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	$	69,517	$	138,176
Restricted cash		4,848		14,015
Accounts receivable, less reserves of approximately $92 and $125 as of April 30, 2022 and January 31, 2022 respectively		99,526		173,876
Prepaid expenses and other current assets		40,021		37,082
Current assets associated with discontinued operations		43,905		64,074
Total current assets		257,817		427,223
Property and equipment, net		12,002		11,475
Goodwill		1,104,332		795,811
Intangible assets, net		868,218		793,859
Right of use assets		15,310		17,988
Other assets		11,357		10,780
Non-current assets associated with discontinued operations		159,021		164,812
Total assets	$	2,428,057	$	2,221,948
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt	$	37,795	$	4,800
Borrowings under accounts receivable facility		27,990		74,629
Accounts payable		28,333		24,159
Accrued compensation		27,066		40,822
Accrued expenses and other current liabilities		41,388		47,757
Lease liabilities		4,967		6,387
Deferred revenue		236,800		259,701
Current liabilities associated with discontinued operations		74,688		87,467
Total current liabilities		479,027		545,722

Long-term debt		585,072		462,185
Warrant liabilities		18,093		28,199
Deferred tax liabilities		93,992		99,395
Long term lease liabilities		10,277		11,750
Deferred revenue - non-current		1,708		1,248
Other long-term liabilities		11,548		11,125
Long-term liabilities associated with discontinued operations		2,656		2,426
Total long-term liabilities		723,346		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 condensed consolidated financial statements.

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	$	134,838	$	67,680
Operating expenses:
Costs of revenues		38,009		15,094
Content and software development		16,331		10,504
Selling and marketing		39,561		23,496
General and administrative		29,346		11,815
Amortization of intangible assets		39,558		31,917
Recapitalization and acquisition-related costs		13,312		1,714
Restructuring		3,956		334
Total operating expenses		180,073		94,874
Operating loss		(45,235)		(27,194)
Other income (expense), net		1,052		(371)
Fair value adjustment of warrants		10,106		—
Interest income		160		7
Interest expense		(11,514)		(11,408)
Loss before benefit from income taxes		(45,431)		(38,966)
Benefit from income taxes		(22,337)		(3,057)
Loss from continuing operations		(23,094)		(35,909)
Income (loss) from discontinued operations, net of tax		1,451		(1,496)
Net loss		(21,643)		(37,405)

Loss per share:
Class A and B – Basic and Diluted (SLH) - Continuing operations		*		(8.98)
Class A and B – Basic and Diluted (SLH) - Discontinued operations		*		(0.37)
Class A and B – Basic and Diluted (SLH)		*		(9.35)
Ordinary – Basic and Diluted (Successor) - Continuing operations		(0.16)		*
Ordinary – Basic and Diluted (Successor) - Discontinued operations		0.01		*
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 condensed consolidated financial statements.

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 condensed consolidated financial statements.

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 condensed consolidated financial statements.

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 condensed consolidated financial statements.

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	$	69,517	$	68,933
Restricted cash		4,848		2,420
Cash attributed to discontinued operations		6,290		36,307
Cash, cash equivalents and restricted cash, end of period	$	80,655	$	107,660

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

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 (received) 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 condensed consolidated financial statements.

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 (“SLH 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 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 SLH 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 $20,000,000.

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 “Skillsoft”). 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 condensed 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 condensed 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 the accompanying condensed 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 condensed 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 and Global Knowledge (“GK”) 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 and the updated financial information and related disclosure to reflect the exclusion of the financial operations for SumTotal for the fiscal year ended January 31, 2022 on Form 8-K filed with SEC on December 5, 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.

(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.

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.

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. 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 the 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)

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. 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. Approximately $1.0 million was reported in the period from June 12, 2021 to January 31, 2021 (Successor). The Company incurred an 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 condensed consolidated statement of operations.

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 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

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).

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information summarizes the results of continuing 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	$	142,896
Net loss from continuing operations		(19,251)


Unaudited Pro Forma Statement of Operations
	Three months
	ended April 30,
	2021
Revenue	$	138,925
Net loss from continuing operations		(38,032)

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.

(4) Discontinued Operations

The sale was completed on August 15, 2022. Skillsoft received net proceeds of $180.0 million and reserved $8.0 million for working capital contingency which is subject to customary adjustments as set forth in the Purchase Agreement, including adjustments based on the working capital, cash and indebtedness of SumTotal and its direct and indirect subsidiaries as of the closing date.

In connection with the sale, the parties to the Purchase Agreement entered into certain other agreements, including a transition services agreement pursuant to which each of Seller and Buyer agreed to provide the other party with certain transition services for a limited period following the closing.

The Company determined that the sale of SumTotal met the criteria to be classified as discontinued operations, and its assets and liabilities held for sale, as of June 12, 2022. Accordingly, the Company classified the assets and liabilities of the discontinued operations as held for sale in our consolidated balance sheets at the lower of carrying amount or fair value less cost to sell. Classification for the assets and liabilities in comparative periods retained their previous classification as current or long-term. No losses were recognized upon classification of the discontinued operations assets and liabilities as held for sale. Depreciation and amortization ceased on assets

classified as held for sale. The operating results of SumTotal are reported as discontinued operations, for all periods presented, as the disposition reflects a strategic shift that has, or will have, a major effect on our operations and financial results.

The financial results of SumTotal are presented as Income from discontinued operations, net of tax on our condensed consolidated Statement of Operations. The following table presents financial results of SumTotal for all periods presented in our condensed consolidated Statement of Operations (in thousands):


	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
	April 30, 2022		April 30, 2021
Revenues:
Total revenues	$	29,076	$	24,021
Operating expenses:
Costs of revenues		9,623		9,427
Content and software development		6,436		6,103
Selling and marketing		5,322		5,006
General and administrative		380		547
Amortization of intangible assets		4,296		3,026
Recapitalization and acquisition-related costs		132		218
Restructuring		29		203
Total operating expenses		26,218		24,530
Operating income from discontinued operations		2,858		(509)
Other income (expense), net		(49)		19
Interest income		6		3
Interest expense		(767)		(41)
Income from discontinued operations before income taxes		2,048		(528)
Provision for income taxes		597		968
Net income from discontinued operations	$	1,451	$	(1,496)

The following table presents the aggregate carrying amounts of the classes of assets and liabilities of discontinued operations of SumTotal (in thousands):


	Successor		Successor
	April 30, 2022		January 31, 2022
Carrying amount of assets included as part of discontinued operations
Cash and cash equivalents	$	6,054	$	16,496
Restricted cash		236		236
Accounts receivable		27,733		38,587
Prepaid expenses and other current assets		9,882		8,755
Current assets of discontinued operations		43,905		64,074
Property and equipment, net		5,631		6,609
Goodwill		75,594		75,693
Intangible assets, net		71,507		75,628
Right of use assets		1,780		1,937
Other assets		4,509		4,945
Long-term assets of discontinued operations		159,021		164,812
Total assets classified as discontinued operations in the condensed consolidated balance sheet	$	202,926	$	228,886

Carrying amounts of liabilities included as part of discontinued operations:
Accounts payable	$	1,522	$	1,502
Accrued compensation		6,838		10,293
Accrued expenses and other current liabilities		5,162		3,260
Lease liabilities		519		508
Deferred revenue		60,647		71,904
Current liabilities of discontinued operations		74,688		87,467
Deferred revenue - non-current		—		292
Deferred tax liabilities		1,073		516
Long term lease liabilities		1,434		1,605
Other long-term liabilities		149		13

Current liabilities of discontinued operations			2,656				2,426
Total liabilities classified as discontinued operations in the condensed consolidated balance sheet		$	77,344			$	89,893

In addition, the amounts described in other footnotes within these consolidated financial statements have been updated to reflect the amounts applicable to continuing operations, unless otherwise noted.

(5) Intangible Assets

Intangible assets consisted of the following (in thousands):


	April 30, 2022 (Successor)						January 31, 2022 (Successor)
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Developed software/ courseware	$	363,842	$	62,522	$	301,320	$	300,771	$	43,687	$	257,084
Customer contracts/ relationships		342,300		17,917		324,383		332,300		10,436		321,864
Vendor relationships		43,900		25,492		18,408		43,900		21,219		22,681
Trademarks and trade names		45,500		327		45,173		3,900		373		3,527
Publishing rights		41,100		7,284		33,816		41,100		5,229		35,871
Backlog		49,700		11,874		37,826		49,700		4,906		44,794
Skillsoft trademark		84,700		—		84,700		84,700		—		84,700
Global Knowledge trademark		25,400		2,808		22,592		25,400		2,062		23,338
Total	$	996,442	$	128,224	$	868,218	$	881,771	$	87,912	$	793,859

Amortization expense related to the existing finite-lived intangible assets is expected to be as follows (in thousands):


Fiscal Year	Amortization Expense
2023 (remaining 9 months)	$	129,296
2024		150,855
2025		130,179
2026		126,268
2027		80,415
Thereafter		166,505
Total	$	783,518

Amortization expense related to intangible assets in the aggregate was $39.6 million and $31.9 million for the three months ended April 31, 2022 (Successor) and April 30, 2021 (Predecessor (SLH)), respectively.

Impairment of Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill in fresh-start accounting results when the reorganization value of the emerging entity exceeds what can be attributed to specific tangible or identified intangible assets. The Company tests goodwill for impairment during the fourth quarter every year in accordance with ASC 350, Intangibles — Goodwill (“ASC 350”). In connection with the impairment evaluation, the Company may first consider qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not (i.e., a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. Performing a quantitative goodwill impairment test is not necessary if an entity determines based on this assessment that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company fails or elects to bypass the qualitative assessment, the goodwill impairment test must be performed. This test requires a comparison of the carrying value of the reporting unit to its estimated fair value. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded, not to exceed the amount of goodwill allocated to the reporting unit. In determining reporting units, the Company first identifies its operating segments, and then assesses whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component.

Intangible assets arising from business combinations are generally recorded based upon estimates of the future performance and cash flows from the acquired business. The Company uses an income approach to determine the estimated fair value of certain identifiable intangible assets including customer relationships and trade names and uses a cost approach for other identifiable intangible assets, including developed software/courseware. The income approach determines fair value by estimating the after-tax cash flows attributable to an identified asset over its useful life (Level 3 inputs) and then discounting these after-tax cash flows back to a present value. The cost approach determines fair value by estimating the cost to replace or reproduce an asset at current prices and is reduced for functional and economic obsolescence. Developed technology represents patented and unpatented technology and know-how. Customer contracts and relationships represents established relationships with customers, which provide a ready channel for the sale of additional content and services. Trademarks and tradenames represent acquired product names and marks that the Company intends to continue to utilize.

The Company reviews intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in remaining useful life. Conditions that would indicate impairment and trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, or an adverse action or assessment by a regulator. The Company reviews indefinite-lived intangible assets, including goodwill and certain trademarks, during the fourth quarter of each year for impairment, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist and reassesses their classification as indefinite-lived assets.

During the three months ended April 30, 2022, the Global Knowledge business experienced a decline in bookings compared to the corresponding period in the prior year, which will likely lead to lower revenue for the reporting unit for the three months ended July 31, 2022 due to the lag of bookings converting into GAAP revenue. When considering whether events or changes in circumstances might indicate that the carrying amount of Global Knowledge reporting unit goodwill and other intangible assets may not be recoverable, the Company concluded that no such events and changes in circumstances were present during the three months ended April 30, 2022 since its long-term outlook for the Global Knowledge business has not changed as the Company continues to invest in its salesforce and product offerings. Based on these considerations, management does not believe there are indicators of impairment as of April 30, 2022. In the event the Company continues to experience operating performance in its Global Knowledge business that is below its expectations in future periods, such factors could result in a decline in the fair value of the reporting unit, and the Company may be required to record impairments of goodwill and other identified intangible assets.

A roll forward of goodwill is as follows:


Description	Skillsoft		GK		Consolidated
Goodwill, net January 31, 2022 (Successor)	$	680,500	$	115,311	$	795,811
Foreign currency translation adjustment		(102)		(730)		(832)
Acquisition of Codecademy		309,967		—		309,967
Measurement period adjustments		—		(614)		(614)
Goodwill, net April 30, 2022 (Successor)	$	990,365	$	113,967	$	1,104,332

As of April 30, 2022 and January 31, 2022, there were no accumulated impairment losses for the Skillsoft or Global Knowledge segments.

(6) Taxes

For the three months ended April 30, 2022 (Successor), the Company recorded a tax benefit of $22.3 million on pretax loss of $45.4 million. The tax benefit reflects the impact of non-deductible items, current period changes in the Company’s valuation allowance on its deferred tax assets and the impact of foreign rate differential.

For the three months ended April 30, 2021 (Predecessor (SLH)), the Company recorded a tax benefit of $3.1 million on pretax loss of $39.0 million. The tax benefit reflects current period changes to unrecognized tax positions, foreign rate differential, and changes in the Company’s valuation allowance on its deferred tax assets.

(7) Restructuring

In connection with strategic initiatives implemented during the period ended April 30, 2022 (Successor) and April 30, 2021 (Predecessor (SLH)), the Company’s management approved and initiated plans to reduce its cost structure and better align operating expenses with

The table below reconciles the undiscounted future minimum lease payments under non-cancellable leases to the total lease liabilities recognized on the consolidated balance sheets as of April 30, 2022 (Successor):


Fiscal Year Ended January 31 (in thousands):	Operating Leases
2023 (excluding 3 months ended April 30, 2022)	$	4,551
2024		3,869
2025		2,387
2026		1,122
2027		1,130
Thereafter		4,699
Total future minimum lease payments		17,758
Less effects of discounting		(2,514)
Total lease liabilities	$	15,244

Reported as of April 30, 2022
Lease liabilities	$	4,967
Long-term lease liabilities		10,277
Total lease liabilities	$	15,244

Litigation

From time to time, the Company is a party to or may be threatened with litigation in the ordinary course of its business. The Company regularly analyzes current information, including, as applicable, the Company’s defense and insurance coverage and, as necessary, provides accruals for probable and estimable liabilities for the eventual disposition of these matters.

On March 14, 2022, a putative Company stockholder filed a complaint in the United States District Court for the Eastern District of New York, captioned Newton v. Skillsoft Corp., et al., No. 1:22-cv-01383 (E.D.N.Y.), against the Company and the members of its Board of Directors. On May 29, 2022, this case was dismissed. The complaint generally alleged that the definitive proxy statement filed by the Company with the SEC in connection with the Codecademy acquisition contained misstatements and omissions in violation of Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder by the SEC.

The items noted above, and any potential liability, do not currently meet the accounting criteria of probable and estimable. Therefore the Company has not accrued any related liability as of April 30, 2022.

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.

(9) Long-Term Debt

Debt consisted of the following (in thousands):


	Successor		Successor
	April 30, 2022		January 31, 2022
Term Loan - current portion	$	6,404	$	4,800
Term Loan - mandatory prepayment from SumTotal sale		31,391		—
Current maturities of long-term debt	$	37,795	$	4,800

Term Loan - long-term portion		599,404		474,000
Less: Original Issue Discount - long-term portion		(9,294)		(6,724)
Less: Deferred Financing Costs - long-term portion		(5,038)		(5,091)
Long-term debt	$	585,072	$	462,185

Term Loan (Successor)

On July 16, 2021, Skillsoft Finance II, Inc. (“Skillsoft Finance II”), a subsidiary of Skillsoft Corp., entered into a Credit Agreement (the “Credit Agreement”), by and among Skillsoft Finance II, as borrower, Skillsoft Finance I, Inc. (“Holdings”), the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent, pursuant to which the lenders provided a $480 million term loan facility (the “Term Loan Facility”) to Skillsoft Finance II, the proceeds of which, together with cash on hand, were used to refinance existing debt. The Term Loan Facility is scheduled to mature on July 16, 2028.

In connection with the closing of the Codecademy acquisition, Skillsoft Finance II entered into Amendment No. 1 to the Credit Agreement, dated as of April 4, 2022 (the “First Amendment”), among Skillsoft Finance II, Holdings, certain subsidiaries of Skillsoft Finance II, as guarantors, Citibank N.A., as administrative agent, and the financial institutions parties thereto as Term B-1 Lenders, which amended the Credit Agreement, as amended by the First Amendment, the “Amended Credit Agreement”.

The First Amendment provides for the incurrence of up to $160 million of Term B-1 Loans (the “Term B-1 Loans”) under the Amended Credit Agreement. In addition, the First Amendment, among other things, (a) provides for early opt-in to Secured Overnight Financing Rate (SOFR )for the existing term loans under the Credit Agreement (such existing term loans together with the Term B-1 Loans, the “Initial Term Loans”) and (b) provides for the applicable margin for the Initial Term Loans at 4.25% with respect to base rate borrowings and 5.25% with respect to SOFR borrowings.

The Company received $153.2 million of net proceeds (net of $4.0 million of financing costs and $2.8 million of original issuance discounts) from the Term Loan Facility on April 4, 2022. The Company used the net proceeds and cash on hand for the closing of the Codecademy acquisition on April 4, 2022.

The refinancing was accounted for as a modification for certain lenders and an extinguishment for other lenders and debt issuance costs and lender fees were accounted for in proportion to whether the related principal balance was considered modified or extinguishments. Accordingly, both newly incurred and deferred financing costs and original issuance discounts of $0.1 million and $2.8 million, respectively, will be amortized as additional interest expense over the term of the Term Loan. Furthermore, $3.9 million of third-party costs incurred were recognized as interest expenses in the accompanying statement of operations for the three months ended April 30, 2022.

Prior to the maturity thereof, the Initial Term Loans will be subject to quarterly amortization payments of 0.25% of the principal amount. The Amended Credit Agreement requires that any prepayment of the Initial Term Loans in connection with a repricing transaction shall be subject to (i) a 2.00% premium on the amount of Initial Term Loans prepaid if such prepayment occurs prior to July 16, 2022 and (ii) a 1.00% premium on the amount of Initial Term Loans prepaid in connection with a Repricing Transaction (as defined in the Amended Credit Agreement), if such prepayment occurs on or after July 16, 2022 but on or prior to January 16, 2023. The proceeds of the Term B-1 Loans were used by the Company to finance, in part, the Codecademy acquisition, and to pay costs, fees, and expenses related thereto.

All obligations under the Amended Credit Agreement, and the guarantees of those obligations (as well as certain cash management obligations and interest rate hedging or other swap agreements), are secured by substantially all of Skillsoft Finance II’s personal property as well as those assets of each subsidiary guarantor.

Loan Parties are subject to various affirmative and negative covenants and reporting obligations under the Term Loan Facility. These include, among others, limitations on indebtedness, liens, sale and leaseback transactions, investments, fundamental changes, assets sales, restricted payments, affiliate transactions, and restricted debt payments. Events of default under the Term Loan Facility include non-payment of amounts due to the lenders, violation of covenants, materially incorrect representations, defaults under other material indebtedness, judgments and specified insolvency-related events, certain ERISA events, and invalidity of loan or collateral documents, subject to, in certain instances, specified thresholds, cure periods and exceptions. As of April 30, 2022, the Company is in compliance with all covenants.

The Company’s debt outstanding as of April 30, 2022 matures as shown below (in thousands):


Fiscal year ended January 31:
2023	$	36,194
2024		6,404
2025		6,404
2026		6,404
2027		6,404
Thereafter		575,389
Total payments		637,199
Less: Current portion		(37,795)
Less: Unamortized original issue discount and issuance costs		(14,332)
Long-term portion	$	585,072

Accounts Receivable Facility (Predecessor and Successor)

On December 20, 2018, the Company entered into a $75.0 million receivables credit agreement, with a termination date of the earliest of 5 years from closing or 45 days before the revolving credit facility maturity or 180 days before the maturity of any term indebtedness greater than $75 million. There are four classes of available receivables for sale with advance rates between 50.0% and 85.0%. The lenders require the Company to deposit receipts from sold receivables to a restricted concentration account. Receivables that have been sold to the lenders must be transferred to the restricted concentration account within two business days of being collected by the Company. The Company accounts for these transactions as borrowings, as the assets being transferred contain the rights to future revenues. Under these agreements, the Company receives the net present value of the accounts receivable balances being transferred. The interest rate on borrowings outstanding under these agreements was 3.7% at April 30, 2022. Borrowings and repayments under these agreements are presented as cash flows from financing activities in the accompanying consolidated statements of cash flows.

On September 19, 2019, the Company amended the receivables credit agreement to include Class “B” lending. This increased the facility borrowing capacity to up to $90.0 million. In conjunction with this, it increased the advance rate to 95% across the four classes of available receivables. All other terms and conditions remained materially the same.

On August 27, 2020, the Company amended its accounts receivable facility. In connection with the amendment, additional capacity under the previous accounts receivable facility which had been extended by the private equity sponsor of the Company’s prior owner was eliminated, reducing the maximum capacity of the facility from $90 million to $75 million. The maturity date for the remaining $75 million facility was extended to the earlier of (i) December 2024 or (ii) 90 days prior to the maturity of any corporate debt. The Company submits a monthly reconciliation on each month’s settlement date detailing what was collected from the prior months borrowing base and what receivables are being sold during the new borrowing base period to replenish them. If additional receivables are sold to replenish receipts, the funds from the concentration account will be returned to the Company from the restricted concentration account by the administration agent. The reserve balances were $3.9 million at April 30, 2022 and are classified as restricted cash on the balance sheet.

(10) Shareholders’ Equity

Skillsoft Corp. (Successor)

Capitalization

As of April 30, 2022, the Company’s authorized share capital consisted of 375,000,000 shares of Class A common stock, 3,840,000 shares of Class C common stock and 10,000,000 shares of preferred stock, with a par value of $0.0001 each. As of April 30, 2022, 163,760,305 shares of Class A common stock were issued and outstanding.

The number of authorized shares of Class A common stock or preferred stock authorized for issuance may be increased by the affirmative vote of the holders of a majority in voting power of the Company’s capital stock entitled to vote thereon. Except as required by law, holders of share 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

In connection with the formation of the Company and subsequent acquisitions of Software Luxembourg and Global Knowledge, warrants to purchase common stock were issued to investors, sellers of Global Knowledge and an executive of the Company. Warrants that are not subject to ASC 718, Stock Compensation and (i) contained features that could cause the warrant to be puttable to the Company for cash or (ii) had terms that prevented the conversion of the warrant from being fixed in all circumstances, are classified as a liability on the Company’s balance sheet and measured at fair value, with changes in fair value being recorded in the income statement, whereas all other warrants meet the equity scope exception and are classified as equity and not remeasured.

A summary of liability classified warrants is as follows (in thousands, except per share amounts):

Underlying

Fair Value

Common

Strike

Redemption

Expiration

at April 30,

Type

Shares

Price

Date

2022

Private Placement Warrants – Sponsor

16,300

11.50

None

6/11/26

18,093

A summary of equity classified warrants is as follows (in thousands, except per share amounts):


	Underlying
	Common	Strike		Redemption		Expiration
Type	Shares	Price		Price		Date
Public Warrants	23,000	$	11.50	$	18.00	6/11/26
Private Placement Warrants (PIPE)	16,667	$	11.50	$	18.00	6/11/26
Private Placement Warrants (Global Knowledge)	5,000	$	11.50		None	10/12/25
Private Placement Warrants (CEO)	1,000	$	11.50		None	6/11/26
Total	45,667

Software Luxembourg Holding S.A. (Predecessor (SLH))

Reorganization

On August 27, 2020 Pointwell (which had been a direct wholly owned subsidiary of Evergreen Skills Lux S.à r.l.), and certain of its subsidiaries, completed a reorganization. As a result of the reorganization, ownership of Pointwell was transferred to the Company’s lenders and no consideration or right to future consideration was provided to the former equity holders of Pointwell. In addition, the shared-based compensation plans of Pointwell were cancelled with no consideration provided.

In Settlement of Predecessor’s first and second lien debt obligations, the holders of the Predecessors first lien received a total of 3,840,000 Class A common shares. The Predecessor’s second lien holders received a total of 160,000 Class B common shares and a

total of 705,882 warrants to purchase additional common shares. The predecessor warrants were valued using a probability-based approach that considered management’s estimate of the probability of (i) a sale of the company that met certain conditions that caused the warrants to be cancelled for no consideration, (ii) a sale of the company that did not meet certain conditions that caused the warrants to be cancelled for no consideration and (iii) warrants being held to maturity, with the last two scenarios utilizing a Black-Scholes model to estimate fair value.

The warrants included a provision whereby, in the event of a sale of the Predecessor meeting certain conditions (“Favored Sale”), the warrants would be cancelled for no consideration, however, in such an event, the holders of Class B shares would receive a higher share of any consideration paid in the form of common stock by the acquiring company. The conditions of the Favored Sale were established in anticipation of a Churchill merger and mirror the ultimate agreement executed on October 12, 2020. The Board of Directors and required level of warrant holders amended the warrants such that the deadline for a Favored Sale to occur was extended to October 12, 2020. An amendment to extend the date by which a Favored Sale could occur represented a modification to both the warrants and the participation right held by the Class B holders. Management measured the impact of the modification to both the freestanding warrants and the participation right held by the Class B holders by comparing their fair values immediately before and after the modification. The net impact of the increase in the value of the participation right held by Class B stockholders, of $13.3 million, and the decrease in the value of the warrants, of $7.4 million, is reflected as a decrease of $5.9 million in earnings attributable to Class A common stockholders and an increase to $5.9 million earnings attributable to Class B common stockholders for earnings per share purposes. The $7.4 million decrease in the value of warrants is reflected as a capital contribution and is reflected as an increase to additional-paid-in-capital in the period from August 28, 2020 through October 31, 2020 (Predecessor SLH).

As a result of the Skillsoft Merger, the warrants were terminated for no consideration on June 11, 2021.

Share Capital

As of January 31, 2021 the Predecessor’s authorized share capital consisted of 1,000,000,000 common shares with a par value $0.01 each. This consists of 800,000,000 Class A shares and 200,000,000 Class B shares. As of January 31, 2021, 4,000,000 common shares were issued and outstanding. This consists of 3,840,000 Class A shares and 160,000 Class B shares.

(11) Stock-based compensation

Equity Incentive Plans

In June 2021, Skillsoft Corp adopted the 2020 Omnibus Incentive Plan (“2020 Plan”) and issued Stock Options, RSUs and PSUs to employees. 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 Award and Cash-Based Incentive Awards to employees, directors, and consultants of the Company. Under the 2020 Plan, 13,105,902 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 5.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year. As of April 30, 2022 a total of 9,958,495 shares of common stock were available for issuance under the 2020 Plan.

Stock Options

Under the 2020 Plan all employees, directors and consultants are eligible to receive incentive share options or 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 optionees’ 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 table summarizes the stock option activity for the three months ended April 30, 2022:


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic Value
	Shares	Price		Term (Years)	(In thousands)
Outstanding, January 31, 2022	2,825,752	$	10.76	9.4
Granted	—		—	—
Exercised	—		—	—
Forfeited	—		—	—
Expired	—		—	—
Outstanding, April 30, 2022	2,825,752	$	10.76	9.2	$	—
Vested and Exercisable, April 30, 2022	187,500	$	10.75		$	—

The total unrecognized equity-based compensation costs related to the stock options was $7.6 million, which is expected to be recognized over a weighted-average period of 3.2 years.

The grant date fair value of the stock options was determined using the Black Scholes model with the following assumptions:


	Three Months Ended
	April 30, 2022
Risk-free interest rates		1.0	%
Expected dividend yield		—
Volatility factor		30 - 31	%
Expected lives (years)		6.1
Weighted average fair value of options granted	$	3.36

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. Restricted stock units vest ratably over a three or four-year period, subject to continued employment through each anniversary. The fair value of restricted stock units is determined on the grant date and is amortized over the vesting period on a straight-line basis.

The following table summarizes the RSU activity for the three months ended April 30, 2022:


		Weighted-		Aggregate
		Average Grant		Intrinsic Value
	Shares	Date Fair Value		(in thousands)
Unvested balance, January 31, 2022	5,091,852	$	10.26
Granted	4,001,733		8.51
Vested	(166,667)		10.75
Forfeited	(263,223)		9.39
Unvested balance, April 30, 2022	8,663,695	$	8.36	$	46,351

The total unrecognized stock-based compensation costs related to RSUs was $64.2 million, which is expected to be recognized over a weighted-average period of 2.9 years.

Market-based Restricted Stock Units

Market-based restricted stock units (“MBRSUs”) vest over a four-year performance period, subject to continued employment through each anniversary and achievement of a share price threshold ($12.50 for 20 out of 30 consecutive trading days prior to the fourth anniversary). 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 table summarizes the MBRSU activity for the three months ended April 30, 2022:


		Weighted-		Aggregate
		Average Grant		Intrinsic Value
	Shares	Date Fair Value		(in thousands)
Unvested balance, January 31, 2022	1,095,978	$	8.43
Granted	304,821		7.54
Vested	—		—
Forfeited	(94,736)		7.33
Unvested balance, April 30, 2022	1,306,063	$	7.55	$	6,987

The total unrecognized stock-based compensation costs related to MBRSUs was $6.2 million, which is expected to be recognized over a weighted-average period of 1.5 years.

Performance-based Restricted Stock Units

The Company issued 49,876 performance-based restricted stock units that have a grant-date fair value of $0.5 million during the period from June 12, 2021 to January 31, 2022. Of the 49,876 performance-based restricted stock units, 12,500 shares were vested and 12,500 shares were canceled on January 31, 2022. The remaining 24,876 shares will vest upon the achievement of specified corporate goals. There was no stock-based compensation expense recognized for the remaining 24,876 shares in the three months ended April 30, 2022 as the corporate goals were not achieved before April 30, 2022.

Stock-based Compensation Expense

The following summarizes the classification of stock-based compensation in the condensed consolidated statements of operations (in thousands):



	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
	April 30, 2022		April 30, 2021
Cost of revenues	$	13	$	—
Content and software development		1,575		—
Selling and marketing		1,477		—
General and administrative		5,427		—
Total	$	8,492	$	—

The stock-based compensation for the three months ended April 30, 2022 includes $1.6 million of fair value adjustment for the cash consideration exceeded the fair value of the legacy Codecademy options, which is classified as a post-combination expense.

(12) Revenue

Disaggregated Revenue and Geography Information

The following is a summary of revenues by type for the three months ended April 30, 2022 (Successor) and April 30, 2021 (Predecessor (SLH)) (in thousands):




	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
	April 30, 2022		April 30, 2021
SaaS subscription services	$	85,068	$	64,361
Professional services		4,531		3,319
Software licenses and other		186		—
Instructor led training		45,053		—
Total net revenues	$	134,838	$	67,680

The following table sets forth our revenues by geographic region for the three months ended April 30, 2022 (Successor) and April 30, 2021 (Predecessor (SLH)) (in thousands):




	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
	April 30, 2022		April 30, 2021
Revenue:
United States	$	83,315	$	51,144
Other Americas		8,556		3,383
Europe, Middle East and Africa		38,026		9,528
Asia-Pacific		4,941		3,625
Total net revenues	$	134,838	$	67,680

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 three months ended April 30, 2022 was as follows (in thousands):


Deferred revenue at January 31, 2022 (Successor)	$	260,949
Billings deferred		94,001
Recognition of prior deferred revenue		(134,838)
Acquisition of Codecademy		18,396
Deferred revenue at April 30, 2022 (Successor)	$	238,508

Deferred revenue performance obligations relate predominately 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 three months ended April 30, 2022 was as follows (in thousands):


Deferred contract acquisition costs at January 31, 2022 (Successor)	$	13,248
Contract acquisition costs		4,258
Recognition of contract acquisition costs		(3,726)
Deferred contract acquisition costs at April 30, 2022 (Successor)	$	13,780

(13) Fair Value Measurements

FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a fair value hierarchy that prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The three levels of the fair value hierarchy established by ASC 820 in order of priority are as follows:

●

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

●

Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

●

Level 3: Unobservable inputs that reflect the Company’s estimates of assumptions that market participants would use in pricing the asset or liability.

Successor Company Warrants

A summary of liability classified warrants is as follows (in thousands, except per share amounts):

Underlying

Fair Value

Common

Strike

Redemption

Expiration

at April 30,

Type

Shares

Price

Date

2022

Private Placement Warrants – Sponsor

16,300

11.50

None

6/11/26

18,093

The Company classifies certain Private Placement Warrants as liabilities in accordance with ASC Topic 815. The Company estimates the fair value of the Private Placement Warrants using a Black-Scholes option pricing model. The fair value of the Private Placement Warrants utilized Level 3 inputs as it is based on significant inputs not observable in the market. The fair value of the Private Placement Warrants classified as liabilities were estimated at April 30, 2022 using a Black-Scholes options pricing model and the following assumptions:


	April 30, 2022
Risk-free interest rates		2.88	%

Expected dividend yield		—
Volatility factor		50	%
Expected lives (years)		4.1
Value per unit	$	1.11

Predecessor Company (SLH) Warrants

At each relevant measurement date, the Predecessor warrants were valued using a probability-based approach that considered management’s estimate of the probability of (i) a sale of the company that met certain conditions that caused the warrants to be cancelled for no consideration, (ii) a sale of the company that did not meet certain conditions that caused the warrants to be cancelled for no consideration and (iii) warrants being held to maturity, with the last two scenarios utilizing a Black-Scholes model to estimate fair value. As a result of the Skillsoft Merger, the Predecessor warrants were terminated for no consideration on June 11, 2021.

The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of April 30, 2022 and are categorized using the fair value hierarchy (in thousands):


	Total		(Level 3)

Private Placement Warrants – Sponsor	$	18,093	18,093
Total liabilities recorded at fair value	$	18,093	18,093

The following tables reconcile Level 3 instruments for which significant unobservable inputs were used to determine fair value:


	For the Three
	Months Ended
	April 30, 2022
Balance as of January 31, 2022 (Successor)	$	28,199
Unrealized gains recognized as other income		(10,106)
Balance as of April 30, 2022 (Successor)	$	18,093

	For the Three
	Months Ended
	April 30, 2021
Balance as of January 31, 2021 (Predecessor (SLH))	$	900
Unrealized losses recognized as other income		(100)
Balance as of April 30, 2021 (Predecessor (SLH))	$	800

Other Fair Value Instruments

The Company currently invests excess cash balances primarily in cash deposits held at major banks. The carrying amounts of cash deposits, trade receivables, trade payables and accrued liabilities, as reported on the consolidated balance sheet as of April 30, 2022, approximate their fair value because of the short maturity of those instruments.

The Company considered the fair value of its external borrowings and believes their carrying values approximate fair value at April 30, 2022 based on the recent issuance of additional Term loans timing on April 4, 2022.

(14) 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, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker (CODM) is its Chief Executive Officer. The Company’s CODM evaluates results using the operating segment structure as the primary basis for which the allocation of resources and financial results are assessed.

The following table presents summary results for each of the businesses for the three months ended April 30, 2022 (Successor) and April 30, 2021 (Predecessor (SLH)), (in thousands):




	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
	April 30, 2022		April 30, 2021
Skillsoft Content
Revenues	$	89,785	$	67,680
Operating expenses		128,420		94,874
Operating income (loss)		(38,635)		(27,194)
Global Knowledge
Revenues		45,053		—
Operating expenses		51,653		—
Operating income (loss)		(6,600)		—
Consolidated
Revenues		134,838		67,680
Operating expenses		180,073		94,874
Operating income (loss)		(45,235)		(27,194)
Non-operating (expense) income		1,052		(371)
Fair value adjustment of warrants		10,106		—
Interest expense, net		(11,354)		(11,401)
Reorganization items, net		—		—
Benefits from (provision for) income taxes		22,337		3,057
Net loss from continuing operations		(23,094)		(35,909)
Income (loss) from discontinued operations, net of tax		1,451		(1,496)
Net (loss) income	$	(21,643)	$	(37,405)

Skillsoft content segment depreciation for the three months ended April 30, 2022 (Successor) and April 30, 2021 (Predecessor (SLH)) was $0.9 million and $1.2 million, respectively.

Global Knowledge segment depreciation for the three months ended April 30, 2022 (Successor) was $0.5 million.

The Company’s segment assets primarily consist of cash and cash equivalents, accounts receivable, prepaid expenses, deferred taxes, property and equipment, goodwill and intangible assets. The following table sets forth the Company’s segment assets as of April 30, 2022 and January 31, 2022 (in thousands):



	April 30, 2022		January 31, 2022

Skillsoft	$	1,896,621	$	1,648,160
Global Knowledge		328,510		344,902
Total assets classified as discontinued operations		202,926		228,886
Consolidated	$	2,428,057	$	2,221,948

The following table sets forth the Company’s long-lived tangible assets by geographic region as of April 30, 2022 and January 31, 2022 (in thousands):



	April 30, 2022		January 31, 2022

United States	$	10,024	$	9,482
Ireland		279		313
Rest of world		1,699		1,680
Total	$	12,002	$	11,475

(15) Net Loss Per Share

Basic earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding restricted stock-based awards, stock options, and shares issuable under the employee stock purchase plan using the treasury stock method.

The following tables set forth the computation of basic and diluted earnings per share (in thousands, except number of shares and per share data):





	Successor		Predecessor (SLH)

		Three Months		Three Months
		Ended April, 30		Ended April, 30
		2022		2021
(Loss) income from continuing operations	$	(23,027)		(35,909)
Income (loss) from discontinued operations, net of tax		1,384		(1,496)
Net (loss) income	$	(21,643)	$	(37,405)

Weighted average common shares outstanding:
Class A and B – Basic and Diluted (Predecessor (SLH))		*		4,000
Ordinary – Basic and Diluted (Successor)		142,209		*

Net loss per share:
Class A and B – Basic and Diluted (Predecessor (SLH)) - Continuing operations		*		(8.98)
Class A and B – Basic and Diluted (Predecessor (SLH)) - Discontinued operations		*		(0.37)
Class A and B – Basic and Diluted (Predecessor (SLH))		*	$	(9.35)
Ordinary – Basic and Diluted (Successor) - Continuing operations		(0.16)		*
Ordinary – Basic and Diluted (Successor) - Discontinued operations		0.01		*
Ordinary – Basic and Diluted (Successor)	$	(0.15)		*

* Not Applicable

Warrants to purchase 705,882 common shares have been excluded from the Predecessor (SLH) period since, for periods of losses, the impact would be anti-dilutive and, for periods of income, no shares would be added to diluted earnings per share under the treasury stock method as the strike price of these awards are above the fair market value of underlying shares for all periods presented.

During the three months ended April 30, 2022 (Successor) and April 30, 2021 (Predecessor (SLH)), the Company incurred net losses and, therefore, the effect of the Company’s potentially dilutive securities was not included in the calculation of diluted loss per share as the effect would be anti-dilutive. The following table contains share/unit totals with a potentially dilutive impact (in thousands):


	Successor	Predecessor (SLH)

Warrants to purchase common shares	61,967	706
Stock Options	2,826	—
RSUs	9,995	—
Total	74,788	706

(16) Related Party Transactions

Predecessor (SLH) Related Party Transactions

Upon emergence from Chapter 11 on August 27, 2020, the Company’s exit credit facility consisting of $110 million of First Out Term Loans and $410 million of Second Out Term Loans was financed in whole by the Company’s Class A shareholders. Class A shareholders had the ability to trade their debt positions independently from their equity positions, however, the substantial majority of First Out and Second Out term loans were held by Class A shareholders. In connection with the Company’s refinancing on July 16, 2021, the First and Second Out terms loans were repaid in full.

Successor Related Party Transactions

Strategic Support Agreement

In connection with the closing of the Skillsoft Merger on June 11, 2021, the Company entered into a strategic support agreement with its largest shareholder, pursuant to which the shareholder agreed to provide certain business development and investor relations support to the Company for one year after closing of the transaction. The strategic support agreement terminated on June 11, 2022 and will not be renewed.

Agreements with Affiliated Entities

Our largest shareholder has a broad portfolio of investments, within and outside of Ed-tech, where it controls or exerts influence over such investments through ownership and in some cases board seats.

On December 10, 2022, Skillsoft entered into a distribution and resale agreement with a company that is majority-owned by our largest shareholder and its affiliates. On February 18, 2022, SumTotal entered into a reseller agreement with a portfolio company of our largest shareholder that also has a common board member. Due to the timing of these two new agreements, no consideration was due to either party for the fiscal year ended January 31, 2022 and the three months ended April 30, 2022.

The Company also entered into an agreement for a technical partnership with a portfolio company of our largest shareholder that also has a common board member that includes a collaboration for an interface between Percipio and its products. Neither party is due any consideration under this agreement.

Agreements with Largest Shareholder

In December 2021, Skillsoft entered into a commercial agreement to provide off-the-shelf Skillsoft products to the Company’s largest shareholder and its affiliates for $0.7 million over three years.

Codecademy Transaction

Our largest shareholder also owned an interest in Codecademy which we acquired on April 4, 2022, as discussed in Note 3 and elsewhere.

Consulting Services

In December 2021, Skillsoft engaged The Klein Group, LLC (the “Klein Group”) to act as a consultant to advise the Company in connection with the transaction with Codecademy, to assist management in its evaluation of the business opportunity and structuring and negotiation of a potential transaction. Pursuant to this engagement, Skillsoft paid the Klein Group a transaction fee equal to $2.0 million in connection with the Codecademy acquisition. Michael Klein, a member of our Board, is the Chief Executive Officer of the Klein Group and the Klein Group is closely affiliated with our second largest shareholder.

(17) Subsequent Events

The Company has completed an evaluation of all subsequent events after the balance sheet date of April 30, 2022 through the date this Quarterly Report on Form 8-K was filed with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of April 30, 2022, and events which occurred subsequently but were not recognized in the financial statements. The Company notes the following.

Discontinued Operations

On June 12, 2022, Skillsoft entered into a Stock Purchase Agreement (the “Purchase Agreement”), by and among Skillsoft, Skillsoft (US) Corporation (“Seller”), Amber Holding Inc. (“SumTotal”), and Cornerstone OnDemand, Inc. (“Buyer”), pursuant to which, subject to the certain terms and conditions contained therein, Seller agreed to sell, and Buyer agreed to purchase, all of Seller’s right, title and interest in and to one hundred percent (100%) of the outstanding shares of capital stock of SumTotal. On August 15, 2022, the Company completed the sale of its SumTotal business. The Company received net proceeds of $180.0 million and reserved $8.0 million for working capital contingency which is subject to customary adjustments as set forth in the Purchase Agreement.

Impairment of Goodwill and Intangible Assets

During the three months ended July 31, 2022, the Global Knowledge instructor led training (“ILT”) business experienced a significant decline in bookings and GAAP revenue compared to the corresponding period in the prior year. In light of the circumstances and indicators of impairment, the Company first considered whether any impairment was present for the Global Knowledge long-lived assets group, concluding that no such impairments were present after conducting an undiscounted cash flow recoverability test. In accordance with ASC 350, the Company next considered whether there were any indicators of impairment for Global Knowledge goodwill, concluding that triggering events had occurred, necessitating an interim goodwill impairment test as of July 31, 2022. In comparing the estimated fair value of the Global Knowledge reporting unit to its carrying value, the Company considered the results of both a discounted cash flow analysis and a market multiples approach. The results of the impairment test performed indicated that the carrying value of the Global Knowledge reporting unit exceeded its estimated fair value. Based on the results of the goodwill impairment testing procedures, the Company recorded a $70.5 million goodwill impairment for the three and six months ended July 31, 2022 (unaudited).

During the three months ended October 31, 2022, the Company experienced a substantial decline in its stock price resulting in the total market value of its shares of stock outstanding (“market capitalization”) being less than the carrying value of its reporting units. Management considered the impact of current macroeconomic conditions on the Company’s projected operating results and assumptions used in the income approach or discounted cash flow method and market approach models that impact the fair value of the Company’s reporting units. The macroeconomic conditions considered include deterioration in the equity markets evidenced by sustained declines in the Company’s stock price, those of its peers, and major market indices, which reduced the market multiples, along with an increase in the weighted-average cost of capital primarily driven by an increase in interest rates. In addition, the Company lowered its projected operating results primarily due to the foreign exchange impact, underperformance of Global Knowledge business, and macroeconomic uncertainty. After considering all available evidence in the evaluation of goodwill impairment indicators, management determined it appropriate to perform an interim quantitative assessment of the Skillsoft content and Global Knowledge reporting units as of October 31, 2022.

In comparing the estimated fair value of the Skillsoft content and Global Knowledge reporting units to the carrying value, management considered the results of both a DCF analysis and a market multiples approach. The results of the impairment test performed indicated that the carrying value of the Skillsoft content and Global Knowledge reporting units exceeded the estimated fair value. Based on the results of the goodwill impairment testing procedures, the Company recorded a $569.3 million goodwill impairment for Skillsoft content segment and additional goodwill impairment for Global Knowledge segment, totalling $570.9 million, during the three months ended October 31, 2022.

Share Repurchase Authorization

On September 7, 2022, the Board of Directors authorized Skillsoft to repurchase up to $30 million of its Class A common stock, which authorization will expire September 7, 2023 unless extended. Under the program, the Company may purchase shares in the open market, in private negotiated transactions, or by other means from time to time. The timing and amount of any shares purchased will be based upon a variety of factors, including the share price of Class A common stock, general market conditions, alternative uses for capital such as reducing debt, the Company’s financial performance, and other considerations. The share repurchase program does not obligate the Company to purchase any minimum number of shares, and the program may be suspended, modified, or discontinued at any time without prior notice. The Company repurchased 645,428 of its shares for $1.4 million during the three months ended October 31, 2022.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of Skillsoft (as defined below) is a supplement to and should be read in conjunction with Skillsoft’s condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and with Skillsoft’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 18, 2022. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Skillsoft’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in Part II, Item 1A of this report. Unless otherwise noted, amounts referenced in this discussion, other than in reference to share numbers, are in thousands.

Completion of the Business Combinations

On June 11, 2021, Churchill Capital Corp II and Software Luxembourg Holding S.A., a global leader in digital learning and talent management solutions, completed a business combination and subsequent acquisition of Albert DE Holdings Inc. (“Global Knowledge” and such acquisition, the “Global Knowledge Merger”), a worldwide leader in IT and professional skills development. The combined company operates as Skillsoft Corp. (“Skillsoft”, “we”, “us”, “our” and the “Company”) and is listed on the New York Stock Exchange under the ticker symbol “SKIL” beginning on June 14, 2021.

On December 22, 2021, the Company announced a definitive agreement to acquire Codecademy, a leading online learning platform for technical skills. Codecademy is an innovative and popular learning platform providing high-demand technical skills to approximately 40 million registered learners in nearly every country worldwide. The platform offers interactive, self-paced courses and hands-on learning in 14 programming languages across multiple domains such as application development, data science, cloud and cybersecurity. The Codecademy acquisition closed on April 4, 2022 for total consideration of approximately $386.0 million, consisting of the issuance of 30,374,427 common shares and a net cash payment of $198.6 million.

Company’s Business following the Business Combinations

Skillsoft is a global leader in corporate digital learning, serving approximately 70% of the Fortune 1000, customers in over 160 countries, and a community of learners of more than 80 million globally. Skillsoft’s primary learning solutions include: (i) Percipio, an intelligent and immersive digital learning platform; (ii) Global Knowledge, a global provider of authorized information technology & development training and professional skills; (iii) Codecademy, an online learning platform for technical skills that uses an innovative, scalable approach to online coding education; and (iv) Pluma, a digital platform that provides individualized executive-quality coaching that is personal yet scalable.

The Company provides enterprise learning solutions designed to prepare organizations for the future of work, enable them to overcome critical skill gaps, drive demonstrable behavior-change, and unlock the potential in one of their most important assets: their people. The Company’s award-winning, AI-driven, immersive learning platform, Percipio, is purpose built to make learning easier, more accessible, and more effective. Percipio is an open, modern and extensible platform designed to meet the needs of the enterprise customer. Skillsoft offers a comprehensive suite of premium, original, and authorized partner content, including 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, practice labs and individualized coaching), organizations can meaningfully increase learner engagement and retention. In addition, we believe our recent acquisition of Codecademy will further strengthen our content library, enhance the Percipio platform, broaden our customer reach and create significant cross selling opportunities, positioning us for faster growth.

The corporate digital learning industry is rapidly growing, driven by significant tailwinds as organizations focus on upskilling, reskilling, and future-proofing their workforces and the accelerated shift from in-person training to digital training due, in part, to the significant and likely permanent shift to largely remote and distributed workforces triggered by the COVID-19 pandemic and increased emphasis on talent driven by the “great resignation.” The war for talent, labor shortages, wage inflation, hybrid work, early retirements, and burnout among those who stay behind all contribute to this growing demand. According to a January 2021 report by McKinsey, 87% of companies worldwide either currently have skills gaps or believe they will within the next few years, and core skills are changing at an unprecedented pace. In a recent survey conducted by Deloitte, the vast majority of CEO’s cited labor and skills shortages as the number one threat to their business in the coming year – ahead of the pandemic, supply chain disruption, inflation and market instability, cybersecurity, and political instability. According to the Organization for Economic Co-operation and Development, technology will

radically transform 1.1 billion jobs by 2030. CEOs, Chief People Officers, and the companies they and their teams lead need to transform their current workforce into one adapted for tomorrow’s demands. We believe these factors present a significant market opportunity for our solutions.

Results of Operations

Our financial results for the three months ended April 30, 2022 are referred to as those of the “Successor” period. Our financial results for the three months ended April 30, 2021 are referred to as those of the “Predecessor (SLH)” period. Our results of operations as reported in our Condensed Consolidated Financial Statements for these periods are prepared in accordance with GAAP. We are required by GAAP to report on our results for the three months ended April 30, 2022 and 2021 separately.

The following table sets forth certain items from our condensed consolidated statements of operations as a percentage of total revenues for the periods indicated:



	Successor	Predecessor (SLH)
	Three Months	Three Months
	Ended April 30,	Ended April 30,
	2022	2021
Revenues:
Total revenues	100.0%	100.0%
Operating expenses:
Costs of revenues	28.2%	22.3%
Content and software development	12.1%	15.5%
Selling and marketing	29.3%	34.7%
General and administrative	21.8%	17.5%
Amortization of intangible assets	29.3%	47.2%
Recapitalization and acquisition-related costs	9.9%	2.5%
Restructuring	2.8%	0.5%
Total operating expenses	133.4%	140.2%
Operating loss	(33.4)%	(40.2)%
Interest and other expense, net	(7.7)%	(17.4)%
Fair value adjustment to warrants	7.5%	0.0%
Loss before benefit from income taxes	(33.6)%	(57.6)%
Benefit from income taxes	(16.6)%	(4.5)%
Loss from continuing operations	(17.1)%	(53.1)%
Income from discontinued operations, net of tax	1.0%	(2.2)%
Net loss	(16.1)%	(55.3)%

Revenues

We provide, through our Skillsoft and Global Knowledge 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 generates revenues from its comprehensive suite of premium, original, and authorized partner content, featuring one of the deepest libraries of leadership & business, technology & development, and compliance curricula. With access to a broad spectrum of learning options (including video, audio, books, bootcamps, live events, and practice labs), organizations can meaningfully increase learner engagement and retention. Skillsoft’s offerings are delivered through Percipio, our award-winning, AI-driven, immersive learning platform purpose built to make learning easier, more accessible, and more effective. These learning solutions are typically sold on a subscription basis for a fixed term.

Global Knowledge generates revenues from virtual, in-classroom, and on-demand training solutions in information technology geared at foundational, practitioner and expert information technology professionals. Global Knowledge’s digital and in-classroom learning solutions provide enterprises, government agencies, educational institutions, and individual customers a broad selection of customizable courses to meet their technology and development needs.

The following table sets forth the percentage of our revenues attributable to geographic regions for the periods indicated:



	Successor	Predecessor (SLH)
	Three Months	Three Months
	Ended	Ended
	April 30, 2022	April 30, 2021
Revenues:
United States	61.8%	75.6%
Other Americas	6.3%	5.0%
Europe, Middle East and Africa	28.2%	14.1%
Asia-Pacific	3.7%	5.4%
Total revenues	100.0%	100.0%

Subscription and Non-Subscription Revenue

SaaS Subscription Revenue. Represents revenue generated from contracts specifying a minimum fixed fee for services delivered over the life of the contract. The initial term of enterprise contracts is generally one to five years and is generally non-cancellable for the term of the subscription. The fixed fee is generally paid upfront. These contracts typically consist of subscriptions to our various offerings which provide continuous access to our SaaS platforms and associated content over the contract term. Subscription revenue is usually recognized ratably over the contract term.

Non-Subscription Revenue. Primarily represents the sale of Global Knowledge instructor led training offerings, which consist of both in-person and virtual environments. Intructor led training, including virtual offerings, are first scheduled, then delivered later, with revenue realized on the delivery date. Non-subscription revenue also includes professional services related to implementation of our offerings and subsequent, ongoing consulting engagements. Our non-subscription services complement our subscription business in creating strong and comprehensive customer relationships.

The following table sets forth (i) SaaS subscription and (ii) non-subscription revenue for our business units for the periods indicated:



	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
(In thousands)	April 30, 2022		April 30, 2021
SaaS subscription revenues:
Content	$	85,068	$	64,361
Total subscription revenues		85,068		64,361
Non-subscription revenues:
Content		4,717		3,319
Global Knowledge		45,053		—
Total non-subscription revenues		49,770		3,319
Total revenues	$	134,838	$	67,680

Revenue by Product and Service Type

The following is a summary of our revenues by product and service type for the periods indicated:




	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
(In thousands, except percentages)	April 30, 2022		April 30, 2021
Revenues:
SaaS subscription services	$	85,068	$	64,361
Professional services		4,531		3,319
Software licenses and other		186		—
Instructor led training		45,053		—
Total revenues	$	134,838	$	67,680

Revenues increased $67.2 million, or 99.2%, for the three months ended April 30, 2022, compared to the Predecessor (SLH) period in 2021. The primary reason for the increase in GAAP revenue is due to the inclusion of Global Knowledge revenue for the period subsequent to its acquisition on June 11, 2021, which resulted in an increase of $45.1 million for the three months ended April 30, 2022. Revenues for the three months ended April 30, 2021 were also lower due to the application of fresh-start reporting in August 2020, which required deferred revenue as of August 28, 2020 to be reduced to its estimated fair value, which is derived from the estimated costs to fulfill contractual obligations at the time of a change in control rather than the value of contractual billings to customers. The application of fresh-start reporting resulted in a decrease in GAAP revenue of approximately $14.7 million in the three months ended April 30, 2021. We adopted ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), effective at the beginning of the Successor period on June 11, 2021. 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 Topic 606, rather than the prior requirement to record deferred revenue at a lower fair value. As a result of the adoption of ASU 2021-08, we did not experience a decline in revenue subsequent to June 11, 2021 attributable to a fair value adjustment as we did with the application of fresh-start reporting in the prior year. After accounting for the impact of the acquisition of Global Knowledge and fresh-start reporting, revenues were slightly higher due to (i) the inclusion of Pluma revenue and one month of Codecademy revenue due to their acquisitions on June 30, 2021 and April 3, 2022, respectively, and (ii) organic growth due to higher bookings in the prior year, as revenue from our subscription offerings is typically recognized over the twelve months that follow a booking.

Operating expenses

Cost of revenues

Cost of revenues consists primarily of employee salaries and benefits for hosting operations, professional service and customer support personnel; royalties; hosting and software maintenance services; facilities and utilities costs; consulting services; instructor fees, course materials, logistics costs and overhead costs associated with virtual, in-classroom, and on-demand training solutions. The table below provides details regarding the changes in components of cost of revenues.




	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
(In thousands, except percentages)	April 30, 2022		April 30, 2021
Compensation and benefits	$	14,131	$	7,078
Courseware, instructor fees and outside services		18,630		5,161
Hosting and software maintenance		2,159		1,732
Facilities and utilities		2,834		1,072
Other		257		51
Total cost of revenues	$	38,011	$	15,094

The increases in all components of cost of revenues for the three months ended April 30, 2022, compared to the Predecessor (SLH) period in 2021, were primarily the result of the inclusion of Global Knowledge’s expenses incurred subsequent to its acquisition on June 11, 2021. The increase in hosting and software maintenance expenses was offset by the decrease in server licensing costs, which was the result of the migration of Percipio from our servers to cloud storage.

Content and software development

Content and software development expenses include costs associated with the development of new products and the enhancement of existing products, consisting primarily of employee salaries and benefits; development-related professional services; facilities costs; depreciation; and software maintenance costs. The table below provides details regarding the changes in components of content and software development expenses.




	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
(In thousands, except percentages)	April 30, 2022		April 30, 2021
Compensation and benefits	$	11,284	$	5,915
Consulting and outside services		4,004		3,475
Facilities and utilities		476		562
Software Maintenance		559		477
Other		14		75
Total content and software development expenses	$	16,337	$	10,504

The increase in compensation and benefits for the three months ended April 30, 2022, compared to the Predecessor (SLH) period in 2021, was primarily due to increased headcount within our content development team in 2022, and the inclusion of Codecademy compensation expenses incurred subsequent to its acquisition on April 4, 2022. The increase in consulting and outside services expenses for the three months ended April 30, 2022, compared to the Predecessor (SLH) period in 2021, was due to the inclusion of Global Knowledge’s expenses incurred in the three months ended April 30, 2022 and increased third party software development costs.

Selling and marketing

Selling and marketing, or S&M, expenses consist primarily of employee salaries and benefits for selling, marketing and pre-sales support personnel; commissions; travel expenses; advertising and promotional expenses; consulting and outside services; facilities costs; depreciation; and software maintenance costs. The table below provides details regarding the changes in components of S&M expenses.




	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
(In thousands, except percentages)	April 30, 2022		April 30, 2021
Compensation and benefits	$	27,524	$	16,748
Advertising and promotions		7,760		3,453
Consulting and outside services		1,796		1,019
Software Maintenance		1,508		1,248
Facilities and utilities		873		981
Other		101		47
Total S&M expenses	$	39,562	$	23,496

The increases in compensation and benefits, advertising and promotions, and consulting and outside services expenses for the three months ended April 30, 2022, compared to the Predecessor (SLH) period in 2021, were primarily the result of the inclusion of Global Knowledge’s S&M expenses incurred subsequent to its acquisition on June 11, 2021. Also contributing to the increase in advertising and promotions expenses was higher events related spend in the three months ended April 30, 2022, compared to the Predecessor (SLH) period in 2021.

General and administrative

General and administrative, or G&A, expenses consist primarily of employee salaries and benefits for executive, finance, administrative, and legal personnel; audit, legal and consulting fees; insurance; franchise, sales and property taxes; facilities costs; and depreciation. The table below provides details regarding the changes in components of G&A expenses.




	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
(In thousands, except percentages)	April 30, 2022		April 30, 2021
Compensation and benefits	$	17,541	$	7,641
Consulting and outside services		6,433		2,516
Facilities and utilities		1,591		476
Franchise, sales, and property tax		701		450
Insurance		1,934		365
Software Maintenance		715		293
Other		425		74
Total G&A expenses	$	29,340	$	11,815

The increases in compensation and benefits, facilities and utilities, and software maintenance expenses for the three months ended April 30, 2022, compared to the Predecessor (SLH) period in 2021, were primarily the result of the inclusion of Global Knowledge’s G&A expenses incurred subsequent to its acquisition on June 11, 2021. Also contributing to the increase in compensation and benefits expenses was the stock-based compensation related to the stock options and restricted stock units granted to key employees. The increase in consulting and outside services expenses for the three months ended April 30, 2022, compared to the Predecessor (SLH) period in 2021, was primarily due to increased legal, audit and tax services attributable to being publicly listed as well as integration-related costs related to the combination of Skillsoft and Global Knowledge. The increase in insurance expenses for the three months ended April 30, 2022, compared to the Predecessor (SLH) period in 2021, was due to the higher directors and officers insurance policies attributable to the Company following the June 2021 business combinations.

Amortization of intangible assets

Intangible assets arising from business combinations are developed technology, customer-related intangibles, trade names and other identifiable intangible assets with finite lives. These intangible assets are amortized over the estimated useful lives of such assets. We also capitalize certain internal use software development costs related to our SaaS platform incurred during the application development stage. The internal use software is amortized on a straight-line basis over its estimated useful life.

The increase in amortization of intangible assets for the three months ended April 30, 2022, compared to the Predecessor (SLH) period in 2021, was primarily due to the intangible assets that arose from the business combinations completed in June 2021.

Recapitalization and acquisition-related costs

Recapitalization and acquisition-related costs consist of professional fees for legal, investment banking and other advisor costs incurred in connection with our business combination completed in June 2021, and subsequent acquisition related activities driven by the Codecademy acquisition and related debt issuance.

Restructuring

In connection with the acquisition integration process, we continued our initiatives and commitment to reduce our costs and better align operating expenses with existing economic conditions and our operating model. During the three months ended April 30, 2022, we recorded restructuring charges of $3.8 million for employee severance costs.

In January 2021, we committed to a restructuring plan that encompassed a series of measures intended to improve our operating efficiency, competitiveness and business profitability. These included workforce reductions and consolidation of facilities as we are adopting new work arrangements for certain locations. During the three months ended April 30, 2021, we recorded restructuring charges of $0.3 million for employee severance cost adjustments.

Interest and other expense

Interest and other expense, net, consists of gain and loss on derivative instruments, interest income, interest expense, and other expense and income.




	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
(In thousands, except percentages)	April 30, 2022		April 30, 2021
Other income (expense), net	$	1,052	$	(371)
Interest income		159		7
Interest expense, net		(11,616)		(11,408)
Interest and other expense, net	$	(10,405)	$	(11,772)

The net other income (expense) was primarily the foreign exchange gains and losses (specifically, resulting from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities), which fluctuate as the U.S. dollar appreciates or depreciates against other currencies. The increase in interest expense for the three months ended April 30, 2022, compared to the Predecessor (SLH) period in 2021, was due to $3.9 million of financing costs recognized as interest expense in the three months ended April 30, 2022. The $3.9 million of financing costs were incurred in connection with the $160 million of Term B-1 Loans under the Amended Credit Agreement. The increase was offset by savings from lower interest rates under the Successor’s credit agreement.

Fair value adjustments to warrants

The gains attributable to warrants for the three months ended April 30, 2022 are due to a decline in the value of our common stock during the period, which decreased the fair value of our liability classified warrants that are marked to market at each balance sheet date, with gains and losses being recorded in current period earnings.

Benefit from income taxes




	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
(In thousands, except percentages)	April 30, 2022		April 30, 2021
Benefit from income taxes	$	(22,337)	$	(3,057)
Effective income tax rate		49.2%		7.8%

The effective income tax rate for the three months ended April 30, 2022, differed from the United States federal statutory rate of 21.0% due primarily to the impact of non-deductible items, foreign rate differential, and changes in the valuation allowance on the Company’s deferred tax assets. Due to the acquisition of Codecademy on April 4, 2022 the Company analzyed the realizability of it’s existing deferred tax assets with the addition of the Codecademy assets and liabilities. Based on this analysis the Company determined that a valualtion allowance release of $21.6 million was required and recorded in full as a discrete income tax benefit for the three months ended April 30, 2022.

The effective income tax rate for the three months ended April 30, 2021, differed from the Luxembourg statutory rate of 24.9% due primarily to the impact of foreign earnings in lower tax jurisdictions and an increase in the valuation allowance on the Company’s deferred tax assets, partially offset by a decrease in reserves for uncertain tax positions.

Liquidity and Capital Resources

Liquidity and Sources of Cash

As of April 30, 2022, we had $69.5 million of cash and cash equivalents on hand. We have funded operations primarily through the use of cash collected from our customers and the proceeds received from the Term Loan Facility (described below), supplemented from time to time with borrowings under our accounts receivable facility (described below). Our cash requirements vary depending on factors

such as the growth of the business, changes in working capital and capital expenditures. We expect to operate the business and execute our strategic initiatives principally with funds generated from operations and supplemented from borrowings up to a maximum of $75.0 million under our accounts receivable facility. We anticipate that we will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for at least the next 12 months as well as for the foreseeable future with capital sources currently available.

Term Loan

In connection with the closing of the Codecademy acquisition, Skillsoft Finance II entered into Amendment No. 1 to the Credit Agreement, dated as of April 4, 2022 (the “First Amendment”), among Skillsoft Finance II, Holdings, certain subsidiaries of Skillsoft Finance II, as guarantors, Citibank N.A., as administrative agent, and the financial institutions parties thereto as Term B-1 Lenders, which amended the Credit Agreement (as amended by the First Amendment, the “Amended Credit Agreement”).

The First Amendment provides for the incurrence of up to $160 million of Term B-1 Loans (the “Term B-1 Loans”) under the Amended Credit Agreement. In addition, the First Amendment, among other things, (a) provides for early opt-in to the Secured Overnight Financing Rate (SOFR) for the existing term loans under the Credit Agreement (such existing term loans together with the Term B-1 Loans, the “Initial Term Loans”) and (b) provides for the applicable margin for the Initial Term Loans at 4.25% with respect to base rate borrowings and 5.25% with respect to SOFR borrowings.

SumTotal Proceeds

On August 15, 2022, we completed the previously announced sale of our SumTotal business to a third party. We received net proceeds of $180.0 million and reserved $8.0 million for working capital contingency which is subject to customary adjustments as set forth in the Purchase Agreement. Under the terms of our Amended Credit Agreement, the net proceeds attributable to the sale of SumTotal required a mandatory prepayment of $31.4 million. The remaining net cash proceeds of $140.6 million are subject to reinvestment provisions and may not be used for general corporate purposes. In the event any of the remaining net cash proceeds have not been designated for eligible investments (such as permitted acquisitions, capital expenditures and other such eligible uses as defined in the Amended Credit Agreement) on or before August 15, 2023, such remaining net cash proceeds will be used to prepay outstanding indebtedness under our Amended Credit Agreement. We expect to have sufficient qualifying expenditures under the Amended Credit Agreement such that no additional mandatory prepayment with remaining SumTotal proceeds will be necessary.

Accounts Receivable Facility

We also have access to up to $75.0 million of borrowings under our accounts receivables facility, where borrowing can be made against eligible accounts receivable, with advance rates between 50.0% and 85.0%. Borrowings under the facility bear interest at 3.00% per annum plus the greater of (i) the prime rate or (ii) the sum of 0.5% per annum plus the federal funds rate. The maturity date of the accounts receivable facility is the earlier of (i) December 2024 or (ii) 90 days prior to the maturity of any corporate debt. The accounts receivable facility requires a minimum outstanding balance of $10 million at all times. Based on seasonality of billings and the characteristics of accounts receivable, some of which are not eligible for advances, we are not always able to access the full $75 million of capacity.

Share Repurchase Program

On September 7, 2022, our Board of Directors authorized the Company to repurchase up to $30 million of our common stock, which authorization will expire September 7, 2023 unless extended. Although our Board of Directors has authorized the share repurchase program, we are not obligated to repurchase any specific dollar amount or to acquire any specific number of shares under the program. In addition, the share repurchase program may be suspended, modified, or terminated at any time without prior notice. The amount, timing, and execution of our share repurchase program may fluctuate based on our priorities for the use of cash for other purposes such as reducing debt, and because of changes in cash flows, tax laws, and the market price of our common stock. We repurchased 645,428 of our shares for $1.4 million during the three months ended October 31, 2022.

Cash Flows

The following table summarizes our cash flows for the period presented:



	Successor		Predecessor (SLH)
	Three Months		Three Months
	Ended		Ended
(In thousands)	April 30, 2022		April 30, 2021
Net cash provided by operating activities	$	7,882	$	39,676
Net cash used in investing activities		(202,532)		(1,880)
Net cash provided by (used in) financing activities		108,539		(4,439)
Effect of foreign currency exchange rates on cash and cash equivalents		(2,157)		(140)
Net (decrease) increase in cash and cash equivalents	$	(88,268)	$	33,217

Cash Flows from Operating Activities

The decrease in cash provided by operating activities for the three months ended April 30, 2022 compared to the corresponding period in the prior year was primarily due to (i) higher recapitalization and acquisition-related costs, driven by the Codecademy acquisition and related debt issuance, (ii) higher one-time restructuring and integration-related costs related to the combination of Skillsoft and Global Knowledge, (iii) higher annual incentive compensation payments, and (iv) the timing of corporate events and vendors payments compared to the prior year.

Cash flows from operating activities directly attributable to SumTotal, which was sold on August 15, 2022, were not significant for the periods presented herein.

Cash Flows from Investing Activities

Cash flows from investing activities include cash paid of $201.7 million related to the acquisition of Codecademy. See Note 3 “Business Combinations” of the Notes to Unaudited Condensed Consolidated Financial Statements for more details. Our purchases of property and equipment largely consist of computer hardware and software, as well as capitalized software development costs, to support content and software development activities.

Cash flows from investing activities directly attributable to SumTotal, which was sold on August 15, 2022, were not significant for the periods presented herein.

Cash Flows from Financing Activities

Cash flows from financing activities consist of borrowings and repayments under our Predecessor and Successor debt facilities and our accounts receivable facility. We received $153.2 million of net proceeds from the Amended Credit Agreement and used most of the proceeds for the acquisition of Codecademy on April 4, 2022.

Contractual and Commercial Obligations

The scheduled maturities of our debt and future minimum rental commitments under non-cancelable lease agreements as of April 30, 2022 were as set forth in the table below.


	Payments due by Fiscal Year
(In thousands)	Total		2023 ⁽¹⁾		2024-2025		2026-2027		Thereafter
Term Loan Facility	$	637,199	$	36,194	$	12,808	$	12,808	$	575,389
Operating leases		17,758		4,551		6,256		2,252		4,699
Total	$	654,957	$	40,745	$	19,064	$	15,060	$	580,088

(1)Excluding payments made during the three months ended April 30, 2022.

From time to time, we are a party to or may be threatened with litigation in the ordinary course of our business. We regularly analyze then current information, including, as applicable, our defense and insurance coverage and, as necessary, provide accruals for probable and estimable liabilities for the eventual disposition of these matters. We are presently not a party to any material legal proceedings.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and the related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of assets, liabilities, revenues and expenses during the reporting period. We regularly reevaluate our estimates and judgments, including those related to the following: business combinations, revenue recognition, impairment of goodwill and intangible assets, stock-based compensation, accounting for warrants, income tax assets and liabilities; and restructuring charges and accruals. We base our estimates and judgments on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations could be impacted.

We believe the following critical accounting estimates most significantly affect the portrayal of our financial condition and involve our most difficult and subjective estimates and judgments.

Impairment of Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill in fresh-start accounting results when the reorganization value of the emerging entity exceeds what can be attributed to specific tangible or identified intangible assets. We test goodwill for impairment during the fourth quarter every year in accordance with ASC 350, Intangibles — Goodwill (“ASC 350”). In connection with the impairment evaluation, the Company may first consider qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not (i.e., a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. Performing a quantitative goodwill impairment test is not necessary if an entity determines based on this assessment that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company fails or elects to bypass the qualitative assessment, the goodwill impairment test must be performed. This test requires a comparison of the carrying value of the reporting unit to its estimated fair value. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded, not to exceed the amount of goodwill allocated to the reporting unit. In determining reporting units, the Company first identifies its operating segments, and then assesses whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component.

Intangible assets arising from business combinations are generally recorded based upon estimates of the future performance and cash flows from the acquired business. We use an income approach to determine the estimated fair value of certain identifiable intangible assets including customer relationships and trade names and use a cost approach for other identifiable intangible assets, including developed software/courseware. The income approach determines fair value by estimating the after-tax cash flows attributable to an identified asset over its useful life (Level 3 inputs) and then discounting these after-tax cash flows back to a present value. The cost approach determines fair value by estimating the cost to replace or reproduce an asset at current prices and is reduced for functional and