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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 April 30, 2022

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)

Delaware

 

83-4388331

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

300 Innovative Way, Suite 201
Nashua, New Hampshire 03062

(Address of principal executive offices)

Tel: (603) 324-3000

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

Warrants, each whole warrant exercisable for one share of Class A common stock

SKIL

SKIL.WS

New York Stock Exchange

New 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 June 3, 2022 was 163,946,319.

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SKILLSOFT CORP.

FORM 10-Q

FOR THE QUARTER ENDED APRIL 30, 2022

INDEX

PAGE NO.

PART I — FINANCIAL INFORMATION - UNAUDITED

Item 1. Unaudited Financial Statements:

4

Unaudited Condensed Consolidated Balance Sheets as of April 30, 2022 (Successor) and January 31, 2022 (Successor)

4

Unaudited Condensed Consolidated Statements of Operations for the three months ended April 30, 2022 (Successor) and April 30, 2021 (Predecessor (SLH))

5

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended April 30, 2022 (Successor) and April 30, 2021 (Predecessor (SLH))

6

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended April 30, 2022 (Successor) and April 30, 2021 (Predecessor (SLH))

7

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 2022 (Successor) and April 30, 2021 (Predecessor (SLH))

9

Notes to Unaudited Condensed Consolidated Financial Statements

11

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

36

Item 3. Quantitative and Qualitative Disclosures about Market Risk

48

Item 4. Controls and Procedures

48

PART II — OTHER INFORMATION

49

Item 1. Legal Proceedings

49

Item 1A. Risk Factors

49

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

49

Item 3. Defaults Upon Senior Securities

49

Item 4. Mine Safety Disclosures

49

Item 5. Other Information

49

Item 6. Exhibits

32

SIGNATURES

51

1

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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

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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.

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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

  

  

January 31, 2022

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

75,571

$

154,672

Restricted cash

 

5,084

 

14,251

Accounts receivable, less reserves of approximately $300 and $600 as of April 30, 2022 and January 31, 2022 respectively

 

127,259

 

212,463

Prepaid expenses and other current assets

 

49,903

 

45,837

Total current assets

 

257,817

 

427,223

Property and equipment, net

 

17,633

 

18,084

Goodwill

 

1,179,926

 

871,504

Intangible assets, net

 

939,725

 

869,487

Right of use assets

 

17,090

 

19,925

Other assets

 

15,866

 

15,725

Total assets

$

2,428,057

$

2,221,948

LIABILITIES AND SHAREHOLDER'S EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Current maturities of long-term debt

$

6,404

$

4,800

Borrowings under accounts receivable facility

 

27,990

 

74,629

Accounts payable

 

29,855

 

25,661

Accrued compensation

 

33,904

 

51,115

Accrued expenses and other current liabilities

 

46,550

 

51,017

Lease liabilities

 

5,486

 

6,895

Deferred revenue

 

297,447

 

331,605

Total current liabilities

 

447,636

 

545,722

Long-term debt

 

616,463

 

462,185

Warrant liabilities

 

18,093

 

28,199

Deferred tax liabilities

 

95,065

 

99,911

Long term lease liabilities

 

11,711

 

13,355

Deferred revenue - non-current

 

1,708

 

1,248

Other long-term liabilities

 

11,697

 

11,430

Total long-term liabilities

 

754,737

 

616,328

Commitments and contingencies

 

 

Shareholders’ equity:

 

  

 

  

Shareholders’ common stock - Class A common shares, $0.0001 par value: 375,000,000 shares authorized and 163,760,305 shares issued and outstanding at April 30, 2022 and 133,258,027 shares issued and outstanding at January 31, 2022

 

14

11

Additional paid-in capital

 

1,495,820

 

1,306,146

Accumulated deficit

 

(268,872)

 

(247,229)

Accumulated other comprehensive (loss) income

 

(1,278)

 

970

Total shareholders’ equity

 

1,225,684

 

1,059,898

Total liabilities and shareholders’ equity

$

2,428,057

$

2,221,948

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

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SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

    

Successor

Predecessor (SLH)

Three Months

Three Months

Ended

Ended

    

April 30, 2022

April 30, 2021

Revenues:

 

  

Total revenues

$

163,914

$

91,701

Operating expenses:

 

  

  

Costs of revenues

 

47,634

24,521

Content and software development

 

22,773

16,607

Selling and marketing

 

44,883

28,502

General and administrative

 

29,720

12,362

Amortization of intangible assets

 

43,854

34,943

Recapitalization and acquisition-related costs

13,442

1,932

Restructuring

3,985

537

Total operating expenses

206,291

119,404

Operating loss

(42,377)

(27,703)

Other income (expense), net

1,003

(352)

Fair value adjustment of warrants

10,106

Interest income

166

10

Interest expense

(12,281)

(11,449)

Loss before benefit from income taxes

 

(43,383)

(39,494)

Benefit from income taxes

 

(21,740)

(2,089)

Net loss

(21,643)

(37,405)

Loss per share:

 

  

  

Class A and B – Basic and Diluted (SLH)

 

*

(9.35)

Ordinary – Basic and Diluted (Successor)

(0.15)

*

Weighted average common share outstanding:

 

  

  

Class A and B – Basic and Diluted (SLH)

 

*

4,000

Ordinary – Basic and Diluted (Successor)

 

142,209

*

*Not applicable

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

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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:

 

  

  

Net loss

$

(21,643)

$

(37,405)

Other comprehensive loss — Foreign currency adjustment, net of tax

 

(2,248)

 

(228)

Comprehensive loss

$

(23,891)

$

(37,633)

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

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SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT NUMBER OF SHARES)

    

    

    

    

    

    

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))

 

4,000,000

 

$

40

 

$

674,333

 

$

(93,722)

 

$

(682)

 

$

579,969

Translation adjustment

 

 

 

 

 

(228)

 

(228)

Net loss

 

 

 

 

(37,405)

 

 

(37,405)

Balance April 30, 2021 (Predecessor (SLH))

 

4,000,000

 

40

 

674,333

 

(131,127)

 

(910)

 

542,336

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

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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)

 

133,258,027

$

11

$

1,306,146

$

(247,229)

$

970

 

$

1,059,898

Share-based compensation

6,898

6,898

Common stock issued

179,167

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

(51,316)

(309)

(309)

Common stock issued in conjunction with Codecademy acquisition

30,374,427

3

182,547

182,550

Fair value adjustment for equity awards attributed to Codecademy acquisition

538

538

Translation adjustment

 

 

 

 

 

(2,248)

 

(2,248)

Net loss

 

 

 

 

(21,643)

 

 

(21,643)

Balance April 30, 2022 (Successor)

 

163,760,305

 

14

1,495,820

(268,872)

(1,278)

 

1,225,684

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

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SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

    

Successor

Predecessor (SLH)

Three Months

Three Months

Ended

Ended

April 30, 2022

April 30, 2021

Cash flows from operating activities:

Net loss

$

(21,643)

$

(37,405)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

Share-based compensation

 

6,898

 

Depreciation and amortization

2,533

2,419

Amortization of intangible assets

43,854

34,943

Change in bad debt reserve

(320)

(293)

(Benefit from) provision for income taxes – non-cash

(26,434)

(3,355)

Non-cash interest expense

415

335

Fair value adjustment to warrants

(10,106)

Right-of-use asset

2,836

477

Changes in current assets and liabilities, net of effects from acquisitions:

Accounts receivable

 

84,107

 

87,373

Prepaid expenses and other current assets

 

(367)

 

(2,481)

Accounts payable

 

2,042

 

2,781

Accrued expenses, including long-term

 

(22,768)

 

(19,422)

Lease liability

 

(3,053)

 

(864)

Deferred revenue

 

(50,112)

 

(24,832)

Net cash provided by operating activities

 

7,882

 

39,676

Cash flows from investing activities:

 

  

 

  

Purchase of property and equipment

 

(1,613)

 

(386)

Internally developed software - capitalized costs

 

(2,286)

 

(1,494)

Acquisition of Codecademy, net of cash acquired

(198,633)

Net cash used in investing activities

 

(202,532)

 

(1,880)

Cash flows from financing activities:

 

  

 

  

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

(309)

Proceeds from issuance of term loans, net of fees

 

157,088

 

Principal payments on capital lease obligation

 

 

(263)

Proceeds from accounts receivable facility, net of borrowings

 

(46,639)

 

(2,876)

Principal payments on Term loans

(1,601)

(1,300)

Net cash provided by (used in) financing activities

 

108,539

 

(4,439)

Effect of exchange rate changes on cash and cash equivalents

 

(2,157)

 

(140)

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

 

(88,268)

 

33,217

Cash, cash equivalents and restricted cash, beginning of period

 

168,923

 

74,443

Cash, cash equivalents and restricted cash, end of period

$

80,655

$

107,660

Supplemental disclosure of cash flow information:

Cash and cash equivalents

$

75,571

$

105,004

Restricted cash

5,084

2,656

Cash, cash equivalents and restricted cash, end of period

$

80,655

$

107,660

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

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SKILLSOFT CORP.

UNAUDITED SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

(IN THOUSANDS)

    

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:

 

Cash paid for interest

$

11,272

$

11,050

Cash paid for income taxes, net of refunds

$

(1,284)

$

838

Unpaid capital expenditures

$

260

$

212

Fair value of shares issued in connection with Codecademy acquisition

$

182,550

$

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

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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 $0.01 per share (“Skillsoft Class A Shares”), outstanding immediately prior to the Effective Time, was automatically canceled and Churchill issued as consideration therefor (i) such number of shares of Churchill’s Class A common stock, par value $0.0001 per share (the “Churchill Class A common stock”) as would be transferred pursuant to the Class A First Lien Exchange Ratio (as defined in the Skillsoft Merger Agreement), and (ii) Churchill’s Class C common stock, par value $0.0001 per share (the “Churchill Class C common stock”), as would be transferred pursuant to the Class C Exchange Ratio (as defined in the Skillsoft Merger Agreement), and (b) each Class B share of Software Luxembourg, with nominal value of $0.01 per share (“Skillsoft Class B Shares”), was automatically canceled and Churchill issued as consideration therefor such number of shares of Churchill Class A common stock equal to the Per Class B Share Merger Consideration (as defined in the Skillsoft Merger Agreement). Immediately following the Effective Time, Churchill redeemed all of the shares of Class C common stock issued to the holders of Skillsoft Class A Shares for an aggregate redemption price of (i) $505,000,000 in cash and (ii) indebtedness under the Existing Second Out Credit Agreement (as defined in the Skillsoft Merger Agreement), as amended by the Existing Second Out Credit Agreement Amendment (as defined in the Skillsoft Merger Agreement), in the aggregate principal amount equal to the sum of $20,000,000 to be issued by the Surviving Corporation (as defined in the Skillsoft Merger Agreement) or one of its subsidiaries, in each case, pro rata among the holders of Churchill Class C common stock issued in connection with the Skillsoft Merger.

As part of the closing of the Skillsoft Merger, the Company consummated PIPE investments and issued 53,000,000 shares of its Class A common stock and warrants to purchase 16,666,667 shares of its Class A common Stock for aggregate gross proceeds of $530 million. In connection with the consummation of these investments, the Company reclassified amounts recorded for stock subscriptions and warrants which previously had been accounted for as liabilities of $78.2 million as additional paid in capital.

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

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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.

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(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 $123.5 million attributable to the acquisitions of Software Luxembourg, Global Knowledge and Pluma Inc. during the period ended July 31, 2021, as a result of the revised measurement of deferred revenue for acquisitions.

(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

$

258,000

Class B common stock issued*

 

48,375

Cash payments

505,000

Second Out Term Loan

20,000

Cash settlement of seller transaction costs

1,308

Total Purchase Price

$

832,683

*Shares of Class B common stock were converted into Successor Class A common stock at the time of the Skillsoft Merger.

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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

$

120,273

$

$

120,273

Current assets

118,847

706

119,553

Property and equipment

 

10,825

 

1,632

 

12,457

Intangible assets

769,799

(4,701)

765,098

Long term assets

 

18,629

 

 

18,629

Total assets acquired

1,038,373

(2,363)

1,036,010

Current liabilities

 

(49,056)

 

(350)

 

(49,406)

Debt, including accounts receivable facility

 

(552,977)

 

 

(552,977)

Deferred revenue

 

(123,300)

 

(114,047)

 

(237,347)

Deferred and other tax liabilities

 

(99,699)

 

15,920

 

(83,779)

Long term liabilities

 

(18,325)

 

1

 

(18,324)

Total liabilities assumed

(843,357)

(98,476)

(941,833)

Net assets acquired

195,016

(100,839)

94,177

Goodwill

637,667

100,839

738,506

Total purchase price

$

832,683

$

$

832,683

(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

$

84,700

 

indefinite

Trademark/tradename – SumTotal

 

5,800

 

9.6

years

Courseware

186,600

 

5

years

Proprietary delivery and development software

114,598

2.5-7.6

years

Publishing Rights

 

41,100

 

5

years

Customer relationships

 

271,400

 

12.6

years

Backlog

 

60,900

 

4.6

years

Total

$

765,098

 

  

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.

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The Company incurred $9.8 million in acquisition-related expenses, which primarily consisted of transaction fees and legal, accounting and other professional services that are included in “Recapitalization and acquisition-related costs” in the audited consolidated statement of operations for the year ended January 31, 2022 and the related notes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 18, 2022. Approximately $4.3 million was reported in the period from February 1, 2021 to June 11, 2021 (Predecessor (SLH)) and $5.5 million was reported in the period from June 12, 2021 to January 31, 2022 (Successor).

(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

$

170,199

Warrants Issued

 

14,000

Joinder Term Loans

70,000

Cash settlement of seller transaction costs

4,251

Total Purchase Price

$

258,450

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

$

17,524

$

157

$

17,681

Current assets

 

47,849

 

(2,347)

 

45,502

Property and equipment

5,531

1,625

7,156

Intangible assets

185,800

185,800

Long term assets

 

12,401

 

(3,106)

 

9,295

Total assets acquired

269,105

(3,671)

265,434

Current liabilities

 

(74,463)

 

10,944

 

(63,519)

Deferred revenue

 

(23,018)

 

(8,191)

 

(31,209)

Deferred and other tax liabilities

(16,934)

(8,571)

(25,505)

Long term liabilities

(4,248)

2,177

(2,071)

Total liabilities assumed

(118,663)

(3,641)

(122,304)

Net assets acquired

150,442

(7,312)

143,130

Goodwill

108,008

7,312

115,320

Total Purchase Price

$

258,450

$

$

258,450

(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.

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

Description

    

Amount

    

Life

Trademark/tradename

$

25,400

 

indefinite

Courseware

 

1,500

 

3

years

Proprietary delivery and development software

2,500

 

0.6

years

Vendor relationships

43,900

2.6

years

Customer relationships

 

112,500

 

10.6

years

Total

$

185,800

 

  

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 $1.0 million in acquisition-related expenses, which primarily consisted of transaction fees and legal, accounting and other professional services that are included in “Recapitalization and acquisition-related costs” in the audited consolidated statement of operations for the year ended January 31, 2022 and the related notes included in the Company’s Annual Report on Form 10-K filed with the SEC on April 18, 2022. Approximately $1.0 million was reported in the period from June 12, 2021 to January 31, 2021 (Successor). The Company incurred additional $1.5 million in GK integration related expenses in the three months ended April 30, 2022, which is included in “Recapitalization and acquisition-related costs” in the accompanying consolidated statement of operations.

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

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

The following summarizes the purchase consideration (in thousands):

Description

    

Amount

Cash payments

$

202,119

Class A common stock issued

182,550

Cash settlement of seller transaction costs and other

1,315

Total Purchase Price

$

385,984

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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

$

4,262

Current assets

3,671

Property and equipment

 

385

Intangible assets

112,000

Total assets acquired

120,318

Current liabilities

 

(4,290)

Deferred revenue

 

(18,396)

Deferred tax liabilities

 

(21,615)

Total liabilities assumed

(44,301)

Net assets acquired

76,017

Goodwill

309,967

Total purchase price

$

385,984

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

Description

    

Amount

    

Life

Tradename

$

44,000

 

13.8

years

Developed Technology

 

40,000

 

5

years

Content

18,000

 

5

years

Customer relationships

 

10,000

 

5.8

years

Total

$

112,000

 

  

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

Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company determined that the acquisition of Codecademy resulted in the recognition of goodwill primarily because the acquisition is expected to help the Company to meet its long-term operating profitability objectives through achievement of synergies. The 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 $7.7 million in acquisition-related expenses, which primarily consisted of transaction fees and legal, accounting and other professional services that are included in “Recapitalization and acquisition-related expenses” in the accompanying consolidated statement of operations for three months ended April 30, 2022 (Successor).

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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

$

171,972

Net loss

 

(35,347)

Unaudited Pro Forma Statement of Operations

Three months

ended April 30,

    

2021

Revenue

$

168,151

Net loss

 

(32,250)

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 $22 million due to a contractual holdback and working capital adjustment. The fair value of the net assets acquired included $17.8 million of goodwill and $8.7 million of identified intangible assets, which had a weighted average life of 7.4 years. The goodwill is not deductible for tax purposes. The business is reported as part of the Company’s Skillsoft reportable segment. Pro forma information and acquisition expenses have not been presented because such information is not material to the financial statements.

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

$

376,066

$

66,005

$

310,061

$

315,856

$

47,323

$

268,533

Customer contracts/ relationships

 

396,400

 

22,167

 

374,233

 

386,400

 

12,902

 

373,498

Vendor relationships

 

43,900

 

25,492

 

18,408

43,900

21,219

22,681

Trademarks and trade names

 

51,300

 

1,234

 

50,066

 

7,300

 

780

 

6,520

Publishing rights