Skillsoft Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Note 5 - Intangible Assets

Note 5 - Intangible Assets

6 Months Ended

Jul. 31, 2023

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

(5) Intangible Assets

Intangible assets consisted of the following (in thousands):

	*July 31, 2023*						*January 31, 2023*
	*Gross*				*Net*		*Gross*				*Net*
	*Carrying*		*Accumulated*		*Carrying*		*Carrying*		*Accumulated*		*Carrying*
	*Amount*		*Amortization*		*Amount*		*Amount*		*Amortization*		*Amount*
Developed software/ courseware	$	379,281	$	164,242	$	215,039	$	374,057	$	123,219	$	250,838
Customer contracts/ relationships		338,313		64,945		273,368		336,182		42,026		294,156
Vendor relationships		40,439		37,864		2,575		39,887		36,666		3,221
Trademarks and trade names		44,000		3,202		40,798		44,000		1,454		42,546
Publishing rights		41,100		17,559		23,541		41,100		13,449		27,651
Backlog		49,700		39,360		10,340		49,700		32,780		16,920
Skillsoft trademark		84,700		—		84,700		84,700		—		84,700
Global Knowledge trademark		23,403		5,889		17,514		23,080		5,046		18,034
Total intangible assets	$	1,000,936	$	333,061	$	667,875	$	992,706	$	254,640	$	738,066

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

For fiscal years ended January 31:	*Amortization Expense*
2024 (six months remaining)	$	75,353
2025		132,178
2026		128,356
2027		81,756
2028		41,957
Thereafter		123,575
Total future amortization	$	583,175

Amortization expense related to intangible assets in the aggregate was $39.2 million, $77.5 million, $45.2 million and $84.8 million for the three and six months ended July 31, 2023 and the three and six months ended July 31, 2022, respectively.

Impairment Review Requirements

The Company reviews intangible assets subject to amortization if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in remaining useful life. The Company reviews indefinite lived intangible assets, including goodwill, on the annual impairment test date ( January 1) or more frequently if there are indicators of impairment.

In connection with the impairment evaluation, the Company may first consider qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not (i.e., a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. Performing a quantitative goodwill 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 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.

The Company completed the qualitative assessment discussed above for the six months ended July 31, 2023 and concluded that there were not indicators of impairment for our reporting units.

A roll forward of goodwill is as follows:

Description	*Content & Platform*			*Instructor-Led Training*		*Consolidated*
Goodwill, net January 31, 2023	$	417,340		$	40,404	$	457,744
Foreign currency translation adjustment		(635	)		858		223
Goodwill, net July 31, 2023	$	416,705		$	41,262	$	457,967

As of July 31, 2023, there was $569.3 million and $72.1 million of accumulated impairment losses for the Content & Platform (formerly referred to as Skillsoft Content) and Instructor-Led Training (formerly referred to as Global Knowledge) segments, respectively.

If current discount rates rise or if relevant market-based inputs for our impairment assessment worsen during the remainder of fiscal 2024, and if our stock price and market capitalization remain at current levels for a prolonged period of time, we will need to reassess intangible impairment at the end of each quarter. Subsequent reviews of goodwill and intangibles could result in impairment during fiscal 2024. Factors that could result in an impairment include, but are not limited to, the following:

●

Prolonged period of our estimated fair value of our reporting units exceeding our market capitalization;

●

Lower expectations for future profitability of bookings or EBITDA, which in part, could be impacted by legislative, regulatory or tax changes that affect the cost of, or demand for, products and services as well as the loss of key personnel;

●

Deterioration in key assumptions used in our income approach estimates of fair value, such as higher discount rates from higher stock market volatility; and

●

Valuations of significant mergers or acquisitions of companies that provide relevant market-based inputs for our impairment assessment that could support less favorable conclusions regarding the estimated fair value of our reporting units.