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 September 6, 2023 was
FORM 10-Q
FOR THE QUARTER ENDED July 31, 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 Annual Report on 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, 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 purposes 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)
July 31, 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 July 31, 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 July 31, 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 Ended July 31, |
Six Months Ended July 31, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Revenues: |
||||||||||||||||
Total revenues |
$ | $ | $ | $ | ||||||||||||
Operating expenses: |
||||||||||||||||
Costs of revenues |
||||||||||||||||
Content and software development |
||||||||||||||||
Selling and marketing |
||||||||||||||||
General and administrative |
||||||||||||||||
Amortization of intangible assets |
||||||||||||||||
Impairment of goodwill and 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 Ended July 31, |
Six Months Ended July 31, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Comprehensive income (loss): |
||||||||||||||||
Net income (loss) |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Foreign currency adjustment, net of tax |
( |
) | ( |
) | ||||||||||||
Total 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 |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Share-based compensation |
— | — | ||||||||||||||||||||||||||||||
Common stock issued |
||||||||||||||||||||||||||||||||
Shares repurchased for tax withholding upon vesting of restricted stock-based awards |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Translation adjustment |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Net income (loss) |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Balance July 31, 2022 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SKILLSOFT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - continued
(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 |
( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
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 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
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 July 31, 2023 |
( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended July 31, |
||||||||
2023 |
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 credit loss expense (recovery) |
||||||||
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 |
( |
) | ( |
) | ||||
Impairment of goodwill |
||||||||
Unrealized (gain) loss on derivative instrument |
( |
) | ||||||
Change in assets and liabilities, net of effects from acquisitions: |
||||||||
Right-of-use assets |
||||||||
Accounts receivable |
||||||||
Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
Accounts payable |
( |
) | ( |
) | ||||
Accrued expenses, including long-term |
( |
) | ( |
) | ||||
Lease liabilities |
( |
) | ||||||
Deferred revenues |
( |
) | ( |
) | ||||
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 awards |
( |
) | ( |
) | ||||
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)
Six Months Ended July 31, |
||||||||
2023 |
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 |
||||||||
Unpaid capital expenditures |
||||||||
Shares issued in connection with business combination |
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 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 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.
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 shareholders’ equity (deficit) and cash flows in conformity with accounting principles generally accepted in the United States of America (“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 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.
(3) Business Combination
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) | ||||||
Trade name | $ | |||||||
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.
In the three and six months ended July 31, 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 | Unaudited Pro Forma | |||||||
Statement of Operations | Statement of Operations | |||||||
Three Months Ended July 31, | Six Months Ended July 31, | |||||||
2022 | 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 combination 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 in our condensed consolidated statements of operations. The following presents financial results of SumTotal for the three and six months ended July 31, 2022 in our condensed consolidated statements of operations (in thousands):
Three Months | Six Months | |||||||
Ended | Ended | |||||||
July 31, 2022 | July 31, 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 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):
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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
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 (six 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 six months ended July 31, 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 July 31, 2023 | $ | $ | $ |
As of July 31, 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 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) Taxes
For the three and six months ended July 31, 2023, the Company recorded a tax benefit on continuing operations of $
For the three and six months ended July 31, 2022, the Company recorded a tax benefit on continuing operations of $
(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 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 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 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 July 31, 2023 and January 31, 2023 was
The operating leases are included in the captions “Right of use assets”, “Lease liabilities”, and “Long-term lease liabilities” on the Company’s condensed consolidated balance sheets as of July 31, 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 July 31, 2023:
Fiscal Year Ended January 31 (in thousands): | Operating Leases | |||
2024 (six 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):
July 31, 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 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 $
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 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) | $ | |||
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 July 31, 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 July 31, | ||||||||||||||||||||||||
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 | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) |
Six Months Ended July 31, | ||||||||||||||||||||||||
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 July 31, | |||||||||||
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 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,