UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from to
Commission File Number:
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.) |
(Address of principal executive offices) (Zip Code)
Tel: (
(Registrant’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 |
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.
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).
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 ☐ | |
| 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
The number of shares of registrant’s common stock outstanding as of May 30, 2023 was
FORM 10-Q
FOR THE QUARTER ENDED April 30, 2023
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, the benefits of new initiatives, growth of our business and operations, 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, and we caution you against unduly relying on these forward-looking statements.
Factors that could cause or contribute to such differences include those described under “Part I - Item 1A. Risk Factors” in our Form 10‑K for the fiscal year ended January 31, 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. The forward-looking statements contained in this Form 10-Q represent our estimates only as of the date of this filing and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update these forward-looking statements in the 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.
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 purpose 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 current 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.
PART I – FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
| April 30, 2023 | January 31, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for credit losses of approximately $ and $ as of April 30, 2023 and January 31, 2023, respectively | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Right of use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current maturities of long-term debt | $ | $ | ||||||
| Borrowings under accounts receivable facility | ||||||||
| Accounts payable | ||||||||
| Accrued compensation | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Lease liabilities | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Warrant liabilities | ||||||||
| Deferred tax liabilities | ||||||||
| Long term lease liabilities | ||||||||
| Deferred revenue - non-current | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity: | ||||||||
| Shareholders’ common stock- Class A common shares, $ par value: shares authorized and shares issued and outstanding at April 30, 2023, and shares issued and outstanding at January 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury shares | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| April 30, 2023 | April 30, 2022 | |||||||
| Revenues: | ||||||||
| Total revenues | $ | $ | ||||||
| Operating expenses: | ||||||||
| Costs of revenues | ||||||||
| Content and software development | ||||||||
| Selling and marketing | ||||||||
| General and administrative | ||||||||
| Amortization of intangible assets | ||||||||
| Acquisition-related costs | ||||||||
| Restructuring | ||||||||
| Total operating expenses | ||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||
| Other income (expense), net | ( | ) | ||||||
| Fair value adjustment of warrants | ||||||||
| Fair value adjustment of hedge instruments | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Income (loss) before provision for (benefit from) income taxes | ( | ) | ( | ) | ||||
| Provision for (benefit from) income taxes | ( | ) | ( | ) | ||||
| Income (loss) from continuing operations | ( | ) | ( | ) | ||||
| Gain (loss) on sale of business | ( | ) | ||||||
| Income (loss) from discontinued operations, net of tax | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) per share: | ||||||||
| Ordinary – Basic and diluted - continuing operations | $ | ( | ) | $ | ( | ) | ||
| Ordinary – Basic and diluted - discontinued operations | ||||||||
| Ordinary – Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding: | ||||||||
| Ordinary – Basic and diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| April 30, 2023 | April 30, 2022 | |||||||
| Comprehensive income (loss): | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income (loss) — Foreign currency adjustment, net of tax | ( | ) | ||||||
| Comprehensive income (loss) | $ | ( | ) | $ | ( | ) | ||
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)
| 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 |
$ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||
| Share-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Common stock issued |
||||||||||||||||||||||||||||||||
| Shares repurchased for tax withholding upon vesting of restricted stock-based awards |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Common stock issued in connection with Codecademy acquisition |
||||||||||||||||||||||||||||||||
| Fair value of share-based awards attributed to Codecademy acquisition |
— | — | ||||||||||||||||||||||||||||||
| Translation adjustment |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net income (loss) |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance April 30, 2022 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||||||||||||||||
| Balance January 31, 2023 |
( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Share-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Common stock issued |
||||||||||||||||||||||||||||||||
| Shares repurchased for tax withholding upon vesting of restricted stock-based awards |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Repurchase of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Translation adjustment |
— | — | ||||||||||||||||||||||||||||||
| Net income (loss) |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance April 30, 2023 |
( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
| Three Months |
Three Months |
|||||
| Ended |
Ended |
|||||
| April 30, 2023 |
April 30, 2022 |
|||||
| Cash flows from operating activities: |
||||||
| Net income (loss) |
$ | ( |
) | $ | ( |
) |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||
| Share-based compensation |
||||||
| Depreciation and amortization |
||||||
| Amortization of intangible assets |
||||||
| Provision for (recovery of) doubtful accounts |
( |
) | ||||
| Provision for (benefit from) income taxes – non-cash |
( |
) | ( |
) | ||
| Non-cash interest expense |
||||||
| Non-cash lease and property and equipment impairment charges |
||||||
| Gain (loss) on sale of business |
||||||
| Fair value adjustment to warrants |
( |
) | ( |
) | ||
| Unrealized loss on derivative instrument |
( |
) | ||||
| Changes in assets and liabilities, net of effects from acquisitions: |
||||||
| Right-of-use asset |
||||||
| Accounts receivable |
||||||
| Prepaid expenses and other current assets |
( |
) | ||||
| Accounts payable |
( |
) | ||||
| Accrued expenses, including long-term |
( |
) | ( |
) | ||
| Lease liability |
( |
) | ( |
) | ||
| Deferred revenue |
( |
) | ( |
) | ||
| Net cash provided by (used in) operating activities |
||||||
| Cash flows from investing activities: |
||||||
| Purchase of property and equipment |
( |
) | ( |
) | ||
| Internally developed software - capitalized costs |
( |
) | ( |
) | ||
| Sale of SumTotal, net of cash transferred |
( |
) | ||||
| Acquisition of Codecademy, net of cash received |
( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||
| Cash flows from financing activities: |
||||||
| Shares repurchased for tax withholding upon vesting of restricted stock-based awarded |
( |
) | ( |
) | ||
| Payments to acquire treasury stock |
( |
) | ||||
| Proceeds from issuance of term loans, net of fees |
||||||
| Proceeds from accounts receivable facility, net of borrowings |
( |
) | ||||
| Principal payments on Term loans |
( |
) | ||||
| Net cash provided by (used in) financing activities |
( |
) | ||||
| Effect of exchange rate changes on cash and cash equivalents |
( |
) | ( |
) | ||
| Net increase (decrease) in cash, cash equivalents and restricted cash |
( |
) | ||||
| Cash, cash equivalents and restricted cash, beginning of period |
||||||
| Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||
| Supplemental disclosure of cash flow information: |
||||||
| Cash and cash equivalents |
$ | $ | ||||
| Restricted cash |
||||||
| Cash attributable to discontinued operations |
||||||
| Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
SKILLSOFT CORP.
UNAUDITED SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
(IN THOUSANDS)
| Three Months |
Three Months |
|||||||
| Ended |
Ended |
|||||||
| April 30, 2023 |
April 30, 2022 |
|||||||
| Supplemental disclosure of cash flow information and non-cash investing and financing activities: |
||||||||
| Cash paid for interest |
$ | $ | ||||||
| Cash paid (received) for income taxes, net of refunds |
$ | $ | ( |
) | ||||
| Share issued in connection with business combinations |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business and Basis of Presentation
Description of Business
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. 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 skill gaps, unlocking human potential, and transforming the workforce. With 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.
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 2023 is the fiscal year ended January 31, 2023).
Basis of Financial Statement Preparation
The accompanying condensed consolidated financial statements include the accounts of Skillsoft and its 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-Q and Article 10 of Regulation S-X and, therefore, include all information and footnotes necessary for a complete presentation of operations, comprehensive income (loss), financial position, changes in stockholders’ 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-K for the fiscal year ended January 31, 2023.
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS” Act”), and has and may in 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 consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from our estimates.
(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-K for the fiscal year ended January 31, 2023 and should be read in connection with the reading of these interim unaudited financial statements.
Recently Adopted Accounting Guidance
Below we provide a description of our adoption of new Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) and the impact of the adoption on the condensed consolidated financial statements. ASUs not listed below were assessed and determined to be either not applicable or insignificant in presentation or amount.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”), which provides new authoritative guidance with respect to the measurement of credit losses on financial instruments. This update changes the impairment model for most financial assets and certain other instruments by introducing a current expected credit loss (“CECL”) model. The CECL model is a more forward-looking approach based on expected losses rather than incurred losses, requiring entities to estimate and record losses expected over the remaining contractual life of an asset. We adopted ASU 2016-13 effective February 1, 2023, and the adoption of the standard did not have a material impact on our condensed consolidated financial statements.
Related to ASU 2016-13, there is risk and judgment involved in determining estimates of our allowances for credit losses, which reduce the carrying value of an asset to produce an estimate of the net amount that will be collected over the asset's life. We evaluate the expected credit loss of an asset on an individual basis, except in cases where assets collectively share similar risk characteristics where we pool them together. We evaluate and estimate our allowances for credit loss by considering reasonable, relevant, and supportable available information. The Company maintains an allowance based upon expected credit losses of outstanding accounts receivable. Management derives its estimate using a variety of factors, including historical collection and loss patterns; the current aging of receivables; customer-specific credit risk factors (when warranted); and probable future economic conditions which inform adjustments to historical loss patterns. The provision for expected credit losses is recorded in general and administrative in the accompanying consolidated statements of operations. Accounts receivable deemed to be uncollectible are written off, net of expected or actual recoveries.
Changes in the allowance for credit loss on accounts receivable (in thousands) for the three months ended April 30, 2023 were as follows:
| Amount | ||||
| Balance as of February 1, 2023 | $ | |||
| Additions (reductions) from provision for credit loss expense | ||||
| Balance as of April 30, 2023 | $ | |||
(3) Business Combinations
Ryzac, Inc. (“Codecademy”)
On April 4, 2022, the Company acquired Ryzac, Inc (“Codecademy”). Codecademy is a learning platform providing high-demand technical skills to approximately
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 | |||
| Cash payments | $ | |||
| Class A common stock issued | ||||
| Cash settlement of seller transaction costs and other | ||||
| Total purchase price | $ | |||
The Company recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):
| Final Purchase | ||||
| Description | Price Allocation | |||
| Cash, cash equivalents and restricted cash | $ | |||
| Current assets | ||||
| Property and equipment | ||||
| Intangible assets | ||||
| Total assets acquired | ||||
| Current liabilities | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Total liabilities assumed | ( | ) | ||
| Net assets acquired | ||||
| Goodwill | ||||
| Total purchase price | $ | |||
The values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):
| Description | Amount | Life (in years) | ||||||
| Tradename | $ | |||||||
| Developed technology | ||||||||
| Content | ||||||||
| Customer relationships | ||||||||
| Total | $ | |||||||
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 and goodwill are subject to review for impairment if indicators of impairment develop and otherwise at least annually.
In the three months ended April 30, 2022, the Company incurred $
Unaudited Pro Forma Financial Information
The unaudited pro forma financial information below 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 merger had closed on February 1, 2022 (in thousands):
| Unaudited Pro Forma | ||||
| Statement of Operations | ||||
| Three Months Ended April 30, | ||||
| 2022 | ||||
| Revenue | $ | |||
| Net loss from continuing operations | ( | ) | ||
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 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 acquisition been consummated on February 1, 2022. The unaudited pro forma financial information includes adjustments to reflect intangible asset amortization based on the economic values derived from definite-lived intangible assets and interest expense on the new debt financing. The pro forma results of operations also exclude acquisition-related costs other than the transaction costs specific to the business combinations occurring in April 2022. These transaction costs are presented as if they occurred in February 2022.
(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 (
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 its 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.
The financial results of SumTotal are presented as Income from discontinued operations, net of tax on our condensed consolidated Statement of Operations. The following presents financial results of SumTotal for the three months ended April 30, 2022 in our condensed consolidated Statement of Operations (in thousands):
| Three Months | ||||
| Ended | ||||
| April 30, 2022 | ||||
| Revenues: | ||||
| Total revenues | $ | |||
| Operating expenses: | ||||
| Costs of revenues | ||||
| Content and software development | ||||
| Selling and marketing | ||||
| General and administrative | ||||
| Amortization of intangible assets | ||||
| Acquisition-related costs | ||||
| Restructuring | ||||
| Total operating expenses | ||||
| Operating income (loss) from discontinued operations | ||||
| Other income (expense), net | ( | ) | ||
| Interest income | ||||
| Interest expense | ( | ) | ||
| Income (loss) from discontinued operations before income taxes | ||||
| Provision for (benefit from) income taxes | ||||
| Net income (loss) from discontinued operations | $ | |||
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.
(5) Intangible Assets
Intangible assets consisted of the following (in thousands):
| April 30, 2023 | January 31, 2023 | |||||||||||||||||||||||
| Gross | Net | Gross | Net | |||||||||||||||||||||
| Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||
| Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
| Developed software/ courseware | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Customer contracts/ relationships | ||||||||||||||||||||||||
| Vendor relationships | ||||||||||||||||||||||||
| Trademarks and trade names | ||||||||||||||||||||||||
| Publishing rights | ||||||||||||||||||||||||
| Backlog | ||||||||||||||||||||||||
| Skillsoft trademark | ||||||||||||||||||||||||
| Global Knowledge trademark | ||||||||||||||||||||||||
| Total intangible assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Amortization expense related to the existing finite-lived intangible assets is expected to be as follows (in thousands):
| For fiscal years ended January 31: | Amortization Expense | |||
| 2024 (nine months remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total future amortization | $ | |||
Amortization expense related to intangible assets in the aggregate was $
Impairment Review Requirements
The Company reviews intangible assets subject to amortization if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in remaining useful life. The Company reviews indefinite lived intangible assets, including goodwill, on the annual impairment test date ( 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 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.
The Company completed the qualitative assessment discussed above for the three months ended April 30, 2023 and concluded that, there were indicators of impairment for our reporting units.
A roll forward of goodwill is as follows:
| Description | Content & Platform | Instructor-Led Training | Consolidated | |||||||||
| Goodwill, net January 31, 2023 | $ | $ | $ | |||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||
| Goodwill, net April 30, 2023 | $ | $ | $ | |||||||||
As of April 30, 2023, there was $
If current discount rates rise or if relevant market-based inputs for our impairment assessment worsen during the remainder of fiscal 2024, and if our share price remains below our reporting unit fair value per share, we will need to reassess intangible impairment at the end of each quarter. Subsequent reviews of 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) Taxes
For the three months ended April 30, 2023, the Company recorded a tax benefit on continuing operations of $
For the three months ended April 30, 2022, the Company recorded a tax benefit on continuing operations of $
(7) Restructuring
In connection with strategic initiatives implemented during the three months ended April 30, 2023 and 2022, the Company’s management approved and initiated plans to reduce its cost structure and better align operating expenses with existing economic conditions and the Company’s operating model. The Company recorded restructuring charges of $
(8) Leases, Commitments and Contingencies
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 year to
Operating lease right-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 incremental borrowing rate represents an estimate of the interest rate the Company would incur at the acquisition 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 weighted average incremental borrowing rate for its operating leases as of April 30, 2023 and January 31, 2023 was
The operating leases are included in the caption “Right of use assets”, “Lease liabilities”, and “Long-term lease liabilities” on the Company’s condensed consolidated balance sheets as of April 30, 2023 and January 31, 2023. The weighted-average remaining lease term of the Company’s operating leases is
See Note 7 for discussion related to restructuring charges associated with lease termination and lease impairment charges.
The 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 April 30, 2023:
| Fiscal Year Ended January 31 (in thousands): | Operating Leases | |||
| 2024 (nine months remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total future minimum lease payments | ||||
| Effects of discounting | ( | ) | ||
| Total lease liabilities | $ | |||
| Current lease liabilities | $ | |||
| Long-term lease liabilities | ||||
| Total lease liabilities | $ | |||
Litigation
The Company is, from time to time, party to general legal proceedings and claims, which arise in the ordinary course of business 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
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 incurred any material costs as a result of such indemnifications or commitments and has accrued any liabilities related to such obligations in the accompanying condensed consolidated financial statements.
(9) Long-Term Debt
Debt consisted of the following (in thousands):
| April 30, 2023 | January 31, 2023 | |||||||
| Term Loan - current portion | $ | $ | ||||||
| Current maturities of long-term debt | ||||||||
| Term Loan - long-term portion | ||||||||
| Original issue discount - long-term portion | ( | ) | ( | ) | ||||
| Deferred financing costs - long-term portion | ( | ) | ( | ) | ||||
| Long-term debt | $ | $ | ||||||
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 $
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 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 $
The Company received $
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 $
Prior to the maturity thereof, the Initial Term Loans will be subject to quarterly amortization payments of
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 (
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
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 April 30, 2023, the Company is in compliance with all covenants.
The Company’s debt outstanding as of April 30, 2023 matures as shown below (in thousands):
| For fiscal years ended January 31: | ||||
| 2024 (nine months remaining) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total payments | ||||
| Current portion | ( | ) | ||
| Unamortized original issue discount and issuance costs | ( | ) | ||
| Long-term portion | $ |
Accounts Receivable Facility
On December 20, 2018, the Company entered into a $
On September 19, 2019, the Company amended the receivables credit agreement to include Class “B” lending. This increased the facility borrowing capacity up to $
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 $
(10) Shareholders’ Equity
Common Stock
As of April 30, 2023, the Company’s authorized share capital consisted of
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 $
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 April 30, | ||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| Before Tax | Income Tax | Net | Before Tax | Income Tax | Net | |||||||||||||||||||
| Balance as of beginning-of-period | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||
| Translation adjustment | ( | ) | ( | ) | ||||||||||||||||||||
| Balance as of end-of-period | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
(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 April 30, | |||||||||||
| Type | Shares | Price | Price | Date | 2023 | ||||||||||
| Private Placement Warrants – Sponsor | $ | None | 6/11/2026 | $ | |||||||||||
Simultaneously with the closing of the initial public offering, Churchill Capital (the “Sponsor”) purchased an aggregate of
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 | $ | $ | 6/11/2026 | ||||||||||
| Private Placement Warrants (PIPE) | 6/11/2026 | ||||||||||||
| Private Placement Warrants (Global Knowledge) | None | 10/12/2025 | |||||||||||
| Private Placement Warrants (CEO) | None | 6/11/2026 | |||||||||||
| Total | |||||||||||||
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 |
| ● | Private Placement Warrants (PIPE) – In connection with the second step investment made by the anchor PIPE investor, |
| ● | Private Placement Warrants (Global Knowledge) – Upon completion of the acquisition of Albert DE Holdings Inc. (the "Global Knowledge Merger"), |
| ● | Private Placement Warrants (CEO) - Effective at the closing of the Skillsoft Merger and Global Knowledge Merger, the Sponsor committed to transfer |
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 $ |
| ● | upon not less than |
| ● | if, and only if, the reported last sale price of the Company’s common stock equals or exceeds $ |
| ● | 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 its 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,
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 years and have a term of years. Vested options under the plan generally expire not later than
The following summarizes the stock option activity for the three months ended April 30, 2023:
| Weighted - | ||||||||||||||||
| Weighted - | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Exercise | Contractual | Intrinsic Value | ||||||||||||||
| Shares | Price | Term (Years) | (in thousands) | |||||||||||||
| Outstanding, January 31, 2023 | $ | $ | ||||||||||||||
| Granted | — | — | ||||||||||||||
| Exercised | — | — | ||||||||||||||
| Forfeited | ( | ) | — | — | ||||||||||||
| Expired | — | — | ||||||||||||||
| Outstanding, April 30, 2023 | ||||||||||||||||
| Vested and exercisable, April 30, 2023 | — | |||||||||||||||
The total unrecognized equity-based compensation costs related to the stock options was $
Restricted Stock Units
Restricted stock units (“RSUs”) represent a right to receive
The following summarizes the RSU activity for the three months ended April 30, 2023:
| Weighted - | Aggregate | |||||||||||
| Average Grant | Intrinsic Value | |||||||||||
| Shares | Date Fair Value | (in thousands) | ||||||||||
| Unvested balance, January 31, 2023 | $ | $ | ||||||||||
| Granted | — | |||||||||||
| Vested | ( | ) | — | |||||||||
| Forfeited | ( | ) | — | |||||||||
| Unvested balance, April 30, 2023 | ||||||||||||
The total unrecognized stock-based compensation costs related to RSUs was $
Market-based Restricted Stock Units
Market-based restricted stock units (“MBRSUs”) vest over a -year or -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 three months ended April 30, 2023:
| Weighted - | Aggregate | |||||||||||
| Average Grant | Intrinsic Value | |||||||||||
| Shares | Date Fair Value | (in thousands) | ||||||||||
| Unvested balance, January 31, 2023 | $ | $ | ||||||||||
| Granted | — | |||||||||||
| Vested | — | |||||||||||
| Forfeited | ( | ) | — | |||||||||
| Unvested balance, April 30, 2023 | ||||||||||||
The total unrecognized stock-based compensation costs related to MBRSUs was $
Stock-based Compensation Expense
The following summarizes the classification of stock-based compensation in the condensed consolidated statements of operations (in thousands):
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| April 30, 2023 | April 30, 2022 | |||||||
| Cost of revenues | $ | $ | ||||||
| Content and software development | ||||||||
| Selling and marketing | ||||||||
| General and administrative | ||||||||
| Total | $ | $ | ||||||
(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 year to 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 provide 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 months ended April 30, 2023 and 2022 (in thousands):
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| April 30, 2023 | April 30, 2022 | |||||||
| SaaS and subscription services | $ | $ | ||||||
| Virtual, on-demand and classroom | ||||||||
| Professional services | ||||||||
| Total net revenues | $ | $ | ||||||
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| April 30, 2023 | April 30, 2022 | |||||||
| Revenue: | ||||||||
| United States | $ | $ | ||||||
| Europe, Middle East and Africa | ||||||||
| Other Americas | ||||||||
| Asia-Pacific | ||||||||
| Total net revenues | $ | $ | ||||||
Other than the United States,
Deferred Revenue
Deferred revenue activity for the three months ended April 30, 2023 was as follows (in thousands):
| Deferred revenue at January 31, 2023 | $ | |||
| Billings deferred | ||||
| Recognition of prior deferred revenue | ( | ) | ||
| Deferred revenue at April 30, 2023 | $ |
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 three months ended April 30, 2023 was as follows (in thousands):
| Deferred contract acquisition costs at January 31, 2023 | $ | |||
| Contract acquisition costs | ||||
| Recognition of contract acquisition costs | ( | ) | ||
| Deferred contract acquisition costs at April 30, 2023 | $ |
(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 developed 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 April 30, 2023 and are categorized using the fair value hierarchy (in thousands):
| Level 2 | Level 3 | |||||||||||
| Description | Measurements | Measurements | Total | |||||||||
| Interest rate swaps - liability | $ | $ | $ | |||||||||
| Liability classified warrants | ||||||||||||
| Total assets and liabilities recorded at fair value | $ | $ | $ | |||||||||
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 | April 30, 2023 | ||||||||||
| Private Placement Warrants – Sponsor | $ | None | 6/11/26 | $ | |||||||||||
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:
| April 30, 2023 | ||||
| Risk-free interest rates | % | |||
| Expected dividend yield | % | |||
| Volatility factor | % | |||
| Expected lives (years) | ||||
| Value per unit | $ | |||
The following reconciles Level 3 instruments for which significant unobservable inputs were used to determine fair value:
| For the | ||||
| Three Months Ended | ||||
| April 30, 2023 | ||||
| Balance as of January 31, 2023 | $ | |||
| Unrealized gains | ( | ) | ||
| Balance as of April 30, 2023 | $ | |||
Interest Rate Swap
On June 17, 2022, the Company entered into
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.
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 April 30, 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 April 30, 2023, was $
(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
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
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 (classroom, virtual, on-demand) both on a transactional and subscription basis.
The following presents summary results for each of the businesses for the three months ended April 30, 2023 and 2022:
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| April 30, 2023 | April 30, 2022 | |||||||
| Content & Platform | ||||||||
| Revenues | $ | $ | ||||||
| Operating expenses | ||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||
| Instructor-Led Training | ||||||||
| Revenues | ||||||||
| Operating expenses | ||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||
| Consolidated | ||||||||
| Revenues | ||||||||
| Operating expenses | ||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||
| Total non-operating income (loss) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Fair value adjustment of warrants | ||||||||
| Fair value adjustment of hedge | ||||||||
| Provision for (benefit from) income taxes | ||||||||
| Net income (loss) from continuing operations | ( | ) | ( | ) | ||||
| Gain (loss) on sale of business | ( | ) | ||||||
| Income (loss) from discontinued operations | ||||||||
| Net income (loss) | $ | ( | ) | |||||