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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

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

 

For the quarterly period ended July 31, 2024

 

or

 

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

 

For the transition period from          to          

Commission File Number: 001-38960

 


 

Skillsoft Corp.

(Exact name of registrant as specified in its charter)

 

Delaware83-4388331

(State or other jurisdiction of

incorporation or organization)

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

 

300 Innovative Way, Suite 2210

Nashua, NH 03062

(Address of principal executive offices) (Zip Code)

 

Tel: (603) 821-3902

(Registrants telephone number, including area code)

 

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

Title of each class Trading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareSKILNew York Stock Exchange

 

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

 

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

 

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

 

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

 

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

 

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

 

The number of shares of registrant’s common stock outstanding as of September 4, 2024 was 8,230,259.

.

 

 

 

 

 

 

 

SKILLSOFT CORP.

 

FORM 10-Q

FOR THE QUARTER ENDED July 31, 2024

INDEX

 

  PAGE NO.
PART I — FINANCIAL INFORMATION - UNAUDITED  

Item 1. Unaudited Financial Statements:

2

Unaudited Condensed Consolidated Balance Sheets as of July 31, 2024 and January 31, 2024

2

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended July 31, 2024 and 2023

3

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended July 31, 2024 and 2023

4

Unaudited Condensed Consolidated Statements of Shareholders’ Equity (Deficit) for the three and six months ended July 31, 2024 and 2023

5

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended July 31, 2024 and 2023

7

Notes to Unaudited Condensed Consolidated Financial Statements

9

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

20

Item 3. Quantitative and Qualitative Disclosures about Market Risk

28

Item 4. Controls and Procedures

28

PART II — OTHER INFORMATION

29

Item 1. Legal Proceedings

29

Item 1A. Risk Factors

29

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

29

Item 3. Defaults Upon Senior Securities

29

Item 4. Mine Safety Disclosures

29

Item 5. Other Information

29

Item 6. Exhibits

30

SIGNATURES

31

 

 

 

 

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.

 

 

1

 

PART I FINANCIAL INFORMATION

 

ITEM 1. UNAUDITED FINANCIAL STATEMENTS.

 

 

SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares)

 

  

July 31, 2024

  

January 31, 2024

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $122,652  $136,308 

Restricted cash

  7,491   10,215 

Accounts receivable, net of allowance for credit losses of approximately $618 and $562 as of July 31, 2024 and January 31, 2024, respectively

  110,042   185,638 

Prepaid expenses and other current assets

  60,873   53,170 

Total current assets

  301,058   385,331 

Property and equipment, net

  4,319   6,639 

Goodwill

  317,071   317,071 

Intangible assets, net

  484,294   539,293 

Right of use assets

  5,336   8,044 

Other assets

  14,314   17,256 

Total assets

 $1,126,392  $1,273,634 

LIABILITIES AND SHAREHOLDERS' EQUITY

        

Current liabilities:

        

Current maturities of long-term debt

 $6,404  $6,404 

Borrowings under accounts receivable facility

  40,406   44,980 

Accounts payable

  14,072   14,512 

Accrued compensation

  28,602   31,774 

Accrued expenses and other current liabilities

  23,724   29,939 

Lease liabilities

  2,613   3,049 

Deferred revenue

  226,573   282,570 

Total current liabilities

  342,394   413,228 
         

Long-term debt

  575,364   577,487 

Deferred tax liabilities

  45,891   52,148 

Long-term lease liabilities

  7,156   9,251 

Deferred revenue - non-current

  1,688   2,402 

Other long-term liabilities

  12,477   13,531 

Total long-term liabilities

  642,576   654,819 

Commitments and contingencies

          

Shareholders’ equity:

        

Shareholders’ common stock - Class A common shares, $0.0001 par value: 18,750,000 shares authorized and 8,504,829 shares issued and 8,205,052 shares outstanding at July 31, 2024, and 8,380,436 shares issued and 8,080,659 shares outstanding at January 31, 2024

  1   1 

Additional paid-in capital

  1,556,865   1,551,005 

Accumulated equity (deficit)

  (1,388,680)  (1,321,478)

Treasury stock, at cost - 299,777 shares as of July 31, 2024 and January 31, 2024

  (10,891)  (10,891)

Accumulated other comprehensive income (loss)

  (15,873)  (13,050)

Total shareholders’ equity

  141,422   205,587 

Total liabilities and shareholders’ equity

 $1,126,392  $1,273,634 

 

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

 

2

 

 

SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

  

Three Months Ended July 31,

  

Six Months Ended July 31,

 
  

2024

  

2023

  

2024

  

2023

 

Revenues:

                

Total revenues

 $132,223  $141,187  $260,016  $276,741 

Operating expenses:

                

Costs of revenues

  32,471   40,467   66,942   78,291 

Content and software development

  14,993   17,863   30,499   34,898 

Selling and marketing

  40,684   40,411   82,976   86,338 

General and administrative

  19,395   25,085   44,704   50,381 

Amortization of intangible assets

  31,788   39,221   63,371   77,466 

Acquisition and integration related costs

  921   937   2,418   2,328 

Restructuring

  11,299   2,501   12,266   7,719 

Total operating expenses

  151,551   166,485   303,176   337,421 

Operating income (loss)

  (19,328)  (25,298)  (43,160)  (60,680)

Other income (expense), net

  (418)  (934)  1,799   (1,309)

Fair value adjustment of warrants

     793      3,645 

Fair value adjustment of interest rate swaps

  (6,506)  6,935   1,240   7,205 

Interest income

  1,045   871   1,973   1,516 

Interest expense

  (16,415)  (16,255)  (32,693)  (32,191)

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

  (41,622)  (33,888)  (70,841)  (81,814)

Provision for (benefit from) income taxes

  (2,056)  (1,889)  (3,639)  (6,273)

Income (loss) from continuing operations

  (39,566)  (31,999)  (67,202)  (75,541)

Gain (loss) on sale of business

           (682)

Net income (loss)

 $(39,566) $(31,999) $(67,202) $(76,223)
                 

Net income (loss) per share:

                

Ordinary – Basic and diluted - continuing operations

 $(4.84) $(4.00) $(8.26) $(9.39)

Ordinary – Basic and diluted - discontinued operations

           (0.09)

Ordinary – Basic and diluted

 $(4.84) $(4.00) $(8.26) $(9.48)

Weighted average common shares outstanding:

                

Ordinary – Basic and diluted

  8,180   8,005   8,135   8,042 

 

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

 

3

 

 

SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

 

   

Three Months Ended July 31,

   

Six Months Ended July 31,

 
   

2024

   

2023

   

2024

   

2023

 

Comprehensive income (loss):

                               

Net income (loss)

  $ (39,566 )   $ (31,999 )   $ (67,202 )   $ (76,223 )

Foreign currency adjustment, net of tax

    64       496       (2,823 )     1,371  

Total comprehensive income (loss)

  $ (39,502 )   $ (31,503 )   $ (70,025 )   $ (74,852 )

 

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

 

4

 

 

SKILLSOFT CORP.

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

    8,264,308       (81,514 )   $ 1     $ 1,521,587     $ (972,193 )   $ (2,845 )   $ (14,794 )   $ 531,756  

Share-based compensation

                      9,128                         9,128  

Common stock issued

    22,538                                            

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

    (8,131 )                 (289 )                       (289 )

Repurchase of common stock

          (218,263 )                       (8,046 )           (8,046 )

Translation adjustment

                                        875       875  

Net income (loss)

                            (44,224 )                 (44,224 )

Balance April 30, 2023

    8,278,715       (299,777 )     1       1,530,426       (1,016,417 )     (10,891 )     (13,919 )     489,200  

Share-based compensation

                      5,827                         5,827  

Common stock issued

    67,693                                            

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

    (23,241 )                 (592 )                       (592 )

Translation adjustment

                                        496       496  

Net income (loss)

                            (31,999 )                 (31,999 )

Balance July 31, 2023

    8,323,167       (299,777 )   $ 1     $ 1,535,661     $ (1,048,416 )   $ (10,891 )   $ (13,423 )   $ 462,932  

 

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

 

5

 

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

    8,380,436       (299,777 )   $ 1     $ 1,551,005     $ (1,321,478 )   $ (10,891 )   $ (13,050 )   $ 205,587  

Share-based compensation

                      7,153                         7,153  

Common stock issued

    20,596                                            

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

    (6,934 )                 (82 )                       (82 )

Translation adjustment

                                        (2,887 )     (2,887 )

Net income (loss)

                            (27,636 )                 (27,636 )

Balance April 30, 2024

    8,394,098       (299,777 )     1       1,558,076       (1,349,114 )     (10,891 )     (15,937 )     182,135  

Share-based compensation

                      (814 )                       (814 )

Common stock issued

    158,368                                            

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

    (47,637 )                 (397 )                       (397 )

Translation adjustment

                                        64       64  

Net income (loss)

                            (39,566 )                 (39,566 )

Balance July 31, 2024

    8,504,829       (299,777 )   $ 1     $ 1,556,865     $ (1,388,680 )   $ (10,891 )   $ (15,873 )   $ 141,422  

 

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

 

6

 

 

SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

   

Six Months Ended July 31,

 
   

2024

   

2023

 

Cash flows from operating activities:

               

Net income (loss)

  $ (67,202 )   $ (76,223 )

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

               

Amortization of intangible assets

    63,371       77,466  

Share-based compensation

    6,339       14,955  

Depreciation

    1,404       2,761  

Non-cash interest expense

    1,080       1,024  

Non-cash property, equipment, software and lease impairment charges

    2,293       4,808  

Provision for credit loss expense (recovery)

    56       4  

(Gain) loss on sale of business

          682  

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

    (6,271 )     (6,913 )

Fair value adjustment of warrants

          (3,645 )

Fair value adjustment of interest rate swaps

    (1,240 )     (7,205 )

Change in assets and liabilities:

               

Accounts receivable

    75,004       73,172  

Prepaid expenses and other current assets, including long-term

    (3,016 )     (520 )

Right-of-use assets

    1,351       145  

Accounts payable

    (603 )     (4,241 )

Accrued expenses and other liabilities, including long-term

    (9,568 )     (17,379 )

Lease liabilities

    (2,539 )     (1,081 )

Deferred revenues

    (56,962 )     (55,825 )

Net cash provided by (used in) operating activities

    3,497       1,985  

Cash flows from investing activities:

               

Purchase of property and equipment

    (399 )     (3,406 )

Internally developed software - capitalized costs

    (8,796 )     (5,951 )

Sale of SumTotal, net of cash transferred

          (5,137 )

Net cash provided by (used in) investing activities

    (9,195 )     (14,494 )

Cash flows from financing activities:

               

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

    (479 )     (881 )

Payments to acquire treasury stock

          (8,046 )

Proceeds from accounts receivable facility, net of borrowings

    (4,574 )     399  

Principal payments on Term loans

    (3,202 )     (3,202 )

Net cash provided by (used in) financing activities

    (8,255 )     (11,730 )

Effect of exchange rate changes on cash and cash equivalents

    (2,427 )     (472 )

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

    (16,380 )     (24,711 )

Cash, cash equivalents and restricted cash, beginning of period

    146,523       177,556  

Cash, cash equivalents and restricted cash, end of period

  $ 130,143     $ 152,845  

Supplemental disclosure of cash flow information:

               

Cash and cash equivalents

  $ 122,652     $ 147,927  

Restricted cash

    7,491       4,918  

Cash, cash equivalents and restricted cash, end of period

  $ 130,143     $ 152,845  

 

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

 

7

 

 

SKILLSOFT CORP.

UNAUDITED SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

(in thousands)

 

   

Six Months Ended July 31,

 
   

2024

   

2023

 

Supplemental disclosure of cash flow information and non-cash investing and financing activities:

               

Cash paid for interest

  $ 32,486     $ 32,804  

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

    1,430       5,111  

 

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

 

8

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

(1)    Description of Business and Basis of Presentation

 

Description of Business

 

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-20 reverse stock split of our common stock and proportionately decreased the number of authorized shares of common stock. All fiscal 2024 shares, outstanding options, warrants, restricted stock unit (“RSU”), and per share information throughout this Form 10-Q have been retroactively adjusted to reflect the reverse stock split. The shares of common stock retain a par value of $0.0001 per share. Accordingly, an amount equal to the par value of the decreased shares resulting from the reverse stock split was reclassified from “Common stock” to “Additional paid-in capital”.

 

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.

 

9

 

(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

  2.2  $359,094  $203,997  $155,097   2.7  $355,247  $172,578  $182,669 

Customer contracts/relationships

  9.1   268,729   78,116   190,613   9.5   269,300   59,091   210,209 

Trademarks and trade names

  11.9   52,742   8,190   44,552   12.4   52,863   6,184   46,679 

Publishing rights

  1.9   41,100   25,779   15,321   2.4   41,100   21,668   19,432 

Backlog

  1.4   49,700   47,534   2,166   1.9   49,700   45,941   3,759 

Skillsoft trademark

  Indefinite   76,545      76,545   Indefinite   76,545      76,545 

Total intangible assets

     $847,910  $363,616  $484,294      $844,755  $305,462  $539,293 

 

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)

 $63,348 

2026

  123,499 

2027

  77,986 

2028

  37,548 

2029

  27,854 

Thereafter

  77,514 

Total future amortization

 $407,749 

 

Amortization expense related to intangible assets in the aggregate was $31.8 million, $63.4 million, $39.2 million and $77.5 million for the three and six months ended July 31, 2024 and the three and six months ended July 31, 2023, respectively.

 

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.

 

10

 

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 no indicators of impairment for our reporting units.

 

A roll forward of goodwill is as follows (in thousands):

 

Description

 

Talent Development Solutions

  

Global Knowledge

  

Consolidated

 

Goodwill January 31, 2024

 $287,650  $29,421  $317,071 

Increase (decrease)

         

Goodwill July 31, 2024

 $287,650  $29,421  $317,071 
             

Accumulated impairment, July 31, 2024

 $698,405  $84,694  $783,099 
 

(4)    Taxes

 

For the three and six months ended July 31, 2024, for continuing operations, the Company recorded a tax benefit of $2.1 million and $3.6 million, respectively, on a pretax loss of $41.6 million and $70.8 million, respectively. For the three and six months ended July 31, 2023, for continuing operations, the Company recorded a tax benefit of $1.9 million and $6.3 million, respectively, on a pretax loss of $33.9 million and $81.8 million, respectively. For each period, the tax benefit reflects the effect of non-deductible items, current period changes in the Company’s valuation allowance on its deferred tax assets and the impact of foreign tax rate differential.

 

(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

 $8,883  $727  $10,014  $5,440 

Global Knowledge

  2,416   1,773   2,252   2,279 

Total

 $11,299  $2,501  $12,266  $7,719 

 

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 chargesAs of  July 31, 2024 and January 31, 2024, the Company had restructuring charge liabilities of $8.0 million and $3.3 million, respectively. Management anticipates further restructuring charges during the remainder of fiscal 2025 as the identified resource reallocation measures initiated in mid- July 2024 are fully implemented.

 

(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 one year to ten years. Some of the Company’s leases include options to extend or terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

 

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 5.9% and 5.7%, respectively.

 

The operating leases are included in the captions “Right of use assets”, “Lease liabilities”, and “Long-term lease liabilities” on the Company’s condensed consolidated balance sheets. The weighted-average remaining lease term of the Company’s operating leases is 6.3 years as of July 31, 2024. Lease costs for minimum lease payments are recognized on a straight-line basis over the lease term. The lease costs were $1.4 million and related cash payments were $1.4 million for the six months ended July 31, 2024. The lease costs were $2.9 million and related cash payments were $1.4 million for the six months ended July 31, 2023. Lease costs are included within the content and software development, selling and marketing, and general and administrative lines on the condensed consolidated statements of operations, and the operating leases related cash payments were included in the operating cash flows on the condensed consolidated statements of cash flows. Short-term lease costs and variable lease costs are not material.

 

11

 

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)

 $1,804 

2026

  2,134 

2027

  1,583 

2028

  1,510 

2029

  1,326 

Thereafter

  3,158 

Total future minimum lease payments

  11,515 

Effects of discounting

  (1,746)

Total lease liabilities

 $9,769 
     

Current lease liabilities

 $2,613 

Long-term lease liabilities

  7,156 

Total lease liabilities

 $9,769 

 

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

 

Guarantees

 

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

 

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

 

12

 

(7)    Long-Term Debt

 

Debt consisted of the following (in thousands):

 

  

July 31, 2024

  

January 31, 2024

 

Term Loan - current portion

 $6,404  $6,404 

Current maturities of long-term debt

 $6,404  $6,404 
         

Term Loan - long-term portion

 $584,995  $588,197 

Original issue discount - long-term portion

  (6,242)  (6,942)

Deferred financing costs - long-term portion

  (3,389)  (3,768)

Long-term debt

 $575,364  $577,487 

 

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)

 $3,202 

2026

  4,803 

2027

  6,404 

2028

  8,005 

2029

  568,985 

Thereafter

   

Total payments

  591,399 

Current portion

  (6,404)

Unamortized original issue discount and issuance costs

  (9,631)

Long-term portion

 $575,364 

 

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 $5.0 million on  July 31, 2024 and is classified as restricted cash on the condensed consolidated balance sheet. The interest rate on borrowings outstanding under the accounts receivable facility was 8.46% at July 31, 2024. As of July 31, 2024, $40.4 million was drawn under the accounts receivable facility and is classified as a current liability on the balance sheet. 

 

(8)    Shareholders Equity

 

Common Stock

 

As of July 31, 2024, the Company’s authorized share capital consisted of 18,750,000 shares of Class A common stock and 10,000,000 shares of preferred stock, with a par value $0.0001 each, and 8,504,829 shares of Class A common stock were issued and 8,205,052 shares were outstanding. As of July 31, 2024, the Company had no shares of preferred stock or Class C common stock outstanding. Except as required by law, holders of shares of Class C common stock are not entitled to vote any such shares.

 

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

 

Warrants

 

Refer to Note 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 $10 million of its Class A common stock, with an objective to manage potential dilution from future vesting of employee equity grants. The share repurchase authorization will terminate on July 11, 2028 and does not obligate the Company to purchase any minimum number of shares of Common Stock, and the authorization may be suspended, modified, or discontinued at any time without prior notice. As of July 31, 2024, no Class A common stock had been repurchased under the share repurchase authorization.

 

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

 $(15,937) $  $(15,937) $(13,919) $  $(13,919)

Translation adjustment

  64      64   496      496 

Balance as of end-of-period

 $(15,873) $  $(15,873) $(13,423) $  $(13,423)

   

  

Six Months Ended July 31,

 
  

2024

  

2023

 
  

Before Tax

  

Income Tax

  

Net

  

Before Tax

  

Income Tax

  

Net

 

Balance as of beginning-of-period

 $(13,050) $  $(13,050) $(14,794) $  $(14,794)

Translation adjustment

  (2,823)     (2,823)  1,371      1,371 

Balance as of end-of-period

 $(15,873) $  $(15,873) $(13,423) $  $(13,423)

  

13

 

(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, 655,295 shares were initially made available for issuance. The 2020 Plan includes an annual increase on January 1 each year beginning on January 1, 2022, in an amount equal to 5.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year. The Compensation Committee may act prior to January 1 of a given year to provide that there will be no January 1 increase for such year or that the increase for such year will be a lesser number of shares of common stock than provided for in the 2020 Plan. As of July 31, 2024, a total of 1,367,132 shares of common stock were available for issuance 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 160,000 shares of common stock were available for issuance under the Inducement 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 four years and have a term of ten years. Vested options under the plan generally expire not later than 90 days following termination of employment or service or twelve months following an optionee’s death or disability. The fair value of stock options is determined on the grant date and amortized over the vesting period on a straight-line basis.

 

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

  88,850  $215.00   7.4  $ 

Granted

            

Exercised

            

Forfeited

  (17,649)  215.00       

Expired

  (34,375)  215.00       

Outstanding, July 31, 2024

  36,826   215.00   5.8    
                 

Vested and exercisable, July 31, 2024

  29,141   215.00   5.5    

 

The total unrecognized equity-based compensation costs related to the stock options was $0.4 million based on the $67.23 weighted average grant date fair value of the options, which is expected to be recognized over a weighted-average period of 0.9 years.

 

Time-Based Restricted Stock Units

 

Restricted stock units (“RSUs”) represent a right to receive one share of the Company’s common stock that is both non-transferable and forfeitable unless and until certain conditions are satisfied. Other than RSUs granted to our non-employee directors, which vest upon the earlier of the anniversary of the grant date and the Company’s next annual meeting of stockholders, RSUs generally vest ratably over a three or four-year period, subject to continued employment through each anniversary. The fair value of RSUs is determined on the grant date and is amortized over the vesting period on a straight-line basis.

 

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

  735,998  $64.77  $10,319 

Granted

  462,030   15.88    

Vested

  (178,964)  76.60    

Forfeited

  (70,984)  61.43    

Unvested balance, July 31, 2024

  948,080   39.03   16,307 

 

The total unrecognized stock-based compensation costs related to time-based RSUs was $24.5 million, which is expected to be recognized over a weighted-average period of 2.6 years.

 

14

 

Market-Based Restricted Stock Units

 

Market-based restricted stock units (“MBRSUs”) vest over a three or four-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

  182,742  $72.60  $2,562 

Granted

  10,000   12.94    

Vested

         

Forfeited

  (18,695)  61.52    

Unvested balance, July 31, 2024

  174,047   70.36   2,994 

 

The total unrecognized stock-based compensation costs related to MBRSUs was $1.3 million, which is expected to be recognized over a weighted-average period of 1.2 years.

 

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

 $132  $238  $298  $335 

Content and software development

  914   1,744   2,204   3,756 

Selling and marketing

  797   (667)  2,053   1,015 

General and administrative (1)

  (2,657)  4,512   1,784   9,849 

Total

 $(814) $5,827  $6,339  $14,955 

 

(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 one year to three 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.

 

15

 

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

 $95,642  $98,032  $188,804  $191,851 

Virtual, on-demand and classroom

  30,571   37,999   60,289   74,980 

Professional services

  6,010   5,156   10,923   9,910 

Total net revenues

 $132,223  $141,187  $260,016  $276,741 

  

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

 $88,384  $92,936  $173,332  $182,023 

Europe, Middle East and Africa

  32,457   35,741   63,802   70,276 

Other Americas

  5,545   7,331   11,896   14,327 

Asia-Pacific

  5,837   5,179   10,986   10,115 

Total net revenues

 $132,223  $141,187  $260,016  $276,741 

 

Other than the United States, no 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

 $284,972 

Billings deferred

  203,305 

Recognition of prior deferred revenue

  (260,016)

Deferred revenue as of July 31, 2024

 $228,261 

 

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

 $36,667 

Contract acquisition costs

  8,110 

Recognition of contract acquisition costs

  (11,130)

Deferred contract acquisition costs as of July 31, 2024

 $33,647 
 

(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.

 

16

 

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

 $122,652  $  $  $122,652 

Restricted cash

  7,491         7,491 

Interest rate swaps - asset (liability)

     2,442      2,442 

Total assets and (liabilities) recorded at fair value

 $130,143  $2,442  $  $132,585 

 

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 two 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 $300.0 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 $300.0 million of variable rate debt attributable to changes in benchmark one-month SOFR interest rates. The hedged risk is the exposure to changes in interest payments, attributable to fluctuations in benchmark SOFR interest rates over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to offset changes in cash flows of the variable rate debt. The Interest Rate Swaps are not designated as a cash flow hedge and changes in the fair value of the interest rate swaps are recorded in earnings each period. For the three and six months ended July 31, 2024, the Company recognized a non-cash loss of $6.5 million and a non-cash gain of $1.2 million attributable to the Interest Rate Swaps, respectively. For the three and six months ended July 31, 2023, the Company recognized a non-cash gain of $6.9 million and $7.2 million attributable to the Interest Rate Swaps, respectively.

 

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 $476.2 million. This fair value is determined based on inputs that are classified as Level 2 within the fair value hierarchy.

 

(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 two 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 no intercompany revenue transactions reported between the Company’s reportable segments.

 

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 700 learning paths (channels) that are continuously updated to ensure customers always have access to the latest information. 

 

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.

 

17

 

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

 $101,652  $103,188  $199,727  $201,761 

Operating expenses

  119,772   122,077   241,149   251,601 

Operating income (loss)

  (18,120)  (18,889)  (41,422)  (49,840)

Global Knowledge