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 |
| (1) |
(1) On October 25, 2023, the New York Stock Exchange filed a Form 25 to delist the Company's warrants and remove such securities from registration under Section 12(b) of the Securities Exchange Act of 1934, as amended. Effective October 26, 2023, the registrant's warrants are trading on the OTC Pink Marketplace under the symbol "SKILW".
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 November 30, 2023 was
FORM 10-Q
FOR THE QUARTER ENDED October 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 sales 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)
| October 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 October 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 shares outstanding at October 31, 2023, and shares issued and shares outstanding at January 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated equity (deficit) | ( | ) | ( | ) | ||||
| Treasury stock, at cost- and shares as of October 31, 2023 and January 31, 2023, respectively | ( | ) | ( | ) | ||||
| 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 October 31, |
Nine Months Ended October 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 |
||||||||||||||||
| 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 October 31, |
Nine Months Ended October 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 (DEFICIT)
(in thousands, except number of shares)
| Accumulated |
Total |
|||||||||||||||||||||||||||||||
| Ordinary Shares |
Additional |
Accumulated |
Other |
Shareholders' |
||||||||||||||||||||||||||||
| Number | In | Common | Paid-in | Equity | Treasury | Comprehensive | Equity | |||||||||||||||||||||||||
| of Shares |
Treasury |
Stock |
Capital |
(Deficit) |
Stock |
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 |
( |
) | ( |
) | $ | |||||||||||||||||||||||||||
| Share-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Common stock issued |
||||||||||||||||||||||||||||||||
| Shares repurchased for tax withholding upon vesting of restricted stock-based awards |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Repurchase of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Translation adjustment |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Deconsolidation of SumTotal |
— | — | ||||||||||||||||||||||||||||||
| Net income (loss) |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance October 31, 2022 |
( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
SKILLSOFT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) - continued
(in thousands, except number of shares)
| Accumulated |
Total |
|||||||||||||||||||||||||||||||
| Ordinary Shares |
Additional |
Accumulated |
Other |
Shareholders' |
||||||||||||||||||||||||||||
| Number | In | Common | Paid-in | Equity | Treasury | Comprehensive | Equity | |||||||||||||||||||||||||
| of Shares |
Treasury |
Stock |
Capital |
(Deficit) |
Stock |
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 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| 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 October 31, 2023 |
( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Nine Months Ended October 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 of warrants |
( |
) | ( |
) | ||||
| Impairment of goodwill |
||||||||
| Fair value adjustment of hedge instruments |
( |
) | ( |
) | ||||
| 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 and other liabilities, 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, 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)
| Nine Months Ended October 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
Skillsoft Corp. (together with its consolidated subsidiaries, “Skillsoft”, “we”, “us”, “our” and the “Company”) 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, an AI-enabled 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, practice labs and a Generative AI-powered conversation simulator, 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).
Reverse Stock Split
On September 29, 2023, we effected a 1-for-
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.
Certain amounts reported in prior years have been reclassified to conform to the presentation in the current year. These reclassifications had no effect on total assets, total liabilities, total stockholders’ equity, or net income (loss) for the prior year.
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.
Recently Adopted Accounting Guidance
Below we provide a description of our adoption of new Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) and the impact of the adoption on the condensed consolidated financial statements. ASUs not listed below were assessed and determined to be either not applicable or insignificant in presentation or amount.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”), which provides new authoritative guidance with respect to the measurement of credit losses on financial instruments. This update changes the impairment model for most financial assets and certain other instruments by introducing a current expected credit loss (“CECL”) model. The CECL model is a more forward-looking approach based on expected losses rather than incurred losses, requiring entities to estimate and record losses expected over the remaining contractual life of an asset. We adopted ASU 2016-13 effective February 1, 2023, and the adoption of the standard did not have a material impact on our condensed consolidated financial statements.
Related to ASU 2016-13, there is risk and judgment involved in determining estimates of our allowances for credit losses, which reduce the carrying value of an asset to produce an estimate of the net amount that will be collected over the asset's life. We evaluate the expected credit loss of an asset on an individual basis, except in cases where assets collectively share similar risk characteristics where we pool them together. We evaluate and estimate our allowances for credit loss by considering reasonable, relevant, and supportable available information. The Company maintains an allowance based upon expected credit losses of outstanding accounts receivable. Management derives its estimate using a variety of factors, including historical collection and loss patterns; the current aging of receivables; customer-specific credit risk factors (when warranted); and probable future economic conditions which inform adjustments to historical loss patterns. The provision for expected credit losses is recorded in general and administrative in the accompanying consolidated statements of operations. Accounts receivable deemed to be uncollectible are written off, net of expected or actual recoveries.
Changes in the allowance for credit loss on accounts receivable (in thousands) for the nine months ended October 31, 2023 were as follows:
| Amount | ||||
| Balance as of February 1, 2023 | $ | |||
| Additions to (reductions from) provision for credit loss expense | ||||
| Balance as of October 31, 2023 | $ | |||
(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 nine months ended October 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 October 31, | Nine Months Ended October 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 nine months ended October 31, 2022 in our condensed consolidated statements of operations (in thousands):
| Three Months | Nine Months | |||||||
| Ended | Ended | |||||||
| October 31, 2022 | October 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):
| October 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 the fiscal years ended January 31:
| Amortization Expense | ||||
| 2024 (three 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 and indefinite lived intangible 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 nine months ended October 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 October 31, 2023 | $ | $ | $ | |||||||||
As of October 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 bookings, revenue, or profitability, 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 nine months ended October 31, 2023, for continuing operations, the Company recorded a tax benefit of $
For the three and nine months ended October 31, 2022, for continuing operations, the Company recorded a tax benefit of $
(7) Restructuring
In connection with strategic initiatives implemented during the three and nine months ended October 31, 2023 and October 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 October 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 October 31, 2023 and January 31, 2023. The weighted-average remaining lease term of the Company’s operating leases is
See Note 7 for a discussion related to restructuring charges associated with lease termination and lease impairment charges.
The below reconciles (in thousands) the undiscounted future minimum lease payments under non-cancellable leases to the total lease liabilities recognized on the condensed consolidated balance sheets as of October 31, 2023.
| Fiscal year ended January 31: | ||||
| 2024 (three 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
On November 21, 2023, the Company was named as a nominal defendant in a shareholder derivative action filed in the Delaware Court of Chancery captioned Norcross v. Prosus N.V., et al. The plaintiff, a Company shareholder, alleges that the Company's directors and controlling shareholders breached their fiduciary duties to plaintiffs by causing the Company to acquire Codecademy at an above-market price. Plaintiff seeks money damages as compensation for the harm caused by the alleged breaches. We currently cannot estimate any possible loss that may result from this action.
In addition, 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):
| October 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 provided 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 October 31, 2023, the Company is in compliance with all covenants.
The Company’s debt outstanding as of October 31, 2023 matures (in thousands) as shown below.
| Future principal payments due for fiscal years ended January 31: | ||||
| 2024 (three 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 $
The lenders require the Company to deposit receipts from pledged receivables to a restricted concentration account within two business days of receipt by the Company. A reconciliation detailing collections against the prior month’s borrowing base and additional receivables to be pledged is submitted monthly. If additional pledged receivables exceed the prior month’s collections, funds from the concentration account are returned to the Company. The reserve balance was $
The Company accounts for these transactions as borrowings since the assets pledged contain the right to future receivables. Under this agreement, 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 the accounts receivable facility was
(10) Shareholders’ Equity
Common Stock
As of October 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 Company's 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 October 31, | ||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| Before Tax | Income Tax | Net | Before Tax | Income Tax | Net | |||||||||||||||||||
| Balance as of beginning-of-period | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Deconsolidation of SumTotal | ||||||||||||||||||||||||
| Balance as of end-of-period | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Nine Months Ended October 31, | ||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| Before Tax | Income Tax | Net | Before Tax | Income Tax | Net | |||||||||||||||||||
| Balance as of beginning-of-period | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||
| Translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Deconsolidation of SumTotal | ||||||||||||||||||||||||
| 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 October 31, | |||||||||||
| Type | Shares | Price | Price | Date | 2023 | ||||||||||
| Private Placement Warrants – Sponsor | $ | None |
| $ | |||||||||||
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 | $ | $ |
| ||||||||||
| Private Placement Warrants (PIPE) |
| ||||||||||||
| Private Placement Warrants (Global Knowledge) | None |
| |||||||||||
| Private Placement Warrants (CEO) | None |
| |||||||||||
| 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 1- of 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 Redeemable 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 adopted the 2020 Omnibus Incentive Plan (“2020 Plan”). The 2020 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, other equity-based awards, and cash-based incentive awards to employees, directors, and consultants of the Company. Under the 2020 Plan,
Stock Options
Under the 2020 Plan, all employees are eligible to receive incentive share options and all employees, directors and consultants are eligible to receive non-statutory share options. The options generally vest over years and have a term of years. Vested options under the plan generally expire not later than
The following summarizes the stock option activity for the nine months ended October 31, 2023:
| Weighted - | ||||||||||||||||
| Weighted - | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Exercise | Contractual | Intrinsic Value | ||||||||||||||
| Shares | Price | Term (Years) | (in thousands) | |||||||||||||
| Outstanding, January 31, 2023 | $ | $ | ||||||||||||||
| Granted | — | — | ||||||||||||||
| Exercised | — | — | ||||||||||||||
| Forfeited | ( | ) | — | — | ||||||||||||
| Expired | ( | ) | — | — | ||||||||||||
| Outstanding, October 31, 2023 | ||||||||||||||||
| Vested and exercisable, October 31, 2023 | ||||||||||||||||
The total unrecognized equity-based compensation costs related to the stock options was $
Time-Based Restricted Stock Units
Restricted stock units (“RSUs”) represent a right to receive
The following summarizes the time-based RSU activity for the nine months ended October 31, 2023:
| Weighted - | Aggregate | |||||||||||
| Average Grant | Intrinsic Value | |||||||||||
| Shares | Date Fair Value | (in thousands) | ||||||||||
| Unvested balance, January 31, 2023 | $ | $ | ||||||||||
| Granted(1) | — | |||||||||||
| Vested | ( | ) | — | |||||||||
| Forfeited | ( | ) | — | |||||||||
| Unvested balance, October 31, 2023 | ||||||||||||
(1) In May 2023,
The total unrecognized stock-based compensation costs related to time-based RSUs was $
Market-Based Restricted Stock Units
Market-based restricted stock units (“MBRSUs”) vest over a -year or -year performance period, subject to continued employment through each anniversary and achievement of market conditions, specifically the Company's stock price and an objective relative total shareholder return. The fair value of MBRSUs that include vesting based on market conditions are estimated using the Monte Carlo valuation method. Compensation cost for these awards is recognized based on the grant date fair value which is recognized over the vesting period using the accelerated attribution method.
The following summarizes the MBRSUs activity for the nine months ended October 31, 2023:
| Weighted - | Aggregate | |||||||||||
| Average Grant | Intrinsic Value | |||||||||||
| Shares | Date Fair Value | (in thousands) | ||||||||||
| Unvested balance, January 31, 2023 | $ | $ | ||||||||||
| Granted | — | |||||||||||
| Vested | — | |||||||||||
| Forfeited | ( | ) | — | |||||||||
| Canceled(1) | ( | ) | — | |||||||||
| Unvested balance, October 31, 2023 | ||||||||||||
(1) In May 2023,
The total unrecognized stock-based compensation costs related to MBRSUs was $
Stock-based Compensation Expense
The following summarizes the classification of stock-based compensation expense in the condensed consolidated statements of operations (in thousands):
| Three Months Ended October 31, | Nine Months Ended October 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Cost of revenues | $ | $ | $ | $ | ||||||||||||
| Content and software development | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
(13) Revenue
Revenue Components and Performance Obligations
Subscription Services
The Company offers subscriptions that provide customers access to a broad-based spectrum of learning options including access to cloud-based learning content and individualized coaching. The Company’s cloud-based subscription solutions normally do not provide customers with the right to take possession of the software supporting the platform or to download course content without continuing to incur fees for hosting services and, as a result, are accounted for as service arrangements. Access to the platform and course content represents a series of distinct services as the Company continually provides access to, and fulfills its obligation to, the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. Accordingly, the fixed consideration related to subscription revenue is usually recognized on a straight-line basis over the contract term, beginning on the date that the service is made available to the customer. The Company’s subscription contracts typically vary from year to years. The Company’s cloud-based solutions arrangements are mostly non-cancellable, non-refundable, and are invoiced in advance of the subscription services being provided.
Virtual, On-Demand and Classroom
The Company’s virtual, on-demand and classroom training provides customers with technical training. Revenue is recognized in the period in which the services are performed. Billing is in advance of the services being provided or immediately after the services have been provided.
Professional Services
The Company also sells professional services related to its cloud solutions which are typically considered distinct performance obligations and are recognized over time as services are performed. For fixed-price contracts, revenue is recognized based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided (proportional performance method). These services usually consist of implementation, integration, and general consulting. Mostly, the Company’s professional service engagements are short in duration. Billing is commonly in advance of the services being provided.
Disaggregated Revenue and Geography Information
The following is a summary of revenues by type for the three and nine months ended October 31, 2023 and October 31, 2022 (in thousands):
| Three Months Ended October 31, | Nine Months Ended October 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| SaaS and subscription services | $ | $ | $ | $ | ||||||||||||
| Virtual, on-demand and classroom | ||||||||||||||||
| Professional services | ||||||||||||||||
| Total net revenues | $ | $ | $ | $ | ||||||||||||
| Three Months Ended October 31, | Nine Months Ended October 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue: | ||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Europe, Middle East and Africa | ||||||||||||||||
| Other Americas | ||||||||||||||||
| Asia-Pacific | ||||||||||||||||
| Total net revenues | $ | $ | $ | $ | ||||||||||||
Other than the United States,
Deferred Revenue
Deferred revenue activity for the nine months ended October 31, 2023 was as follows (in thousands):
| Deferred revenue at January 31, 2023 | $ | |||
| Billings deferred | ||||
| Recognition of prior deferred revenue | ( | ) | ||
| Deferred revenue at October 31, 2023 | $ |
Deferred revenue performance obligations relate predominantly to time-based SaaS and subscription services that are billed in advance of services being rendered.
Deferred Contract Acquisition Costs
Deferred contract acquisition cost activity for the nine months ended October 31, 2023 was as follows (in thousands):
| Deferred contract acquisition costs at January 31, 2023 | $ | |||
| Contract acquisition costs | ||||
| Recognition of contract acquisition costs | ( | ) | ||
| Deferred contract acquisition costs at October 31, 2023 | $ |
(14) Fair Value Measurements
FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a fair value hierarchy that prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The three levels of the fair value hierarchy established by ASC 820 in order of priority are as follows:
| ● | Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
| ● | Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
| ● | Level 3: Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available. |
The following summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of October 31, 2023 and are categorized using the fair value hierarchy (in thousands):
| Level 2 | Level 3 | |||||||||||
| Description | Measurements | Measurements | Total | |||||||||
| Interest rate swaps - asset (liability) | $ | $ | $ | |||||||||
| Liability classified warrants | ( | ) | ( | ) | ||||||||
| Total assets and (liabilities) recorded at fair value | $ | $ | ( | ) | $ | |||||||
Interest Rate Swap
On June 17, 2022, the Company entered into
The inputs for determining fair value of the Interest Rate Swaps are classified as Level 2 inputs. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces. The counterparties to these derivative contracts are highly rated financial institutions which we believe carry only a minimal risk of nonperformance.
Warrants
A summary of liability-classified warrants is as follows (in thousands, except per share amounts):
| Underlying | |||||||||||||||
| Common | Strike | Redemption | Expiration | Fair Value at | |||||||||||
| Type | Shares | Price | Price | Date | October 31, 2023 | ||||||||||
| Private Placement Warrants – Sponsor | $ | None | 6/11/2026 | $ | |||||||||||
The Company classifies Sponsor Private Placement Warrants as liabilities in accordance with ASC Topic 815. Refer to Note 11 "Warrants" for more detail. The inputs for determining fair value of these warrants are classified as Level 3 inputs. The Company estimates the fair value of the Sponsor Private Placement Warrants using a Black-Scholes option pricing model and the following assumptions:
| October 31, 2023 | ||||
| Risk-free interest rate | % | |||
| Expected dividend yield | % | |||
| Volatility factor | % | |||
| Expected lives (years) | ||||
| Value per unit | $ | |||
Changes in the fair value of liability-classified warrants classified as Level 3 due to significant unobservable inputs used to determine fair value were as follows:
| Three Months Ended | Nine Months Ended | |||||||
| October 31, 2023 | October 31, 2023 | |||||||
| Balance as of beginning-of-period | $ | $ | ||||||
| Unrealized gains | ( | ) | ( | ) | ||||
| Balance as of October 31, 2023 | $ | $ | ||||||
Other Fair Value Instruments
The Company currently invests excess cash balances primarily in money market funds invested in United States Treasury securities and United States Treasury securities repurchase agreements, as well as cash deposits held at major banks. The carrying amounts of cash and cash equivalents, trade receivables, trade payables and accrued liabilities, as reported on the condensed consolidated balance sheet as of October 31, 2023, approximate their fair value because of the short maturity of those instruments.
Our long-term debt is a financial instrument, and the fair value of the Company’s outstanding principal as of October 31, 2023 was $
(15) Segment Information
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker ("CODM"), in determining how to allocate resources and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company’s CODM evaluates results using the operating segment structure as the primary basis for which the allocation of resources and financial results are assessed.
The Company has organized its business into
The Content & Platform business engages in the sale, marketing and delivery of its content learning solutions, in areas such as Leadership and Business, Technology and Developer and Compliance. This includes individualized coaching as well as technical skill areas assumed in the Codecademy acquisition. In addition, Content & Platform offers Percipio, an artificial intelligence ("AI")-driven online learning platform that delivers an immersive learning experience through software as a service ("SaaS") solutions. It leverages its highly engaging content, curated into nearly
The Instructor-Led Training business offers training solutions covering information technology and business skills for corporations and their employees. Instructor-Led Training guides its customers throughout their lifelong technology learning journey by offering relevant and up-to-date skills training through instructor-led (in-person “classroom” or online “virtual”) and self-paced (“on-demand”), vendor certified, and other proprietary offerings. Instructor-Led Training offers a wide breadth of training topics and delivery modalities both on a transactional and subscription basis.
The following presents summary results for each of the businesses for the three and nine months ended October 31, 2023 and October 31, 2022:
| Three Months Ended October 31, | Nine Months Ended October 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Content & Platform | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Instructor-Led Training | ||||||||||||||||
| Revenues | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Consolidated | ||||||||||||||||
| Revenues | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Fair value adjustment of warrants | ||||||||||||||||
| Fair value adjustment of hedge | ||||||||||||||||
| (Provision for) benefit from income taxes | ||||||||||||||||
| Net income (loss) from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on sale of business | ( | ) | ||||||||||||||
| Income (loss) from discontinued operations, net of tax | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Content & Platform segment depreciation for the three and nine months ended October 31, 2023 was $
Instructor-Led Training segment depreciation for the three and nine months ended October 31, 2023 was $
The Company’s segment assets primarily consist of cash and cash equivalents, accounts receivable, prepaid expenses, deferred taxes, property and equipment, goodwill and intangible assets. The following sets forth the Company’s segment assets as of October 31, 2023 and January 31, 2023 (in thousands):
| October 31, 2023 | January 31, 2023 | |||||||
| Content & Platform | $ | $ | ||||||
| Instructor-Led Training | ||||||||
| Total assets | $ | $ | ||||||
The following sets forth the Company’s long-lived tangible assets by geographic region as of October 31, 2023 and January 31, 2023 (in thousands):
| October 31, 2023 | January 31, 2023 | |||||||
| United States | $ | $ | ||||||
| Rest of world | ||||||||
| Total long-lived tangible assets | $ | $ | ||||||
(16) Net Loss Per Share
Basic earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding restricted stock-based awards, stock options, and shares issuable under the employee stock purchase plan using the treasury stock method.
The following sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
| Three Months Ended October 31, | Nine Months Ended October 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net income (loss) from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) from discontinued operations | ( | ) | ||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Ordinary – Basic and diluted | ||||||||||||||||
| Net income (loss) per share: | ||||||||||||||||
| Ordinary – Basic and diluted - continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Ordinary – Basic and diluted - discontinued operations | ( | ) | ||||||||||||||
| Ordinary – Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
During the three and nine months ended October 31, 2023 and October 31, 2022, the Company incurred net losses and, therefore, the effect of the Company’s potentially dilutive securities was not included in the calculation of diluted loss per share as the effect would be anti-dilutive. The following contains share/unit totals with a potentially dilutive impact (in thousands):
| Three Months Ended October 31, | Nine Months Ended October 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Common stock underlying warrants | ||||||||||||||||
| Stock options | ||||||||||||||||
| RSUs | ||||||||||||||||
| Total | ||||||||||||||||
(17) Related Party Transactions
Agreement with Largest Shareholder
In December 2021, Skillsoft entered into a commercial agreement to provide off-the-shelf Skillsoft products to the Company’s largest shareholder, MIH Learning B.V., and its affiliates for $
Codecademy Transaction
An affiliate of our largest shareholder, MIH Learning B.V., also owned approximately of the outstanding equity of Codecademy, which we acquired on April 4, 2022.
Consulting Services
In December 2021, Skillsoft engaged The Klein Group, LLC (the “Klein Group”) to act as a consultant to advise the Company of a potential transaction with Codecademy, to assist management in its evaluation of the business opportunity and structuring and negotiation of a potential transaction. Pursuant to this engagement, Skillsoft paid the Klein Group a transaction fee equal to $
(18) Subsequent Events
The Company has completed an evaluation of all subsequent events after the balance sheet date of October 31, 2023 through the date this Quarterly Report on Form 10-Q was filed with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of October 31, 2023, and events which occurred subsequently but were not recognized in the financial statements. The Company has concluded that no subsequent events have occurred that require disclosure, except as disclosed within these financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the financial condition as of October 31, 2023, compared with January 31, 2023, and the results of operations for the three and nine months ended October 31, 2023, compared with the corresponding period in fiscal 2023 of Skillsoft Corp. and its consolidated subsidiaries. Unless otherwise stated or the context otherwise requires, “Skillsoft”, “Company”, “we”, “our” or “us” refers to Skillsoft Corp. and its consolidated subsidiaries.
The MD&A is provided as a supplement to, and should be read in conjunction with, the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements (“Notes”) presented in “Part I – Item 1. Financial Statements”; our Form 10-K for the year ended January 31, 2023 (“2023 Form 10-K”); and other reports filed with the Securities and Exchange Commission (“SEC”). For more detailed information on the risks and uncertainties associated with the Company’s business activities, see the risks described in “Part I – Item 1A. Risk Factors” in our 2023 Form 10-K.
Unless otherwise noted, amounts referenced in this discussion, other than in reference to share numbers, are in thousands.
General
At Skillsoft, we propel organizations and people to grow together through transformative learning experiences.
Through a portfolio of high-quality content, an AI-enabled 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, practice labs and a Generative AI-powered conversation simulator, Skillsoft offers transformative learning experiences for leaders to frontline workers, readers to hands-on learners.
Skillsoft supports approximately 70% of the Fortune 1000 with today's sought-after competencies: leadership and business skills, technology and developer skills, and essential safety and risk management compliance. We leverage various learning modalities adaptable to different preferences, schedules, and learning styles — from books to videos, full courses to micro-learning, audiobooks to live bootcamps and coaching. Content is continuously updated with the latest insights, information, and training methods.
Today's learners want the right learning experience, delivered when, where, and how they want it. That's why our approach is mobile-first, and our expert-curated, cloud-based content is served on an open platform that reaches learners wherever they are.
Our community of approximately 90 million learners in more than 150 countries around the globe learn in more than 30 languages. As often as they need or want, typical learners turn to Skillsoft to acquire critical job skills in the flow of work, and grow as leaders, employees, and people. We have helped fuel performance and career growth for more than 20 years.
For more details, refer to “Part I – Item 1. Business” in our 2023 Form 10-K.
Significant Transactions
The two transactions discussed below both occurred during fiscal 2023.
Completion of the Codecademy Acquisition
On April 4, 2022, the Company acquired Codecademy, a leading online learning platform for technical skills. Codecademy is an innovative and popular learning platform providing high-demand technical skills to approximately 40 million registered learners in nearly every country worldwide. The platform offers interactive, self-paced courses and hands-on learning in 14 programming languages across multiple domains such as application development, data science, cloud and cybersecurity. Total consideration for the acquisition was approximately $386.0 million, consisting of the issuance of 1,518,721 common shares and a net cash payment of $203.4 million.
Discontinued Operations
On June 12, 2022, we entered into the Purchase Agreement to sell our SumTotal business to a third party for $200 million in cash, subject to adjustments as set forth in the Purchase Agreement. The sale was completed on August 15, 2022. Net proceeds from the sale were $174.9 million, after final working capital adjustments in April 2023. The disposal of SumTotal assets met the criteria to be reported as held for sale and discontinued operations. As a result, SumTotal’s results of operations are presented, net of tax, separate from the results of continuing operations for all periods presented.
Results of Operations
Our results of operations as reported in our condensed consolidated financial statements for these periods are prepared in accordance with GAAP.
The following sets forth certain items from our condensed consolidated statements of operations as a percentage of total revenues for the periods indicated:
| Three Months Ended October 31, | Nine Months Ended October 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues: |
||||||||||||||||
| Total revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
| Operating expenses: |
||||||||||||||||
| Costs of revenues |
26.2 | % | 26.3 | % | 27.6 | % | 26.4 | % | ||||||||
| Content and software development |
11.6 | % | 12.4 | % | 12.3 | % | 12.8 | % | ||||||||
| Selling and marketing |
31.7 | % | 32.1 | % | 31.3 | % | 30.4 | % | ||||||||
| General and administrative |
16.1 | % | 20.3 | % | 17.4 | % | 20.2 | % | ||||||||
| Amortization of intangible assets |
27.8 | % | 31.2 | % | 27.9 | % | 30.9 | % | ||||||||
| Impairment of intangible assets |
0.0 | % | 409.6 | % | 0.0 | % | 154.6 | % | ||||||||
| Acquisition-related costs |
0.4 | % | 3.5 | % | 0.7 | % | 6.4 | % | ||||||||
| Restructuring |
0.6 | % | 1.4 | % | 2.1 | % | 2.5 | % | ||||||||
| Total operating expenses |
114.4 | % | 536.7 | % | 119.3 | % | 284.4 | % | ||||||||
| Operating loss |
(14.4 | )% | (436.7 | )% | (19.3 | )% | (184.4 | )% | ||||||||
| Other income (expense), net |
0.0 | % | 1.1 | % | (0.3 | )% | 0.7 | % | ||||||||
| Fair value adjustment of warrants |
0.8 | % | 6.5 | % | 1.1 | % | 6.3 | % | ||||||||
| Fair value of hedge instruments |
2.9 | % | 14.6 | % | 2.7 | % | 1.3 | % | ||||||||
| Interest income |
0.8 | % | 0.0 | % | 0.6 | % | 0.1 | % | ||||||||
| Interest expense |
(11.9 | )% | (10.4 | )% | (11.7 | )% | (9.1 | )% | ||||||||
| Income (loss) before provision for (benefit from) income taxes |
(21.8 | )% | (424.8 | )% | (26.9 | )% | (185.1 | )% | ||||||||
| Provision for (benefit from) income taxes |
(1.8 | )% | (6.3 | )% | (2.1 | )% | (8.3 | )% | ||||||||
| Income (loss) from continuing operations |
(20.0 | )% | (418.5 | )% | (24.8 | )% | (176.9 | )% | ||||||||
| Gain (loss) on sale of business |
0.0 | % | 38.6 | % | (0.2 | )% | 13.0 | % | ||||||||
| Income (loss) from discontinued operations, net of tax |
0.0 | % | 0.9 | % | 0.0 | % | 2.0 | % | ||||||||
| Net income (loss) |
(20.0 | )% | (379.0 | )% | (25.0 | )% | (161.9 | )% | ||||||||
Revenues
We provide, through our Content & Platform and Instructor-Led Training segments, enterprise learning solutions designed to prepare organizations for the future of work, overcome critical skills gaps, drive demonstrable behavior-change, and unlock the potential in their people.
Content & Platform generates revenues from its comprehensive suite of premium, original, and authorized partner content, featuring one of the deepest libraries of leadership and business, technology and development, and compliance curricula. With access to a broad spectrum of learning options (including video, audio, books, bootcamps, live events, and practice labs), organizations can meaningfully increase learner engagement and retention. Content & Platform offerings are predominantly delivered through Percipio, our award-winning, artificial intelligence ("AI")-driven, immersive learning platform purpose built to make learning easier, more accessible, and more effective. In addition, we also have proprietary platforms used for our Codecademy and Skillsoft Coaching offerings. Our learning solutions are typically sold on a subscription basis for a fixed term.
Our Instructor-Led Training segment generates revenues from virtual, in-classroom, and on-demand training solutions in information technology geared at foundational, practitioner and expert information technology professionals. Instructor-Led Training’s digital and in-classroom learning solutions provide enterprises, government agencies, and educational institutions a broad selection of customizable courses to meet their technology and development needs.
Subscription and Non-Subscription Revenue
Software as a service ("SaaS") Subscription Revenue. Represents revenue generated from contracts specifying a minimum fixed fee for services delivered over the life of the contract. The initial term of enterprise contracts is generally one to three years and is usually non-cancellable for the term of the subscription. The fixed fee is commonly paid upfront on an annual basis. These contracts typically consist of subscriptions to our various offerings which provide access to our SaaS platforms, associated content and services, over the contract term.
Non-Subscription Revenue. Primarily comprised of instructor-led training offerings, which consist of both in-person and virtual environments. Instructor-led training, including virtual offerings, are first scheduled, then delivered later, with revenue realized on the delivery date. Non-subscription revenues also include professional services related to implementation of our offerings and subsequent, ongoing consulting engagements. Our non-subscription services complement our subscription business in creating strong and comprehensive customer relationships.
The following is a summary of our revenues by product and service type (in thousands, except percentages) for the periods indicated:
| Dollar | Dollar | |||||||||||||||||||||||||||||||
| Three Months Ended October 31, | Increase/ | Percent | Nine Months Ended October 31, | Increase/ | Percent | |||||||||||||||||||||||||||
| 2023 |
2022 |
(Decrease) |
Change |
2023 |
2022 |
(Decrease) |
Change |
|||||||||||||||||||||||||
| SaaS and subscription revenues: |
||||||||||||||||||||||||||||||||
| Content & Platform |
$ | 95,855 | $ | 93,127 | $ | 2,728 | 2.9 | % | $ | 287,356 | $ | 272,443 | $ | 14,913 | 5.5 | % | ||||||||||||||||
| Total subscription revenues |
95,855 | 93,127 | 2,728 | 2.9 | % | 287,356 | 272,443 | 14,913 | 5.5 | % | ||||||||||||||||||||||
| Non-subscription revenues: |
||||||||||||||||||||||||||||||||
| Instructor-Led Training |
37,824 | 41,646 | (3,822 | ) | (9.2 | )% | 112,804 | 128,931 | (16,127 | ) | (12.5 | )% | ||||||||||||||||||||
| Content & Platform |
5,277 | 4,617 | 660 | 14.3 | % | 15,537 | 13,429 | 2,108 | 15.7 | % | ||||||||||||||||||||||
| Total non-subscription revenues |
43,101 | 46,263 | (3,162 | ) | (6.8 | )% | 128,341 | 142,360 | (14,019 | ) | (9.8 | )% | ||||||||||||||||||||
| Total revenues |
$ | 138,956 | $ | 139,390 | $ | (434 | ) | (0.3 | )% | $ | 415,697 | $ | 414,803 | $ | 894 | 0.2 | % | |||||||||||||||
Total revenues remained relatively flat, when comparing the three and nine months ended October 31, 2023 and 2022. A decline in revenues in our Instructor-Led Training segment was primarily due to weaker market demand, particularly in Europe, as well as product and partner mix changes. The decrease was partially offset by organic growth in our Content & Platform segment due to higher bookings in the prior year, as revenue from our subscription offerings is typically recognized over the twelve months that follow a booking. The increase in total revenues, when comparing the nine months ended October 31, 2023 and 2022, was also affected by the aforementioned items as well as the result of the inclusion of Codecademy’s revenues earned subsequent to its acquisition on April 4, 2022.
Operating Expenses
Summary of operating expenses
The following provides select operating expenses (in thousands, except percentages), which are discussed in the associated captions that immediately follow:
| Dollar | Dollar | |||||||||||||||||||||||||||||||
| Three Months Ended October 31, | Increase/ | Percent | Nine Months Ended October 31, | Increase/ | Percent | |||||||||||||||||||||||||||
| 2023 | 2022 | (Decrease) |
Change |
2023 | 2022 | (Decrease) |
Change |
|||||||||||||||||||||||||
| Cost of revenues |
$ | 36,407 | $ | 36,655 | $ | (248 | ) | (0.7 | )% | $ | 114,698 | $ | 109,662 | $ | 5,036 | 4.6 | % | |||||||||||||||
| Content and software development expenses |
16,126 | 17,252 | (1,126 | ) | (6.5 | )% | 51,024 | 53,276 | (2,252 | ) | (4.2 | )% | ||||||||||||||||||||
| Selling and marketing expenses |
43,983 | 44,680 | (697 | ) | (1.6 | )% | 130,321 | 126,089 | 4,232 | 3.4 | % | |||||||||||||||||||||
| General and administrative expenses |
22,308 | 28,281 | (5,973 | ) | (21.1 | )% | 72,689 | 83,994 | (11,305 | ) | (13.5 | )% | ||||||||||||||||||||
| Amortization of intangible assets |
38,620 | 43,438 | (4,818 | ) | (11.1 | )% | 116,086 | 128,196 | (12,110 | ) | (9.4 | )% | ||||||||||||||||||||
| Impairment of goodwill and intangible assets |
— | 570,887 | (570,887 | ) | (100.0 | )% | — | 641,362 | (641,362 | ) | (100.0 | )% | ||||||||||||||||||||
| Acquisition-related costs |
510 | 4,889 | (4,379 | ) | (89.6 | )% | 2,838 | 26,653 | (23,815 | ) | (89.4 | )% | ||||||||||||||||||||
| Restructuring |
873 | 2,010 | (1,137 | ) | (56.6 | )% | 8,592 | 10,289 | (1,697 | ) | (16.5 | )% | ||||||||||||||||||||
| Total operating expenses |
$ | 158,827 | $ | 748,092 | $ | (589,265 | ) | (78.8 | )% | $ | 496,248 | $ | 1,179,521 | $ | (683,273 | ) | (57.9 | )% | ||||||||||||||
Cost of revenues
Cost of revenues consists primarily of employee salaries and benefits for hosting operations, professional service and customer support personnel; royalties; hosting and software maintenance services; facilities and utilities costs; consulting services; and instructor fees, course materials, logistics costs and overhead costs associated with virtual, in-classroom, and on-demand training solutions. The following provides details regarding the changes in components of cost of revenues (in thousands, except percentages):
| Dollar | Dollar | |||||||||||||||||||||||||||||||
| Three Months Ended October 31, | Increase/ | Percent | Nine Months Ended October 31, | Increase/ | Percent | |||||||||||||||||||||||||||
| 2023 | 2022 | (Decrease) |
Change |
2023 | 2022 | (Decrease) |
Change |
|||||||||||||||||||||||||
| Courseware, instructor fees and outside services |
$ | 18,215 | $ | 18,512 | $ | (297 | ) | (1.6 | )% | $ | 61,343 | $ | 55,349 | $ | 5,994 | 10.8 | % | |||||||||||||||
| Compensation and benefits |
14,145 | 13,141 | 1,004 | 7.6 | % | 41,684 | 40,199 | 1,485 | 3.7 | % | ||||||||||||||||||||||
| Hosting and software maintenance |
2,742 | 2,554 | 188 | 7.4 | % | 8,527 | 7,090 | 1,437 | 20.3 | % | ||||||||||||||||||||||
| Facilities, utilities and other |
1,305 | 2,448 | (1,143 | ) | (46.7 | )% | 3,144 | 7,024 | (3,880 | ) | (55.2 | )% | ||||||||||||||||||||
| Total cost of revenues |
$ | 36,407 | $ | 36,655 | $ | (248 | ) | (0.7 | )% | $ | 114,698 | $ | 109,662 | $ | 5,036 | 4.6 | % | |||||||||||||||
The increases in courseware, instructor fees and outside services, when comparing the nine months ended October 31, 2023 to the same period in 2022, was primarily attributable to rising third-party costs and product mix in our Instructor-Led Training segment. When comparing the three and nine months ended October 31, 2023 to the same periods in 2022, both the compensation and benefits, and hosting and software maintenance categories increased primarily due to the organic growth in our Content & Platform segment and investments in our employees. Refer to Subscription and Non-Subscription Revenue above for additional information related to the organic growth in our Content & Platform segment and declines in our Instructor-Led Training segment. The decrease in facilities and utilities expenses, when comparing the three and nine months ended October 31, 2023 to the same periods in 2022, were primarily attributable to cost savings from consolidation of our facilities. In addition, the inclusion of Codecademy’s expenses subsequent to its acquisition on April 4, 2022 increased cost of revenues when comparing the nine months ended October 31, 2023 to the same period in 2022.
Content and software development
Content and software development expenses include costs associated with the development of new products and the enhancement of existing products, consisting primarily of employee salaries and benefits; development-related professional services; facilities costs; depreciation; and software maintenance costs. The following provides details regarding the changes in components of content and software development expenses (in thousands, except percentages):
| Dollar |
Dollar |
|||||||||||||||||||||||||||||||
| Three Months Ended October 31, |
Increase/ |
Percent |
Nine Months Ended October 31, |
Increase/ |
Percent |
|||||||||||||||||||||||||||
| 2023 |
2022 |
(Decrease) |
Change |
2023 |
2022 |
(Decrease) |
Change |
|||||||||||||||||||||||||
| Compensation and benefits |
11,690 | $ | 13,660 | $ | (1,970 | ) | (14.4 | )% | $ | 37,694 | $ | 39,183 | $ | (1,489 | ) | (3.8 | )% | |||||||||||||||
| Consulting and outside services |
3,147 | 2,310 | 837 | 36.2 | % | 8,424 | 10,459 | (2,035 | ) | (19.5 | )% | |||||||||||||||||||||
| Facilities, utilities and other |
627 | 485 | 142 | 29.3 | % | 2,717 | 1,547 | 1,170 | 75.6 | % | ||||||||||||||||||||||
| Software maintenance |
662 | 797 | (135 | ) | (16.9 | )% | 2,189 | 2,087 | 102 | 4.9 | % | |||||||||||||||||||||
| Total content and software development expenses |
$ | 16,126 | $ | 17,252 | $ | (1,126 | ) | (6.5 | )% | $ | 51,024 | $ | 53,276 | $ | (2,252 | ) | (4.2 | )% | ||||||||||||||
The decreases in compensation and benefits, when comparing the three and nine months ended October 31, 2023 and 2022, were primarily attributable to expense reductions and savings from the Company’s integration and restructuring activities. The increases in consulting and outside services, when comparing the three months ended October 31, 2023 and 2022, were primarily due to timing. The decreases in consulting and outside services, when comparing the nine months ended October 31, 2023, to the same period in 2022, were primarily attributable to expense reductions and savings from the Company’s integration and restructuring activities. The inclusion of Codecademy’s compensation and benefits, facilities, utilities and other expenses subsequent to its acquisition on April 4, 2022 increased content and software development expenses, when comparing the nine months ended October 31, 2023 to the same period in 2022. Refer to Subscription and Non-Subscription Revenue above for additional information related to the organic growth in our Content & Platform segment.
Selling and marketing
Selling and marketing, or S&M, expenses consist primarily of employee salaries and benefits for selling, marketing and pre-sales support personnel; commissions; travel expenses; advertising and promotional expenses; consulting and outside services; facilities costs; depreciation; and software maintenance costs. The following provides details regarding the changes in components of S&M expenses (in thousands, except percentages):
| Dollar | Dollar | |||||||||||||||||||||||||||||||
| Three Months Ended October 31, | Increase/ | Percent | Nine Months Ended October 31, | Increase/ | Percent | |||||||||||||||||||||||||||
| 2023 | 2022 | (Decrease) | Change | 2023 | 2022 | (Decrease) | Change | |||||||||||||||||||||||||
| Compensation and benefits |
$ | 30,483 | $ | 29,716 | $ | 767 | 2.6 | % | $ | 91,353 | $ | 86,283 | $ | 5,070 | 5.9 | % | ||||||||||||||||
| Advertising and promotions |
7,581 | 8,087 | (506 | ) | (6.3 | )% | 21,886 | 23,606 | (1,720 | ) | (7.3 | )% | ||||||||||||||||||||
| Software maintenance |
3,357 | 2,596 | 761 | 29.3 | % | 9,576 | 6,002 | 3,574 | 59.6 | % | ||||||||||||||||||||||
| Consulting and outside services |
1,198 | 2,165 | (967 | ) | (44.7 | )% | 3,640 | 5,762 | (2,122 | ) | (36.8 | )% | ||||||||||||||||||||
| Facilities, utilities and other |
1,364 | 2,116 | (752 | ) | (35.5 | )% | 3,866 | 4,436 | (570 | ) | (12.9 | )% | ||||||||||||||||||||
| Total S&M expenses |
$ | 43,983 | $ | 44,680 | $ | (697 | ) | (1.6 | )% | $ | 130,321 | $ | 126,089 | $ | 4,232 | 3.4 | % | |||||||||||||||
The increase in compensation and benefits and software maintenance, when comparing the three and nine months ended October 31, 2023, to the same periods in 2022, were primarily a result of investments in our go-to-market transformation activities and enablement programs. Also contributing to the increases in compensation and benefits and software maintenance, when comparing the nine months ended October 31, 2023 to the same period in 2022, were the inclusion of Codecademy’s expenses subsequent to its acquisition on April 4, 2022. The decrease in facilities and utilities expenses, when comparing the three and nine months ended October 31, 2023 to the same periods in 2022, were primarily attributable to cost savings from consolidation of our facilities.
General and administrative
General and administrative, or G&A, expenses consist primarily of employee salaries and benefits for executive, finance, administrative, and legal personnel; audit, legal and consulting fees; insurance; franchise, sales and property taxes; facilities costs; and depreciation.
The following provides details regarding the changes in components of G&A expenses (in thousands, except percentages):
| Dollar | Dollar | |||||||||||||||||||||||||||||||
| Three Months Ended October 31, | Increase/ | Percent | Nine Months Ended October 31, | Increase/ | Percent | |||||||||||||||||||||||||||
| 2023 | 2022 | (Decrease) |
Change |
2023 | 2022 | (Decrease) |
Change |
|||||||||||||||||||||||||
| Compensation and benefits |
$ | 16,359 | $ | 13,560 | $ | 2,799 | 20.6 | % | $ | 47,894 | $ | 46,398 | $ | 1,496 | 3.2 | % | ||||||||||||||||
| Consulting and outside services |
3,254 | 10,352 | (7,098 | ) | (68.6 | )% | 14,972 | 24,037 | (9,065 | ) | (37.7 | )% | ||||||||||||||||||||
| Insurance |
730 | 1,166 | (436 | ) | (37.4 | )% | 2,977 | 4,573 | (1,596 | ) | (34.9 | )% | ||||||||||||||||||||
| Facilities, utilities and other |
671 | 1,862 | (1,191 | ) | (64.0 | )% | 2,848 | 4,994 | (2,146 | ) | (43.0 | )% | ||||||||||||||||||||
| Software maintenance |
1,053 | 785 | 268 | 34.1 | % | 3,033 | 2,308 | 725 | 31.4 | % | ||||||||||||||||||||||
| Franchise, sales, and property tax |
241 | 556 | (315 | ) | (56.7 | )% | 965 | 1,684 | (719 | ) | (42.7 | )% | ||||||||||||||||||||
| Total G&A expenses |
$ | 22,308 | $ | 28,281 | $ | (5,973 | ) | (21.1 | )% | $ | 72,689 | $ | 83,994 | $ | (11,305 | ) | (13.5 | )% | ||||||||||||||
The decrease in total G&A expenses, when comparing the three and nine months ended October 31, 2023 to the same periods in 2022, was primarily attributable to expense reductions and savings from the Company's integration and restructuring activities, including cost savings from consolidation of our facilities and lower insurance. These decreases for the nine months ended October 31, 2023 when comparing to the same period in 2022, were partially offset by Codecademy’s expenses subsequent to its acquisition on April 4, 2022.
Amortization of intangible assets
Intangible assets arising from business combinations are developed technology, customer-related intangibles, trade names and other identifiable intangible assets with finite lives. These intangible assets are amortized over the estimated useful lives of such assets. We also capitalize certain internal use software development costs related to our SaaS platform incurred during the application development stage. The internal use software is amortized on a straight-line basis over its estimated useful life.
The decrease in amortization of intangible assets, when comparing the nine months ended October 31, 2023 to the same period in 2022, was primarily due to certain intangible assets becoming fully amortized, partially offset by the intangible assets that arose from the acquisition of Codecademy completed on April 4, 2022.
Acquisition-related costs
Acquisition-related costs consist of professional fees for legal, investment banking and other advisor costs incurred in connection with the business combinations completed in April 2022 and June 2021 and the subsequent integration-related activities. The changes in acquisition-related costs were primarily due to the timing of these aforementioned activities.
Restructuring
In connection with the acquisition integration process and our workplace flexibility policy, we continued our initiatives and commitment to reduce our costs and better align operating expenses with existing economic conditions and our operating model. In January 2021, we committed to a restructuring plan that encompassed a series of measures intended to improve our operating efficiency, competitiveness and business profitability. These included workforce reductions and consolidation of facilities as we adopted new work arrangements for certain locations. Our restructuring charges recognized during the three and nine months ended October 31, 2023 and 2022, have been primarily associated with lease termination and lease impairment charges and employee severance cost. The restructuring charges for the three months ended October 31, 2023 totaling $0.9 million are substantially all related to severance costs of terminated employees. The restructuring charges for the nine months ended October 31, 2023 totaling $8.6 million included $3.8 million for lease termination and lease impairment charges as well as $3.4 million for severance costs of terminated employees. The restructuring charges for the three and nine months ended October 31, 2022 totaling $2.0 million and $10.3 million, respectively, were substantially all related to severance costs of terminated employees and lease termination and lease impairment charges.
Interest and other
Interest and other, net, consists of gain or loss on derivative instruments, interest income, interest expense, and other expense and income (in thousands, except percentages):
| Dollar | Dollar | |||||||||||||||||||||||||||||||
| Three Months Ended October 31, | Increase/ | Percent | Nine Months Ended October 31, | Increase/ | Percent | |||||||||||||||||||||||||||
| 2023 | 2022 | (Decrease) |
Change |
2023 | 2022 | (Decrease) |
Change |
|||||||||||||||||||||||||
| Other income (expense), net |
$ | 19 | $ | 1,601 | $ | (1,582 | ) | (98.8 | )% | $ | (1,290 | ) | $ | 2,733 | $ | (4,023 | ) | (147.2 | )% | |||||||||||||
| Interest income |
1,060 | 69 | 991 | 1436.2 | % | 2,576 | 239 | 2,337 | 977.8 | % | ||||||||||||||||||||||
| Interest expense |
(16,492 | ) | (14,556 | ) | (1,936 | ) | 13.3 | % | (48,683 | ) | (37,541 | ) | (11,142 | ) | 29.7 | % | ||||||||||||||||
The other income (expense) was primarily the foreign exchange gains and losses (specifically, resulting from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities), which fluctuates as the U.S. dollar appreciates or depreciates against other currencies. Interest income for both the three months and nine months ended October 31, 2023 compared to the corresponding prior year periods, increased primarily due to the use of money market investments to realize increased returns on cash balances. The increase in interest expense, when comparing the three months ended October 31, 2023, to the corresponding period in 2022, was primarily due to higher interest rates. The increase in interest expense, when comparing the nine months ended October 31, 2023, to the corresponding period in 2022, was primarily due to the additional $160 million of term loans in connection with the closing of the Codecademy acquisition on April 4, 2022, and higher interest rates. As a result of the interest rate swaps executed on June 17, 2022, we have a fixed cash interest rate of 9.05% on $300 million of our outstanding term loans.
Fair value adjustment of warrants
The gains attributable to warrants are primarily a result of the Company's underlying common stock performance during the three and nine months ended October 31, 2023 and 2022, which decreased the fair value of our liability-classified warrants that are marked-to-market at each balance sheet date, with gains and losses being recorded in current period earnings.
Fair value adjustment of hedge instruments
We entered into two fixed-rate interest rate swap agreements on June 17, 2022 for a combined notional amount of $300 million and a maturity date of June 5, 2027. The objective of the interest rate swaps is to eliminate the variability of cash flows in interest payments on $300 million of variable rate debt attributable to changes in benchmark one-month Secured Overnight Financing Rate ("SOFR") interest rates. The interest rate swaps are not designated for hedge accounting and are carried on the statement of financial position at their fair value. Unrealized gains and losses from changes in fair value of the interest rate swaps, which arise from fluctuations in the forward-looking yield curve, are included in the income statement as they occur.
The gains reflected for the change in value of the interest rate swaps are primarily attributable to increases in the expectation for one-month SOFR interest rates through June 5, 2027, during the three and nine months ended October 31, 2023 and 2022.
Gain on sale of business
On June 12, 2022, we entered into the Purchase Agreement to sell our SumTotal business to a third party for $200 million in cash, subject to adjustments set forth in the Purchase Agreement. The sale was completed on August 15, 2022. Net proceeds from the sale were $174.9 million, after final working capital adjustments in April 2023. In accordance with ASC 810, we recorded a gain on sale upon completion of the transaction. The $55.9 million gain, including a loss of $0.7 million recognized in the first quarter of fiscal 2024, was calculated by measuring the difference between the fair value of consideration received less the carrying amount of assets and liabilities sold.
Provision for (benefit from) income taxes
The following provides select provision for (benefit from) income taxes (in thousands, except percentages) information:
| Dollar | Dollar | |||||||||||||||||||||||||||||||
| Three Months Ended October 31, | Increase/ | Percent | Nine Months Ended October 31, | Increase/ | Percent | |||||||||||||||||||||||||||
| 2023 | 2022 | (Decrease) |
Change |
2023 | 2022 | (Decrease) |
Change |
|||||||||||||||||||||||||
| Provision for (benefit from) income taxes |
$ | (2,462 | ) | $ | (8,832 | ) | $ | 6,370 | (72.1 | )% | $ | (8,735 | ) | $ | (34,234 | ) | $ | 25,499 | (74.5 | )% | ||||||||||||
| Effective income tax rate |
8.2 | % | 1.5 | % | 7.8 | % | 4.5 | % | ||||||||||||||||||||||||
The effective income tax rate for the three and nine months ended October 31, 2023 and 2022 differed from the United States federal statutory rate of 21.0% due primarily to the impact of non-deductible items, foreign rate differential and changes in the valuation allowance on the Company’s deferred tax assets.
Due to the acquisition of Codecademy on April 4, 2022, the Company analyzed the realizability of its existing deferred tax assets with the addition of the Codecademy assets and liabilities. Based on this analysis, the Company determined that a valuation allowance release of $20.7 million was required and recorded in full as a discrete income tax benefit for the nine months ended October 31, 2022.
Liquidity and Capital Resources
Liquidity and Sources of Cash
As of October 31, 2023, we had $129.8 million of cash and cash equivalents on hand. Our investment policy is approved by the Board of Directors and reviewed annually by the Audit Committee. Our current investment policy’s primary objectives when investing excess cash are, in order of importance: 1) preservation of capital and protection of principal; 2) maintenance of liquidity that is sufficient to meet cash flow needs; and 3) maximize rate of return. Pursuant to this policy, as of October 31, 2023, most of our cash and cash equivalents were held at large financial institutions with high rating agency designations and our exposure to regional banks was not significant. We have funded operations primarily through the use of cash collected from our customers and the proceeds received from the Term Loan Facility (described below), supplemented with borrowings under our accounts receivable facility. Our cash requirements vary depending on factors such as the growth of the business, changes in working capital and capital expenditures. We expect to operate the business and execute our strategic initiatives principally with funds generated from operations and supplemented by borrowings up to a maximum of $75.0 million under our accounts receivable facility. We anticipate that we will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for at least the next twelve months, as well as for the foreseeable future with capital sources currently available.
Term Loan
On July 16, 2021, Skillsoft Finance II, Inc. (“Skillsoft Finance II”), a subsidiary of Skillsoft Corp., entered into a Credit Agreement (the “Credit Agreement”), by and among Skillsoft Finance II, as borrower, Skillsoft Finance I, Inc. (“Holdings”), the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent, pursuant to which the lenders provided a $480 million term loan facility (the “Term Loan Facility”) to Skillsoft Finance II, the proceeds of which, together with cash on hand, were used to refinance existing debt. The Term Loan Facility is scheduled to mature on July 16, 2028.
In connection with the closing of the Codecademy acquisition, Skillsoft Finance II entered into Amendment No. 1 to the Credit Agreement, dated as of April 4, 2022 (the “First Amendment”), among Skillsoft Finance II, Holdings, certain subsidiaries of Skillsoft Finance II, as guarantors, Citibank N.A., as administrative agent, and the financial institutions 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 provided 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) provided for early opt-in to the Secured Overnight Financing Rate ("SOFR") subject to a 0.75% floor, for the existing term loans under the Credit Agreement (such existing term loans together with the Term B-1 Loans, the “Initial Term Loans”) and (b) provided for the applicable margin for the Initial Term Loans at 4.25% with respect to base rate borrowings and 5.25% with respect to SOFR borrowings.
Prior to the maturity thereof, the Initial Term Loans are subject to quarterly amortization payments of $1.6 million through maturity. The proceeds of the Term B-1 Loans were used by the Company to finance, in part, the Codecademy acquisition, and to pay costs, fees, and expenses related thereto.
SumTotal Proceeds
On August 15, 2022, we completed the sale of our SumTotal business to a third party. Net proceeds from the sale were $174.9 million, after final working capital adjustments in April 2023. Under the terms of our Amended Credit Agreement, the net proceeds attributable to the sale of SumTotal required a mandatory prepayment of $31.4 million which was made 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.
Accounts Receivable Facility
We also have access to up to $75.0 million of borrowings under our accounts receivables facility, where borrowing can be made against eligible accounts receivable, with advance rates between 50.0% and 85.0%. Borrowings under the facility bear interest at 3.11% per annum plus the applicable Term SOFR rate. The maturity date of the accounts receivable facility is the earlier of (i) December 27, 2024 or (ii) 90 days prior to the maturity of any corporate debt. The accounts receivable facility requires a minimum outstanding balance of $10 million at all times. Based on seasonality of billings and the characteristics of accounts receivable, some of which are not eligible for advances, we are not always able to access the full $75.0 million available capacity. As of October 31, 2023, $40.5 million was drawn from our accounts receivable facility.
On September 7, 2022, our Board of Directors authorized the Company to repurchase up to $30.0 million of our common stock, which authorization expired September 7, 2023. Although our Board of Directors authorized the share repurchase program, we were not obligated to repurchase any specific dollar amount or acquire any specific number of shares under the program. From inception through April 19, 2023, we repurchased 299,777 of our shares for $10.9 million.
Cash Flows
The following summarizes our cash flows (in thousands) for the periods presented:
| Nine Months Ended October 31, | ||||||||
| 2023 |
2022 |
|||||||
| Net cash provided by (used in) operating activities |
$ | (8,681 | ) | $ | (23,561 | ) | ||
| Net cash used in investing activities |
(16,945 | ) | (40,199 | ) | ||||
| Net cash provided by (used in) financing activities |
(13,497 | ) | 83,690 | |||||
| Effect of foreign currency exchange rates on cash and cash equivalents |
(1,674 | ) | (6,823 | ) | ||||
| Net increase (decrease) in cash and cash equivalents and restricted cash |
$ | (40,797 | ) | $ | 13,107 | |||
Cash Flows from Operating Activities
The increase in cash flows from operating activities in the nine months ended October 31, 2023 compared to the same period in 2022, was primarily the result of favorability in working capital, net of effects from acquisitions.
Cash flows from operating activities directly attributable to SumTotal, which was sold on August 15, 2022, were not significant for the periods presented herein.
Cash Flows from Investing Activities
Cash flows from investing activities in the nine months ended October 31, 2023 include $8.1 million of cash payments for internally developed software.
Cash flows from investing activities for the nine months ended October 31, 2022 include cash paid of $198.7 million related to the acquisition of Codecademy. See Note 3 “Business Combination” for more details.
Our purchases of property and equipment largely consist of computer hardware and software, as well as capitalized software development costs, to support content and software development activities.
Cash flows from investing activities directly attributable to SumTotal, which was sold on August 15, 2022, were not significant for the periods presented herein.
Cash Flows from Financing Activities
Cash flows from financing activities consist primarily of borrowings and repayments under our debt facilities and our accounts receivable facility, and payments for share repurchases.
The Company received $157.1 million of net proceeds 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. See Note 3 “Business Combination” for more details.
Contractual and Commercial Obligations
The scheduled maturities (in thousands) of our debt and future minimum rental commitments under non-cancelable lease agreements as of October 31, 2023 were as set forth below.
| Payments due by Fiscal Year | ||||||||||||||||||||
| Total |
Remainder of 2024 |
2025-2026 |
2027-2028 |
Thereafter |
||||||||||||||||
| Term Loan Facility |
$ | 596,202 | $ | 1,601 | $ | 11,207 | $ | 14,409 | $ | 568,985 | ||||||||||
| Operating leases |
15,351 | 1,199 | 6,197 | 3,831 | 4,124 | |||||||||||||||
| Total |
$ | 611,553 | $ | 2,800 | $ | 17,404 | $ | 18,240 | $ | 573,109 | ||||||||||
Contingencies
From time to time, we are party to or may be threatened with litigation in the ordinary course of our business. We regularly analyze then current information including, as applicable, our defense and insurance coverage and, as necessary, provide accruals for probable and estimable liabilities for the eventual disposition of these matters. For information regarding legal proceedings see Note 8.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and the reported amounts of assets, liabilities, revenues and expenses during the reporting period. We regularly reevaluate our estimates and judgments, including those related to the following: business combinations, revenue recognition, impairment of goodwill and intangible assets, accounting for warrants, income tax assets and liabilities; and restructuring charges and accruals. We base our estimates and judgments on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. To the extent there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, or results of operations could be impacted.
We believe the following critical accounting estimates most significantly affect the portrayal of our financial condition and involve our most difficult and subjective estimates and judgments.
Revenue Recognition
The Company enters into contracts that provide customers access to a broad spectrum of learning options including cloud-based learning content, talent management solutions, virtual, on-demand and classroom training, and individualized coaching. The Company recognizes revenue that reflects the consideration that we expect to be entitled to receive in exchange for these services. We apply judgment in determining our customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience, credit, or financial information. The Company is not required to exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price.
The Company’s cloud-based solutions generally do not provide customers with the right to take possession of the software supporting the platform or to download course content without continuing to incur fees for hosting services and, as a result, are accounted for as service arrangements. Access to the platform and course content represents a series of distinct services as the Company continually provides access to, and fulfills its obligation to, the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. Accordingly, the fixed consideration related to subscription revenue is generally recognized on a straight-line basis over the contract term, beginning on the date the service is made available to the customer. The Company’s subscription contracts typically vary from one year to three years. The Company’s cloud-based solutions arrangements are generally non-cancellable and non-refundable.
Revenue from virtual, on-demand and classroom training, and individualized coaching is recognized in the period in which the services are rendered. The Company also sells professional services related to its cloud solutions which are typically considered distinct performance obligations and are recognized over time as services are performed. For fixed-price contracts, revenue is recognized over time based on a measure of progress that reasonably reflects our advancement toward satisfying the performance obligation.
While the majority of the Company’s revenue relates to SaaS subscription services where the entire arrangement fee is recognized on a ratable basis over the contractual term, the Company sometimes enters into contractual arrangements that have multiple distinct performance obligations, one or more of which have different periods over which the services or products are delivered. These arrangements may include a combination of subscriptions and non-subscription products such as professional services. The Company allocates the transaction price of the arrangement based on the relative estimated standalone selling price of each distinct performance obligation.
Reimbursements received from customers for out-of-pocket expenses are recorded as revenues, with related costs recorded as cost of revenues. The Company presents revenues net of any taxes collected from customers and remitted to government authorities.
As the Company’s contractual agreements predominately call for advanced billing, contract assets are rarely generated.
Income Taxes
We provide for deferred income taxes resulting from temporary differences between the basis of assets and liabilities for financial reporting purposes as compared to tax purposes, using rates expected to be in effect when such differences reverse. We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized.
We follow the authoritative guidance on accounting for and disclosure of uncertainty in tax positions which requires us to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced to the largest benefit that has a greater than fifty percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority. Interest and penalties related to uncertain tax positions are included in the provision for income taxes in the condensed consolidated statements of operations.
Intangible Assets, including Goodwill
Intangible assets arising from fresh-start accounting and business combinations are generally recorded based upon estimates of the future performance and cash flows from the acquired business. We use an income approach to determine the estimated fair value of certain identifiable intangible assets including customer relationships and trade names and use a cost approach for other identifiable intangible assets, including developed software/courseware. The income approach determines fair value by estimating the after-tax cash flows attributable to an identified asset over its useful life (Level 3 inputs) and then discounting these after-tax cash flows back to a present value. The cost approach determines fair value by estimating the cost to replace or reproduce an asset at current prices and is reduced for functional and economic obsolescence. Developed technology represents patented and unpatented technology and know-how. Customer contracts and relationships represents established relationships with customers, which provide a ready channel for the sale of additional content and services. Trademarks and trade names represent acquired product names and marks that we intend to continue to utilize.
We review intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in remaining useful life. Conditions that would indicate impairment and trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, or an adverse action or assessment by a regulator.
We review indefinite-lived intangible assets, including goodwill and certain trademarks, during the fourth quarter of each year for impairment, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist and reassess their classification as indefinite-lived assets.
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and specifically identified intangible assets acquired. Goodwill in fresh-start accounting results when the reorganization value of the emerging entity exceeds what can be attributed to specific tangible or identified intangible assets. We test goodwill for impairment during the fourth quarter every year in accordance with ASC 350, Intangibles — Goodwill (“ASC 350”). In connection with the impairment evaluation, the Company may first consider qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not (i.e., a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. Performing a quantitative goodwill impairment test is not necessary if an entity determines based on this assessment that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company fails or elects to bypass the qualitative assessment, the goodwill impairment test must be performed. This test requires a comparison of the carrying value of the reporting unit to its estimated fair value. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded, not to exceed the amount of goodwill allocated to the reporting unit. In determining reporting units, the Company first identifies its operating segments, and then assesses whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component.
If current discount rates rise or if relevant market-based inputs for our impairment assessment worsen during the remainder of fiscal 2024, and if our share price remains below our reporting unit fair value per share, we will need to reassess intangible impairment at the end of each quarter. Subsequent reviews of 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. |
Recent Accounting Pronouncements
Our recently adopted and to be adopted accounting pronouncements are set forth in Note 2.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have exposures to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign currency fluctuations. Information relating to quantitative and qualitative disclosures about these market risks is described below.
Interest Rate Risk
Interest rate risk is the risk of financial loss due to adverse changes in the value of assets and liabilities due to movements in interest rates. We are exposed to interest rate risk arising from our interest sensitive long-term debt and accounts receivable facility and to a lesser extent our cash and cash equivalents.
Based on the balance of our long-term debt and accounts receivable facility and taking into account the two interest rate swap agreements discussed below, a hypothetical 100 basis point increase or decrease in interest rates would result in approximately $3.4 million additional or lower pre-tax interest expense on an annualized basis, respectively. To manage our exposure to interest rate risk on our long-term debt, we entered into two fixed-rate interest rate swap agreements to change the SOFR-based component of the interest rate on $300.0 million of variable rate debt to a fixed rate. For further information regarding our long-term debt and interest rate swap agreements, see Note 9 and Note 14, respectively, to our condensed consolidated financial statements.
Based on the balance of our cash and cash equivalents, a hypothetical 100 basis point increase or decrease in interest rates would result in an approximately $0.7 million increase or decrease, respectively, on our interest income on an annualized basis.
Our interest rate swaps are not designated for hedge accounting and are carried on the statement of financial position at their fair value. Unrealized gains and losses from changes in fair value of the interest rate swaps are included in the statement of operations as they occur. A hypothetical 100 basis point increase or decrease in interest rates would result in an approximately $9.0 million increase or decrease, respectively, on our fair value adjustment of hedge instruments at a point in time.
Foreign Currency Risk
Our reporting currency and the functional currency of our wholly owned foreign subsidiaries is the U.S. dollar. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in other income/(expenses) in our consolidated statement of operations. The Company is exposed to foreign currency fluctuations, including the Euro, pound sterling, Canadian dollar, Australian dollar, Indian rupee, Singapore dollar and related currencies. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, although we may choose to do so in the future. A hypothetical 10% increase or decrease in current exchange rates would have resulted in an impact of approximately $1.0 million on our pre-tax income (loss) on an annualized basis.
ITEM 4. CONTROLS AND PROCEDURES
Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 31, 2023, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Previously Identified Material Weakness
We have taken the actions described in our Annual Report on Form 10-K for the year ended January 31, 2023 regarding the previously identified material weakness. We will continue to evaluate the operating effectiveness of our internal controls in subsequent periods.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d‑15(d) of the Exchange Act that occurred during the three months ended October 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Because of the inherent limitations in a cost-effective control system, any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will prevent or detect all misstatements, due to error or fraud, from occurring in the condensed consolidated financial statements. Additionally, management is required to use judgment in evaluating controls and procedures.
Incorporated by reference herein is information regarding legal proceedings as set forth under “Litigation” contained in Note 8 – “Leases, Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q.
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for our fiscal year ended January 31, 2023. Such risks and uncertainties are not the only ones facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be insignificant also may materially and adversely affect our business, financial condition or operating results in the future.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On September 7, 2022, our Board of Directors authorized the Company to repurchase up to $30.0 million of our common stock, which authorization expired September 7, 2023. From inception through April 19, 2023, we repurchased 299,777 of our shares for $10.9 million. The Company did not repurchase any common stock during the quarter ended October 31, 2023.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
10b5-1 Trading Plans
During the three months ended October 31, 2023, director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
The following list includes exhibits submitted with this Quarterly Report on Form 10-Q as filed with the SEC and those incorporated by reference to other filings.
| Exhibit No. |
Description |
Form |
File No. |
Exhibit |
Filing Date |
| 3.1 | Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation | 8-K | 001-38960 | 3.1 | 9/29/2023 |
| 10.7 |
Second Amended and Restated Employment Agreement, dated as of December 3, 2023, by and between Jeffrey R. Tarr and Skillsoft Corp. | ||||
| 31.1* |
|||||
| 31.2* |
|||||
| 32.1‡ |
|||||
| 32.2‡ |
|||||
| 101.INS* |
Inline XBRL Instance Document |
||||
| 101.SCH* |
Inline XBRL Taxonomy Extension Schema Document |
||||
| 101.CAL* |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
||||
| 101.DEF* |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
||||
| 101.LAB* |
Inline XBRL Taxonomy Extension Labels Linkbase Document |
||||
| 101.PRE* |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
||||
| 104 |
Cover Page Interactive Data File (formatted in Inline XBRL and included as Exhibit 101) |
* Filed herewith.
‡ Furnished herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
SKILLSOFT CORP. (Registrant) |
|
|
| Dated: December 5, 2023 |
By: |
/s/ Richard George Walker |
|
|
|
Richard George Walker Chief Financial Officer (Principal Financial Officer) |
|
|