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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended July 31, 2023

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to          

Commission File Number: 001-38960

 


 

Skillsoft Corp.

(Exact name of registrant as specified in its charter)

 

Delaware83-4388331

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

 

7887 E. Belleview Ave, Suite 600

Greenwood Village, Colorado 80111

(Address of principal executive offices) (Zip Code)

 

Tel: (603) 821-3902

(Registrants telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareSKILNew York Stock Exchange
Warrants, each whole warrant exercisable for one share of Class A common stockSKIL.WSNew York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐Accelerated filer
Non-accelerated filer ☐Smaller reporting company
Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

The number of shares of registrant’s common stock outstanding as of September 6, 2023 was 160,862,599.

 

 

 

 

SKILLSOFT CORP.

 

FORM 10-Q

FOR THE QUARTER ENDED July 31, 2023

INDEX

 

  PAGE NO.
PART I — FINANCIAL INFORMATION - UNAUDITED  

Item 1. Unaudited Financial Statements:

2

Unaudited Condensed Consolidated Balance Sheets as of July 31, 2023 and January 31, 2023

2

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended July 31, 2023 and 2022

3

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended July 31, 2023 and 2022

4

Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended July 31, 2023 and 2022

5

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended July 31, 2023 and 2022

7

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3. Quantitative and Qualitative Disclosures about Market Risk

35

Item 4. Controls and Procedures

35

PART II — OTHER INFORMATION

36

Item 1. Legal Proceedings

36

Item 1A. Risk Factors

36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 3. Defaults Upon Senior Securities

36

Item 4. Mine Safety Disclosures

36

Item 5. Other Information

36

Item 6. Exhibits

37

SIGNATURES

38

 

 

 

 

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.

 

 

1

 

PART I FINANCIAL INFORMATION

 

ITEM 1. UNAUDITED FINANCIAL STATEMENTS.

 

 

SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares)

 

  

July 31, 2023

  

January 31, 2023

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $147,927  $170,359 

Restricted cash

  4,918   7,197 

Accounts receivable, net of allowance for credit losses of approximately $225 and $221 as of July 31, 2023 and January 31, 2023, respectively

  110,499   183,592 

Prepaid expenses and other current assets

  49,014   44,596 

Total current assets

  312,358   405,744 

Property and equipment, net

  7,244   10,150 

Goodwill

  457,967   457,744 

Intangible assets, net

  667,875   738,066 

Right of use assets

  9,277   14,633 

Other assets

  23,353   16,350 

Total assets

 $1,478,074  $1,642,687 

LIABILITIES AND SHAREHOLDERS' EQUITY

        

Current liabilities:

        

Current maturities of long-term debt

 $6,404  $6,404 

Borrowings under accounts receivable facility

  40,092   39,693 

Accounts payable

  14,139   18,338 

Accrued compensation

  24,587   34,325 

Accrued expenses and other current liabilities

  30,145   41,474 

Lease liabilities

  3,883   4,198 

Deferred revenue

  224,143   280,676 

Total current liabilities

  343,393   425,108 
         

Long-term debt

  579,639   581,817 

Warrant liabilities

  1,109   4,754 

Deferred tax liabilities

  68,123   73,976 

Long-term lease liabilities

  10,357   11,947 

Deferred revenue - non-current

  2,440   1,778 

Other long-term liabilities

  10,081   11,551 

Total long-term liabilities

  671,749   685,823 

Commitments and contingencies

          

Shareholders’ equity:

        

Shareholders’ common stock- Class A common shares, $0.0001 par value: 375,000,000 shares authorized and 160,467,809 shares issued and outstanding at July 31, 2023, and 163,655,881 shares issued and outstanding at January 31, 2023

  14   14 

Additional paid-in capital

  1,535,648   1,521,574 

Accumulated deficit

  (1,048,416)  (972,193)

Treasury shares

  (10,891)  (2,845)

Accumulated other comprehensive income (loss)

  (13,423)  (14,794)

Total shareholders’ equity

  462,932   531,756 

Total liabilities and shareholders’ equity

 $1,478,074  $1,642,687 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2

 

 

SKILLSOFT CORP.

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

  $ 141,187     $ 140,574     $ 276,741     $ 275,413  

Operating expenses:

                               

Costs of revenues

    40,467       34,998       78,291       73,008  

Content and software development

    17,863       19,693       34,898       36,026  

Selling and marketing

    40,411       41,848       86,338       81,410  

General and administrative

    25,085       26,367       50,381       55,711  

Amortization of intangible assets

    39,221       45,200       77,466       84,758  

Impairment of goodwill and intangible assets

          70,475             70,475  

Acquisition-related costs

    937       8,452       2,328       21,764  

Restructuring

    2,501       4,323       7,719       8,279  

Total operating expenses

    166,485       251,356       337,421       431,431  

Operating income (loss)

    (25,298 )     (110,782 )     (60,680 )     (156,018 )

Other income (expense), net

    (934 )     80       (1,309 )     1,132  

Fair value adjustment of warrants

    793       6,846       3,645       16,952  

Fair value adjustment of hedge instruments

    6,935       (15,065 )     7,205       (15,065 )

Interest income

    871       10       1,516       170  

Interest expense

    (16,255 )     (11,470 )     (32,191 )     (23,007 )

Income (loss) before provision for (benefit from) income taxes

    (33,888 )     (130,381 )     (81,814 )     (175,836 )

Provision for (benefit from) income taxes

    (1,889 )     (3,065 )     (6,273 )     (25,402 )

Income (loss) from continuing operations

    (31,999 )     (127,316 )     (75,541 )     (150,434 )

Gain (loss) on sale of business

                (682 )      

Income (loss) from discontinued operations, net of tax

          5,817             7,292  

Net income (loss)

  $ (31,999 )   $ (121,499 )   $ (76,223 )   $ (143,142 )
                                 

Net income (loss) per share:

                               

Ordinary – Basic and diluted - continuing operations

  $ (0.20 )   $ (0.78 )   $ (0.47 )   $ (0.98 )

Ordinary – Basic and diluted - discontinued operations

          0.04             0.05  

Ordinary – Basic and diluted

  $ (0.20 )   $ (0.74 )   $ (0.47 )   $ (0.93 )

Weighted average common shares outstanding:

                               

Ordinary – Basic and diluted

    160,098       164,089       160,836       153,442  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3

 

 

SKILLSOFT CORP.

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)

  $ (31,999 )   $ (121,499 )   $ (76,223 )   $ (143,142 )

Foreign currency adjustment, net of tax

    496       (1,477 )     1,371       (3,725 )

Total comprehensive income (loss)

  $ (31,503 )   $ (122,976 )   $ (74,852 )   $ (146,867 )

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 

 

SKILLSOFT CORP.

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

    133,258,027           $ 11     $ 1,306,146     $ (247,229 )   $ -     $ 970     $ 1,059,898  

Share-based compensation

                      6,898                         6,898  

Common stock issued

    179,167                                            

Shares repurchased for tax withholding upon vesting of restricted stock-based awards

    (51,316 )                 (309 )                       (309 )

Common stock issued in connection with Codecademy acquisition

    30,374,427             3       182,547                         182,550  

Fair value of share-based awards attributed to Codecademy acquisition

                      538                         538  

Translation adjustment

                                        (2,248 )     (2,248 )

Net income (loss)

                            (21,643 )                 (21,643 )

Balance April 30, 2022

    163,760,305             14       1,495,820       (268,872 )           (1,278 )     1,225,684  

Share-based compensation

                      10,017                         10,017  

Common stock issued

    828,831                                            

Shares repurchased for tax withholding upon vesting of restricted stock-based awards

    (281,136 )                 (1,409 )                       (1,409 )

Translation adjustment

                                        (1,477 )     (1,477 )

Net income (loss)

                            (121,499 )                 (121,499 )

Balance July 31, 2022

    164,308,000           $ 14     $ 1,504,428     $ (390,371 )   $ -     $ (2,755 )   $ 1,111,316  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 

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

    165,286,156       (1,630,275 )   $ 14     $ 1,521,574     $ (972,193 )   $ (2,845 )   $ (14,794 )   $ 531,756  

Share-based compensation

                      9,128                         9,128  

Common stock issued

    450,767                                            

Shares repurchased for tax withholding upon vesting of restricted stock-based awards

    (162,628 )                 (289 )                       (289 )

Repurchase of common stock

          (4,365,255 )                       (8,046 )           (8,046 )

Translation adjustment

                                        875       875  

Net income (loss)

                            (44,224 )                 (44,224 )

Balance April 30, 2023

    165,574,295       (5,995,530 )     14       1,530,413       (1,016,417 )     (10,891 )     (13,919 )     489,200  

Share-based compensation

                      5,827                         5,827  

Common stock issued

    1,353,856                                            

Shares repurchased for tax withholding upon vesting of restricted stock-based awards

    (464,812 )                 (592 )                       (592 )

Repurchase of common stock

                                               

Translation adjustment

                                        496       496  

Net income (loss)

                            (31,999 )                 (31,999 )

Balance July 31, 2023

    166,463,339       (5,995,530 )   $ 14       1,535,648     $ (1,048,416 )   $ (10,891 )   $ (13,423 )   $ 462,932  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 

 

SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

   

Six Months Ended July 31,

 
   

2023

   

2022

 

Cash flows from operating activities:

               

Net income (loss)

  $ (76,223 )   $ (143,142 )

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

               

Share-based compensation

    14,955       16,915  

Depreciation and amortization

    2,761       3,897  

Amortization of intangible assets

    77,466       91,103  

Provision for credit loss expense (recovery)

    4       113  

Provision for (benefit from) income taxes – non-cash

    (6,913 )     (36,535 )

Non-cash interest expense

    1,024       1,053  

Non-cash lease and property and equipment impairment charges

    4,808        

(Gain) loss on sale of business

    682        

Fair value adjustment to warrants

    (3,645 )     (16,952 )

Impairment of goodwill

    -       70,475  

Unrealized (gain) loss on derivative instrument

    (7,205 )     15,065  

Change in assets and liabilities, net of effects from acquisitions:

               

Right-of-use assets

    145       1,977  

Accounts receivable

    73,172       82,783  

Prepaid expenses and other current assets

    (520 )     (7,492 )

Accounts payable

    (4,241 )     (2,559 )

Accrued expenses, including long-term

    (17,379 )     (23,066 )

Lease liabilities

    (1,081 )     96  

Deferred revenues

    (55,825 )     (66,734 )

Net cash provided by (used in) operating activities

    1,985       (13,003 )

Cash flows from investing activities:

               

Purchase of property and equipment

    (3,406 )     (3,528 )

Internally developed software - capitalized costs

    (5,951 )     (5,721 )

Sale of SumTotal, net of cash transferred

    (5,137 )      

Acquisition of Codecademy, net of cash received

          (198,633 )

Net cash used in investing activities

    (14,494 )     (207,882 )

Cash flows from financing activities:

               

Shares repurchased for tax withholding upon vesting of restricted stock-based awards

    (881 )     (1,718 )

Payments to acquire treasury stock

    (8,046 )      

Proceeds from issuance of term loans, net of fees

          157,088  

Proceeds from accounts receivable facility, net of borrowings

    399       (39,154 )

Principal payments on Term loans

    (3,202 )     (3,202 )

Net cash provided by (used in) financing activities

    (11,730 )     113,014  

Effect of exchange rate changes on cash and cash equivalents

    (472 )     (4,646 )

Net increase (decrease) in cash, cash equivalents and restricted cash

    (24,711 )     (112,517 )

Cash, cash equivalents and restricted cash, beginning of period

    177,556       168,923  

Cash, cash equivalents and restricted cash, end of period

  $ 152,845     $ 56,406  

Supplemental disclosure of cash flow information:

               

Cash and cash equivalents

  $ 147,927     $ 43,344  

Restricted cash

    4,918       5,300  

Cash attributable to discontinued operations

          7,762  

Cash, cash equivalents and restricted cash, end of period

  $ 152,845     $ 56,406  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7

 

 

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

  $ 32,804     $ 21,347  

Cash paid (received) for income taxes, net of refunds

    5,111       1,256  

Unpaid capital expenditures

          57  

Shares issued in connection with business combination

          182,550  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8

 

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.

 

9

 
 

(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 40 million registered learners in nearly every country worldwide. The platform offers interactive, self-paced courses and hands-on learning in 14 programming languages across multiple domains such as application development, data science, cloud and cybersecurity.

 

The acquisition was accounted for as a business combination under ASC 805, Business Combinations, utilizing the acquisition method. Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values.

 

The following summarizes the purchase consideration (in thousands):

 

Description

 

Amount

 

Cash payments

 $202,119 

Class A common stock issued

  182,550 

Cash settlement of seller transaction costs and other

  1,315 

Total purchase price

 $385,984 

 

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

 $4,053 

Current assets

  3,671 

Property and equipment

  385 

Intangible assets

  119,000 

Total assets acquired

  127,109 

Current liabilities

  (6,166)

Deferred revenue

  (18,396)

Deferred tax liabilities

  (21,621)

Total liabilities assumed

  (46,183)

Net assets acquired

  80,926 

Goodwill

  305,058 

Total purchase price

 $385,984 

 

10

 

The values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):

 

Description

 

Amount

  

Life (in years)

 

Trade name

 $44,000   13.8 

Developed technology

  43,000   5.0 

Content

  17,000   5.0 

Customer relationships

  15,000   5.8 

Total

 $119,000     

 

Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships were valued using the income approach. The trade name was valued using the relief from royalty method. The courseware and proprietary delivery software were valued using the replacement cost approach.

 

Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of Codecademy resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The majority of goodwill is not deductible for tax purposes.

 

In the three and six months ended July 31, 2022, the Company incurred $2.5 million and $7.7 million, respectively, in acquisition-related costs, which primarily consisted of transaction fees and legal, accounting, and other professional services. These costs are included in the "acquisition-related costs" in the accompanying condensed consolidated statements of operations.

 

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

 $140,574  $283,471 

Net loss from continuing operations

  (116,984)  (161,375)

 

The unaudited pro forma financial information does not assume any impacts from revenue, cost, or other operating synergies that could be generated as a result of the 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.

 

11

 
 

(4)    Discontinued Operations

 

On June 12, 2022, Skillsoft entered into a Stock Purchase Agreement (the “Purchase Agreement”), by and among Skillsoft, Skillsoft (US) Corporation (“Seller”), Amber Holding Inc. (“SumTotal”), and Cornerstone OnDemand, Inc. (“Buyer”), pursuant to which, subject to the certain terms and conditions contained therein, Seller agreed to sell, and Buyer agreed to purchase, all of Seller’s right, title and interest in and to one hundred percent (100%) of the outstanding shares of capital stock of SumTotal. The sale was completed on August 15, 2022. Net proceeds from the sale were $174.9 million, after final working capital adjustments in April 2023.

 

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. No losses were recognized upon classification of the discontinued operations' assets and liabilities as held for sale. Depreciation and amortization ceased on assets classified as held for sale. The operating results of SumTotal are reported as discontinued operations, for all periods presented, as the disposition reflects a strategic shift that has, or will have, a major effect on the Company’s operations and financial results.

 

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

 $27,453  $56,528 

Operating expenses:

        

Costs of revenues

  8,152   17,776 

Content and software development

  4,849   11,289 

Selling and marketing

  5,385   10,707 

General and administrative

  289   663 

Amortization of intangible assets

  2,049   6,345 

Acquisition-related costs

  422   553 

Restructuring

  172   201 

Total operating expenses

  21,318   47,534 

Operating income from discontinued operations

  6,135   8,994 

Other income (expense), net

  507   458 

Interest income

  6   12 

Interest expense

  (576)  (1,320)

Income (loss) from discontinued operations before income taxes

  6,072   8,144 

Provision for (benefit from) income taxes

  255   852 

Net income (loss) from discontinued operations

 $5,817  $7,292 

 

In addition, the amounts described in other footnotes within these condensed consolidated financial statements have been updated to reflect the amounts applicable to continuing operations, unless otherwise noted.

 

12

 
 

(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

 $379,281  $164,242  $215,039  $374,057  $123,219  $250,838 

Customer contracts/ relationships

  338,313   64,945   273,368   336,182   42,026   294,156 

Vendor relationships

  40,439   37,864   2,575   39,887   36,666   3,221 

Trademarks and trade names

  44,000   3,202   40,798   44,000   1,454   42,546 

Publishing rights

  41,100   17,559   23,541   41,100   13,449   27,651 

Backlog

  49,700   39,360   10,340   49,700   32,780   16,920 

Skillsoft trademark

  84,700      84,700   84,700      84,700 

Global Knowledge trademark

  23,403   5,889   17,514   23,080   5,046   18,034 

Total intangible assets

 $1,000,936  $333,061  $667,875  $992,706  $254,640  $738,066 

 

Amortization expense related to the existing finite-lived intangible assets is expected to be as follows (in thousands):

 

For fiscal years ended January 31:

 

Amortization Expense

 

2024 (six months remaining)

 $75,353 

2025

  132,178 

2026

  128,356 

2027

  81,756 

2028

  41,957 

Thereafter

  123,575 

Total future amortization

 $583,175 

 

Amortization expense related to intangible assets in the aggregate was $39.2 million, $77.5 million, $45.2 million and $84.8 million for the three and six months ended July 31, 2023 and the three and six months ended July 31, 2022, respectively.

 

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 not 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

 $417,340  $40,404  $457,744 

Foreign currency translation adjustment

  (635)  858   223 

Goodwill, net July 31, 2023

 $416,705  $41,262  $457,967 

 

As of July 31, 2023, there was $569.3 million and $72.1 million of accumulated impairment losses for the Content & Platform (formerly referred to as Skillsoft Content) and Instructor-Led Training (formerly referred to as Global Knowledge) segments, respectively.

 

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.

 

13

 
 

(6)    Taxes

 

For the three and six months ended July 31, 2023, the Company recorded a tax benefit on continuing operations of $1.9 million and $6.3 million, respectively, on a pretax loss of $33.9 million and $82.5 million, respectively. The tax benefit reflects the impact of non-deductible items, current period changes in the Company’s valuation allowance on its deferred tax assets and the impact of foreign rate differential.

 

For the three and six months ended July 31, 2022, the Company recorded a tax benefit on continuing operations of $3.1 million and $25.4 million, respectively, on a pretax loss of $130.4 million and $175.8 million, respectively. The tax benefit reflects the impact of non-deductible items, current period changes in the Company’s valuation allowance on its deferred tax assets and the impact of foreign rate differential.

 

(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 $2.5 million and $7.7 million during the three and six months ended July 31, 2023, respectively, and $4.3 million and $8.3 million for the three and six months ended July 31, 2022, respectively. These restructuring charges are presented separately in the accompanying condensed consolidated statements of operations and include primarily the severance costs of terminated employees and lease termination and lease impairment charges.

 

(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 one year to ten 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 5.8% and 5.5%, respectively.

 

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 6.1 years as of July 31, 2023. Lease costs for minimum lease payments are recognized on a straight-line basis over the lease term. The lease costs were $2.9 million and related cash payments were $1.4 million for the six months ended July 31, 2023. The lease costs were $3.7 million and related cash payments were $4.2 million for the six months ended July 31, 2022. Lease costs are included within the content and software development, selling and marketing, and general and administrative lines on the condensed consolidated statements of operations, and the operating leases related cash payments were included in the operating cash flows and the finance leases related cash payments were included in the financing cash flows on the condensed consolidated statements of cash flows. Short-term lease costs and variable lease costs are not material.

 

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)

 $2,492 

2025

  3,705 

2026

  2,469 

2027

  2,337 

2028

  1,548 

Thereafter

  4,198 

Total future minimum lease payments

  16,749 

Effects of discounting

  (2,509)

Total lease liabilities

 $14,240 
     

Current lease liabilities

 $3,883 

Long-term lease liabilities

  10,357 

Total lease liabilities

 $14,240 

 

14

 

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 no material amounts accrued. While it is not possible to quantify the financial impact or predict the outcome of all pending claims and litigation, management does not anticipate that the outcome of any current proceedings or known claims, either individually or in aggregate, will materially affect the Company’s financial position, results of operations or cash flows.

 

Guarantees

 

The Company’s software license arrangements and hosting services are typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable and substantially in accordance with the Company’s product documentation under normal use and circumstances. The Company’s arrangements also include certain provisions for indemnifying customers against liabilities if its products or services infringe a third party’s intellectual property right. The Company has entered into service level agreements with some of its hosted application customers warranting certain levels of uptime reliability and such agreements permit those customers to receive credits against monthly hosting fees or terminate their agreements in the event that the Company fails to meet those levels for an agreed upon period of time.

 

To date, the Company has not incurred any material costs as a result of such indemnifications or commitments and has not accrued any liabilities related to such obligations in the accompanying condensed consolidated financial statements.

 

 

(9)    Long-Term Debt

 

Debt consisted of the following (in thousands):

 

  

July 31, 2023

  

January 31, 2023

 

Term Loan - current portion

 $6,404  $6,404 

Current maturities of long-term debt

  6,404   6,404 
         

Term Loan - long-term portion

  591,399   594,601 

Original issue discount - long-term portion

  (7,622)  (8,286)

Deferred financing costs - long-term portion

  (4,138)  (4,498)

Long-term debt

 $579,639  $581,817 

 

On July 16, 2021, Skillsoft Finance II, Inc. (“Skillsoft Finance II”), a subsidiary of Skillsoft Corp., entered into a Credit Agreement (the “Credit Agreement”), by and among Skillsoft Finance II, as borrower, Skillsoft Finance I, Inc., as holdings (“Holdings”), the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent, pursuant to which the lenders provided a $480 million term loan facility (the “Term Loan Facility”) to Skillsoft Finance II, the proceeds of which, together with cash on hand, were used to refinance existing debt. The Term Loan Facility is scheduled to mature on July 16, 2028 (the “Maturity Date”).

 

In connection with the closing of the Codecademy acquisition, Skillsoft Finance II entered into Amendment No. 1 to the Credit Agreement, dated as of April 4, 2022 (the “First Amendment”), among Skillsoft Finance II, Holdings, certain subsidiaries of Skillsoft Finance II, as guarantors, Citibank N.A., as administrative agent, and the financial institutions party thereto as Term B-1 Lenders, which amended the Credit Agreement (as amended by the First Amendment, the “Amended Credit Agreement”).

 

The First Amendment provides for the incurrence of up to $160 million of Term B-1 Loans (the “Term B-1 Loans”) under the Amended Credit Agreement. In addition, the First Amendment, among other things, (a) provides for early opt-in to Secured Overnight Financing Rate ("SOFR") for the existing term loans under the Credit Agreement (such existing term loans together with the Term B-1 Loans, the “Initial Term Loans”) and (b) provides for the applicable margin for the Initial Term Loans at 4.25% with respect to base rate borrowings and 5.25% with respect to SOFR borrowings.

 

The Company received $153.2 million of net proceeds (net of $4.0 million of financing costs and $2.8 million of original issuance discounts) from the Term Loan Facility on April 4, 2022. The Company used the net proceeds and cash on hand for the closing of the Codecademy acquisition on April 4, 2022. 

 

The refinancing was accounted for as a modification for certain lenders and an extinguishment for other lenders and debt issuance costs and lender fees were accounted for in proportion to whether the related principal balance was considered modified or extinguished. Accordingly, both newly incurred and deferred financing costs and original issuance discounts of $0.1 million and $2.8 million, respectively, will be amortized as additional interest expense over the term of the Initial Term Loans.

 

Prior to the maturity thereof, the Initial Term Loans will be subject to quarterly amortization payments of 0.25% of the principal amount.

 

On August 15, 2022, pursuant to the Purchase Agreement entered on June 12, 2022 by and among Skillsoft, Skillsoft (US) Corporation (“Seller”), Amber Holding Inc. (“SumTotal”), and Cornerstone OnDemand, Inc. (“Buyer”), Seller completed the sale of one hundred percent (100%) of the outstanding shares of capital stock of SumTotal to Buyer. As a result of the asset sale, the Company made a mandatory prepayment of $31.4 million to the lenders in August 2022. The remaining net cash proceeds attributable to the sale of SumTotal were subject to reinvestment provisions and could not be used for general corporate purposes. As defined in the Amended Credit Agreement, no additional repayment was required.

 

All obligations under the Amended Credit Agreement, and the guarantees of those obligations (as well as certain cash management obligations and interest rate hedging or other swap agreements), are secured by substantially all of Skillsoft Finance II’s personal property as well as the assets of each subsidiary guarantor.

 

Amounts outstanding under the Term Loan Facility bear interest, at the option of Skillsoft Finance II, at a rate equal to (a) SOFR (subject to a floor of 0.75%) plus a credit premium based on the tenor of the interest period plus 5.25% for SOFR Loans or (b) the highest of (i) the Federal Funds Effective Rate plus 10.50%, (ii) the “prime rate” quoted by the administrative agent, (iii) Adjusted Term SOFR plus 1.00% and (iv) 1.75%, plus 3.75% for alternative base rate loans. As of July 31, 2023, the balance of $597.8 million of Initial Term Loans bears interest at a rate equal to SOFR plus a credit premium of 0.11% plus a spread of 5.25%, per annum, with a SOFR floor of 0.75%, and quarterly principal repayments of $1.6 million until maturity.

 

15

 

Voluntary prepayment is permitted under the Term Loan Facility. Loan parties are subject to various affirmative and negative covenants and reporting obligations under the Amended Credit Agreement. These include, among other things, limitations on indebtedness, liens, sale and leaseback transactions, investments, fundamental changes, assets sales, restricted payments, affiliate transactions, and restricted debt payments. Events of default under the Term Loan Facility include non-payment of amounts due to the lenders, violation of covenants, materially incorrect representations, defaults under other material indebtedness, judgments and specified insolvency-related events, certain ERISA events, and invalidity of loan or collateral documents, subject to, in certain instances, specified thresholds, cure periods and exceptions. As of  July 31, 2023, the Company is in compliance with all covenants.

 

The Company’s debt outstanding as of July 31, 2023 matures as shown below (in thousands):

 

For fiscal years ended January 31:

    

2024 (six months remaining)

 $3,202 

2025

  6,404 

2026

  6,404 

2027

  6,404 

2028

  6,404 

Thereafter

  568,985 

Total payments

  597,803 

Current portion

  (6,404)

Unamortized original issue discount and issuance costs

  (11,760)

Long-term portion

 $579,639 

 

Accounts Receivable Facility

 

On December 20, 2018, the Company entered into a $75.0 million receivables credit agreement, with a termination date of the earliest of 5 years from closing or 45 days before the revolving credit facility maturity or 180 days before the maturity of any term indebtedness greater than $75 million. There are four classes of available receivables with advance rates between 50.0% and 85.0%. The lenders require the Company to deposit receipts from pledged receivables to a restricted concentration account. Cash collected against receivables pledged as collateral for borrowings must be transferred to the restricted concentration account within two business days of receipt by the Company. The Company accounts for these transactions as borrowings, as the assets pledged contain the rights to future revenues. Under these agreements, the Company receives the net present value of the accounts receivable balances used to calculate the borrowing base. The interest rate on borrowings outstanding under these agreements was 8.43% at July 31, 2023. Borrowings and repayments under these agreements are presented as cash flows from financing activities in the accompanying unaudited condensed consolidated statements of cash flows.

 

On September 19, 2019, the Company amended the receivables credit agreement to include Class “B” lending. This increased the facility borrowing capacity up to $90.0 million. In conjunction with this, it increased the advance rate to 95% across the four classes of available receivables. All other terms and conditions remained materially the same.

 

On August 27, 2020, the Company amended its accounts receivable facility. In connection with the amendment, additional capacity under the previous accounts receivable facility which had been extended by the private equity sponsor of the Company’s prior owner was eliminated, reducing the maximum capacity of the facility from $90 million to $75 million. The advance rate was also reduced from 90% to between 50.0% and 85.0% based on the class categorization of the receivable. The maturity date for the remaining $75 million facility was extended to the earlier of (i) December 27, 2024 or (ii) 90 days prior to the maturity of any corporate debt. The Company submits a monthly reconciliation on each month’s settlement date detailing what was collected from the prior month's borrowing base and what additional receivables are being pledged during the new borrowing base period to replenish them. If additional receivables are pledged to replenish receipts, the funds from the concentration account will be returned to the Company by the administrative agent. The reserve balances were $3.9 million at  July 31, 2023 and are classified as restricted cash on the balance sheet. As of July 31, 2023, $40.1 million was drawn from our accounts receivable facility. 

 

(10)    Shareholders Equity

 

Common Stock

 

As of July 31, 2023, the Company’s authorized share capital consisted of 375,000,000 shares of Class A common stock and 10,000,000 shares of preferred stock, with a par value $0.0001 each, and 160,467,809 shares of Class A common stock were issued and outstanding. As of July 31, 2023, the Company had no shares of Class C common stock outstanding. The number of authorized shares of Class A common stock or preferred stock authorized for issuance may be increased by the affirmative vote of the holders of a majority in voting power of the Company’s capital stock entitled to vote thereon. Except as required by law, holders of shares of Class C common stock are not entitled to vote any such shares.

 

Subject to applicable law, the Company may declare dividends to be paid ratably to holders of Class A common stock out of the Company’s assets that are legally available to be distributed as dividends in the discretion of the Company’s board of directors. Holders of Class C common stock are generally not entitled to dividends.

 

Warrants

 

Refer to Note 11, for information related to the equity classified warrants.

 

Share Repurchases and Repurchase Authorization

 

On September 7, 2022, the Board of Directors authorized Skillsoft to repurchase up to $30.0 million of its Class A common stock, which expired September 7, 2023. Under the program, the Company was authorized to purchase shares in the open market, in private negotiated transactions, or by other means from time to time. The share repurchase program did not obligate the Company to purchase any minimum number of shares. Under the program, the Company repurchased 4,365,255 of its shares for $8.0 million during the six months ended July 31, 2023. From inception through the quarter ended July 31, 2023, we repurchased 5,995,530 of our shares for $10.9 million.

 

16

 

Accumulated Other Comprehensive Income (Loss)

 

Accumulated Other Comprehensive Income (Loss) associated with foreign currency translation adjustments (in thousands) consisted of the following:

 

  

Three Months Ended July 31,

 
  

2023

  

2022

 
  

Before Tax

  

Income Tax

  

Net

  

Before Tax

  

Income Tax

  

Net

 

Balance as of beginning-of-period

 $(13,919) $  $(13,919) $(1,278) $  $(1,278)

Translation adjustment

  496      496   (1,477)     (1,477)

Balance as of end-of-period

 $(13,423) $  $(13,423) $(2,755) $  $(2,755)

 

  

Six Months Ended July 31,

 
  

2023

  

2022

 
  

Before Tax

  

Income Tax

  

Net

  

Before Tax

  

Income Tax

  

Net

 

Balance as of beginning-of-period

 $(14,794) $  $(14,794) $970  $  $970 

Translation adjustment

  1,371      1,371   (3,725)     (3,725)

Balance as of end-of-period

 $(13,423) $  $(13,423) $(2,755) $  $(2,755)
 

(11)    Warrants

 

In connection with the formation of the Company and subsequent acquisitions of Software Luxembourg Holdings S.A. and Albert DE Holdings Inc., warrants to purchase common stock were issued to investors, sellers of Albert DE Holdings Inc. and an executive of the Company. Warrants that are not subject to ASC 718, Stock Compensation and (i) contained features that could cause the warrant to be puttable to the Company for cash or (ii) had terms that prevented the conversion of the warrant from being fixed in all circumstances, are classified as a liability on the Company’s balance sheet and measured at fair value, with changes in fair value being recorded in the income statement, whereas all other warrants meet the equity scope exception and are classified as equity and not remeasured.

 

A summary of liability classified warrants is as follows (in thousands, except per share amounts):

 

  

Underlying

         

Fair Value

 
  

Common

  

Strike

 

Redemption

 

Expiration

 

at July 31,

 

Type

 

Shares

  

Price

 

Price

 

Date

 

2023

 

Private Placement Warrants – Sponsor

  15,846  $11.50 

None

 

6/11/2026

 $1,109 

 

Simultaneously with the closing of the initial public offering, Churchill Capital (the “Sponsor”) purchased an aggregate of 15,800,000 Private Placement Warrants. An additional 1,500,000 warrants were issued at the closing of the business combination with Software Luxembourg Holding S.A. on June 11, 2021 in connection with the repayment of a promissory note due to the Sponsor. One million of the Private Placement Warrants were transferred to the incoming CEO as described below. These warrants held by the Sponsor include provisions that provide for potential changes to the settlement amounts on redemptions and were dependent upon the characteristics of the holder of the warrant. As of  July 31, 2023, 453,596 Private Placement Warrants had been transferred to public holders (included in "Public Warrants" in the table below). Because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares, the warrants are precluded from being indexed to the entity’s stock and are classified as a liability measured at fair value, with changes in fair value each period reported in earnings.

 

A summary of equity classified warrants is as follows (in thousands, except per share amounts):

 

  

Underlying

          
  

Common

  

Strike

  

Redemption

 

Expiration

Type

 

Shares

  

Price

  

Price

 

Date

Public Warrants

  23,454  $11.50  $18.00 

6/11/2026

Private Placement Warrants (PIPE)

  16,667   11.50   18.00 

6/11/2026

Private Placement Warrants (Global Knowledge)

  5,000   11.50  

None

 

10/12/2025

Private Placement Warrants (CEO)

  1,000   11.50  

None

 

6/11/2026

Total

  46,121          

 

17

 

A description of each category of warrants issued and outstanding is as follows:

 

 

Public Warrants – Pursuant to the initial public offering, the Company sold units that consisted of one share of Class A common stock and one-third of one redeemable warrant (“Public Warrants”), resulting in the issuance of 23,000,000 warrants. Prior to the business combination with Software Luxembourg Holding S.A. on June 11, 2021 (the “Skillsoft Merger"), Churchill Capital Corp II had classified these warrants as liabilities due to tender offer provisions which state that in the event of a tender or exchange offer made to and accepted by holders of more than 50% of the outstanding shares of a single class of common stock, all holders of the warrants would be entitled to receive cash for their warrants. Accordingly, there were potential scenarios outside the control of the Company (which had more than one class of outstanding common stock prior to the Skillsoft Merger), where all warrant holders would be entitled to cash, while only certain holders of the underlying shares of common stock would be entitled to cash, requiring the warrants to be classified as a liability measured at fair value, with changes in fair value reported each period in earnings. Upon the completion of the Skillsoft Merger on June 11, 2021, when only one class of voting shares remained outstanding, the warrants met equity classification criteria as net cash settlement can only be triggered in circumstances in which the holders of the shares underlying the contract also would receive cash in the event of a fundamental change in the ownership of the Company, such as a change in control. Accordingly, the fair value of the warrants was transferred to equity and cumulative losses recognized from changes in fair value remain in the Company’s accumulated deficit balance. During the three and six months ended July 31, 2023, there was no activity related to the Private Placement Warrants or Public Warrants.

 

Private Placement Warrants (PIPE) – In connection with the second step investment made by the anchor PIPE investor, 16,666,667 warrants were issued to a PIPE investor to purchase Class A common stock. The PIPE Private Placement Warrants are issued in the same form as the Public Warrants.

 

Private Placement Warrants (Global Knowledge) – Upon completion of the acquisition of Albert DE Holdings Inc. (the "Global Knowledge Merger"), 5,000,000 warrants were issued to the former owner of Global Knowledge. These warrants are similar to the Private Placement Warrants except the warrants are not subject to the redemption provisions described below if transferred.

 

Private Placement Warrants (CEO) - Effective at the closing of the Skillsoft Merger and Global Knowledge Merger, the Sponsor committed to transfer 1,000,000 fully vested Private Placement Warrants to the CEO pursuant to his employment agreement with the Company. The warrants are subject to ASC 718, Stock Compensation.


Public Warrants and PIPE Private Placement Warrants (hereinafter referred to as “Redeemable Warrants”) are currently exercisable and may only be exercised for a whole number of shares. The Company may redeem these warrants:

 

 

in whole and not in part;

 

at a price of $0.01 per warrant;

 

upon not less than 30 days’ prior written notice of redemption;

 

if, and only if, the reported last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30‑trading day period ending on the third business day prior to the notice of redemption to the warrant holders; and

 

if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying the warrants.

 

If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

 

If the Company calls the Redeemable Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A common stock at a price below their exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.

 

The Sponsor and CEO Private Placement Warrants have the same terms as the Public Warrants, except they will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Sponsor Private Placement Warrants are transferred to someone other than the initial purchasers or their permitted transferees, they will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. The Global Knowledge Private Placement Warrants are not redeemable, even upon a transfer in ownership.

 

(12)    Stock-based compensation

 

Equity Incentive Plans

 

In June 2021, Skillsoft Corp adopted the 2020 Omnibus Incentive Plan (“2020 Plan”). The 2020 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, other equity-based awards, and cash-based incentive awards to employees, directors, and consultants of the Company. Under the 2020 Plan, 13,105,902 shares were initially made available for issuance. The 2020 Plan includes an annual increase on January 1 each year beginning on January 1, 2022, in an amount equal to 5.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year. The Compensation Committee may act prior to January 1 of a given year to provide that there will be no January 1 increase for such year or that the increase for such year will be a lesser number of shares of common stock than provided for in the 2020 Plan. As of July 31, 2023, a total of