UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from to
Commission File Number:
Skillsoft Corp.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Tel: (
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of registrant’s common stock outstanding as of September 4, 2024 was
FORM 10-Q
FOR THE QUARTER ENDED July 31, 2024
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, are forward-looking statements. These forward-looking statements include but are not limited to, statements 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, future capital expenditures, financial results, the impact of regulatory changes, our current and evolving business strategies, including with respect to acquisitions and dispositions, demand for our services, our competitive strengths, the benefits of new initiatives, growth of our business and operations, the effectiveness of our products, the outcome of litigation proceedings and claims, the state and future of skilling in the workplace, 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 materially 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 (as amended) for the fiscal year ended January 31, 2024 (the “2024 Form 10-K”). 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.
INDUSTRY AND MARKET DATA
Within this Form 10-Q, we reference information and statistics regarding market share, industry data and our market position. Certain of this information has been obtained from various independent third-party sources, including independent industry publications, news reports, reports by market research firms and other independent sources. We believe that these external sources and estimates are reliable but have not independently verified them. In addition, certain of this information and statistics are based on our own internal surveys and assessments, which are developed in good faith using reasonable estimates. These data are based on the most current information available to us and our estimates regarding market position or other industry statistics included in this document or otherwise discussed by us involve risks and uncertainties and are subject to change based on various factors, including as set forth above.
PART I – FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)
| July 31, 2024 | January 31, 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for credit losses of approximately $ and $ as of July 31, 2024 and January 31, 2024, 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 | ||||||||
| 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 July 31, 2024, and shares issued and shares outstanding at January 31, 2024 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated equity (deficit) | ( | ) | ( | ) | ||||
| Treasury stock, at cost - shares as of July 31, 2024 and January 31, 2024 | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues: | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Costs of revenues | ||||||||||||||||
| Content and software development | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Acquisition and integration related costs | ||||||||||||||||
| Restructuring | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Fair value adjustment of warrants | ||||||||||||||||
| Fair value adjustment of interest rate swaps | ( | ) | ||||||||||||||
| 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 | ( | ) | ||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net income (loss) per share: | ||||||||||||||||
| Ordinary – Basic and diluted - continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Ordinary – Basic and diluted - discontinued operations | ( | ) | ||||||||||||||
| Ordinary – Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Ordinary – Basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
| Three Months Ended July 31, |
Six Months Ended July 31, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| 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, 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 |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Translation adjustment |
— | — | ||||||||||||||||||||||||||||||
| Net income (loss) |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance July 31, 2023 |
( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
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, 2024 |
( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Share-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Common stock issued |
||||||||||||||||||||||||||||||||
| Shares repurchased for tax withholding upon vesting of restricted stock-based awards |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Translation adjustment |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net income (loss) |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance April 30, 2024 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| 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, 2024 |
( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Six Months Ended July 31, |
||||||||
| 2024 |
2023 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
| Amortization of intangible assets |
||||||||
| Share-based compensation |
||||||||
| Depreciation |
||||||||
| Non-cash interest expense |
||||||||
| Non-cash property, equipment, software and lease impairment charges |
||||||||
| Provision for credit loss expense (recovery) |
||||||||
| (Gain) loss on sale of business |
||||||||
| Provision for (benefit from) income taxes – non-cash |
( |
) | ( |
) | ||||
| Fair value adjustment of warrants |
( |
) | ||||||
| Fair value adjustment of interest rate swaps |
( |
) | ( |
) | ||||
| Change in assets and liabilities: |
||||||||
| Accounts receivable |
||||||||
| Prepaid expenses and other current assets, including long-term |
( |
) | ( |
) | ||||
| Right-of-use 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 |
( |
) | ||||||
| Net cash provided by (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 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)
| Six Months Ended July 31, |
||||||||
| 2024 |
2023 |
|||||||
| 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 |
||||||||
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 developing the workforce.
With more than 150,000 expert-led skills-building courses in modalities ranging from video and audio to instructor-led training, coaching, practice labs, and a generative Artificial Intelligence (“GenAI”)-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 2024 is the fiscal year ended January 31, 2024).
SumTotal
Refer to Note 4 “Discontinued Operations” in our fiscal 2024 Form 10-K for information regarding the SumTotal business and its 2022 sale.
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 2024 Form 10-K.
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 years.
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, 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. We will cease to qualify as an emerging growth company as of January 31, 2025. As a result, beginning with our Form 10-K for fiscal 2025, we will be subject to the provisions of Section 404(b) of the Sarbanes-Oxley Act and our independent registered public accounting firm will formally attest to the effectiveness of our internal controls over financial reporting.
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 condensed 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 included in the 2024 Form 10-K and should be read in connection with the reading of these interim unaudited financial statements.
Recently Issued Accounting Guidance
In December 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which will require disclosure of significant segment expenses and other segment items. The Company will adopt this guidance effective in our Form 10-K for the fiscal year ending January 31, 2025. We are currently evaluating the impact of this amended disclosure guidance.
In December 2023, the FASB also issued ASU 2023-09, Improvements to Income Tax Disclosures, which will require additional information in the rate reconciliation table and additional disclosures about income taxes paid. The Company will adopt this guidance effective February 1, 2025. We are currently evaluating the impact of this amended disclosure guidance.
(3) Intangible Assets
Intangible assets consisted of the following (dollars in thousands and weighted average remaining life in years):
| July 31, 2024 | January 31, 2024 | |||||||||||||||||||||||||||||||
| Weighted Average Remaining Life | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Life | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||
| Developed software/courseware | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Customer contracts/relationships | ||||||||||||||||||||||||||||||||
| Trademarks and trade names | ||||||||||||||||||||||||||||||||
| Publishing rights | ||||||||||||||||||||||||||||||||
| Backlog | ||||||||||||||||||||||||||||||||
| Skillsoft trademark | Indefinite | — | Indefinite | — | ||||||||||||||||||||||||||||
| 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 | ||||
| 2025 (six months remaining) | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total future amortization | $ | |||
Amortization expense related to intangible assets in the aggregate was $
Impairment Review Requirements and Assumption Uncertainty
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:
| 1. | For our identifiable intangibles subject to amortization: |
| a. | If management believes there are unfavorable changes to assumptions and factors that occurred that would indicate impairment or a change in the remaining useful life; |
| b. | An estimate of the undiscounted future cash flows attributable to the amortizable intangibles are projected and compared to the carrying values; |
| c. | If the undiscounted future cash flows are less than the carrying values; |
| d. | The fair values for identifiable intangibles, including any indefinite lived intangibles, are fair valued using the income approach; and |
| e. | If the fair values of the identifiable intangibles are less than their carrying values, an impairment equal to the difference is recorded. |
| 2. | Next a comparison of the carrying value of the reporting unit to its estimated fair value is completed. If the carrying value of a reporting unit 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. |
The fair value of our reporting units is determined using a weighted average valuation model of the income approach (discounted cash flow approach) and market approach. The income approach requires management to make certain assumptions based upon information available at the time the valuations are performed. Actual results could differ from these assumptions. We pay particular attention to ensure the assumptions used are reflective of what a market participant would have used in calculating fair value considering the then current economic conditions.
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 management regularly reviews the operating results.
The Company completed the qualitative assessment discussed above for the six months ended July 31, 2024 and concluded that there were
A roll forward of goodwill is as follows (in thousands):
| Description | Talent Development Solutions | Global Knowledge | Consolidated | |||||||||
| Goodwill January 31, 2024 | $ | $ | $ | |||||||||
| Increase (decrease) | ||||||||||||
| Goodwill July 31, 2024 | $ | $ | $ | |||||||||
| Accumulated impairment, July 31, 2024 | $ | $ | $ | |||||||||
(4) Taxes
For the three and six months ended July 31, 2024, for continuing operations, the Company recorded a tax benefit of $
(5) Restructuring
On July 11, 2024, the Company announced a comprehensive resource reallocation plan. In connection with this and other strategic initiatives implemented during the three and six months ended July 31, 2024 and July 31, 2023, 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 following is a summary of restructuring charges by segment for the three and six months ended July 31, 2024 and July 31, 2023 (in thousands):
| Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Talent Development Solutions | $ | $ | $ | $ | ||||||||||||
| Global Knowledge | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
These restructuring charges are presented separately in the accompanying condensed consolidated statements of operations. The restructuring charges for the six months ended July 31, 2024 and July 31, 2023 are substantially all related to severance costs of terminated employees and lease termination and lease impairment charges. As of July 31, 2024 and January 31, 2024, the Company had restructuring charge liabilities of $
(6) Leases, Commitments and Contingencies
Leases
The Company’s lease portfolio includes office space, training centers, and vehicles to support its research and development activities, sales operations and other corporate and administrative functions in North America, Europe and Asia. The Company’s leases have remaining terms of 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.
All of the Company's leases are classified as operating leases. Our right-of-use (“ROU”) assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the expected lease term. As the Company’s operating leases generally do not provide an implicit rate, the Company uses an estimated incremental borrowing rate in determining the present value of future payments. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at the acquisition date to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular location and currency environment. The weighted average incremental borrowing rate for its operating leases as of July 31, 2024 and January 31, 2024 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. The weighted-average remaining lease term of the Company’s operating leases is
See Note 5 for a discussion related to restructuring charges associated with lease termination and lease impairment charges.
The below reconciles the undiscounted future minimum lease payments under non-cancellable leases to the total lease liabilities recognized on the condensed consolidated balance sheet as of July 31, 2024 (in thousands):
| Fiscal year ended January 31: | ||||
| 2025 (six months remaining) | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 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 monetary 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.
(7) Long-Term Debt
Debt consisted of the following (in thousands):
| July 31, 2024 | January 31, 2024 | |||||||
| 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 | $ | $ | ||||||
The Company’s debt outstanding as of July 31, 2024 matures as shown below (in thousands):
| Future principal payments due for fiscal years ended January 31: | ||||
| 2025 (six months remaining) | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total payments | ||||
| Current portion | ( | ) | ||
| Unamortized original issue discount and issuance costs | ( | ) | ||
| Long-term portion | $ |
Refer to Note 14 “Long-Term Debt” in our 2024 Form 10-K for information regarding the Company's term loan and accounts receivable facility.
The reserve balance associated with the accounts receivable facility was $
(8) Shareholders’ Equity
Common Stock
As of July 31, 2024, 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 16 “Shareholders’ Equity” in our 2024 Form 10-K, for information related to the equity and liability-classified warrants.
Share Repurchase Authorization
On July 10, 2024, 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 consisted of the following (in thousands):
| Three Months Ended July 31, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| Before Tax | Income Tax | Net | Before Tax | Income Tax | Net | |||||||||||||||||||
| Balance as of beginning-of-period | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Translation adjustment | ||||||||||||||||||||||||
| Balance as of end-of-period | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Six Months Ended July 31, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| Before Tax | Income Tax | Net | Before Tax | Income Tax | Net | |||||||||||||||||||
| Balance as of beginning-of-period | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Translation adjustment | ( | ) | ( | ) | ||||||||||||||||||||
| Balance as of end-of-period | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
(9) 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,
In May 2024, Skillsoft adopted the Skillsoft Corp. 2024 Employment Inducement Incentive Award Plan (the “Inducement Plan”). The Inducement Plan provides for the inducement grants of nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, other equity-based awards, and cash-based incentive awards to new hires, or individuals being rehired following a bona fide period of non-employment with the Company, in compliance with Section 303A.08 of the New York Stock Exchange Listed Company Manual. As of July 31, 2024, a total of
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 six months ended July 31, 2024:
| Weighted - | ||||||||||||||||
| Weighted - | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Exercise | Contractual | Intrinsic Value | ||||||||||||||
| Shares | Price | Term (Years) | (in thousands) | |||||||||||||
| Outstanding, January 31, 2024 | $ | $ | ||||||||||||||
| Granted | — | — | ||||||||||||||
| Exercised | — | — | ||||||||||||||
| Forfeited | ( | ) | — | — | ||||||||||||
| Expired | ( | ) | — | — | ||||||||||||
| Outstanding, July 31, 2024 | ||||||||||||||||
| Vested and exercisable, July 31, 2024 | ||||||||||||||||
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 six months ended July 31, 2024:
| Weighted - | Aggregate | |||||||||||
| Average Grant | Intrinsic Value | |||||||||||
| Shares | Date Fair Value | (in thousands) | ||||||||||
| Unvested balance, January 31, 2024 | $ | $ | ||||||||||
| Granted | — | |||||||||||
| Vested | ( | ) | — | |||||||||
| Forfeited | ( | ) | — | |||||||||
| Unvested balance, July 31, 2024 | ||||||||||||
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 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 six months ended July 31, 2024:
| Weighted - | Aggregate | |||||||||||
| Average Grant | Intrinsic Value | |||||||||||
| Shares | Date Fair Value | (in thousands) | ||||||||||
| Unvested balance, January 31, 2024 | $ | $ | ||||||||||
| Granted | — | |||||||||||
| Vested | — | |||||||||||
| Forfeited | ( | ) | — | |||||||||
| Unvested balance, July 31, 2024 | ||||||||||||
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 July 31, | Six Months Ended July 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Cost of revenues | $ | $ | $ | $ | ||||||||||||
| Content and software development | ||||||||||||||||
| Selling and marketing | ( | ) | ||||||||||||||
| General and administrative (1) | ( | ) | ||||||||||||||
| Total | $ | ( | ) | $ | $ | $ | ||||||||||
(1) Stock-based compensation expense during the three months ended July 31, 2024 was reduced by $6.0 million due to forfeitures of share-based payments, including unvested equity-based awards associated with the former Chief Executive Officer whose employment with the Company ended on May 9, 2024.
(10) Revenue
Revenue Components and Performance Obligations
SaaS Subscription Services
The Company offers subscriptions that provide customers access to a broad-based spectrum of learning options including access to cloud-based Software as a Service (“SaaS”) 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 six months ended July 31, 2024 and July 31, 2023 (in thousands):
| Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| SaaS subscription services | $ | $ | $ | $ | ||||||||||||
| Virtual, on-demand and classroom | ||||||||||||||||
| Professional services | ||||||||||||||||
| Total net revenues | $ | $ | $ | $ | ||||||||||||
Generally, SaaS subscription services revenues are recognized over the service period, while virtual, on demand, classroom and professional services revenues are recognized at the point they are delivered.
The following sets forth our revenues by geographic region for the three and six months ended July 31, 2024 and July 31, 2023 (in thousands):
| Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue: | ||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Europe, Middle East and Africa | ||||||||||||||||
| Other Americas | ||||||||||||||||
| Asia-Pacific | ||||||||||||||||
| Total net revenues | $ | $ | $ | $ | ||||||||||||
Other than the United States, single country accounted for more than 10% of revenue for all periods presented.
Deferred Revenue
Deferred revenue activity for the six months ended July 31, 2024 was as follows (in thousands):
| Deferred revenue as of January 31, 2024 | $ | |||
| Billings deferred | ||||
| Recognition of prior deferred revenue | ( | ) | ||
| Deferred revenue as of July 31, 2024 | $ |
Deferred revenue performance obligations relate predominantly to time-based SaaS subscription services that are billed in advance of services being rendered.
Deferred Contract Acquisition Costs
Deferred contract acquisition cost activity for the six months ended July 31, 2024 was as follows (in thousands):
| Deferred contract acquisition costs as of January 31, 2024 | $ | |||
| Contract acquisition costs | ||||
| Recognition of contract acquisition costs | ( | ) | ||
| Deferred contract acquisition costs as of July 31, 2024 | $ |
(11) Fair Value Measurements
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 information 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 variables that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The three levels of the fair value hierarchy established by ASC 820 in order of priority are as follows:
| ● | Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
| ● | Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
| ● | Level 3: Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available. |
The following summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of July 31, 2024 and are categorized using the fair value hierarchy (in thousands):
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Description | Measurements | Measurements | Measurements | Total | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Restricted cash | ||||||||||||||||
| Interest rate swaps - asset (liability) | ||||||||||||||||
| Total assets and (liabilities) recorded at fair value | $ | $ | $ | $ | ||||||||||||
Cash, Cash Equivalents and Restricted Cash
The cost of our cash, cash equivalents and restricted cash agreed to the estimated fair value as of July 31, 2024. Refer to Note 2 “Summary of Significant Accounting Policies - Cash, Cash Equivalents, and Restricted Cash” in our 2024 Form 10-K for additional detail.
Interest Rate Swaps
On June 17, 2022, the Company entered into fixed-rate interest rate swap agreements to change the Secured Overnight Financing Rate (“SOFR”)-based component of the interest rate on a portion of the Company’s variable rate debt to a fixed rate (the “Interest Rate Swaps”). The Interest Rate Swaps have a combined notional value of $
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.
Depending on whether the Interest Rate Swaps are in an asset or liability position as of the end of a reporting period, they are included in either the captions “Other assets” or “Other long-term liabilities” on the Company's condensed consolidated balance sheets.
Other Fair Value Instruments
The Company currently invests excess cash balances primarily in money market funds invested in United States Treasury securities and United States Treasury securities repurchase agreements, as well as cash deposits held at major banks. The carrying amounts of cash and cash equivalents, trade receivables, trade payables and accrued liabilities, as reported on the condensed consolidated balance sheet as of July 31, 2024, approximate their fair value because of the short maturity of those instruments.
Our long-term debt is a financial instrument, and the fair value of the Company’s outstanding principal as of July 31, 2024 was $
(12) 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 Principal 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 segments: Talent Development Solutions (formerly known as Content & Platform) and Global Knowledge (formerly known as Instructor-Led Training). Both of the Company’s segments market and sell their offerings globally to businesses of many sizes, government agencies, educational institutions and resellers with a worldwide sales force positioned to offer the combinations that best meet customer needs. The CODM primarily uses revenues and operating income as measures to evaluate financial results and allocation of resources. The Company allocates certain operating expenses to the reportable segments, including general and administrative costs based on the usage and relative contribution provided to the segments. There are
The Talent Development Solutions 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, Talent Development Solutions offers Percipio, an artificial intelligence (“AI”)-driven online learning platform that delivers an immersive learning experience through SaaS solutions. It leverages its highly engaging content, curated into nearly
The Global Knowledge business offers training solutions covering information technology and business skills for corporations and their employees. Global Knowledge guides its customers throughout their lifelong technology learning journey by offering relevant and up-to-date skills training through instructor-led (in-person “classroom” or online “virtual”) and self-paced (“on-demand”), vendor certified, and other proprietary offerings. Global Knowledge offers a wide breadth of training topics and delivery modalities both on a transactional and subscription basis.
The following presents summary results for each of the segments for the three and six months ended July 31, 2024 and July 31, 2023:
| Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Talent Development Solutions | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Global Knowledge | ||||||||||||||||