UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
1934
For the quarterly period ended
or
1934
For the transition period from ____________ to ____________
Commission File Number:
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Securities registered pursuant to Section 12(b) of the Act:
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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).
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SKILLSOFT CORP.
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 2022
INDEX
1
CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q”) includes statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created by those laws. All statements, other than statements of historical facts, that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our outlook, our product development and planning, our pipeline, future capital expenditures, financial results, the impact of regulatory changes, existing and evolving business strategies and acquisitions and dispositions, demand for our services and competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, our ability to successfully implement our plans, strategies, objectives, expectations and intentions are forward-looking statements. Also, when we use words such as “may,” “will,” “would,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “forecast,” “seek,” “outlook,” “target,” goal,” “probably,” or similar expressions, we are making forward-looking statements. Such statements are based upon the current beliefs and expectations of Skillsoft’s management and are subject to significant risks and uncertainties. All forward-looking disclosure is speculative by its nature.
There are important risks, uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained in this document, including:
● | our ability to realize the benefits expected from the business combination between Skillsoft, Churchill Capital Corp. II, and Global Knowledge, and other recent transactions, including our acquisitions of Pluma and Codecademy; |
● | the impact of U.S. and worldwide economic trends, financial market conditions, geopolitical events, natural disasters, climate change, public health crises, the ongoing COVID-19 pandemic (including any variant), political crises, or other catastrophic events on our business, liquidity, financial condition and results of operations; |
● | our ability to attract and retain key employees and qualified technical and sales personnel; |
● | our reliance on third parties to provide us with learning content, subject matter expertise and content productions and the impact on our business if our relationships with these third parties are terminated; |
● | fluctuations in our future operating results; |
● | our ability to successfully identify, consummate and achieve strategic objectives in connection with our acquisition opportunities and realize the benefits expected from the acquisition; |
● | the demand for, and acceptance of, our products and for cloud-based technology learning solutions in general; |
● | our ability to compete successfully in competitive markets and changes in the competitive environment in our industry and the markets in which we operate; |
● | our ability to market existing products and develop new products; |
● | a failure of our information technology infrastructure or any significant breach of security, including in relation to the migration of our key platforms from our systems to cloud storage; |
● | future regulatory, judicial and legislative changes in our industry; |
● | our ability to comply with laws and regulations applicable to our business, including shifting global privacy, data protection, and cyber and information security laws and regulations, as well as state privacy and data protection laws, such as those in California, Colorado, and Virginia; |
● | a failure to achieve and maintain effective internal control over financial reporting; |
● | fluctuations in foreign currency exchange rates; |
● | our ability to protect or obtain intellectual property rights; |
● | our ability to raise additional capital; |
● | the impact of our indebtedness on our financial position and operating flexibility; |
● | our ability to meet future liquidity requirements and comply with restrictive covenants related to long-term indebtedness; |
● | our ability to successfully defend ourselves in legal proceedings; and |
● | our ability to continue to meet applicable listing standards. |
Additional information regarding factors that could cause results to differ can be found in our Annual Report on Form 10-K for our fiscal year ended January 31, 2022 (filed April 18, 2022) and our other filings with the Securities and Exchange Commission. Actual results and events in future periods may differ materially from those expressed or implied by the forward-looking statements in this Form 10-Q.
2
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 purpose only, are not forecasts and may not reflect actual results. Additionally, statements as to market share, industry data and our market position are based on the most currently available data available to us and our estimates regarding market position or other industry data included in this document or otherwise discussed by us involve risks and uncertainties and are subject to change based on various factors, including as set forth above.
Our forward-looking statements speak only as of the date made and we do not undertake to update these forward-looking statements unless required by applicable law. With regard to these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur, and we caution you against unduly relying on these forward-looking statements.
3
PART I – FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS.
SKILLSOFT CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
Successor | Successor | ||||||
| April 30, 2022 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | |||
Restricted cash |
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Accounts receivable, less reserves of approximately $ |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Intangible assets, net |
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Right of use assets |
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Other assets |
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Total assets | $ | | $ | | |||
LIABILITIES AND SHAREHOLDER'S EQUITY |
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Current liabilities: |
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Current maturities of long-term debt | $ | | $ | | |||
Borrowings under accounts receivable facility |
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Accounts payable |
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Accrued compensation |
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Accrued expenses and other current liabilities |
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Lease liabilities |
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Deferred revenue |
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Total current liabilities |
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Long-term debt |
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Warrant liabilities |
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Deferred tax liabilities |
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Long term lease liabilities |
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Deferred revenue - non-current |
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Other long-term liabilities |
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Total long-term liabilities |
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Commitments and contingencies |
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Shareholders’ equity: |
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Shareholders’ common stock - Class A common shares, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive (loss) income |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
4
SKILLSOFT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Successor | Predecessor (SLH) | |||||||
Three Months | Three Months | |||||||
Ended | Ended | |||||||
| April 30, 2022 | April 30, 2021 | ||||||
Revenues: |
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Total revenues | $ | | $ | | ||||
Operating expenses: |
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Costs of revenues |
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Content and software development |
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Selling and marketing |
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General and administrative |
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Amortization of intangible assets |
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Recapitalization and acquisition-related costs | | | ||||||
Restructuring | | | ||||||
Total operating expenses | | | ||||||
Operating loss | ( | ( | ||||||
Other income (expense), net | | ( | ||||||
Fair value adjustment of warrants | | — | ||||||
Interest income | | | ||||||
Interest expense | ( | ( | ||||||
Loss before benefit from income taxes |
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Benefit from income taxes |
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Net loss | ( | ( | ||||||
Loss per share: |
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Class A and B – Basic and Diluted (SLH) |
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Ordinary – Basic and Diluted (Successor) | ( | * | ||||||
Weighted average common share outstanding: |
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Class A and B – Basic and Diluted (SLH) |
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Ordinary – Basic and Diluted (Successor) |
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*Not applicable
The accompanying notes are an integral part of these consolidated financial statements.
5
SKILLSOFT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
Successor | Predecessor (SLH) | ||||||
Three Months | Three Months | ||||||
Ended | Ended | ||||||
| April 30, 2022 | April 30, 2021 | |||||
Comprehensive loss: |
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Net loss | $ | ( | $ | ( | |||
Other comprehensive loss — Foreign currency adjustment, net of tax |
| ( |
| ( | |||
Comprehensive loss | $ | ( | $ | ( |
The accompanying notes are an integral part of these consolidated financial statements.
6
SKILLSOFT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
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Ordinary Shares | |||||||||||||||||
Accumulated Other | |||||||||||||||||
Number of | Additional Paid- | Accumulated | Comprehensive | Total Shareholder's | |||||||||||||
Shares | Par Value | In Capital | Deficit | Loss | Equity | ||||||||||||
Balance January 31, 2021 (Predecessor (SLH)) |
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| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | |
Translation adjustment |
| — |
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Net loss |
| — |
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Balance April 30, 2021 (Predecessor (SLH)) |
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The accompanying notes are an integral part of these consolidated financial statements.
7
SKILLSOFT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
Ordinary Shares | |||||||||||||||||
Accumulated Other | Total | ||||||||||||||||
Number of | Additional Paid- | Accumulated | Comprehensive | Shareholder's | |||||||||||||
Shares | Par Value | In Capital | Deficit | Income | Equity | ||||||||||||
Balance January 31, 2022 (Successor) |
| | $ | | $ | | $ | ( | $ | |
| $ | | ||||
Share-based compensation | — | — | | — | — | | |||||||||||
Common stock issued | | — | — | — | — | — | |||||||||||
Shares repurchased for tax withholding upon vesting of restricted stock-based awarded | ( | — | ( | — | — | ( | |||||||||||
Common stock issued in conjunction with Codecademy acquisition | | | | — | — | | |||||||||||
Fair value adjustment for equity awards attributed to Codecademy acquisition | — | | — | — | | ||||||||||||
Translation adjustment |
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| ( |
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Net loss |
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Balance April 30, 2022 (Successor) |
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The accompanying notes are an integral part of these consolidated financial statements.
8
SKILLSOFT CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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Successor | Predecessor (SLH) | ||||||
Three Months | Three Months | ||||||
Ended | Ended | ||||||
April 30, 2022 | April 30, 2021 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Share-based compensation |
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| — | |||
Depreciation and amortization | | | |||||
Amortization of intangible assets | | | |||||
Change in bad debt reserve | ( | ( | |||||
(Benefit from) provision for income taxes – non-cash | ( | ( | |||||
Non-cash interest expense | | | |||||
Fair value adjustment to warrants | ( | — | |||||
Right-of-use asset | | | |||||
Changes in current assets and liabilities, net of effects from acquisitions: | |||||||
Accounts receivable |
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Prepaid expenses and other current assets |
| ( |
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Accounts payable |
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Accrued expenses, including long-term |
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Lease liability |
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Deferred revenue |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchase of property and equipment |
| ( |
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Internally developed software - capitalized costs |
| ( |
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Acquisition of Codecademy, net of cash acquired | ( | — | |||||
Net cash used in investing activities |
| ( |
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Cash flows from financing activities: |
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Shares repurchased for tax withholding upon vesting of restricted stock-based awarded | ( | — | |||||
Proceeds from issuance of term loans, net of fees |
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Principal payments on capital lease obligation |
| — |
| ( | |||
Proceeds from accounts receivable facility, net of borrowings |
| ( |
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Principal payments on Term loans | ( | ( | |||||
Net cash provided by (used in) financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
| ( |
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Net (decrease) increase in cash, cash equivalents and restricted cash |
| ( |
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Cash, cash equivalents and restricted cash, beginning of period |
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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 consolidated financial statements.
9
SKILLSOFT CORP.
UNAUDITED SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
(IN THOUSANDS)
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Successor | Predecessor (SLH) | ||||||
Three Months | Three Months | ||||||
Ended | Ended | ||||||
April 30, 2022 | April 30, 2021 | ||||||
Supplemental disclosure of cash flow information and non-cash investing and financing activities: |
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Cash paid for interest | $ | | $ | | |||
Cash paid for income taxes, net of refunds | $ | ( | $ | | |||
Unpaid capital expenditures | $ | | $ | | |||
Fair value of shares issued in connection with Codecademy acquisition | $ | | $ | — |
The accompanying notes are an integral part of these consolidated financial statements.
10
SKILLSOFT CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Description of Business
The Company
Skillsoft Corp. (“Successor”)
On October 12, 2020, Software Luxembourg Holding S.A. (“Software Luxembourg” or “Predecessor (SLH)”) and Churchill Capital Corp II, a Delaware corporation (“Churchill”), entered into an Agreement and Plan of Merger (the “Skillsoft Merger Agreement”). Pursuant to the terms of the Skillsoft Merger Agreement, a business combination between Churchill and Software Luxembourg was effected through the merger of Software Luxembourg with and into Churchill (the “Skillsoft Merger”), with Churchill being the surviving company. At the effective time of the Skillsoft Merger (the “Effective Time”), (a) each Class A share of Software Luxembourg, with nominal value of $
As part of the closing of the Skillsoft Merger, the Company consummated PIPE investments and issued
On June 11, 2021 (“acquisition date”), Churchill completed its acquisition of Software Luxembourg, and changed its corporate name from Churchill to Skillsoft Corp. (the “Company”). In addition, the Company changed its fiscal year end from December 31 to January 31. Also on June 11, 2021, the Company completed the acquisition of Albert DE Holdings Inc. (“Global Knowledge” or “GK” and such acquisition, the “Global Knowledge Merger”), a worldwide leader in IT and professional skills development.
Software Luxembourg Holding (“Predecessor (SLH)”)
Software Luxembourg, a public limited liability company incorporated and organized under the laws of the Grand Duchy of Luxembourg, was established on August 27, 2020 for the purpose of acquiring the ownership interest in Pointwell Limited (“Pointwell”), an Irish private limited company, through a plan of reorganization under Chapter 11 subsequent to August 27, 2020.
Successor and Predecessor Periods
The Skillsoft Merger was considered a business combination under ASC 805, Business Combinations and is accounted for using the acquisition method of accounting, whereby Churchill was determined to be the accounting acquirer and Software Luxembourg Holding was determined to be the predecessor for financial reporting purposes. References to “Successor” or “Successor Company” relate to the consolidated financial position and results of operations of Skillsoft subsequent to June 11, 2021, the date when the acquisitions of Predecessor (SLH) and Global Knowledge were completed. References to “Predecessor (SLH)” relate to the consolidated financial position and results of operations of Software Luxembourg Holding between August 28, 2020 and June 11, 2021 (its last date of operations prior to the merger). Operating results for the acquired business on June 11, 2021 were credited to the Predecessor (SLH) in
11
the accompanying consolidated statement of operations. The funds received from the PIPE investments and transferred for the business combinations closing on June 11, 2021 were recorded in the Successor period of the consolidated statement of cash flows.
In the accompanying footnotes references to “the Company” relate to Successor and Predecessor (SLH) for the same periods.
Description of Business
The Company provides, through its Skillsoft, Global Knowledge (“GK”), and SumTotal brands, enterprise learning solutions designed to prepare organizations for the future of work, overcome critical skill gaps, drive demonstrable behavior-change, and unlock the potential in their people. Skillsoft offers a comprehensive suite of premium, original, and authorized partner content, featuring one of the broadest and deepest libraries of leadership & business, technology & developer, and compliance curricula. With access to a broad spectrum of learning options (including video, audio, books, bootcamps, live events, and practice labs), organizations can meaningfully increase learner engagement and retention. Skillsoft’s offerings are delivered primarily through Percipio, the Company’s award-winning, AI-driven, immersive learning platform purpose built to make learning easier, more accessible, and more effective.
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 2022 is the fiscal year ended January 31, 2022).
Basis of Financial Statement Preparation
The accompanying condensed consolidated financial statements include the accounts of Skillsoft (Successor) and Software Luxembourg (Predecessor (SLH)) and their 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 8 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 stockholders’ equity (deficit) and cash flows in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The financial statements contained in these interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022.
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS” Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. 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.
12
(2) Summary of Significant Accounting Policies
The Company’s significant accounting policies are discussed in Note 2—Summary of Significant Accounting Policies to the financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022. There have been no changes to these policies during the three months ended April 30, 2022.
Recently Adopted Accounting Guidance
On October 28, 2021, the Financial Accounting Standards Boards (“FASB”) issued ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 requires an acquirer in a business combination to recognize and measure deferred revenue from acquired contracts using the revenue recognition guidance in Accounting Standards Codification Topic 606, rather than the prior requirement to record deferred revenue at fair value. ASU 2021-08 allows for immediate adoption on a retrospective basis for all business combinations that have occurred since the beginning of the annual period that includes the interim period of adoption. The Company elected to adopt ASU 2021-08 early on a retrospective basis, effective at the beginning of the Successor period on June 11, 2021.
The adoption of ASU 2021-08 also resulted in the increase of goodwill by $
(3) Business Combinations
(a) Software Luxembourg Holdings S.A. (“Predecessor (SLH)”)
On June 11, 2021, Software Luxembourg Holding S.A. merged with and into Churchill Capital Corp II which subsequently changed its name to Skillsoft Corp.
The Skillsoft Merger was considered a business combination under ASC 805, Business Combinations and was accounted for using the acquisition method of accounting, whereby Churchill was determined to be the accounting acquirer based on its rights to nominate six members of the initial Board of Directors, the size of its voting interest and its rights to appoint the Chief Executive Officer of Skillsoft Corp. and other members of management of the combined company prior to closing.
Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values.
The following summarizes the purchase consideration (in thousands):
Description |
| Amount | ||
Class A common stock issued | $ | | ||
Class B common stock issued* |
| | ||
Cash payments | | |||
Second Out Term Loan | | |||
Cash settlement of seller transaction costs | | |||
Total Purchase Price | $ | |
*Shares of Class B common stock were converted into Successor Class A common stock at the time of the Skillsoft Merger.
13
The Company preliminarily recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):
Updated | ||||||||
Preliminary Purchase | Preliminary Purchase | |||||||
Description | Price Allocation | Adjustments (1)(2) |
| Price Allocation | ||||
Cash, cash equivalents and restricted cash | $ | | $ | — | $ | | ||
Current assets | | | | |||||
Property and equipment |
| |
| |
| | ||
Intangible assets | | ( | | |||||
Long term assets |
| |
| — |
| | ||
Total assets acquired | | ( | | |||||
Current liabilities |
| ( |
| ( |
| ( | ||
Debt, including accounts receivable facility |
| ( |
| — |
| ( | ||
Deferred revenue |
| ( |
| ( |
| ( | ||
Deferred and other tax liabilities |
| ( |
| |
| ( | ||
Long term liabilities |
| ( |
| |
| ( | ||
Total liabilities assumed | ( | ( | ( | |||||
Net assets acquired | | ( | | |||||
Goodwill | | | | |||||
Total purchase price | $ | | $ | — | $ | |
(1) | The increase in deferred revenue (and the corresponding increase to Goodwill by the same amount) is the result of the adoption of ASU 2021-08 in the quarter ended October 31, 2021. |
(2) | All other changes represent measurement period adjustments attributable to the Company’s review of inputs and assumptions utilized in valuation models and additional information being obtained on preacquisition liabilities, since the initial purchase price allocation. The measurement period adjustments did not have a significant impact on the Company’s results of operations in prior periods. |
The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):
Description |
| Amount |
| Life | ||
Trademark/tradename – Skillsoft | $ | |
| indefinite | ||
Trademark/tradename – SumTotal |
| |
| years | ||
Courseware |
| years | ||||
Proprietary delivery and development software | | years | ||||
Publishing Rights |
| |
| years | ||
Customer relationships |
| |
| years | ||
Backlog |
| |
| years | ||
Total | $ | |
|
|
Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships and backlog were valued using the income approach. The trade names were valued using the relief from royalty method. The content and software were valued using the replacement cost approach.
Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of the Predecessor (SLH) resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The majority of goodwill is not deductible for tax purposes.
The acquired intangible assets and goodwill are subject to review for impairment if indicators of impairment develop and, in the case of goodwill and indefinite-lived intangible assets, at least annually.
14
The Company incurred $
(b) Albert DE Holdings, Inc. (“Global Knowledge” or “GK”)
On June 11, 2021, GK and its subsidiaries were acquired by Skillsoft, in conjunction with, and just subsequent to, its merger with Churchill Capital Corp II (then becoming merged Company).
The acquisition was accounted for as a business combination under ASC 805, Business Combinations, utilizing the acquisition method. Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values.
The following summarized the purchase consideration (in thousands):
Description |
| Amount | |
Cash consideration | $ | | |
Warrants Issued |
| | |
Joinder Term Loans | | ||
Cash settlement of seller transaction costs | | ||
Total Purchase Price | $ | |
The Company preliminarily recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):
Updated | ||||||||
Preliminary Purchase | Preliminary Purchase | |||||||
Description | Price Allocation | Adjustments (1)(2) |
| Price Allocation | ||||
Cash, cash equivalents | $ | | $ | | $ | | ||
Current assets |
| |
| ( |
| | ||
Property and equipment | | | | |||||
Intangible assets | | — | | |||||
Long term assets |
| |
| ( |
| | ||
Total assets acquired | | ( | | |||||
Current liabilities |
| ( |
| |
| ( | ||
Deferred revenue |
| ( |
| ( |
| ( | ||
Deferred and other tax liabilities | ( | ( | ( | |||||
Long term liabilities | ( | | ( | |||||
Total liabilities assumed | ( | ( | ( | |||||
Net assets acquired | | ( | | |||||
Goodwill | | | | |||||
Total Purchase Price | $ | | $ | — | $ | |
(1) | The increase in deferred revenue (and the corresponding increase to Goodwill by the same amount) is the result of the adoption of ASU 2021-08 in the quarter ended October 31, 2021. |
(2) | All other changes represent measurement period adjustments attributable to the Company’s review of inputs and assumptions utilized in valuation models and additional information being obtained on preacquisition liabilities, since the initial purchase price allocation. The measurement period adjustments did not have a significant impact on the Company’s results of operations in prior periods. |
15
The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):
Description |
| Amount |
| Life | ||
Trademark/tradename | $ | |
| indefinite | ||
Courseware |
| |
| years | ||
Proprietary delivery and development software | |
| years | |||
Vendor relationships | | years | ||||
Customer relationships |
| |
| years | ||
Total | $ | |
|
|
Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships and vendor relationships were valued using the income approach. The trade name was valued using the relief from royalty method. The courseware and proprietary delivery software were valued using the replacement cost approach.
Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of GK resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The majority of goodwill is not deductible for tax purposes.
The acquired intangible assets and goodwill are subject to review for impairment if indicators of impairment develop and otherwise at least annually.
The Company incurred $
(c) Ryzac, Inc. (“Codecademy”)
On April 4, 2022, the Company acquired Ryzac, Inc (“Codecademy”). Codecademy is a learning platform providing high-demand technical skills to approximately
The acquisition was accounted for as a business combination under ASC 805, Business Combinations, utilizing the acquisition method. Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets acquired and the liabilities assumed based on their estimated fair values.
The following summarizes the purchase consideration (in thousands):
Description |
| Amount | |
Cash payments | $ | | |
Class A common stock issued | | ||
Cash settlement of seller transaction costs and other | | ||
Total Purchase Price | $ | |
16
The Company preliminarily recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed as follows (in thousands):
Preliminary Purchase | ||
Description | Price Allocation | |
Cash, cash equivalents and restricted cash | $ | |
Current assets | | |
Property and equipment |
| |
Intangible assets | | |
Total assets acquired | | |
Current liabilities |
| ( |
Deferred revenue |
| ( |
Deferred tax liabilities |
| ( |
Total liabilities assumed | ( | |
Net assets acquired | | |
Goodwill | | |
Total purchase price | $ | |
The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows (in thousands):
Description |
| Amount |
| Life | ||
Tradename | $ | |
| years | ||
Developed Technology |
| |
| years | ||
Content | |
| years | |||
Customer relationships |
| |
| years | ||
Total | $ | |
|
|
Values and useful lives assigned to intangible assets were based on estimated value and use of these assets by a market participant. The customer relationships were valued using the income approach. The trade name was valued using the relief from royalty method. The courseware and proprietary delivery software were valued using the replacement cost approach.
Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of Codecademy resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The goodwill is not deductible for tax purposes.
The acquired intangible assets and goodwill are subject to review for impairment if indicators of impairment develop and otherwise at least annually.
The Company incurred $
17
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information summarizes the results of operations for the Company as though the acquisitions of Skillsoft, Global Knowledge and Codecademy had occurred on February 1, 2021 (in thousands):
Unaudited Pro Forma Statement of Operations | |||
Three months | |||
ended April 30, | |||
| 2022 | ||
Revenue | $ | | |
Net loss |
| ( |
Unaudited Pro Forma Statement of Operations | |||
Three months | |||
ended April 30, | |||
| 2021 | ||
Revenue | $ | | |
Net loss |
| ( |
The unaudited pro forma financial information does not assume any impacts from revenue, cost or other operating synergies that could be generated as a result of the acquisitions. The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisitions been consummated on February 1, 2021.
Other Acquisitions
On June 30, 2021, the Company acquired Pluma, Inc. The acquisition enhances the Company’s leadership development offerings, adds a new modality to its blended learning model, and allows the Company to now offer a premium individualized coaching experience. Cash paid for Pluma in the Successor period was lower than the agreed upon purchase price of Pluma for $
Measurement Period
The preliminary purchase price allocations for the acquisitions described above are based on initial estimates and provisional amounts. In accordance with ASC 805-10-25-13, if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, acquirer shall adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. For the Skillsoft, Global Knowledge and Pluma acquisitions that occurred during the period ended January 31, 2022, the Company continues to refine its inputs and estimates inherent in (i) deferred income taxes, and (ii) the accuracy and completeness of contingent and other liabilities. For the Codecademy acquisition, which occurred in the three months ended April 30, 2022, the Company is still evaluating and refining inputs and estimates inherent in (i) the valuation of intangible assets, (ii) deferred income taxes, (iii) valuation of tangible assets and (iv) the accuracy and completeness of liabilities.
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(4) Intangible Assets
Intangible assets consisted of the following (in thousands):
April 30, 2022 (Successor) | January 31, 2022 (Predecessor (SLH)) | |||||||||||||||||
| Gross |
|
| Net |
| Gross |
|
| Net | |||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||
Developed software/ courseware | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Customer contracts/ relationships |
| |
| |
| |
| |
| |
| | ||||||
Vendor relationships |
| |
| |
| | | | | |||||||||
Trademarks and trade names |
| |
| |
| |
| |
| |
| | ||||||
Publishing rights |