3 | )% | ||||||||||||||||||||
Restructuring | 2,501 | 4,323 | (1,822 | ) | (42.1 | )% | 7,719 | 8,279 | (560 | ) | (6.8 | )% | ||||||||||||||||||||
Total operating expenses | $ | 166,485 | $ | 251,356 | $ | (84,871 | ) | (33.8 | )% | $ | 337,421 | $ | 431,431 | $ | (94,010 | ) | (21.8 | )% |
Cost of revenues
Cost of revenues consists primarily of employee salaries and benefits for hosting operations, professional service and customer support personnel; royalties; hosting and software maintenance services; facilities and utilities costs; consulting services; and instructor fees, course materials, logistics costs and overhead costs associated with virtual, in-classroom, and on-demand training solutions. The following provides details regarding the changes in components of cost of revenues:
Dollar | Dollar | |||||||||||||||||||||||||||||||
Three Months Ended July 31, | Increase/ | Percent | Six Months Ended July 31, | Increase/ | Percent | |||||||||||||||||||||||||||
(In thousands, except percentages) | 2023 | 2022 | (Decrease) | Change | 2023 | 2022 | (Decrease) | Change | ||||||||||||||||||||||||
Courseware, instructor fees and outside services | $ | 22,643 | $ | 17,395 | $ | 5,248 | 30.2 | % | $ | 43,128 | $ | 36,336 | $ | 6,792 | 18.7 | % | ||||||||||||||||
Compensation and benefits | 14,123 | 12,927 | 1,196 | 9.3 | % | 27,539 | 27,057 | 482 | 1.8 | % | ||||||||||||||||||||||
Hosting and software maintenance | 2,926 | 2,377 | 549 | 23.1 | % | 5,785 | 4,535 | 1,250 | 27.6 | % | ||||||||||||||||||||||
Facilities, utilities and other | 775 | 2,299 | (1,524 | ) | (66.3 | )% | 1,839 | 5,080 | (3,241 | ) | (63.8 | )% | ||||||||||||||||||||
Total cost of revenues | $ | 40,467 | $ | 34,998 | $ | 5,469 | 15.6 | % | $ | 78,291 | $ | 73,008 | $ | 5,283 | 7.2 | % |
The increases in courseware, instructor fees and outside services, when comparing the three and six months ended July 31, 2023, to the same periods in 2022, were primarily attributable to rising third-party costs and product mix in our Instructor-Led Training segment. When comparing these same periods, both the compensation and benefits, and hosting and software maintenance categories increased primarily due to the organic growth in our Content & Platform segment and investments in our employees. Refer to Subscription and Non-Subscription Revenue above for additional information related to the organic growth in our Content & Platform segment and declines in our Instructor-Led Training segment. The decrease in facilities and utilities expenses, when comparing the three and six months ended July 31, 2023, to the same periods in 2022, were primarily attributable to cost savings from consolidation of our facilities. In addition, the inclusion of Codecademy’s expenses subsequent to its acquisition on April 4, 2022 increased cost of revenues when comparing the six months ended July 31, 2023, to the same period in 2022.
Content and software development
Content and software development expenses include costs associated with the development of new products and the enhancement of existing products, consisting primarily of employee salaries and benefits; development-related professional services; facilities costs; depreciation; and software maintenance costs. The following provides details regarding the changes in components of content and software development expenses:
Dollar | Dollar | |||||||||||||||||||||||||||||||
Three Months Ended July 31, | Increase/ | Percent | Six Months Ended July 31, | Increase/ | Percent | |||||||||||||||||||||||||||
(In thousands, except percentages) | 2023 | 2022 | (Decrease) | Change | 2023 | 2022 | (Decrease) | Change | ||||||||||||||||||||||||
Compensation and benefits | $ | 13,128 | $ | 14,244 | $ | (1,116 | ) | (7.8 | )% | $ | 26,004 | $ | 25,523 | $ | 481 | 1.9 | % | |||||||||||||||
Consulting and outside services | 2,962 | 4,139 | (1,177 | ) | (28.4 | )% | 5,277 | 8,108 | (2,831 | ) | (34.9 | )% | ||||||||||||||||||||
Facilities, utilities and other | 817 | 693 | 124 | 17.9 | % | 2,090 | 1,393 | 697 | 50.0 | % | ||||||||||||||||||||||
Software maintenance | 956 | 617 | 339 | 54.9 | % | 1,527 | 1,002 | 525 | 52.4 | % | ||||||||||||||||||||||
Total content and software development expenses | $ | 17,863 | $ | 19,693 | $ | (1,830 | ) | (9.3 | )% | $ | 34,898 | $ | 36,026 | $ | (1,128 | ) | (3.1 | )% |
The decreases in compensation and benefits and consulting and outside services, when comparing the three months ended July 31, 2023 and 2022, were primarily attributable to expense reductions and savings from the Company’s integration and restructuring activities. The inclusion of Codecademy’s compensation and benefits, facilities, utilities and other expenses subsequent to its acquisition on April 4, 2022 increased content and software development expenses, when comparing the six months ended July 31, 2023, to the same period in 2022. Refer to Subscription and Non-Subscription Revenue above for additional information related to the organic growth in our Content & Platform segment.
Selling and marketing
Selling and marketing, or S&M, expenses consist primarily of employee salaries and benefits for selling, marketing and pre-sales support personnel; commissions; travel expenses; advertising and promotional expenses; consulting and outside services; facilities costs; depreciation; and software maintenance costs. The following provides details regarding the changes in components of S&M expenses:
Dollar | Dollar | |||||||||||||||||||||||||||||||
Three Months Ended July 31, | Increase/ | Percent | Six Months Ended July 31, | Increase/ | Percent | |||||||||||||||||||||||||||
(In thousands, except percentages) | 2023 | 2022 | (Decrease) | Change | 2023 | 2022 | (Decrease) | Change | ||||||||||||||||||||||||
Compensation and benefits | $ | 27,036 | $ | 25,678 | $ | 1,358 | 5.3 | % | $ | 60,870 | $ | 52,226 | $ | 8,644 | 16.6 | % | ||||||||||||||||
Advertising and promotions | 7,670 | 7,759 | (89 | ) | (1.1 | )% | 14,305 | 15,519 | (1,214 | ) | (7.8 | )% | ||||||||||||||||||||
Software maintenance | 3,230 | 1,469 | 1,761 | 119.9 | % | 6,219 | 2,592 | 3,627 | 139.9 | % | ||||||||||||||||||||||
Consulting and outside services | 1,148 | 1,908 | (760 | ) | (39.8 | )% | 2,442 | 3,822 | (1,380 | ) | (36.1 | )% | ||||||||||||||||||||
Facilities, utilities and other | 1,327 | 5,034 | (3,707 | ) | (73.6 | )% | 2,502 | 7,251 | (4,749 | ) | (65.5 | )% | ||||||||||||||||||||
Total S&M expenses | $ | 40,411 | $ | 41,848 | $ | (1,437 | ) | (3.4 | )% | $ | 86,338 | $ | 81,410 | $ | 4,928 | 6.1 | % |
The decrease in facilities and utilities expenses, when comparing the three and six months ended July 31, 2023, to the same periods in 2022, were primarily attributable to cost savings from consolidation of our facilities. When comparing these same periods, the increase in compensation and benefits and software maintenance was primarily a result of investments in our go-to-market transformation activities and enablement programs. In addition, the increase in compensation and benefits for these same periods was affected by lower incentive compensation in the prior year periods. Also contributing to the increases in compensation and benefits and software maintenance, when comparing the six months ended July 31, 2023, to the same period in 2022, were the inclusion of Codecademy’s expenses subsequent to its acquisition on April 4, 2022.
General and administrative
General and administrative, or G&A, expenses consist primarily of employee salaries and benefits for executive, finance, administrative, and legal personnel; audit, legal and consulting fees; insurance; franchise, sales and property taxes; facilities costs; and depreciation.
The following provides details regarding the changes in components of G&A expenses:
Dollar | Dollar | |||||||||||||||||||||||||||||||
Three Months Ended July 31, | Increase/ | Percent | Six Months Ended July 31, | Increase/ | Percent | |||||||||||||||||||||||||||
(In thousands, except percentages) | 2023 | 2022 | (Decrease) | Change | 2023 | 2022 | (Decrease) | Change | ||||||||||||||||||||||||
Compensation and benefits | $ | 16,754 | $ | 14,858 | $ | 1,896 | 12.8 | % | $ | 31,535 | $ | 32,845 | $ | (1,310 | ) | (4.0 | )% | |||||||||||||||
Consulting and outside services | 5,135 | 7,268 | (2,133 | ) | (29.3 | )% | 11,718 | 13,700 | (1,982 | ) | (14.5 | )% | ||||||||||||||||||||
Insurance | 944 | 1,473 | (529 | ) | (35.9 | )% | 2,247 | 3,407 | (1,160 | ) | (34.0 | )% | ||||||||||||||||||||
Facilities, utilities and other | 916 | 1,941 | (1,025 | ) | (52.8 | )% | 2,177 | 3,807 | (1,630 | ) | (42.8 | )% | ||||||||||||||||||||
Software maintenance | 1,087 | 400 | 687 | 171.8 | % | 1,980 | 824 | 1,156 | 140.3 | % | ||||||||||||||||||||||
Franchise, sales, and property tax | 249 | 427 | (178 | ) | (41.7 | )% | 724 | 1,128 | (404 | ) | (35.8 | )% | ||||||||||||||||||||
Total G&A expenses | $ | 25,085 | $ | 26,367 | $ | (1,282 | ) | (4.9 | )% | $ | 50,381 | $ | 55,711 | $ | (5,330 | ) | (9.6 | )% |
The decrease in total G&A expenses, when comparing the three and six months ended July 31, 2023, to the same periods in 2022, was primarily attributable to expense reductions and savings from the Company's integration and restructuring activities, including cost savings from consolidation of our facilities and lower insurance, partially offset by lower incentive compensation in the prior year periods. These decreases for the six months ended July 31, 2023, when comparing to the same period in 2022, were partially offset by Codecademy’s expenses subsequent to its acquisition on April 4, 2022.
Amortization of intangible assets
Intangible assets arising from business combinations are developed technology, customer-related intangibles, trade names and other identifiable intangible assets with finite lives. These intangible assets are amortized over the estimated useful lives of such assets. We also capitalize certain internal use software development costs related to our SaaS platform incurred during the application development stage. The internal use software is amortized on a straight-line basis over its estimated useful life.
The decrease in amortization of intangible assets, when comparing the six months ended July 31, 2023, to the same period in 2022, was primarily due to certain intangible assets becoming fully amortized, partially offset by the intangible assets that arose from the acquisition of Codecademy completed on April 4, 2022.
Acquisition-related costs
Acquisition-related costs consist of professional fees for legal, investment banking and other advisor costs incurred in connection with the business combinations completed in April 2022 and June 2021 and the subsequent integration-related activities. The changes in acquisition-related costs were primarily due to the timing of these aforementioned activities.
Restructuring
In connection with the acquisition integration process and our workplace flexibility policy, we continued our initiatives and commitment to reduce our costs and better align operating expenses with existing economic conditions and our operating model. In January 2021, we committed to a restructuring plan that encompassed a series of measures intended to improve our operating efficiency, competitiveness and business profitability. These included workforce reductions and consolidation of facilities as we adopted new work arrangements for certain locations. Our restructuring charges recognized during the three and six months ended July 31, 2023 and 2022, have been primarily associated with lease termination and lease impairment charges and employee severance cost. The restructuring charges for the three months ended July 31, 2023 totaling $2.5 million are substantially all related to severance costs of terminated employees. The restructuring charges for the six months ended July 31, 2023 totaling $7.7 million also included severance costs as well as $4.4 million for lease termination and lease impairment charges. The restructuring charges for the three and six months ended July 31, 2022 totaling $4.3 million and $8.3 million, respectively, were substantially all related to severance costs of terminated employees and lease termination and lease impairment charges.
Interest and other
Interest and other, net, consists of gain or loss on derivative instruments, interest income, interest expense, and other expense and income.
Dollar | Dollar | |||||||||||||||||||||||||||||||
Three Months Ended July 31, | Increase/ | Percent | Six Months Ended July 31, | Increase/ | Percent | |||||||||||||||||||||||||||
(In thousands, except percentages) | 2023 | 2022 | (Decrease) | Change | 2023 | 2022 | (Decrease) | Change | ||||||||||||||||||||||||
Other income (expense), net | $ | (934 | ) | $ | 80 | $ | (1,014 | ) | (1267.5 | )% | $ | (1,309 | ) | $ | 1,132 | $ | (2,441 | ) | (215.6 | )% | ||||||||||||
Interest income | 871 | 10 | 861 | 8610.0 | % | 1,516 | 170 | 1,346 | 791.8 | % | ||||||||||||||||||||||
Interest expense | (16,255 | ) | (11,470 | ) | (4,785 | ) | 41.7 | % | (32,191 | ) | (23,007 | ) | (9,184 | ) | 39.9 | % |
The other income (expense) was primarily the foreign exchange gains and losses (specifically, resulting from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities), which fluctuates as the U.S. dollar appreciates or depreciates against other currencies. Interest income for both the three months and six months ended July 31, 2023, compared to the corresponding prior year periods, increased primarily due to the use of money market investments to realize increased returns on cash balances. The increase in interest expense, when comparing the three months ended July 31, 2023, to the corresponding period in 2022, was primarily due to higher interest rates. The increase in interest expense, when comparing the six months ended July 31, 2023, to the corresponding period in 2022, was primarily due to the additional $160 million of term loans in connection with the closing of the Codecademy acquisition on April 4, 2022, and higher interest rates. As a result of the interest rate swaps we executed on June 17, 2022, we have a fixed cash interest rate of 9.05% on $300 million of our outstanding term loans.
Fair value adjustment of warrants
The gains attributable to warrants are primarily a result of the Company's underlying common stock performance during the three and six months ended July 31, 2023 and 2022, which decreased the fair value of our liability-classified warrants that are marked to market at each balance sheet date, with gains and losses being recorded in current period earnings.
Fair value adjustment of hedge instruments
We entered into two fixed-rate interest rate swap agreements on June 17, 2022 for a combined notional amount of $300 million and a maturity date of June 5, 2027. The objective of the interest rate swaps is to eliminate the variability of cash flows in interest payments on $300 million of variable rate debt attributable to changes in benchmark one-month Secured Overnight Financing Rate ("SOFR") interest rates. The interest rate swaps are not designated for hedge accounting and are carried on the statement of financial position at their fair value. Unrealized gains and losses from changes in fair value of the interest rate swaps, which arise from fluctuations in the forward-looking yield curve, are included in the income statement as they occur.
Gain on sale of business
On June 12, 2022, we entered into the Purchase Agreement to sell our SumTotal business to a third party for $200 million in cash, subject to adjustments set forth in the Purchase Agreement. The sale was completed on August 15, 2022. Net proceeds from the sale were $174.9 million, after final working capital adjustments in April 2023. In accordance with ASC 810, we recorded a gain on sale upon completion of the transaction. The $55.9 million gain, including a loss of $0.7 million recognized in the first quarter of fiscal 2024, was calculated by measuring the difference between the fair value of consideration received less the carrying amount of assets and liabilities sold.
Provision for (benefit from) income taxes
Dollar | Dollar | |||||||||||||||||||||||||||||||
Three Months Ended July 31, | Increase/ | Percent | Six Months Ended July 31, | Increase/ | Percent | |||||||||||||||||||||||||||
(In thousands, except percentages) | 2023 | 2022 | (Decrease) | Change | 2023 | 2022 | (Decrease) | Change | ||||||||||||||||||||||||
Provision for (benefit from) income taxes | $ | (1,889 | ) | $ | (3,065 | ) | $ | 1,176 | (38.4 | )% | $ | (6,273 | ) | $ | (25,402 | ) | $ | 19,129 | (75.3 | )% | ||||||||||||
Effective income tax rate | 5.6 | % | 2.4 | % | 7.7 | % | 14.4 | % |
The effective income tax rate for the three and six months ended July 31, 2023 and 2022 differed from the United States federal statutory rate of 21.0% due primarily to the impact of non-deductible items, foreign rate differential and changes in the valuation allowance on the Company’s deferred tax assets.
Due to the acquisition of Codecademy on April 4, 2022 the Company analyzed the realizability of its existing deferred tax assets with the addition of the Codecademy assets and liabilities. Based on this analysis the Company determined that a valuation allowance release of $20.7 million was required and recorded in full as a discrete income tax benefit for the six months ended July 31, 2022.
Liquidity and Capital Resources
Liquidity and Sources of Cash
As of July 31, 2023, we had $147.9 million of cash and cash equivalents on hand. Our investment policy is approved by the Board of Directors and reviewed annually by the Audit Committee. Our current investment policy’s primary objectives when investing excess cash are, in order of importance: 1) preservation of capital and protection of principal; 2) maintenance of liquidity that is sufficient to meet cash flow needs; and 3) maximize rate of return. Pursuant to this policy, as of July 31, 2023, most of our cash and cash equivalents were held at large financial institutions with high rating agency designations and our exposure to regional banks was not significant. We have funded operations primarily through the use of cash collected from our customers and the proceeds received from the Term Loan Facility (described below), supplemented with borrowings under our accounts receivable facility. Our cash requirements vary depending on factors such as the growth of the business, changes in working capital and capital expenditures. We expect to operate the business and execute our strategic initiatives principally with funds generated from operations and supplemented by borrowings up to a maximum of $75.0 million under our accounts receivable facility. We anticipate that we will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for at least the next twelve months, as well as for the foreseeable future with capital sources currently available.
Term Loan
On July 16, 2021, Skillsoft Finance II, Inc. (“Skillsoft Finance II”), a subsidiary of Skillsoft Corp., entered into a Credit Agreement (the “Credit Agreement”), by and among Skillsoft Finance II, as borrower, Skillsoft Finance I, Inc. (“Holdings”), the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent, pursuant to which the lenders provided a $480 million term loan facility (the “Term Loan Facility”) to Skillsoft Finance II, the proceeds of which, together with cash on hand, were used to refinance existing debt. The Term Loan Facility is scheduled to mature on July 16, 2028.
In connection with the closing of the Codecademy acquisition, Skillsoft Finance II entered into Amendment No. 1 to the Credit Agreement, dated as of April 4, 2022 (the “First Amendment”), among Skillsoft Finance II, Holdings, certain subsidiaries of Skillsoft Finance II, as guarantors, Citibank N.A., as administrative agent, and the financial institutions partiesparty thereto as Term B-1 Lenders, which amended the Credit Agreement (as amended by the First Amendment, the “Amended Credit Agreement”).
The First Amendment provides for the incurrence of up to $160 million of Term B-1 Loans (the “Term B-1 Loans”) under the Amended Credit Agreement. In addition, the First Amendment, among other things, (a) provides for early opt-in to Secured Overnight Financing Rate (SOFR )for the existing term loans under the Credit Agreement (such existing term loans together with the Term B-1 Loans, the “Initial Term Loans”) and (b) provides for the applicable margin for the Initial Term Loans at 4.25% with respect to base rate borrowings and 5.25% with respect to SOFR borrowings.
The Company received $153.2 million of net proceeds (net of $4.0 million of financing costs and $2.8 million of original issuance discounts) from the Term Loan Facility on April 4, 2022. The Company used the net proceeds and cash on hand for the closing of the Codecademy acquisition on April 4, 2022.
The refinancing was accounted for as a modification for certain lenders and an extinguishment for other lenders and debt issuance costs and lender fees were accounted for in proportion to whether the related principal balance was considered modified or extinguishments. Accordingly, both newly incurred and deferred financing costs and original issuance discounts of $0.1 million and $2.8 million, respectively, will be amortized as additional interest expense over the term of the Term Loan. Furthermore, $3.9 million of third-party costs incurred were recognized as interest expenses in the accompanying statement of operations for the nine months ended October 31, 2022.
Prior to the maturity thereof, the Initial Term Loans will be subject to quarterly amortization payments of 0.25% of the principal amount. The Amended Credit Agreement requires that any prepayment of the Initial Term Loans in connection with a Repricing Transaction (as defined in the Amended Credit Agreement) shall be subject to (i) a 2.00% premium on the amount of Initial Term Loans prepaid if such prepayment occurs prior to July 16, 2022 and (ii) a 1.00% premium on the amount of Initial Term Loans prepaid in connection with a Repricing Transaction if such prepayment occurs on or after July 16, 2022 but on or prior to January 16, 2023.
On August 15, 2022, pursuant to the Purchase Agreement entered on June 12, 2022 by and among Skillsoft, Skillsoft (US) Corporation (“Seller”), Amber Holding Inc. (“SumTotal”), and Cornerstone OnDemand, Inc. (“Buyer”), Seller completed the sale of one hundred percent (100%) of the outstanding shares of capital stock of SumTotal to Buyer. As a result of the asset sale, the Company made a mandatory prepayment of $31.4 million to the lenders in August 2022.
27
All obligations under the Amended Credit Agreement, and the guarantees of those obligations (as well as certain cash management obligations and interest rate hedging or other swap agreements), are secured by substantially all of Skillsoft Finance II’s personal property as well as those assets of each subsidiary guarantor.
Loan parties are subject to various affirmative and negative covenants and reporting obligations under the Term Loan Facility. These include, among others, limitations on indebtedness, liens, sale and leaseback transactions, investments, fundamental changes, assets sales, restricted payments, affiliate transactions, and restricted debt payments. Events of default under the Term Loan Facility include non-payment of amounts due to the lenders, violation of covenants, materially incorrect representations, defaults under other material indebtedness, judgments and specified insolvency-related events, certain ERISA events, and invalidity of loan or collateral documents, subject to, in certain instances, specified thresholds, cure periods and exceptions. As of October 31, 2022, the Company is in compliance with all covenants.
The Company’s debt outstanding as of October 31, 2022 matures as shown below (in thousands):
| | | |
Fiscal year ended January 31: |
|
| |
2023 (exclude nine months ended October 31, 2022) | | $ | 1,601 |
2024 | |
| 6,404 |
2025 | | | 6,404 |
2026 | | | 6,404 |
2027 | |
| 6,404 |
Thereafter | |
| 575,389 |
Total payments | |
| 602,606 |
Less: Current portion | |
| (6,404) |
Less: Unamortized original issue discount and issuance costs | |
| (13,331) |
Long-term portion | | $ | 582,871 |
Accounts Receivable Facility (Predecessor and Successor)
On December 20, 2018, the Company entered into a $75.0 million receivables credit agreement, with a termination date of the earliest of 5 years from closing or 45 days before the revolving credit facility maturity or 180 days before the maturity of any term indebtedness greater than $75 million. There are four classes of available receivables for sale with advance rates between 50.0% and 85.0%. The lenders require the Company to deposit receipts from sold receivables to a restricted concentration account. Receivables that have been sold to the lenders must be transferred to the restricted concentration account within two business days of being collected by the Company. The Company accounts for these transactions as borrowings, as the assets being transferred contain the rights to future revenues. Under these agreements, the Company receives the net present value of the accounts receivable balances being transferred. The interest rate on borrowings outstanding under these agreements was 6.11% at October 31, 2022. Borrowings and repayments under these agreements are presented as cash flows from financing activities in the accompanying condensed consolidated statements of cash flows.
On September 19, 2019, the Company amended the receivables credit agreement to include Class “B” lending. This increased the facility borrowing capacity to up to $90.0 million. In conjunction with this, it increased the advance rate to 95% across the four classes of available receivables. All other terms and conditions remained materially the same.
On August 27, 2020, the Company amended its accounts receivable facility. In connection with the amendment, additional capacity under the previous accounts receivable facility which had been extended by the private equity sponsor of the Company’s prior owner was eliminated, reducing the maximum capacity of the facility from $90 million to $75 million. The maturity date for the remaining $75 million facility was extended to the earlier of (i) December 2024 or (ii) 90 days prior to the maturity of any corporate debt. The Company submits a monthly reconciliation on each month’s settlement date detailing what was collected from the prior months borrowing base and what receivables are being sold during the new borrowing base period to replenish them. If additional receivables are sold to replenish receipts, the funds from the concentration account will be returned to the Company from the restricted concentration account by the administration agent. The reserve balances were $6.3 million at October 31, 2022 and are classified as restricted cash on the balance sheet.
28
(10) Shareholders’ Equity
Skillsoft Corp. (Successor)
Capitalization
As of October 31, 2022, the Company’s authorized share capital consisted of 375,000,000 shares of Class A common stock, 3,840,000 shares of Class C common stock and 10,000,000 shares of preferred stock, with a par value of $0.0001 each. As of October 31, 2022, 164,316,842 shares of Class A common stock were issued and outstanding.
The number of authorized shares of Class A common stock or preferred stock authorized for issuance may be increased by the affirmative vote of the holders of a majority in voting power of the Company’s capital stock entitled to vote thereon. Except as required by law, holders of share of Class C common stock are not entitled to vote any such shares.
Subject to applicable law, the Company may declare dividends to be paid ratably to holders of Class A common stock out of the Company’s assets that are legally available to be distributed as dividends in the discretion of the Company’s board of directors. Holders of Class C common stock are generally not entitled to dividends.
Warrants
In connection with the formation of the Company and subsequent acquisitions of Software Luxembourg and Global Knowledge, warrants to purchase common stock were issued to investors, sellers of Global Knowledge and an executive of the Company. Warrants that are not subject to ASC 718, Stock Compensation and (i) contained features that could cause the warrant to be puttable to the Company for cash or (ii) had terms that prevented the conversion of the warrant from being fixed in all circumstances, are classified as a liability on the Company’s balance sheet and measured at fair value, with changes in fair value being recorded in the income statement, whereas all other warrants meet the equity scope exception and are classified as equity and not remeasured.
A summary of liability classified warrants is as follows (in thousands, except per share amounts):
| | | | | | | | | | | | |
| | Underlying | | | | | | | | | | |
| | Common | | Strike | | Redemption | | Expiration | | Fair Value at | ||
Type |
| Shares |
| Price |
| Price |
| Date |
| October 31, 2022 | ||
Private Placement Warrants – Sponsor |
| 16,300 | | $ | 11.50 |
| None | | 6/11/26 | | $ | 2,119 |
A summary of equity classified warrants is as follows (in thousands, except per share amounts):
| | | | | | | | | | |
|
| Underlying |
| | |
| | |
| |
| | Common | | Strike | | Redemption | | Expiration | ||
Type | | Shares | | Price | | Price | | Date | ||
Public Warrants | | 23,000 | | $ | 11.50 | | $ | 18.00 | | 6/11/26 |
Private Placement Warrants (PIPE) | | 16,667 | | $ | 11.50 | | $ | 18.00 | | 6/11/26 |
Private Placement Warrants (Global Knowledge) |
| 5,000 | | $ | 11.50 |
| | None |
| 10/12/25 |
Private Placement Warrants (CEO) |
| 1,000 | | $ | 11.50 |
| | None |
| 6/11/26 |
Total |
| 45,667 | |
|
|
|
|
|
|
|
Software Luxembourg Holding S.A. (Predecessor (SLH))
Reorganization
On August 27, 2020 Pointwell (which had been a direct wholly owned subsidiary of Evergreen Skills Lux S.à r.l.), and certain of its subsidiaries, completed a reorganization. As a result of the reorganization, ownership of Pointwell was transferred to the Company’s lenders and no consideration or right to future consideration was provided to the former equity holders of Pointwell. In addition, the shared-based compensation plans of Pointwell were cancelled with no consideration provided.
29
In settlement of Predecessor’s first and second lien debt obligations, the holders of the Predecessor’s first lien received a total of 3,840,000 Class A common shares. The Predecessor’s second lien holders received a total of 160,000 Class B common shares and a total of 705,882 warrants to purchase additional common shares. The Predecessor warrants were valued using a probability-based approach that considered management’s estimate of the probability of (i) a sale of the company that met certain conditions that caused the warrants to be cancelled for no consideration, (ii) a sale of the company that did not meet certain conditions that caused the warrants to be cancelled for no consideration and (iii) warrants being held to maturity, with the last two scenarios utilizing a Black-Scholes model to estimate fair value.
The warrants included a provision whereby, in the event of a sale of the Predecessor meeting certain conditions (“Favored Sale”), the warrants would be cancelled for no consideration, however, in such an event, the holders of Class B shares would receive a higher share of any consideration paid in the form of common stock by the acquiring company. The conditions of the Favored Sale were established in anticipation of a Churchill merger and mirror the ultimate agreement executed on October 12, 2020. The Board of Directors and required level of warrant holders amended the warrants such that the deadline for a Favored Sale to occur was extended to October 12, 2020. An amendment to extend the date by which a Favored Sale could occur represented a modification to both the warrants and the participation right held by the Class B holders. Management measured the impact of the modification to both the freestanding warrants and the participation right held by the Class B holders by comparing their fair values immediately before and after the modification. The net impact of the increase in the value of the participation right held by Class B stockholders, of $13.3 million, and the decrease in the value of the warrants, of $7.4 million, is reflected as a decrease of $5.9 million in earnings attributable to Class A common stockholders and an increase to $5.9 million earnings attributable to Class B common stockholders for earnings per share purposes. The $7.4 million decrease in the value of warrants is reflected as a capital contribution and is reflected as an increase to additional-paid-in-capital in the period from August 28, 2020 through October 31, 2020 (Predecessor SLH).
As a result of the Skillsoft Merger, the warrants were terminated for no consideration on June 11, 2021.
Share Capital
As of January 31, 2021 the Predecessor’s authorized share capital consisted of 1,000,000,000 common shares with a par value $0.01 each. This consists of 800,000,000 Class A shares and 200,000,000 Class B shares. As of January 31, 2021, 4,000,000 common shares were issued and outstanding. This consists of 3,840,000 Class A shares and 160,000 Class B shares.
Share Repurchase Authorization
On September 7, 2022, the Board of Directors authorized Skillsoft to repurchase up to $30 million of its Class A common stock, which authorization will expire September 7, 2023 unless extended. Under the program, the Company may purchase shares in the open market, in private negotiated transactions, or by other means from time to time. The timing and amount of any shares purchased will be based upon a variety of factors, including the share price of Class A common stock, general market conditions, alternative uses for capital such as reducing debt, the Company’s financial performance, and other considerations. The share repurchase program does not obligate the Company to purchase any minimum number of shares, and the program may be suspended, modified, or discontinued at any time without prior notice. The Company repurchased 645,428 of its shares for $1.4 million during the three months ended October 31, 2022.
(11) Stock-based compensation
Equity Incentive Plans
In June 2021, Skillsoft Corp adopted the 2020 Omnibus Incentive Plan (“2020 Plan”) and issued Stock Options, RSUs and PSUs to employees. The 2020 Plan provides for the grant of Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Other Equity-Based Award and Cash-Based Incentive Awards to employees, directors, and consultants of the Company. Under the 2020 Plan, 13,105,902 shares were initially made available for issuance. The 2020 Plan includes an annual increase on January 1 each year beginning on January 1, 2022, in an amount equal to 5.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year. The Compensation Committee may act prior to January 1 of a given year to provide that there will be no January 1 increase for such year or that the increase for such year will be a lesser number of shares of common stock than 5.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year. As of October 31, 2022 a total of 2,187,544 shares of common stock were available for issuance under the 2020 Plan.
30
Stock Options
Under the 2020 Plan all employees, directors and consultants are eligible to receive incentive share options or non-statutory share options. The options generally vest over four years and have a term of ten years. Vested options under the plan generally expire not later than 90 days following termination of employment or service or twelve months following an optionees’ death or disability. The fair value of stock options is determined on the grant date and amortized over the vesting period on a straight-line basis.
The following table summarizes the stock option activity for the nine months ended October 31, 2022:
| | | | | | | | | | |
| | | | | | | Weighted | | | |
| | | | Weighted | | Average | | | | |
| | | | Average | | Remaining | | Aggregate | ||
| | | | Exercise | | Contractual | | Intrinsic Value | ||
|
| Shares |
| Price |
| Term (Years) |
| (In thousands) | ||
Outstanding, January 31, 2022 | | 2,825,752 | | $ | 10.76 | | 9.4 | | |
|
Granted | | — | | | — | | — | | | |
Exercised |
| — |
| | — |
| — |
| | |
Forfeited |
| (173,271) |
| | — |
| — |
| | |
Expired |
| — |
| | — |
| — |
| | |
Outstanding, October 31, 2022 |
| 2,652,481 | | $ | 10.76 |
| 8.7 |
| $ | — |
Vested and Exercisable, October 31, 2022 |
| 843,811 | | $ | 10.76 |
|
|
| $ | — |
The total unrecognized equity-based compensation costs related to the stock options was $5.7 million, which is expected to be recognized over a weighted-average period of 2.7 years.
The grant date fair value of the stock options was determined using the Black Scholes model with the following assumptions:
| | | | |
|
| As of |
| |
| | June 11, 2021 | | |
Risk-free interest rates | | | 1.0 | % |
Expected dividend yield | | | — |
|
Volatility factor | | | 30 - 31 | % |
Expected lives (years) |
| | 6.1 | |
Weighted average fair value of options granted | | $ | 3.36 | |
Restricted Stock Units
Restricted stock units (“RSUs”) represent a right to receive one share of the Company’s common stock that is both non-transferable and forfeitable unless and until certain conditions are satisfied. Restricted stock units vest over a two, three or four-year period, subject to continued employment through each anniversary. In addition, RSUs granted to the board of directors vest on the earlier of the anniversary of the date of grant or the date of the Company’s next annual stockholders meeting following the grant date, subject to continued service with the Company. The fair value of restricted stock units is determined on the grant date and is amortized over the vesting period on a straight-line basis.
The following table summarizes the RSU activity for the nine months ended October 31, 2022:
| | | | | | | | |
| | | | Weighted- | | Aggregate | ||
| | | | Average Grant | | Intrinsic Value | ||
|
| Shares |
| Date Fair Value |
| (in thousands) | ||
Unvested balance, January 31, 2022 | | 5,091,852 | | $ | 10.26 | | | |
Granted | | 12,008,055 | | | 5.26 | | | |
Vested | | (2,079,069) | | | 8.65 | | | |
Forfeited |
| (2,035,018) | |
| 6.98 |
| | |
Unvested balance, October 31, 2022 |
| 12,985,820 | | $ | 6.40 | | $ | 23,245 |
31
The total unrecognized stock-based compensation costs related to RSUs was $76.4 million, which is expected to be recognized over a weighted-average period of 2.9 years.
Market-based Restricted Stock Units
Market-based restricted stock units (“MBRSUs”) vest over a three-year or four-year performance period, subject to continued employment through each anniversary and achievement of market conditions, specifically the Company's stock price and an objective relative total shareholder return. The fair value of MBRSUs that include vesting based on market conditions are estimated using the Monte Carlo valuation method. Compensation cost for these awards is recognized based on the grant date fair value which is recognized over the vesting period using the accelerated attribution method.
The following table summarizes the MBRSU activity for the nine months ended October 31, 2022:
| | | | | | | | |
|
| |
| Weighted- |
| Aggregate | ||
| | | | Average Grant | | Intrinsic Value | ||
| | Shares | | Date Fair Value | | (in thousands) | ||
Unvested balance, January 31, 2022 | | 1,095,978 | | $ | 8.43 | | | |
Granted |
| 1,882,463 | | | 5.57 |
| | |
Vested |
| — | | | — |
| | |
Forfeited or canceled |
| (734,284) | | | 6.42 |
| | |
Unvested balance, October 31, 2022 |
| 2,244,157 | | $ | 7.47 | | $ | 4,017 |
The total unrecognized stock-based compensation costs related to MBRSUs was $10.6 million, which is expected to be recognized over a weighted-average period of 1.3 years.
Performance-based Restricted Stock Units
The Company issued 49,876 performance-based restricted stock units that have a grant-date fair value of $0.5 million during the period from June 12, 2021 to January 31, 2022. Of the 49,876 performance-based restricted stock units, 12,500 shares were vested and 12,500 shares were canceled on January 31, 2022. The remaining 24,876 shares were vested when the specified corporate goals were achieved in June 2022. The stock-based compensation expenses for the 24,876 shares were recognized in the nine months ended October 31, 2022.
Stock-based Compensation Expense
The following summarizes the classification of stock-based compensation in the condensed consolidated statements of operations (in thousands):
| | | | | | | | | | | | | | | | |
| | Quarter to Date Results | | Year to Date Results | ||||||||||||
| | Fiscal 2023 | | Fiscal 2022 | | Fiscal 2023 | | Fiscal 2022 | ||||||||
| | Successor | | Successor | | Successor | | Successor | | | Predecessor (SLH) | |||||
| | Three Months | | Three Months | | Nine Months | | From | | | From | |||||
| | Ended | | Ended | | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||||
|
| October 31, 2022 | | October 31, 2021 | | October 31, 2022 |
| October 31, 2021 | | | June 11, 2021 | |||||
Cost of revenues | | $ | 82 | | $ | — | | $ | 132 | | $ | — | | | $ | — |
Content and software development | |
| 1,782 | |
| 276 | |
| 6,207 | |
| 530 | | |
| — |
Selling and marketing | |
| 1,915 | |
| 621 | |
| 4,933 | |
| 947 | | |
| — |
General and administrative | |
| 4,617 | |
| 3,320 | |
| 15,634 | |
| 7,557 | | |
| — |
Total | | $ | 8,396 | | $ | 4,217 | | $ | 26,906 | | $ | 9,034 | | | $ | — |
The stock-based compensation for the nine months ended October 31, 2022 includes $1.6 million of fair value adjustment for the cash consideration exceeded the fair value of the legacy Codecademy options, which is classified as a post-combination expense.
32
(12) Revenue
Disaggregated Revenue and Geography Information
The following is a summary of revenues by type for the three and nine months ended October 31, 2022 (Successor) and for the three months ended October 31, 2021 (Successor), the period from June 12, 2021 through October 31, 2021 (Successor) and the period from February 1, 2021 through June 11, 2021 (Predecessor (SLH)) (in thousands):
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Quarter to Date Results | | Year to Date Results | ||||||||||||
| | Fiscal 2023 | | Fiscal 2022 | | Fiscal 2023 | | Fiscal 2022 | ||||||||
| | Successor | | Successor | | Successor | | Successor |
| | Predecessor (SLH) | |||||
| | Three Months | | Three Months | | Nine Months | | From | | | From | |||||
| | Ended | | Ended | | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||||
|
| October 31, 2022 | | October 31, 2021 | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||||
SaaS subscription services | | $ | 93,127 | | $ | 82,593 | | $ | 272,443 | | $ | 126,833 | | | $ | 97,406 |
Professional services |
| | 4,617 | | | 4,354 | | | 13,429 | | | 6,339 | | | | 5,088 |
Software licenses and other |
| | 224 | | | — | | | 635 | | | — | | | | — |
Instructor led training |
| | 41,422 | | | 53,206 | | | 128,296 | | | 82,448 | | | | — |
Total net revenues | | $ | 139,390 | | $ | 140,153 | | $ | 414,803 | | $ | 215,620 | | | $ | 102,494 |
The following table sets forth our revenues by geographic region for the three and nine months ended October 31, 2022 (Successor) and for the three months ended October 31, 2021 (Successor), the period from June 12, 2021 through October 31, 2021 (Successor) and the period from February 1, 2021 through June 11, 2021 (Predecessor (SLH)) (in thousands):
| | | | | | | | | | | | | | | | |
|
| Quarter to Date Results | | Year to Date Results | ||||||||||||
| | Fiscal 2023 | | Fiscal 2022 | | Fiscal 2023 | | Fiscal 2022 | ||||||||
| | Successor | | Successor | | Successor | | Successor |
| | Predecessor (SLH) | |||||
| | Three Months | | Three Months | | Nine Months | | From | | | From | |||||
| | Ended | | Ended | | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||||
|
| October 31, 2022 | | October 31, 2021 | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||||
Revenue: | |
| | |
| | |
| | | | | | | |
|
United States | | $ | 92,177 | | $ | 85,421 | | $ | 268,096 | | $ | 132,785 | | | $ | 77,489 |
Other Americas |
| | 7,099 | | | 9,554 | | | 23,075 | | | 15,076 | | | | 5,197 |
Europe, Middle East and Africa |
| | 35,230 | | | 40,485 | | | 109,031 | | | 60,563 | | | | 14,283 |
Asia-Pacific |
| | 4,884 | | | 4,693 | | | 14,601 | | | 7,196 | | | | 5,525 |
Total net revenues | | $ | 139,390 | | $ | 140,153 | | $ | 414,803 | | $ | 215,620 | | | $ | 102,494 |
Other than the United States, no single country accounted for more than 10% of revenue for all periods presented.
33
Deferred Revenue
Deferred revenue activity for the three and nine months ended October 31, 2022 was as follows (in thousands):
| | | |
Deferred revenue at January 31, 2022 (Successor) |
| $ | 260,949 |
Billings deferred | |
| 92,106 |
Recognition of prior deferred revenue | |
| (134,839) |
Acquisition of Codecademy | | | 18,396 |
Deferred revenue at April 30, 2022 (Successor) | | $ | 236,612 |
Billings deferred | | | 119,724 |
Recognition of prior deferred revenue | | | (140,574) |
Deferred revenue at July 31, 2022 (Successor) | | | 215,762 |
Billings deferred | |
| 122,202 |
Recognition of prior deferred revenue | |
| (139,390) |
Deferred revenue at October 31, 2022 (Successor) | | $ | 198,574 |
Deferred revenue performance obligations relate predominately to time-based SaaS subscription services that are billed in advance of services being rendered.
Deferred Contract Acquisition Costs
Deferred contract acquisition cost activity for the three and nine months ended October 31, 2022 was as follows (in thousands):
| | | |
Deferred contract acquisition costs at January 31, 2022 (Successor) |
| $ | 13,248 |
Contract acquisition costs | |
| 4,265 |
Recognition of contract acquisition costs | |
| (3,733) |
Deferred contract acquisition costs at April 30, 2022 (Successor) | | $ | 13,780 |
Contract acquisition costs | | | 3,964 |
Recognition of contract acquisition costs | | | (3,742) |
Deferred contract acquisition costs at July 31, 2022 (Successor) | | | 14,002 |
Contract acquisition costs | |
| 5,213 |
Recognition of contract acquisition costs | |
| (6,317) |
Deferred contract acquisition costs at October 31, 2022 (Successor) | | $ | 12,898 |
(13) Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a fair value hierarchy that prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s estimates of assumptions that market participants would use in pricing the asset or liability.
The three levels of the fair value hierarchy established by ASC 820 in order of priority are as follows:
34
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of October 31, 2022 and are categorized using the fair value hierarchy (in thousands):
| | | | | | | | | |
| | Level 2 | | Level 3 | | | |||
Description | | Measurements | | Measurements | | Total | |||
Asset classified interest rate swaps | | $ | 5,249 | | $ | — | | $ | 5,249 |
Liability classified warrants | | | — | | | 2,119 | | | 2,119 |
Total assets and liabilities recorded at fair value | | $ | 5,249 | | $ | 2,119 | | $ | 7,368 |
Successor Company Warrants
In connection with the formation of the Company and subsequent acquisitions of Software Luxembourg and Global Knowledge, warrants to purchase common stock were issued to investors, sellers of Global Knowledge and an executive of the Company. Warrants that are not subject to ASC 718, Stock Compensation and (i) contained features that could cause the warrant to be puttable to the Company for cash or (ii) had terms that prevented the conversion of the warrant from being fixed in all circumstances, are classified as a liability on the Company’s balance sheet and measured at fair value, with changes in fair value being recorded in the income statement, whereas all other warrants meet the equity scope exception and are classified as equity and not remeasured.
A summary of liability classified warrants is as follows (in thousands, except per share amounts):
| | | | | | | | | | | | |
| | Underlying | | | | | | | | | | |
| | Common | | Strike | | Redemption | | Expiration | | Fair Value at | ||
Type |
| Shares |
| Price |
| Price |
| Date |
| October 31, 2022 | ||
Private Placement Warrants – Sponsor |
| 16,300 | | $ | 11.50 |
| None | | 6/11/26 | | $ | 2,119 |
The Company classifies certain Private Placement Warrants as liabilities in accordance with ASC Topic 815. The Company estimates the fair value of the Private Placement Warrants using a Black-Scholes option pricing model. The fair value of the Private Placement Warrants utilized Level 3 inputs as it is based on significant inputs not observable in the market. The fair value of the Private Placement Warrants classified as liabilities were estimated at October 31, 2022 using a Black-Scholes options pricing model and the following assumptions:
| | | | | |
| | | October 31, 2022 | | |
Risk-free interest rates | | | | 4.35 | % |
Expected dividend yield | | | | — |
|
Volatility factor | | | | 60.0 | % |
Expected lives (years) |
|
| | 3.6 | |
Value per unit | | | $ | 0.13 | |
Predecessor Company (SLH) Warrants
At each relevant measurement date, the Predecessor warrants were valued using a probability-based approach that considered management’s estimate of the probability of (i) a sale of the company that met certain conditions that caused the warrants to be cancelled for no consideration, (ii) a sale of the company that did not meet certain conditions that caused the warrants to be cancelled for no
35
consideration and (iii) warrants being held to maturity, with the last two scenarios utilizing a Black-Scholes model to estimate fair value. As a result of the Skillsoft Merger, the Predecessor warrants were terminated for no consideration on June 11, 2021.
| | | | | |
|
| Total |
| (Level 3) | |
| | | | | |
Private Placement Warrants – Sponsor | | $ | 2,119 |
| 2,119 |
Total liabilities recorded at fair value | | $ | 2,119 |
| 2,119 |
The following tables reconcile Level 3 instruments for which significant unobservable inputs were used to determine fair value:
| | | |
| | For the Three | |
| | Months Ended | |
|
| October 31, 2022 | |
Balance as of July 31, 2022 (Successor) | | $ | 11,247 |
Unrealized gains recognized as other income |
| | (9,128) |
Balance as of October 31, 2022 (Successor) | | $ | 2,119 |
| | | |
| | For the Nine | |
| | Months Ended | |
|
| October 31, 2022 | |
Balance as of January 31, 2022 (Successor) | | $ | 28,199 |
Unrealized losses recognized as other income |
| | (26,080) |
Balance as of October 31, 2022 (Successor) | | $ | 2,119 |
| | | |
Interest Rate Swap
On June 17, 2022, the Company entered into two fixed-rate interest rate swap agreements to change the SOFR-based component of the interest rate on a portion of the Company’s variable rate debt to a fixed rate (the “Interest Rate Swaps”). The Interest Rate Swaps have a notional amount of $300.0 million and a maturity date of June 5, 2027. The objective of the Interest Rate Swaps is to eliminate the variability of cash flows in interest payments on the first $300.0 million of variable rate debt attributable to changes in benchmark one-month SOFR interest rates. The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark SOFR interest rates over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to offset changes in cash flows of the variable rate debt. The Interest Rate Swaps are not designated as a cash flow hedge and changes in the fair value of the interest rate swaps are recorded in earnings each period. For the three and nine months ended October 31, 2022, the Company recognized a gain of $20.3 million and $5.2 million, respectively, attributable to the Interest Rate Swaps.
The inputs for determining fair value of the Interest Rate Swaps are classified as Level 2 inputs. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces. Counterparty to this derivative contract is a highly rated financial institution which we believe carries only a minimal risk of nonperformance.
Other Fair Value Instruments
The Company currently invests excess cash balances primarily in cash deposits held at major banks. The carrying amounts of cash deposits, trade receivables, trade payables and accrued liabilities, as reported on the condensed consolidated balance sheet as of October 31, 2022, approximate their fair value because of the short maturity of those instruments.
The Company considered the fair value of its external borrowings and believes their carrying values approximate fair value at October 31, 2022 based on the recent issuance of additional term loans on April 4, 2022 near par and the fact that the borrowing have variable rates.
36
(14) Segment Information
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker (CODM) is its Chief Executive Officer. The Company’s CODM evaluates results using the operating segment structure as the primary basis for which the allocation of resources and financial results are assessed.
On June 12, 2022, Skillsoft entered into a Purchase Agreement with Cornerstone OnDemand, Inc. to sell SumTotal. The Company determined that the transaction met the criteria to be classified as discontinued operations, and its assets and liabilities held for sale. As a result, the financial operations of SumTotal are excluded from the segment disclosure. The sale was completed on August 15, 2022.
The Company has organized its business into two segments: Skillsoft content and Global Knowledge. All of the Company’s businesses market and sell their offerings globally to businesses of many sizes, government agencies, educational institutions and resellers with a worldwide sales force positioned to offer the combinations that best meet customer needs. The CODM primarily uses revenues and operating income as measures used to evaluate financial results and allocation of resources. The Company allocates certain operating expenses to the reportable segments, including general and administrative costs based on the usage and relative contribution provided to the segments. There are no intercompany revenue transactions reported between the Company’s reportable segments.
The Skillsoft business engages in the sale, marketing and delivery of its content learning solutions, in areas such as Leadership and Business, Technology and Developer and Compliance. This includes technical skill areas assumed in the Codecademy acquisition. In addition, Skillsoft offers Percipio, an intelligent online learning experience platform that delivers an immersive learning experience. It leverages its highly engaging content, curated into nearly 700 learning paths (channels) that are continuously updated to ensure customers always have access to the latest information.
The Global Knowledge business offers training solutions covering information technology and business skills for corporations and their employees. Global Knowledge guides its customers throughout their lifelong technology learning journey by offering relevant and up-to-date skills training through instructor-led (in-person “classroom” or online “virtual”) and self-paced (“on-demand”), vendor certified, and other proprietary offerings. Global Knowledge offers a wide breadth of training topics and delivery modalities (classroom, virtual, on-demand) both on a transactional and subscription basis.
The following table presents summary results for each of the businesses for the three months and nine months ended October 31, 2022 (Successor) and the three months ended October 31, 2021 (Successor), the period from June 12, 2021 through October 31, 2021 (Successor) and the period from February 1, 2021 through June 11, 2021 (Predecessor (SLH)), (in thousands):
37
| | | | | | | | | | | | | | | | |
| | Quarter to Date Results | | Year to Date Results | ||||||||||||
| | Fiscal 2023 | | Fiscal 2022 | | Fiscal 2023 | | Fiscal 2022 | ||||||||
| | Successor | | Successor | | Successor | | Successor |
| | Predecessor (SLH) | |||||
| | Three Months | | Three Months | | Nine Months | | From | | | From | |||||
| | Ended | | Ended | | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||||
|
| October 31, 2022 | | October 31, 2021 | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||||
Skillsoft Content |
| |
| | |
| | |
| | | | | | |
|
Revenues |
| $ | 97,968 | | $ | 86,947 | | $ | 286,507 | | $ | 133,160 | | | $ | 102,494 |
Operating expenses |
| | 702,867 | | | 92,595 | | | 967,888 | | | 154,047 | | | | 140,484 |
Operating income (loss) |
| | (604,899) | | | (5,648) | | | (681,381) | | | (20,887) | | | | (37,990) |
Global Knowledge |
| |
| | |
| | |
| | |
| | | |
|
Revenues |
| | 41,422 | | | 53,206 | | | 128,296 | | | 82,460 | | | | — |
Operating expenses |
| | 45,226 | | | 58,005 | | | 211,633 | | | 90,260 | | | | — |
Operating income (loss) |
| | (3,804) | | | (4,799) | | | (83,337) | | | (7,800) | | | | — |
Consolidated |
| |
| | |
| | |
| | |
| | | |
|
Revenues |
| | 139,390 | | | 140,153 | | | 414,803 | | | 215,620 | | | | 102,494 |
Operating expenses |
| | 748,093 | | | 150,600 | | | 1,179,521 | | | 244,307 | | | | 140,484 |
Operating income (loss) |
| | (608,703) | | | (10,447) | | | (764,718) | | | (28,687) | | | | (37,990) |
Non-operating (expense) income |
| | 1,602 | | | (661) | | | 2,733 | | | (1,653) | | | | (167) |
Fair value adjustment of warrants | | | 9,128 | | | (36,838) | | | 26,080 | | | (19,723) | | | | 900 |
Fair value adjustment of hedge instruments | | | 20,314 | | | — | | | 5,249 | | | — | | | | — |
Interest expense, net |
| | (14,487) | | | (6,988) | | | (37,302) | | | (16,304) | | | | (16,703) |
Benefits from (provision for) income taxes |
| | 8,832 | | | 6,168 | | | 34,234 | | | 8,165 | | | | 3,521 |
Net loss from continuing operations | | | (583,314) | | | (48,766) | | | (733,724) | | | (58,202) | | | | (50,439) |
Gain on sale of business | | | 53,756 | | | — | | | 53,756 | | | — | | | | — |
Income from discontinued operations, net of tax | | | 1,215 | | | 5,911 | | | 8,483 | | | 3,494 | | | | 1,175 |
Net (loss) income |
| $ | (528,343) | | $ | (42,855) | | $ | (671,485) | | $ | (54,708) | | | $ | (49,264) |
The Company’s segment assets primarily consist of cash and cash equivalents, accounts receivable, prepaid expenses, deferred taxes, property and equipment, goodwill and intangible assets. The following table sets forth the Company’s segment assets as of October 31, 2022 and January 31, 2022 (in thousands):
| | | | | | |
| | | | | ||
|
| October 31, 2022 |
| January 31, 2022 | ||
| | | | | | |
Skillsoft | | $ | 1,371,061 | | $ | 1,648,160 |
Global Knowledge | | | 224,340 | | | 344,902 |
Total assets classified as discontinued operations | | | — | | | 228,886 |
Consolidated | | $ | 1,595,401 | | $ | 2,221,948 |
Skillsoft content segment depreciation for the three months and nine months ended October 31, 2022 (Successor) was $0.8 million and $2.3 million, respectively.
Skillsoft content segment depreciation for the three months ended October 31, 2021 (Successor), the period from June 12, 2021 through October 31, 2021 (Successor) and the period from February 1, 2021 through June 11, 2021 (Predecessor (SLH)) was $0.8 million, $1.4 million, and $1.8 million, respectively.
Global Knowledge segment depreciation for the three and nine months ended October 31, 2022 (Successor) was $0.5 million and $1.4 million, respectively.
Global Knowledge segment depreciation for the three months ended October 31, 2021 and the period from June 12, 2021 through October 31, 2021 (Successor) was $0.7 million and $1.1 million, respectively.
38
The following table sets forth the Company’s long-lived tangible assets by geographic region as of October 31, 2022 and January 31, 2022 (in thousands):
| | | | | | |
| | | | | ||
|
| October 31, 2022 |
| January 31, 2022 | ||
| | | | | | |
United States | | $ | 8,750 | | $ | 9,482 |
Ireland | | | 205 | |
| 313 |
Rest of world | | | 1,702 | | | 1,680 |
Total | | $ | 10,657 | | $ | 11,475 |
(15) Net Loss Per Share
Basic earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding restricted stock-based awards, stock options, and shares issuable under the employee stock purchase plan using the treasury stock method.
39
The following tables set forth the computation of basic and diluted earnings per share (in thousands, except number of shares and per share data):
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | Quarter to Date Results | | | | | | | |||||
| | | | | Fiscal 2023 | | | Fiscal 2022 | | | | | | | ||
| | | | | Successor | | | Successor | | | | | | | ||
| | | | | | Three Months | | | | Three Months | | | | | | |
| | | | | | Ended October 31, | | | | Ended October 31, | | | | | | |
|
| | | | | 2022 | | | | 2021 | | | | | | |
Net loss from continuing operations | | | | | $ | (583,314) | | | $ | (48,766) | | | | | | |
Net income from discontinued operations | | | | | | 54,971 | | | | 5,911 | | | | | | |
Net loss | | | | | | (528,343) | | | | (42,855) | | | | | | |
| | | | | | | | | | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | | | | | | | | | |
Basic and diluted: | | | | | | | | | | | | | | | | |
Class A and B – (Predecessor (SLH)) | | | | |
| * | | | | * | | | | | | |
Ordinary - (Successor) | | | | |
| 164,368 | | |
| 133,059 | | | | | | |
| | | | | | | | | | | | | | | | |
Net loss per share: | | | | |
|
| | | |
| | | | | | |
Basic and diluted: | | | | |
| | | | | | | | | | | |
Class A and B – (Predecessor (SLH)) - Continuing operations | | | | | | * | | | | * | | | | | | |
Class A and B – (Predecessor (SLH)) - Discontinued operations | | | | | | * | | | | * | | | | | | |
Class A and B – (Predecessor (SLH)) | | | | |
| * | | | | * | | | | | | |
Ordinary – (Successor) - Continuing operations | | | | | | (3.54) | | | | (0.37) | | | | | | |
Ordinary – (Successor) - Discontinued operations | | | | | | 0.33 | | | | 0.04 | | | | | | |
Ordinary – (Successor) | | | | | $ | (3.21) | | | $ | (0.33) | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Year to Date Results | | | | | | | ||||||||
| | Fiscal 2023 | | Fiscal 2022 | | | | | | | ||||||
| | Successor | | Successor | | | Predecessor (SLH) | | | | | | | |||
| | | Nine Months | | | From | | | | From | | | | | | |
| | | Ended October 31, | | | June 12, 2021 to | | | | February 1, 2021 to | | | | | | |
|
| | 2022 | | | October 31, 2021 | | | | June 11, 2021 | | | | | | |
Net loss from continuing operations | | $ | (733,724) | | $ | (58,202) | | | $ | (50,439) | | | | | | |
Net income from discontinued operations | | | 62,239 | | | 3,494 | | | | 1,175 | | | | | | |
Net loss | | | (671,485) | | | (54,708) | | | | (49,264) | | | | | | |
| | | | | | | | | | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
|
| | | | | | |
Basic and diluted: | | | | | | | | | | | | | | | | |
Class A and B – (Predecessor (SLH)) | |
| * | | | * | | |
| 4,000 | | | | | | |
Ordinary - (Successor) | |
| 157,137 | |
| 133,059 | | |
| * | | | | | | |
| | | | | | | | | | | | | | | | |
Net loss per share: | |
|
| | |
| | |
|
| | | | | | |
Basic and diluted: | |
| | | | | | |
| | | | | | | |
Class A and B – (Predecessor (SLH)) - Continuing operations | | | * | | | * | | | | (12.61) | | | | | | |
Class A and B – (Predecessor (SLH)) - Discontinued operations | | | * | | | * | | | | 0.29 | | | | | | |
Class A and B – (Predecessor (SLH)) | |
| * | | | * | | | $ | (12.32) | | | | | | |
Ordinary – (Successor) - Continuing operations | | | (4.67) | | | (0.44) | | | | * | | | | | | |
Ordinary – (Successor) - Discontinued operations | | | 0.40 | | | 0.03 | | | | * | | | | | | |
Ordinary – (Successor) | | $ | (4.27) | | $ | (0.41) | | | | * | | | | | | |
| | | | | | | | | | | | | | | | |
* Not Applicable
40
Warrants to purchase 705,882 common shares have been excluded from the Predecessor (SLH) period since, for periods of losses, the impact would be anti-dilutive and, for periods of income, no shares would be added to diluted earnings per share under the treasury stock method as the strike price of these awards are above the fair market value of underlying shares for all periods presented.
During the nine months ended October 31, 2022 (Successor), the period from June 12, 2021 through October 31, 2021 (Successor) and the period from February 1, 2021 through June 11, 2021 (Predecessor (SLH)), the Company incurred net losses and, therefore, the effect of the Company’s potentially dilutive securities was not included in the calculation of diluted loss per share as the effect would be anti-dilutive. The following table contains share/unit totals with a potentially dilutive impact (in thousands):
| | | | | | | |
| | | | | |||
| | Successor | | Successor | | | Predecessor (SLH) |
| | Nine Months | | From | | | From |
| | Ended | | June 12, 2021 to | | | February 1, 2021 to |
| | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 |
Warrants to purchase common shares |
| 61,967 | | 61,967 |
|
| 706 |
Stock Options |
| 2,652 | | 2,198 | |
| — |
RSUs |
| 15,230 | | 3,465 |
| | — |
Total |
| 79,849 | | 67,630 |
|
| 706 |
(16) Related Party Transactions
Predecessor (SLH) Related Party Transactions
Upon emergence from Chapter 11 on August 27, 2020, the Company’s exit credit facility consisting of $110 million of First Out Term Loans and $410 million of Second Out Term Loans was financed in whole by the Company’s Class A shareholders. Class A shareholders had the ability to trade their debt positions independently from their equity positions; however, the substantial majority of First Out and Second Out term loans were held by Class A shareholders. In connection with the Company’s refinancing on July 16, 2021, the First and Second Out terms loans were repaid in full.
Successor Related Party Transactions
Strategic Support Agreement
In connection with the closing of the Skillsoft Merger on June 11, 2021, the Company entered into a strategic support agreement with its largest shareholder, pursuant to which the shareholder agreed to provide certain business development and investor relations support to the Company for one year after closing of the transaction. The strategic support agreement terminated on June 11, 2022 and will not be renewed.
Agreements with Affiliated Entities
Our largest shareholder has a broad portfolio of investments, within and outside of Ed-tech, where it controls or exerts influence over such investments through ownership and in some cases board seats.
On December 10, 2021, Skillsoft entered into a distribution and resale agreement with a company that is majority-owned by our largest shareholder and its affiliates. On February 18, 2022, SumTotal (now divested) entered into a reseller agreement with a portfolio company of our largest shareholder that also had a common board member. No consideration was due to either party for the fiscal year ended January 31, 2022 and the nine months ended October 31, 2022.
The Company also entered into an agreement for a technical partnership with a portfolio company of our largest shareholder that also had a common board member that includes a collaboration for an interface between Percipio and its products. Neither party is due any consideration under this agreement.
Agreements with Largest Shareholder
In December 2021, Skillsoft entered into a commercial agreement to provide off-the-shelf Skillsoft products to the Company’s largest shareholder and its affiliates for $0.7 million over three years.
41
Codecademy Transaction
Our largest shareholder also owned an interest in Codecademy which we acquired on April 4, 2022, as discussed in Note 3 and elsewhere.
Consulting Services
In December 2021, Skillsoft engaged The Klein Group, LLC (the “Klein Group”) to act as a consultant to advise the Company in connection with the transaction with Codecademy, to assist management in its evaluation of the business opportunity and structuring and negotiation of a potential transaction. Pursuant to this engagement, Skillsoft paid the Klein Group a transaction fee equal to $2.0 million in connection with the Codecademy acquisition. Michael Klein, a member of our Board, is the Chief Executive Officer of the Klein Group and the Klein Group is closely affiliated with our second largest shareholder.
(17) Subsequent Events
The Company has completed an evaluation of all subsequent events after the balance sheet date of October 31, 2022 through the date this Quarterly Report on Form 10-Q was filed with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of October 31, 2022, and events which occurred subsequently but were not recognized in the financial statements. The Company has concluded that no subsequent events have occurred that require disclosure, except as disclosed within these financial statements.
42
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of Skillsoft (as defined below) is a supplement to and should be read in conjunction with Skillsoft’s condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and with Skillsoft’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 18, 2022. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Skillsoft’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in Part II, Item 1A of this report. Unless otherwise noted, amounts referenced in this discussion, other than in reference to share numbers, are in thousands.
Completion of the Business Combinations
On June 11, 2021, Churchill Capital Corp II and Software Luxembourg Holding S.A., a global leader in digital learning and talent management solutions, completed a business combination and subsequent acquisition of Albert DE Holdings Inc. (“Global Knowledge” and such acquisition, the “Global Knowledge Merger”), a worldwide leader in IT and professional skills development. The combined company operates as Skillsoft Corp. (“Skillsoft”, “we”, “us”, “our” and the “Company”) and is listed on the New York Stock Exchange under the ticker symbol “SKIL” beginning on June 14, 2021.
On December 22, 2021, the Company announced a definitive agreement to acquire Codecademy, a leading online learning platform for technical skills. Codecademy is an innovative and popular learning platform providing high-demand technical skills to approximately 40 million registered learners in nearly every country worldwide. The platform offers interactive, self-paced courses and hands-on learning in 14 programming languages across multiple domains such as application development, data science, cloud and cybersecurity. The Codecademy acquisition closed on April 4, 2022 for total consideration of approximately $386.0 million, consisting of the issuance of 30,374,427 common shares and a net cash payment of $198.6 million.
Company’s Business following the Business Combinations
Skillsoft is a global leader in corporate digital learning, serving approximately 70% of the Fortune 1000, customers in over 160 countries, and a community of learners of more than 80 million globally. Skillsoft’s primary learning solutions include: (i) Percipio, an intelligent and immersive digital learning platform; (ii) Global Knowledge, a global provider of authorized information technology & development training and professional skills; (iii) Codecademy, an online learning platform for technical skills that uses an innovative, scalable approach to online coding education; and (iv) Pluma, a digital platform that provides individualized executive-quality coaching that is personal yet scalable.
The Company provides enterprise learning solutions designed to prepare organizations for the future of work, enable them to overcome critical skill gaps, drive demonstrable behavior-change, and unlock the potential in one of their most important assets: their people. The Company’s award-winning, AI-driven, immersive learning platform, Percipio, is purpose built to make learning easier, more accessible, and more effective. Percipio is an open, modern and extensible platform designed to meet the needs of the enterprise customer. Skillsoft offers a comprehensive suite of premium, original, and authorized partner content, including one of the broadest and deepest libraries of leadership & business, technology & developer, and compliance curricula. With access to a broad spectrum of learning options (including video, audio, books, bootcamps, live events, practice labs and individualized coaching), organizations can meaningfully increase learner engagement and retention. In addition, we believe our recent acquisition of Codecademy will further strengthen our content library, enhance the Percipio platform, broaden our customer reach and create significant cross selling opportunities, positioning us for faster growth.
The corporate digital learning industry is rapidly growing, driven by significant tailwinds as organizations focus on upskilling, reskilling, and future-proofing their workforces and the accelerated shift from in-person training to digital training due, in part, to the significant and likely permanent shift to largely remote and distributed workforces triggered by the COVID-19 pandemic and increased emphasis on talent driven by the “great resignation.” The war for talent, labor shortages, wage inflation, hybrid work, early retirements, and burnout among those who stay behind all contribute to this growing demand. According to a January 2021 report by McKinsey, 87% of companies worldwide either currently have skills gaps or believe they will within the next few years, and core skills are changing at an unprecedented pace. In a recent survey conducted by Deloitte, the vast majority of CEO’s cited labor and skills shortages as the number one threat to their business in the coming year – ahead of the pandemic, supply chain disruption, inflation and market instability,
43
cybersecurity, and political instability. According to the Organization for Economic Co-operation and Development, technology will radically transform 1.1 billion jobs by 2030. CEOs, Chief People Officers, and the companies they and their teams lead need to transform their current workforce into one adapted for tomorrow’s demands. We believe these factors present a significant market opportunity for our solutions.
Discontinued Operations
On June 12, 2022, we entered into the Purchase Agreement to sell our SumTotal business to a third party for $200 million in cash, subject to adjustments as set forth in the Purchase Agreement. The sale was completed on August 15, 2022. We received net proceeds of $180.0 million and reserved $8.0 million for working capital contingency which is subject to customary adjustments as set forth in the Purchase Agreement. The disposal of SumTotal assets met the criteria to be reported as held for sale and discontinued operations as of July 31, 2022. As a result, SumTotal’s assets and liabilities are reported as held for sale and the results of operations are presented, net of tax, separate from the results of continuing operations for all periods presented.
The sale of SumTotal business will enable us to sharpen our focus on accelerating growth in our core business, providing customers with transformative learning experiences that propel organizations and people to grow together.
Results of Operations
Our financial results for the three and nine months ended October 31, 2022, three months ended October 31, 2021 and the period of June 12, 2021 to October 31, 2021 are referred to as those of the “Successor” periods. Our financial results for the period of February 1, 2021 to June 11, 2021 are referred to as those of the “Predecessor (SLH)” period. Our results of operations as reported in our Condensed Consolidated Financial Statements for these periods are prepared in accordance with GAAP.
The following table sets forth certain items from our condensed consolidated statements of operations as a percentage of total revenues for the periods indicated:
44
| | | | | | | | | | | |
| | Quarter to Date Results | | Year to Date Results | |||||||
| | Fiscal 2023 | | Fiscal 2022 | | Fiscal 2023 | | Fiscal 2022 | |||
| | Successor | | Successor | | Successor | | Successor | | | Predecessor (SLH) |
| | Three Months | | Three Months | | Nine Months | | From | | | From |
| | Ended | | Ended | | Ended | | June 12, 2021 to | | | February 1, 2021 to |
|
| October 31, 2022 | | October 31, 2021 | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 |
Revenues: |
|
| |
| |
| |
| | |
|
Total revenues |
| 100.0% | | 100.0% | | 100.0% | | 100.0% | | | 100.0% |
Operating expenses: |
| | | | | | | | | | |
Costs of revenues |
| 26.3% | | 27.9% | | 26.4% | | 28.4% | | | 21.5% |
Content and software development |
| 12.4% | | 7.5% | | 12.8% | | 7.7% | | | 14.6% |
Selling and marketing |
| 32.1% | | 25.0% | | 30.4% | | 25.4% | | | 33.6% |
General and administrative |
| 20.3% | | 19.6% | | 20.2% | | 20.5% | | | 16.1% |
Amortization of intangible assets |
| 31.2% | | 24.5% | | 30.9% | | 24.5% | | | 45.4% |
Impairment of goodwill and intangible assets |
| 409.6% | | 0.0% | | 154.6% | | 0.0% | | | 0.0% |
Recapitalization and acquisition-related costs |
| 3.5% | | 2.4% | | 6.4% | | 6.2% | | | 6.5% |
Restructuring |
| 1.4% | | 0.6% | | 2.5% | | 0.5% | | | (0.6)% |
Total operating expenses |
| 536.7% | | 107.5% | | 284.4% | | 113.3% | | | 137.1% |
Operating loss |
| (436.7)% | | (7.5)% | | (184.4)% | | (13.3)% | | | (37.1)% |
Other income (expense), net |
| 1.1% | | (0.5)% | | 0.7% | | (0.8)% | | | (0.2)% |
Fair value adjustment of warrants | | 6.5% | | (26.3)% | | 6.3% | | (9.1)% | | | 0.9% |
Fair value adjustment of hedge instruments |
| 14.6% | | 0.0% | | 1.3% | | 0.0% | | | 0.0% |
Interest income | | 0.0% | | 0.0% | | 0.1% | | 0.0% | | | 0.1% |
Interest expense | | (10.4)% | | (5.0)% | | (9.1)% | | (7.6)% | | | (16.4)% |
Loss before benefit from income taxes |
| (424.8)% | | (39.2)% | | (185.1)% | | (30.8)% | | | (52.6)% |
Benefit from income taxes |
| (6.3)% | | (4.4)% | | (8.3)% | | (3.8)% | | | (3.4)% |
Loss from continuing operations | | (418.5)% | | (34.8)% | | (176.9)% | | (27.0)% | | | (49.2)% |
Gain on sale of business | | 38.6% | | 0.0% | | 13.0% | | 0.0% | | | 0.0% |
Income from discontinued operations, net of tax | | 0.9% | | 4.2% | | 2.0% | | 1.6% | | | 1.1% |
Net loss |
| (379.0)% | | (30.6)% | | (161.9)% | | (25.4)% | | | (48.1)% |
Revenues
We provide, through our Skillsoft, Global Knowledge, and Codecademy brands, enterprise learning solutions designed to prepare organizations for the future of work, overcome critical skill gaps, drive demonstrable behavior-change, and unlock the potential in their people.
Skillsoft generates revenues from its comprehensive suite of premium, original, and authorized partner content, featuring one of the deepest libraries of leadership & business, technology & development, and compliance curricula. With access to a broad spectrum of learning options (including video, audio, books, bootcamps, live events, and practice labs), organizations can meaningfully increase learner engagement and retention. Skillsoft’s content offerings are predominately delivered through Percipio, our award-winning, AI-driven, immersive learning platform purpose built to make learning easier, more accessible, and more effective. In addition, we also have proprietary platforms used for our Codecademy and Pluma offerings. Our learning solutions are typically sold on a subscription basis for a fixed term.
Global Knowledge generates revenues from virtual, in-classroom, and on-demand training solutions in information technology geared at foundational, practitioner and expert information technology professionals. Global Knowledge’s digital and in-classroom learning solutions provide enterprises, government agencies, educational institutions, and individual customers a broad selection of customizable courses to meet their technology and development needs.
45
The following table sets forth the percentage of our revenues from continuing operations attributable to geographic regions for the periods indicated:
| | | | | | | | | | | |
| | Quarter to Date Results | | Year to Date Results | |||||||
| | Fiscal 2023 | | Fiscal 2022 | | Fiscal 2023 | | Fiscal 2022 | |||
| | Successor | | Successor | | Successor | | Successor |
| | Predecessor (SLH) |
| | Three Months | | Three Months | | Nine Months | | From | | | From |
| | Ended | | Ended | | Ended | | June 12, 2021 to | | | February 1, 2021 to |
|
| October 31, 2022 | | October 31, 2021 | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 |
Revenues: |
| | | | | | | | | |
|
United States |
| 66.1% | | 60.9% | | 64.6% | | 61.6% | | | 75.6% |
Other Americas |
| 5.1% | | 6.8% | | 5.6% | | 7.0% | | | 5.1% |
Europe, Middle East and Africa |
| 25.3% | | 28.9% | | 26.3% | | 28.1% | | | 13.9% |
Asia-Pacific |
| 3.5% | | 3.3% | | 3.5% | | 3.3% | | | 5.4% |
Total revenues |
| 100.0% | | 100.0% | | 100.0% | | 100.0% | | | 100.0% |
Subscription and Non-Subscription Revenue
SaaS Subscription Revenue.Represents revenue generated from contracts specifying a minimum fixed fee for services delivered over the life of the contract. The initial term of enterprise contracts is generally one to five years and is generally non-cancellable for the term of the subscription. The fixed fee is generally paid upfront. These contracts typically consist of subscriptions to our various offerings which provide continuous access to our SaaS platforms and associated content over the contract term. Subscription revenue is usually recognized ratably over the contract term.
Non-Subscription Revenue.Primarily represents the sale of Global Knowledge instructor led training offerings, which consist of both in-person and virtual environments. Instructor led training, including virtual offerings, are first scheduled, then delivered later, with revenue realized on the delivery date. Non-subscription revenue also includes professional services related to implementation of our offerings and subsequent, ongoing consulting engagements. Our non-subscription services complement our subscription business in creating strong and comprehensive customer relationships.
The following is a summary of our revenues by product and service type for the periods indicated:
| | | | | | | | | | | |
| | Successor | | Successor | | | | | | ||
| | Three Months | | Three Months | | Dollar | | | |||
| | Ended | | Ended | | Increase/ | | Percent | |||
(In thousands) | | October 31, 2022 | | October 31, 2021 | | (Decrease) | | Change | |||
SaaS subscription revenues: | | | | | | | | | |
| |
Content | | $ | 93,127 | | $ | 82,593 | | $ | 10,534 |
| 12.8% |
Total subscription revenues | | | 93,127 | | | 82,593 | | | 10,534 | | 12.8% |
Non-subscription revenues: | | | | | | | | | | | |
Content | | | 4,617 | | | 4,354 | | | 263 | | 6.0% |
Global Knowledge | | | 41,422 | | | 53,206 | | | (11,784) | | (22.1)% |
Total non-subscription revenues | | | 224 | | | — | | | 224 | | 100.0% |
Total revenues | | $ | 139,390 | | $ | 140,153 | | $ | (763) | | (0.5)% |
46
| | | | | | | | | | |
| | Fiscal 2023 | | Fiscal 2022 | ||||||
| | Successor | | Successor |
| | Predecessor (SLH) | |||
| | Nine Months | | From | | | From | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||
(In thousands) | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||
SaaS subscription revenues: | | | | | | | | | | |
Content | | $ | 272,443 | | $ | 126,833 | | | $ | 97,406 |
Total subscription revenues | | | 272,443 | | | 126,833 | | | | 97,406 |
Non-subscription revenues: | | | | | | | | | | |
Content | | | 13,429 | | | 6,339 | | | | 5,088 |
Global Knowledge | | | 128,296 | | | 82,448 | | | | — |
Total non-subscription revenues | | | 635 | | | — | | | | — |
Total revenues | | $ | 414,803 | | $ | 215,620 | | | $ | 102,494 |
Revenues decreased $0.8 million, or 0.5%, for the three months ended October 31, 2022, compared to the same period in 2021. The primary reason for the decrease in revenues is due to the decline in Global Knowledge’s revenue. Revenues for the period from February 1, 2021 to June 11, 2021 and the period from June 12, 2021 to October 31, 2021 were also low due to the application of fresh-start reporting in August 2020, which required deferred revenue as of August 28, 2020 to be reduced to its estimated fair value, which is derived from the estimated costs to fulfill contractual obligations at the time of a change in control rather than the value of contractual billings to customers. The application of fresh-start reporting resulted in a decrease in GAAP revenue of approximately $19.3 million in the period from February 1, 2021 to June 11, 2021. We adopted ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), effective at the beginning of the Successor period on June 11, 2021. ASU 2021-08 requires an acquirer in a business combination to recognize and measure deferred revenue from acquired contracts using the revenue recognition guidance in Topic 606, rather than the prior requirement to record deferred revenue at a lower fair value. As a result of the adoption of ASU 2021-08, we did not experience a decline in revenue subsequent to June 11, 2021 attributable to a fair value adjustment as we did with the application of fresh-start reporting in the prior year.
After accounting for the impact of the acquisition of Global Knowledge and fresh-start reporting, the changes in total revenues are due to (i) the inclusion of Pluma revenue and Codecademy revenue subsequent to their acquisitions on June 30, 2021 and April 3, 2022, respectively, and (ii) organic growth due to higher bookings in the prior year, as revenue from our subscription offerings is typically recognized over the twelve months that follow a booking.
Operating expenses
Cost of revenues
Cost of revenues consists primarily of employee salaries and benefits for hosting operations, professional service and customer support personnel; royalties; hosting and software maintenance services; facilities and utilities costs; consulting services; and instructor fees, course materials, logistics costs and overhead costs associated with virtual, in-classroom, and on-demand training solutions. The table below provides details regarding the changes in components of cost of revenues.
| | | | | | | | | | | |
| | Successor | | Successor | | | | | | ||
| | Three Months | | Three Months | | Dollar | | | |||
| | Ended | | Ended | | Increase/ | | Percent | |||
(In thousands, except percentages) | | October 31, 2022 | | October 31, 2021 | | (Decrease) | | Change | |||
Compensation and benefits | | $ | 13,141 | | $ | 13,738 | | $ | (597) |
| (4.3)% |
Courseware, instructor fees and outside services | |
| 18,512 | |
| 20,478 | |
| (1,966) |
| (9.6)% |
Hosting and software maintenance | |
| 2,554 | |
| 1,795 | |
| 759 |
| 42.3% |
Facilities and utilities | |
| 1,926 | |
| 2,668 | |
| (742) |
| (27.8)% |
Other | |
| 522 | |
| 373 | |
| 149 |
| 39.9% |
Total cost of revenues | | $ | 36,655 | | $ | 39,052 | | $ | (2,397) |
| (6.1)% |
47
| | | | | | | | | | |
|
| Fiscal 2023 | | Fiscal 2022 | ||||||
| | Successor | | Successor | | | Predecessor (SLH) | |||
| | Nine Months | | From | | | From | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||
(In thousands, except percentages) | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||
Compensation and benefits | | $ | 40,199 | | $ | 20,869 | | | $ | 10,451 |
Courseware, instructor fees and outside services | |
| 55,349 | |
| 33,203 | | |
| 7,463 |
Hosting and software maintenance | |
| 7,090 | |
| 2,673 | | |
| 2,508 |
Facilities and utilities | | | 6,821 | | | 4,086 | | | | 1,570 |
Other | |
| 203 | |
| 511 | | |
| 51 |
Total cost of revenues | | $ | 109,662 | | | 61,342 | | | | 22,043 |
The decrease in courseware, instructor fees and outside services costs for the three months ended October 31, 2022, compared to the same period in 2021, was primarily a result of the decline in revenues generated from Global Knowledge business segment. The decreases in compensation and benefits and facilities and utilities expenses were attributable to the cost savings from the integration and consolidation of Global Knowledge business operations and facilities. The increase in hosting and software maintenance expenses for the three months ended October 31, 2022, compared to the same period in 2021, was due to the inclusion of Codecademy’s hosting expenses incurred subsequent to its acquisition on April 4, 2022. The increases in all components of cost of revenues for the nine months ended October 31, 2022, compared to the Successor and Predecessor periods in 2021, were primarily the result of the inclusion of Global Knowledge’s expenses incurred subsequent to its acquisition on June 11, 2021.
Content and software development
Content and software development expenses include costs associated with the development of new products and the enhancement of existing products, consisting primarily of employee salaries and benefits; development-related professional services; facilities costs; depreciation; and software maintenance costs. The table below provides details regarding the changes in components of content and software development expenses.
| | | | | | | | | | | |
| | Successor | | Successor | | | | | | ||
| | Three Months | | Three Months | | Dollar | | | |||
| | Ended | | Ended | | Increase/ | | Percent | |||
(In thousands, except percentages) | | October 31, 2022 | | October 31, 2021 | | (Decrease) | | Change | |||
Compensation and benefits | | $ | 13,660 | | $ | 6,743 | | $ | 6,917 |
| 102.6% |
Consulting and outside services | |
| 2,310 | |
| 2,664 | |
| (354) |
| (13.3)% |
Facilities and utilities | |
| 440 | |
| 591 | |
| (151) |
| (25.5)% |
Software Maintenance | |
| 797 | |
| 413 | |
| 384 |
| 93.0% |
Other | |
| 45 | |
| 51 | |
| (6) |
| (11.8)% |
Total content and software development expenses | | $ | 17,252 | | $ | 10,462 | | $ | 6,790 |
| 64.9% |
| | | | | | | | | | |
|
| Fiscal 2023 | | Fiscal 2022 | ||||||
| | Successor | | Successor | | | Predecessor (SLH) | |||
| | Nine Months | | From | | | From | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||
(In thousands, except percentages) | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||
Compensation and benefits | | $ | 39,183 | | $ | 11,023 | | | $ | 8,704 |
Consulting and outside services | |
| 10,459 | |
| 4,067 | | |
| 4,680 |
Facilities and utilities | |
| 1,370 | |
| 874 | | |
| 911 |
Software Maintenance | |
| 2,087 | |
| 623 | | |
| 621 |
Other | |
| 177 | |
| 92 | | |
| 96 |
Total content and software development expenses | | $ | 53,276 | | $ | 16,679 | | | $ | 15,012 |
The increases in compensation and benefits and software maintenance expenses for the three months ended October 31, 2022, compared to the same period in 2021, were primarily due to the inclusion of Codecademy’s expenses incurred subsequent to its acquisition on April 4, 2022. Also contributing to the increases in compensation and benefits expenses for the three and nine months ended October
48
31, 2022 was the stock-based compensation related to the restricted stock units granted to key employees in 2022. The increases in compensation and benefits, consulting and outside services, and software maintenance expenses for the nine months ended October 31, 2022, compared to the Successor and Predecessor periods in 2021, were primarily the result of the inclusion of Global Knowledge’s expenses incurred subsequent to its acquisition on June 11, 2021. The decreases in facilities and utilities expenses for the three and nine months ended October 31, 2022, compared to the Successor and Predecessor periods in 2021, were attributable to the cost savings from the consolidation of our facilities in 2022.
Selling and marketing
Selling and marketing, or S&M, expenses consist primarily of employee salaries and benefits for selling, marketing and pre-sales support personnel; commissions; travel expenses; advertising and promotional expenses; consulting and outside services; facilities costs; depreciation; and software maintenance costs. The table below provides details regarding the changes in components of S&M expenses.
| | | | | | | | | | | |
| | Successor | | Successor | | | | | | ||
| | Three Months | | Three Months | | Dollar | | | |||
| | Ended | | Ended | | Increase/ | | Percent | |||
(In thousands, except percentages) | | October 31, 2022 | | October 31, 2021 | | (Decrease) | | Change | |||
Compensation and benefits | | $ | 30,818 | | $ | 25,749 | | $ | 5,069 |
| 19.7% |
Advertising and promotions | |
| 8,087 | |
| 5,201 | |
| 2,886 |
| 55.5% |
Facilities and utilities | |
| 731 | |
| 1,096 | |
| (365) |
| (33.3)% |
Consulting and outside services | |
| 2,379 | |
| 1,694 | |
| 685 |
| 40.4% |
Software Maintenance | |
| 2,596 | |
| 1,263 | |
| 1,333 |
| 105.5% |
Other | |
| 69 | |
| 43 | |
| 26 |
| 60.5% |
Total S&M expenses | | $ | 44,680 | | | 35,046 | | $ | 9,634 |
| 27.5% |
| | | | | | | | | | |
|
| Fiscal 2023 | | Fiscal 2022 | ||||||
| | Successor | | Successor | | | Predecessor (SLH) | |||
| | Nine Months | | From | | | From | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||
(In thousands, except percentages) | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||
Compensation and benefits | | $ | 87,776 | | $ | 40,323 | | | $ | 24,987 |
Advertising and promotions | |
| 23,606 | |
| 8,306 | | |
| 4,695 |
Facilities and utilities | |
| 2,318 | |
| 1,670 | | |
| 1,427 |
Consulting and outside services | |
| 6,215 | |
| 2,417 | | |
| 1,379 |
Software Maintenance | |
| 6,002 | |
| 1,951 | | |
| 1,850 |
Other | |
| 172 | |
| 72 | | |
| 63 |
Total S&M expenses | | $ | 126,089 | | $ | 54,739 | | | $ | 34,401 |
The increases in compensation and benefits, advertising and promotion, consulting and outside services, and software maintenance expenses for the three months ended October 31, 2022, compared to the same period in 2021, were primarily the result of the inclusion of Codecademy’s expenses incurred subsequent to its acquisition on April 4, 2022. Also contributing to the increase in compensation and benefits expenses for the three months ended October 31, 2022 was the stock-based compensation related to the restricted stock units granted to key employees and higher commission expenses in 2022. The increases in all components of S&M expenses, except facilities and utilities, for the nine months ended October 31, 2022, compared to the Successor and Predecessor periods in 2021, were primarily the result of the inclusion of Global Knowledge’s expenses incurred subsequent to its acquisition on June 11, 2021. The decreases in facilities and utilities expenses for the three and nine months ended October 31, 2022, compared to the Successor and Predecessor periods in 2021, were attributable to the cost savings from the consolidation of our facilities in 2022.
49
General and administrative
General and administrative, or G&A, expenses consist primarily of employee salaries and benefits for executive, finance, administrative, and legal personnel; audit, legal and consulting fees; insurance; franchise, sales and property taxes; facilities costs; and depreciation. The table below provides details regarding the changes in components of G&A expenses.
| | | | | | | | | | | |
| | Successor | | Successor | | | | | | ||
| | Three Months | | Three Months | | Dollar | | | |||
| | Ended | | Ended | | Increase/ | | Percent | |||
(In thousands, except percentages) | | October 31, 2022 | | October 31, 2021 | | (Decrease) | | Change | |||
Compensation and benefits | | $ | 13,560 | | $ | 15,018 | | $ | (1,458) |
| (9.7)% |
Consulting and outside services | |
| 10,352 | |
| 7,314 | |
| 3,038 |
| 41.5% |
Facilities and utilities | |
| 1,682 | |
| 1,724 | |
| (42) |
| (2.4)% |
Franchise, sales, and property tax | |
| 556 | |
| 263 | |
| 293 |
| 111.4% |
Insurance | |
| 1,166 | |
| 2,007 | |
| (841) |
| (41.9)% |
Software Maintenance | | | 785 | | | 942 | | | (157) | | (16.7)% |
Other | |
| 180 | |
| 184 | |
| (4) |
| (2.2)% |
Total G&A expenses | | $ | 28,281 | | $ | 27,452 | | $ | 829 |
| 3.0% |
| | | | | | | | | | |
|
| Fiscal 2023 | | Fiscal 2022 | ||||||
| | Successor | | Successor | | | Predecessor (SLH) | |||
| | Nine Months | | From | | | From | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||
(In thousands, except percentages) | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||
Compensation and benefits | | $ | 46,398 | | $ | 26,581 | | | $ | 10,732 |
Consulting and outside services | |
| 24,037 | |
| 9,987 | | |
| 3,391 |
Facilities and utilities | |
| 4,410 | |
| 2,601 | | |
| 680 |
Franchise, sales, and property tax | |
| 1,684 | |
| 102 | | |
| 643 |
Insurance | |
| 4,573 | |
| 3,410 | | |
| 518 |
Software Maintenance | | | 2,308 | | | 1,251 | | | | 419 |
Other | |
| 584 | |
| 349 | | |
| 88 |
Total G&A expenses | | $ | 83,994 | | $ | 44,281 | | | $ | 16,471 |
The decrease in compensation and benefits expenses for the three months ended October 31, 2022, compared to the same period in 2021, was attributable to the cost savings from the integration and consolidation of Global Knowledge business operations and lower incentive-based compensation accrual. The increase in consulting and outside services expenses for the three months ended October 31, 2022, compared to the same period in 2021, was primarily due to increased professional services expenses in connection with the transformational initiatives we implemented after the completion of the acquisitions. The decrease in insurance expenses for the three months ended October 31, 2022, compared to the same period in 2021, was mainly due to the excess directors and officers liability insurance policies being fully amortized from June 2021 to June 2022. The increases in all components of G&A expenses for the nine months ended October 31, 2022, compared to the Successor and Predecessor periods in 2021, were primarily the result of the inclusion of Global Knowledge’s expenses incurred subsequent to its acquisition on June 11, 2021.
Amortization of intangible assets
Intangible assets arising from business combinations are developed technology, customer-related intangibles, trade names and other identifiable intangible assets with finite lives. These intangible assets are amortized over the estimated useful lives of such assets. We also capitalize certain internal use software development costs related to our SaaS platform incurred during the application development stage. The internal use software is amortized on a straight-line basis over its estimated useful life.
The increases in amortization of intangible assets were primarily due to the intangible assets that arose from the business combinations completed in June 2021 and April 2022.
50
Impairment of goodwill and intangible assets
During the three months ended July 31, 2022, our Global Knowledge instructor led training (“ILT”) business experienced a significant decline in bookings and GAAP revenue compared to the corresponding period in the prior year. In accordance with ASC 350, we considered whether there were any indicators of impairment for Global Knowledge goodwill, concluding that triggering events had occurred, necessitating an interim goodwill impairment test as of July 31, 2022. In comparing the estimated fair value of the Global Knowledge reporting unit to its carrying value, we considered the results of both a discounted cash flow analysis and a market multiples approach. The results of the impairment test performed indicated that the carrying value of the Global Knowledge reporting unit exceeded its estimated fair value. Based on the results of the goodwill impairment testing procedures, we recorded a $70.5 million goodwill impairment for the three and six months ended July 31, 2022.
During the three months ended October 31, 2022, we experienced a substantial decline in our stock price resulting in the total market value of our shares of stock outstanding (“market capitalization”) being less than the carrying value of our reporting units. We considered the impact of current macroeconomic conditions on our projected operating results and assumptions used in the income approach or discounted cash flow method and market approach models that impact the fair value of our reporting units. The macroeconomic conditions considered include deterioration in the equity markets evidenced by sustained declines in our stock price, those of our peers, and major market indices, which reduced the market multiples, along with an increase in the weighted-average cost of capital primarily driven by an increase in interest rates. In addition, we lowered our projected operating results primarily due to the foreign exchange impact, underperformance of Global Knowledge business, and macroeconomic uncertainty. After considering all available evidence in the evaluation of goodwill impairment indicators, we determined it appropriate to perform an interim quantitative assessment of the Skillsoft content and Global Knowledge reporting units as of October 31, 2022. The results of the impairment test performed indicated that the carrying value of the Skillsoft content and Global Knowledge reporting units exceeded the estimated fair value. Based on the results of the goodwill impairment testing procedures, we recorded a $569.3 million goodwill impairment for Skillsoft content segment and additional goodwill impairment for Global Knowledge segment, totalling $570.9 million, during the three months ended October 31, 2022.
Recapitalization and acquisition-related costs
Recapitalization and acquisition-related costs consist of professional fees for legal, investment banking and other advisor costs incurred in connection with our business combination completed in June 2021, and subsequent acquisition related activities driven by the Codecademy acquisition and related debt issuance. The changes in recapitalization and acquisition-related costs were primarily due to the timing of the acquisitions related activities.
Restructuring
In connection with the acquisition integration process and our workplace flexibility policy, we continued our initiatives and commitment to reduce our costs and better align operating expenses with existing economic conditions and our operating model. During the three and nine months ended October 31, 2022, we recorded restructuring charges of $2.0 million and $10.3 million, respectively, for the severance costs and the abandonment of right-of-use assets.
In January 2021, we committed to a restructuring plan that encompassed a series of measures intended to improve our operating efficiency, competitiveness and business profitability. These included workforce reductions and consolidation of facilities as we are adopting new work arrangements for certain locations. During the period from February 1, 2021 to June 11, 2021 and the period from June 12, 2021 to October 31, 2021, we recorded restructuring recoveries of $0.6 million and additional charges of $1.1 million, respectively, as a result of severance cost estimate changes.
51
Interest and other expense
Interest and other expense, net, consists of interest income, interest expense, and other expense and income.
| | | | | | | | | | | |
| | Successor | | Successor | | | | | | ||
| | Three Months | | Three Months | | Dollar | | | |||
| | Ended | | Ended | | (Increase)/ | | Percent | |||
(In thousands, except percentages) | | October 31, 2022 | | October 31, 2021 | | Decrease | | Change | |||
Other income (expense), net | | $ | 1,601 | | $ | (661) | | $ | (2,262) |
| (342.2)% |
Interest income | |
| 69 | |
| 9 | |
| (60) |
| (666.7)% |
Interest expense, net | |
| (14,556) | |
| (6,997) | |
| (7,559) |
| (108.0)% |
| | | | | | | | | | |
|
| Fiscal 2023 | | Fiscal 2022 | ||||||
| | Successor | | Successor | | | Predecessor (SLH) | |||
| | Nine Months | | From | | | From | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||
(In thousands, except percentages) | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||
Other income (expense), net | | $ | 2,733 | | $ | (1,653) | | | $ | (167) |
Interest income | |
| 239 | |
| 18 | | |
| 60 |
Interest expense, net | |
| (37,541) | |
| (16,322) | | |
| (16,763) |
The net other income (expense) was primarily the foreign exchange gains and losses (specifically, resulting from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities) which fluctuate as the U.S. dollar appreciates or depreciates against other currencies. The increase in interest expense for the three months ended October 31, 2022, compared to the same period in 2021, was due to the additional $160 million of term loan in connection with the closing of the Codecademy acquisition on April 4, 2022, and higher interest rates. The interest expense for the period from February 1, 2021 to June 11, 2021 was slightly higher due to a higher interest rate under the exit credit facility of the Predecessor prior to the refinancing in July of 2021. As a result of the interest rate swaps we executed on June 17, 2022, we have fixed the cash interest rate on $300 million of our outstanding term loans at 8.94% going forward.
Fair value adjustments to warrants
The gains attributable to warrants for the three and nine months ended October 31, 2022 are due to a decline in the value of our common stock during the periods, which decreased the fair value of our liability classified warrants that are marked to market at each balance sheet date, with gains and losses being recorded in current period earnings.
Fair value adjustments of hedge instruments
We entered into two fixed-rate interest rate swap agreements on June 17, 2022 for a notional amount of $300 million and a maturity date of June 5, 2027. The objective of the interest rate swaps is to eliminate the variability of cash flows in interest payments on the first $300 million of variable rate debt attributable to changes in benchmark one-month Secured Overnight Financing Rate (SOFR) interest rates. The interest rate swaps are not designated for hedge accounting and are carried on the statement of financial position at their fair value. Unrealized gains and losses from changes in fair value of the interest rate swaps are included in the income statement as they occur.
Gain on sale of business
On June 12, 2022, we entered into the Purchase Agreement to sell our SumTotal business to a third party for $200 million in cash, subject to adjustments as set forth in the Purchase Agreement. The sale was completed on August 15, 2022. We received net proceeds of $180.0 million and reserved $8.0 million for working capital contingency which is subject to customary adjustments as set forth in the Purchase Agreement.
In accordance with ASC 810, we recorded a gain on sale upon completion of the transaction. The gain was calculated by measuring the difference between the fair value of consideration received less the carrying amount of the assets and liabilities sold. We recognized a
52
gain of $53.8 million in the three and nine months ended October 31, 2022. The gain is preliminary and subject to finalization of post-closing adjustments pursuant to the Purchase Agreement.
Benefit from income taxes
| | | | | | | | | | | |
| | Successor | | Successor | | | | | | ||
| | Three Months | | Three Months | | Dollar | | | |||
| | Ended | | Ended | | Increase/ | | Percent | |||
(In thousands, except percentages) | | October 31, 2022 | | October 31, 2021 | | (Decrease) | | Change | |||
Benefit from income taxes | | $ | (8,832) | | $ | (6,168) | | $ | (2,664) |
| (43.2)% |
Effective income tax rate | |
| 1.5% | |
| 11.2% | |
|
|
|
|
| | | | | | | | | | |
| | Fiscal 2023 | | Fiscal 2022 | ||||||
| | Successor | | Successor | | | Predecessor (SLH) | |||
| | Nine Months | | From | | | From | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||
(In thousands, except percentages) | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||
Benefit from income taxes | | $ | (34,234) | | $ | (8,165) | | | $ | (3,521) |
Effective income tax rate | |
| 4.5% | |
| 12.3% | | |
| 6.5% |
The effective income tax rate for the three and nine months ended October 31, 2022, differed from the United States federal statutory rate of 21.0% due primarily to the impact of non-deductible items, foreign rate differential, changes in uncertain tax positions and changes in the valuation allowance on the Company’s deferred tax assets. Due to the acquisition of Codecademy on April 4, 2022 the Company analyzed the realizability of its existing deferred tax assets with the addition of the Codecademy assets and liabilities. Based on this analysis the Company determined that a valuation allowance release of $20.7 million was required and recorded in full as a discrete income tax benefit for the nine months ended October 31, 2022.
The effective income tax rate for the three and nine months ended October 31, 2021, differed from the United States federal statutory rate of 21.0% due primarily to the impact of non-deductible items, current period changes in the Company’s valuation allowance on its deferred tax assets and the impact of foreign rate differential.
Liquidity and Capital Resources
Liquidity and Sources of Cash
As of October��31, 2022, we had $174.7 million of cash and cash equivalents on hand. We have funded operations primarily through the use of cash collected from our customers and the proceeds received from the Term Loan Facility (described below), supplemented from time to time with borrowings under our accounts receivable facility (described below). Our cash requirements vary depending on factors such as the growth of the business, changes in working capital and capital expenditures. We expect to operate the business and execute our strategic initiatives principally with funds generated from operations and supplemented from borrowings up to a maximum of $75.0 million under our accounts receivable facility. We anticipate that we will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for at least the next 12 months as well as for the foreseeable future with capital sources currently available.
Term Loan
On July 16, 2021, Skillsoft Finance II, Inc. (“Skillsoft Finance II”), a subsidiary of Skillsoft Corp., entered into a Credit Agreement (the “Credit Agreement”), by and among Skillsoft Finance II, as borrower, Skillsoft Finance I, Inc. (“Holdings”), the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent, pursuant to which the lenders provided a $480 million term loan facility (the “Term Loan Facility”) to Skillsoft Finance II, the proceeds of which, together with cash on hand, were used to refinance existing debt. The Term Loan Facility is scheduled to mature on July 16, 2028.
In connection with the closing of the Codecademy acquisition, Skillsoft Finance II entered into Amendment No. 1 to the Credit Agreement, dated as of April 4, 2022 (the “First Amendment”), among Skillsoft Finance II, Holdings, certain subsidiaries of Skillsoft
53
Finance II, as guarantors, Citibank N.A., as administrative agent, and the financial institutions parties thereto as Term B-1 Lenders, which amended the Credit Agreement (as amended by the First Amendment, the “Amended Credit Agreement”).
The First Amendment provides for the incurrence of up to $160 million of Term B-1 Loans (the “Term B-1 Loans”) under the Amended Credit Agreement. In addition, the First Amendment, among other things, (a) provides for early opt-in to the Secured Overnight Financing Rate (SOFR)("SOFR") subject to a 0.75% floor, for the existing term loans under the Credit Agreement (such existing term loans together with the Term B-1 Loans, the “Initial Term Loans”) and (b) provides for the applicable margin for the Initial Term Loans at 4.25% with respect to base rate borrowings and 5.25% with respect to SOFR borrowings.
Prior to the maturity thereof, the Initial Term Loans will beare subject to quarterly amortization payments of 0.25% of the principal amount. The Amended Credit Agreement requires that any prepayment of the Initial Term Loans in connection with a Repricing Transaction (as defined in the Amended Credit Agreement) shall be subject to (i) a 2.00% premium on the amount of Initial Term Loans prepaid if such prepayment occurs prior to July 16, 2022 and (ii) a 1.00% premium on the amount of Initial Term Loans prepaid in connection with a Repricing Transaction, if such prepayment occurs on or after July 16, 2022 but on or prior to January 16, 2023.$1.6 million through maturity. The proceeds of the Term B-1 Loans were used by the Company to finance, in part, the Codecademy acquisition, and to pay costs, fees, and expenses related thereto.
SumTotal Proceeds
On August 15, 2022, we completed the previously announced sale of our SumTotal business to a third party. We received netNet proceeds of $180.0from the sale were $174.9 million, and reserved $8.0 million forafter final working capital contingency which is subject to customary adjustments as set forth in the Purchase Agreement.April 2023. Under the terms of our Amended Credit Agreement, the net proceeds attributable to the sale of SumTotal required a mandatory prepayment of $31.4 million.million which was made in August 2022. The remaining net cash proceeds attributable to the sale of $140.6 million areSumTotal were subject to reinvestment provisions and maycould not be used for general corporate purposes. In the event any of the remaining net cash proceeds have not been designated for eligible investments (such as permitted acquisitions, capital expenditures and other such eligible uses asAs defined in the Amended Credit Agreement) on or before August 15, 2023, such remaining net cash proceeds will be used to prepay outstanding indebtedness under our Amended Credit Agreement. We expect to have sufficient qualifying expenditures under the Amended Credit Agreement, such that no additional mandatory prepayment with remaining SumTotal proceeds will be necessary.repayment was required.
Accounts Receivable Facility
We also have access to up to $75.0 million of borrowings under our accounts receivables facility, where borrowing can be made against eligible accounts receivable, with advance rates between 50.0% and 85.0%. Borrowings under the facility bear interest at 3.00%3.11% per annum plus the greater of (i) the prime rate or (ii) the sum of 0.5% per annum plus the federal fundsapplicable Term SOFR rate. The maturity date of the accounts receivable facility is the earlier of (i) December 2024 or (ii) 90 days prior to the maturity of any corporate debt. The accounts receivable facility requires a minimum outstanding balance of $10 million at all times. Based on seasonality of billings and the characteristics of accounts receivable, some of which are not eligible for advances, we are not always able to access the full $75$75.0 million available capacity. As of capacity.July 31, 2023, $40.1 million was drawn from our accounts receivable facility.
On September 7, 2022, our Board of Directors authorized the Company to repurchase up to $30$30.0 million of our common stock, which authorization will expireexpired September 7, 2023 unless extended.2023. Although our Board of Directors has authorized the share repurchase program, we arewere not obligated to repurchase any specific dollar amount or to acquire any specific number of shares under the program. In addition, the share repurchase program may be suspended, modified, or terminated at any time without prior notice. The amount, timing, and execution of our share repurchase program may fluctuate based on our priorities for the use of cash for other purposes such as reducing debt, and because of changes in cash flows, tax laws, and the market price of our common stock. We From inception through April 19, 2023, we repurchased 645,4285,995,530 of our shares for $1.4 million during the three months ended October $10.9 million.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| | | | | | | | | | |
|
| Fiscal 2023 | | Fiscal 2022 | ||||||
| | Successor | | Successor | | | Predecessor (SLH) | |||
| | Nine Months | | From | | | From | |||
| | Ended | | June 12, 2021 to | | | February 1, 2021 to | |||
(In thousands) | | October 31, 2022 | | October 31, 2021 | | | June 11, 2021 | |||
Net cash (used in) provided by operating activities | | $ | (23,561) | | $ | (541) | | | $ | 33,811 |
Net cash used in investing activities | |
| (40,199) | | | (568,251) | | |
| (2,991) |
Net cash provided by financing activities | |
| 83,690 | | | 364,480 | | |
| 14,907 |
Effect of foreign currency exchange rates on cash and cash equivalents | |
| (6,823) | | | (820) | | |
| 203 |
Net increase (decrease) in cash and cash equivalents | | $ | 13,107 | | $ | (205,132) | | | $ | 45,930 |
Six Months Ended July 31, | ||||||||
(In thousands) | 2023 | 2022 | ||||||
Net cash provided by (used in) operating activities | $ | 1,985 | $ | (13,003 | ) | |||
Net cash used in investing activities | (14,494 | ) | (207,882 | ) | ||||
Net cash provided by (used in) financing activities | (11,730 | ) | 113,014 | |||||
Effect of foreign currency exchange rates on cash and cash equivalents | (472 | ) | (4,646 | ) | ||||
Net increase (decrease) in cash and cash equivalents and restricted cash | $ | (24,711 | ) | $ | (112,517 | ) |
Cash Flows from Operating Activities
The decreaseyear-over-year increase in cash provided byflows from operating activities forin the ninesix months ended OctoberJuly 31, 20222023, compared to the Successor and Predecessor periodssame period in fiscal 2022, was primarily due to (i) the inclusionresult of Global Knowledge’s expenses incurred subsequent to its acquisition on June 11, 2021, (ii) a significant declinefavorability in Global Knowledge’s revenue, (iii) higher recapitalization and acquisition-related costs, driven by the Codecademy acquisition and related debt issuance, (iv) higher restructuring and integration-related costs related to the combinationworking capital, net of Skillsoft and Global Knowledge, and (v) higher annual incentive compensation payments.effects from acquisitions.
Cash flows from operating activities directly attributable to SumTotal, which was sold on August 15, 2022, were not significant for the periods presented herein.
Cash Flows from Investing Activities
Cash flows from investing activities in the six months ended July 31, 2023 include $172.0 million of net cash proceeds from the sale of SumTotal business, and $198.8$6.0 million of cash payments for internally developed software.
Cash flows from investing activities for the six months ended July 31, 2022 include cash paid of $198.7 million related to the acquisition of Codecademy. See Note 3 “Business Combinations” and Note 4 “Discontinued Operations” of the Notes to Unaudited Condensed Consolidated Financial StatementsCombination” for more details.
Our purchases of property and equipment largely consist of computer hardware and software, as well as capitalized software development costs, to support content and software development activities.
Cash flows from investing activities directly attributable to SumTotal, which was sold on August 15, 2022, were not significant for the periods presented herein.
Cash Flows from Financing Activities
Cash flows from financing activities consist primarily of borrowings and repayments under our Predecessor and Successor debt facilities and our accounts receivable facility. Wefacility, and payments for share repurchases.
The Company received $157.1 million of net proceeds from the Amended Credit Agreement and used most of the proceeds for the acquisition of CodecademyTerm Loan Facility on April 4, 2022. We made a mandatory prepayment of $31.4 million to2022. The Company used the lenders in August 2022 as a resultnet proceeds and cash on hand for the closing of the sale of SumTotal business.Codecademy acquisition. See Note 9 “Long-Term Debt” of the Notes to Unaudited Condensed Consolidated Financial Statements3 “Business Combination” for more details.
Contractual and Commercial Obligations
The scheduled maturities of our debt and future minimum rental commitments under non-cancelable lease agreements as of OctoberJuly 31, 20222023 were as set forth in the table below.
| | | | | | | | | | | | | | | | ||||||||||||||||||||
| | Payments due by Fiscal Year | |||||||||||||||||||||||||||||||||
Payments due by Fiscal Year | |||||||||||||||||||||||||||||||||||
(In thousands) | | Total | | 2023 (1) | | 2024-2025 | | 2026-2027 | | Thereafter | Total | Remainder of 2024 | 2025-2026 | 2027-2028 | Thereafter | ||||||||||||||||||||
Term Loan Facility |
| $ | 602,606 |
| $ | 1,601 |
| $ | 12,808 |
| $ | 12,808 |
| $ | 575,389 | $ | 597,803 | $ | 3,202 | $ | 12,808 | $ | 12,808 | $ | 568,985 | ||||||||||
Operating leases | | | 17,722 | | | 1,297 | | | 7,547 | | | 4,104 | |
| 4,774 | 16,749 | 2,492 | 6,174 | 3,885 | 4,198 | |||||||||||||||
Total | | $ | 620,328 | | $ | 2,898 | | $ | 20,355 | | $ | 16,912 | | $ | 580,163 | $ | 614,552 | $ | 5,694 | $ | 18,982 | $ | 16,693 | $ | 573,183 |
(1)Excluding payments made during the nine months ended October 31, 2022.
From time to time, we are a party to or may be threatened with litigation in the ordinary course of our business. We regularly analyze then current information including, as applicable, our defense and insurance coverage and, as necessary, provide accruals for probable and estimable liabilities for the eventual disposition of these matters. We are presently not a party to any materialFor information regarding legal proceedings.proceedings see Note 8.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and the reported amounts of assets, liabilities, revenues and expenses during the reporting period. We regularly reevaluate our estimates and judgments, including those related to the following: business combinations, revenue recognition, impairment of goodwill and intangible assets, stock-based compensation, accounting for warrants, income tax assets and liabilities; and restructuring charges and accruals. We base our estimates and judgments on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, or results of operations could be impacted.
We believe the following critical accounting estimates most significantly affect the portrayal of our financial condition and involve our most difficult and subjective estimates and judgments.
Impairment
Revenue Recognition
The Company enters into contracts that provide customers access to a broad spectrum of Goodwilllearning options including cloud-based learning content, talent management solutions, virtual, on-demand and classroom training, and individualized coaching. The Company recognizes revenue that reflects the consideration that we expect to be entitled to receive in exchange for these services. We apply judgment in determining our customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience, credit, or financial information. The Company is not required to exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price.
The Company’s cloud-based solutions generally do not provide customers with the right to take possession of the software supporting the platform or to download course content without continuing to incur fees for hosting services and, as a result, are accounted for as service arrangements. Access to the platform and course content represents a series of distinct services as the Company continually provides access to, and fulfill its obligation to, the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. Accordingly, the fixed consideration related to subscription revenue is generally recognized on a straight-line basis over the contract term, beginning on the date the service is made available to the customer. The Company’s subscription contracts typically vary from one year to three years. The Company’s cloud-based solutions arrangements are generally non-cancellable and non-refundable.
Revenue from virtual, on-demand and classroom training, and individualized coaching is recognized in the period in which the services are rendered. The Company also sells professional services related to its cloud solutions which are typically considered distinct performance obligations and are recognized over time as services are performed. For fixed-price contracts, revenue is recognized over time based on a measure of progress that reasonably reflects our advancement toward satisfying the performance obligation.
While the majority of the Company’s revenue relates to SaaS subscription services where the entire arrangement fee is recognized on a ratable basis over the contractual term, the Company sometimes enters into contractual arrangements that have multiple distinct performance obligations, one or more of which have different periods over which the services or products are delivered. These arrangements may include a combination of subscriptions and non-subscription products such as professional services. The Company allocates the transaction price of the arrangement based on the relative estimated standalone selling price, or SSP, of each distinct performance obligation.
Reimbursements received from customers for out-of-pocket expenses are recorded as revenues, with related costs recorded as cost of revenues. The Company presents revenues net of any taxes collected from customers and remitted to government authorities.
As the Company’s contractual agreements predominately call for advanced billing, contract assets are rarely generated.
Income Taxes
We provide for deferred income taxes resulting from temporary differences between the basis of assets and liabilities for financial reporting purposes as compared to tax purposes, using rates expected to be in effect when such differences reverse. We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized.
We follow the authoritative guidance on accounting for and disclosure of uncertainty in tax positions which requires us to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced to the largest benefit that has a greater than fifty percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority. Interest and penalties related to uncertain tax positions are included in the provision for income taxes in the condensed consolidated statements of operations.
Intangible Assets, including Goodwill
Intangible assets arising from fresh-start accounting and business combinations are generally recorded based upon estimates of the future performance and cash flows from the acquired business. We use an income approach to determine the estimated fair value of certain identifiable intangible assets including customer relationships and trade names and use a cost approach for other identifiable intangible assets, including developed software/courseware. The income approach determines fair value by estimating the after-tax cash flows attributable to an identified asset over its useful life (Level 3 inputs) and then discounting these after-tax cash flows back to a present value. The cost approach determines fair value by estimating the cost to replace or reproduce an asset at current prices and is reduced for functional and economic obsolescence. Developed technology represents patented and unpatented technology and know-how. Customer contracts and relationships represents established relationships with customers, which provide a ready channel for the sale of additional content and services. Trademarks and trade names represent acquired product names and marks that we intend to continue to utilize.
We review intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in remaining useful life. Conditions that would indicate impairment and trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, or an adverse action or assessment by a regulator.
We review indefinite-lived intangible assets, including goodwill and certain trademarks, during the fourth quarter of each year for impairment, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist and reassess their classification as indefinite-lived assets.
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and specifically identified intangible assets acquired. Goodwill in fresh-start accounting results when the reorganization value of the emerging entity exceeds what can be attributed to specific tangible or identified intangible assets. We test goodwill for impairment during the fourth quarter every year in accordance with ASC 350, Intangibles — Goodwill (“ASC 350”). In connection with the impairment evaluation, the Company may first consider qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not (i.e., a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. Performing a quantitative goodwill impairment test is not necessary if an entity determines based on this assessment that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company fails or elects to bypass the qualitative assessment, the goodwill impairment test must be performed. This test requires a comparison of the carrying value of the reporting unit to its estimated fair value. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded, not to exceed the amount of goodwill allocated to the reporting unit. In determining reporting units, the Company first identifies its operating segments, and then assesses whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component.
Intangible assets arising from business combinations are generally recorded based upon estimates
If current discount rates rise or if relevant market-based inputs for our impairment assessment worsen during the remainder of the future performancefiscal 2024, and cash flows from the acquired business. We use an income approach to determine the estimatedif our share price remains below our reporting unit fair value per share, we will need to reassess intangible impairment at the end of certain identifiable intangible assets including customer relationships and trade names and use a cost approach for other identifiable intangible assets, including developed software/courseware. The income approach determines fair value by estimating the after-tax cash flows attributable toeach quarter. Subsequent reviews of intangibles could result in impairment during fiscal 2024. Factors that could result in an identified asset over its useful life (Level 3 inputs) and then discounting these after-tax cash flows back to a present value. The cost approach determines fair value by estimating the cost to replace or reproduce an asset at current prices and is reduced for functional and economic obsolescence. Developed technology represents patented and unpatented technology and know-how. Customer contracts and relationships represents established relationships with customers, which provide a ready channel for the sale of additional content and services. Trademarks and tradenames represent acquired product names and marks that we intend to continue to utilize.
We review intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in remaining useful life. Conditions that would indicate impairment and trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, or an adverse action or assessment by a regulator.
56
Table of Contentsfollowing:
● | Prolonged period of our estimated fair value of our reporting units exceeding our market capitalization; |
● | Lower expectations for future profitability of bookings or EBITDA, which in part, could be impacted by legislative, regulatory or tax changes that affect the cost of, or demand for, products and services as well as the loss of key personnel; |
● | Deterioration in key assumptions used in our income approach estimates of fair value, such as higher discount rates from higher stock market volatility; and |
● | Valuations of significant mergers or acquisitions of companies that provide relevant market-based inputs for our impairment assessment that could support less favorable conclusions regarding the estimated fair value of our reporting units. |
Derivative Instruments
We review indefinite-lived intangible assets,account for debt and equity issuances as either equity-classified or liability-classified instruments based on an assessment of the instrument's specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the instruments are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments meet all of the requirements for equity classification under ASC 815, including goodwillwhether the instruments are indexed to our own common stock and certain trademarks, duringwhether the fourth quarterholders could potentially require “net cash settlement” in a circumstance outside of our control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance of the instruments and as of each yearsubsequent quarterly period end date while the instruments are outstanding.
For issued or modified instruments that meet all of the criteria for impairment,equity classification, the instruments are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or more frequently if certain indicatorsmodified instruments that do not meet all the criteria for equity classification, the instruments are present or changesrequired to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in circumstances suggest that impairment may exist and reassesses their classification as indefinite-lived assets.
Stock-based Compensation
We recognize compensation expense for stock options and time-based restricted stock units granted to employees on a straight-line basis over the service period that awards are expected to vest, based on the estimated fair value of the awardsinstruments are recognized as a non-cash gain or loss on the datestatements of the grant. For restricted stock units that have market conditions, we recognize compensation expense using an accelerated attribution method. We recognize forfeitures as they occur. We estimate the fair value of options utilizing the Black-Scholes model, which is dependent on several subjective variables, such as the expected option term and expected volatility over the expected option term. We determine the expected term using the simplified method. The simplified method sets the term to the average of the time to vesting and the contractual life of the options. The expected volatility is estimated by considering (i) the average historical stock volatilities of Skillsoft and a peer group of public companies within our industry over a period equivalent to the expected term of the stock option grants and (ii) the implied volatility of warrants to purchase our common stock that are actively traded in public markets. The fair value of restricted stock units that vest based on market conditions are estimated using the Monte Carlo valuation method. These fair value estimates of stock related awards and assumptions inherent therein are estimates and, as a result, may not be reflective of future results or amounts ultimately realized by recipients of the grants.operations.
Recent Accounting Pronouncements
Our recently adopted and to be adopted accounting pronouncements are set forth in Note 22.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
We have exposures to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign currency fluctuations. Information relating to quantitative and qualitative disclosures about these market risks is described below.
Interest Rate Risk
Interest rate risk is the risk of financial loss due to adverse changes in the value of assets and liabilities due to movements in interest rates. We are exposed to interest rate risk arising from our interest sensitive long-term debt and accounts receivable facility and to a lesser extent our cash and cash equivalents.
Based on the balance of our long-term debt and accounts receivable facility and taking into account the two interest rate swap agreements discussed below, a hypothetical 100 basis point increase or decrease in interest rates would result in approximately $3.5 million additional or lower pre-tax interest expense on an annualized basis, respectively. To manage our exposure to interest rate risk on our long-term debt, we entered into two fixed-rate interest rate swap agreements to change the SOFR-based component of the interest rate on $300.0 million of variable rate debt to a fixed rate. For further information regarding our long-term debt and interest rate swap agreements, see Note 9 and Note 14, respectively, to our condensed consolidated financial statements.
Based on the balance of our cash and cash equivalents, a hypothetical 100 basis point increase or decrease in interest rates would result in an approximately $0.7 million increase or decrease, respectively, on our interest income on an annualized basis.
Our interest rate swaps are not designated for hedge accounting and are carried on the statement of financial position at their fair value. Unrealized gains and losses from changes in fair value of the interest rate swaps are included in the statement of operations as they occur. A hypothetical 100 basis point increase or decrease in interest rates would result in an approximately $9.6million increase or decrease, respectively, on our fair value adjustment of hedge instruments at a smallerpoint in time.
Foreign Currency Risk
Our reporting company.currency and the functional currency of our wholly owned foreign subsidiaries is the U.S. dollar. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in other income/(expenses) in our consolidated statement of operations. The Company is exposed to foreign currency fluctuations, including the Euro, pound sterling, Canadian dollar, Australian dollar, Indian rupee, Singapore dollar and related currencies. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, although we may choose to do so in the future. A hypothetical 10% increase or decrease in current exchange rates would have resulted in an impact of approximately $1.6 million on our pre-tax income (loss) on an annualized basis.
ITEM 4. CONTROLS AND PROCEDURES
Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that, as of OctoberJuly 31, 2022,2023, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Previously Identified Material Weakness
We have taken the actions described in our Annual Report on Form 10-K for the year ended January 31, 2023 regarding the previously identified material weakness. We will continue to evaluate the operating effectiveness of our internal controls in subsequent periods.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d‑15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Qthree months ended July 31, 2023 that has materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Because of the inherent limitations in a cost-effective control system, any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will prevent or detect all misstatements, due to error or fraud, from occurring in the condensed consolidated financial statements. Additionally, management is required to use judgment in evaluating controls and procedures.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Incorporated by reference herein is information regarding legal proceedings as set forth under “Litigation” contained in Note 8 – “Leases, Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q.
ITEM 1A. RISK FACTORS.
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed below and in Part I, Item 1A1A. Risk Factors in our Annual Report on Form 10-K for our fiscal year ended January 31, 2022. The2023. Such risks discussed below and in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. The risks described below and in our Annual Report on Form 10-Kuncertainties are not the only risksones facing us.our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be insignificant also may materially and adversely affect our business, financial condition or operating results in the future.
We cannot guarantee that our share repurchase program will be fully consummated or that it will enhance long-term shareholder value.ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On September 7, 2022, our Board of Directors authorized the Company to repurchase up to $30$30.0 million of our common stock, which authorization will expireexpired September 7, 2023. From inception through April 19, 2023, unless extended. Althoughwe repurchased 5,995,530 of our Board of Directors has authorized the share repurchase program, we areshares for $10.9 million. The Company did not obligated to repurchase any specific dollar amount or to acquire any specific number of shares under the program. In addition, the share repurchase program may be suspended, modified, or terminated at any time without prior notice, which may result in a decrease in the price of our common stock. The amount, timing, and execution of our share repurchase program may fluctuate based on our priorities for the use of cash for other purposes such as reducing debt, and because of changes in cash flows, tax laws, and the market price of our common stock. Even if the share repurchase program is fully implemented, it may not enhance long-term shareholder value, and the program could affect the price of our common stock, increase volatility, and diminish our cash reserves.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following table presents information with respect to the Company’s repurchases of common stock during the quarter ended OctoberJuly 31, 2022.2023.
| | | | |
Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) |
August 1-31 | — | $— | — | $— |
September 1-30 | 645,248 | $2.2205 | 645,248 | $28.6 |
October 1-31 | — | $— | — | $28.6 |
Total | 645,248 | $2.2205 | 645,248 | $28.6 |
On September 7, 2022, our Board of Directors authorized the Company to repurchase up to $30 million of our common stock, which authorization will expire September 7, 2023 unless extended. The Company’s remaining authorization for repurchases was $28.6 million as of October 31, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
58
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
10b5-1 Trading Plans
During the three months ended July 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS.
The following list includes exhibits submitted with this Quarterly Report on Form 10-Q as filed with the SEC and those incorporated by reference to other filings. |
|
| ||||
---|---|---|---|---|---|---|
|
|
|
No. |
|
| File No. | Exhibit | Filing Date | |
|
| |||||
10.7*# | ||||||
|
|
| ||||
|
| |||||
|
|
| ||||
31.1* |
| |||||
|
|
| ||||
31.2* |
| |||||
|
|
| ||||
|
| |||||
|
|
| ||||
|
| |||||
|
|
| ||||
101.INS* |
| Inline XBRL Instance Document | ||||
|
|
| ||||
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document | ||||
|
|
| ||||
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||
|
|
| ||||
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||
|
|
| ||||
101.LAB* |
| Inline XBRL Taxonomy Extension Labels Linkbase Document | ||||
|
|
| ||||
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||
|
|
| ||||
104 |
| Cover Page Interactive Data File (formatted in Inline XBRL and included as Exhibit 101) |
* Filed or furnished herewith.
** Certain exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K, and the Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibit upon request.
‡ Furnished herewith.
# Represents management compensation plan, contract or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SKILLSOFT CORP. | ||
|
|
| |
|
|
| |
Dated: | By: | /s/ Richard George Walker | |
|
Chief Financial Officer (Principal Financial Officer) |
| |
|
|
| |
|
|
|
61