Quarterly report [Sections 13 or 15(d)]

Note 12 - Segment Information

v3.25.1
Note 12 - Segment Information
 3 Months Ended
Apr. 30, 2025
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

(12)    Segment Information

 

ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), in determining how to allocate resources and in assessing performance. Skillsoft’s CODM is its Chief Executive Officer. Skillsoft’s CODM evaluates results using the operating segment structure as the primary basis for which the allocation of resources and financial results are assessed. No operating segments have been aggregated to determine our reportable segments.

 

Skillsoft has organized its business into two operating and reportable segments: Talent Development Solutions (“TDS” formerly known as Content & Platform) and Global Knowledge (“GK” formerly known as Instructor-Led Training). These two businesses are highly complementary and give Skillsoft a differentiated value proposition. The CODM primarily uses revenues, segment (“business unit”) contribution profits and business unit contribution margin (business unit contribution profit as a percentage of business unit revenue) as measures to evaluate financial results and allocation of resources. There are no intercompany revenue transactions reported between our reportable segments. When our segments enter into transactions to provide products and services to third parties, revenue is generally allocated to our segments based on relative value. Skillsoft allocates certain operating expenses to the reportable segments based on the usage and relative contribution provided to the segments.

 

The TDS segment brings a strong foundation of products and customers. TDS enterprise-grade solution serves customers and employees worldwide. TDS Learner is a world-renowned consumer scale and experience learner platform that serves learners worldwide. We deliver AI-led, interactive, and multi-modal experiences, a premium technology learning brand, outcome-based learning through benchmarks, enterprise grade security and integrations, and extensive coverage of topics across business, technology, and compliance skills.

 

The GK segment is centered around instructor-led training, or live learning, with face-to-face delivery by experienced trainers, both in-person and virtually. GK is a live learning partner for corporations with a large, but focused, schedule of vendor-authored and certified courses utilizing certified instructors. The quality and consistency of trainers, the access to quality content and interactive labs from the world’s largest vendors, and a market-leading blended proposition with TDS, define GK's uniqueness in the market. Additionally, a key attribute to the success of GK continues to be our strong partnerships with the world’s leading technology companies and certification authorities.

 

In the fourth quarter of fiscal 2025, we made changes to the components used to determine segment results to increase transparency and improve segment comparability to peers. These changes did not impact our consolidated financial statements. For this new structure we track the non-GAAP financial measures and key performance metrics that we believe are key financial indicators of our success. Non-GAAP measures and key performance metrics are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies comparable to us, many of which present non-GAAP measures and key performance metrics when reporting their results. These measures can be useful in evaluating our performance against our peer companies because we believe the measures provide users with valuable insight into key components of GAAP financial disclosures. For example, a company with higher U.S. GAAP net income may not be as appealing to investors if its net income is more heavily comprised of gains on asset sales. Likewise, excluding the effects of interest income and expense moderates the impact of a company’s capital structure on its performance. However, non-GAAP measures and key performance metrics have limitations as analytical tools. Because not all companies use identical calculations, our presentation of non-GAAP financial measures and key performance metrics may not be comparable to other similarly titled measures of other companies. They are not presentations made in accordance with GAAP, are not measures of financial condition or liquidity, and should not be considered as an alternative to profit or loss operating cash flows for the period determined in accordance with GAAP. As a result, these performance measures should not be considered in isolation from, or as a substitute analysis for, results of operations as determined in accordance with GAAP. Business unit contribution profit and business unit contribution margin are internal measures used by our CODM to evaluate and assess the results of our segments. We disclose these non-GAAP segment results because we believe they provide meaningful supplemental information. Business unit contribution profit is defined as business unit revenue, less business unit cost of revenue, business unit content and software development expenses, and business unit product research and management expenses. We have excluded the following items in our determination of the business unit cost of revenue, business unit content and software development expenses, and business unit product research and management expenses as our CODM does not consider them in the measurement of the performance of the segment:

 

  ●

Depreciation expenses – Cost of property and equipment recorded to expense over their respective estimated useful lives on a straight-line basis.
  ●

Long-term incentive compensation expenses – Charges associated with long-term incentive compensation programs, including stock-based compensation, cash awards tied to stock performance, and awards granted in-lieu of stock that are intended to be settled in cash.
  ●

System migration costs – Costs of temporary resources needed for the migration of content and customers from our legacy system to a global platform.

 

The following reconciles our segment measures of performance to the GAAP measures presented in the condensed consolidated statements of operations, which have been recast for the prior-year period to reflect our segments under the new structure, for the periods presented, (in thousands):

 

   

Three Months Ended April 30,

  
   

2025

    

2024

  

TDS

                

Revenues

   $ 99,148     $ 98,075  

Business unit costs of revenues

     16,272       16,185  

Business unit content and software development expenses

     12,098       13,463  

Business unit product research and management expenses

     2,299       1,969  

Business unit contribution profit

     68,479       66,458  

GK

                

Revenues

     25,053       29,718  

Business unit costs of revenues

     15,706       18,003  

Business unit content and software development expenses

     744       562  

Business unit contribution profit

     8,603       11,153  

Consolidated

                

Revenues

     124,201       127,793  

Business unit costs of revenues

     31,978       34,188  

Business unit content and software development expenses

     12,842       14,025  

Business unit product research and management expenses

     2,299       1,969  

Business unit contribution profit

     77,082       77,611  

Business unit product research and management expenses

     (2,299 )     (1,969 )

Excluded cost of revenues and content and software development expenses:

                

Depreciation

     150       191  

Long-term incentive compensation expenses

     1,379       1,456  

System migration

     —       117  

Selling and marketing expenses

     39,609       42,292  

General and administrative expenses

     22,952       25,309  

Amortization of intangible assets

     31,608       31,583  

Acquisition and integration related costs

     523       1,497  

Restructuring expenses

     1,346       967  

Operating income (loss)

     (18,186 )     (23,832 )

Other income (expense), net

     (2,446 )     2,217  

Fair value adjustment of interest rate swaps

     (4,256 )     7,746  

Interest income

     463       928  

Interest expense

     (14,396 )     (16,278 )

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

     (38,821 )     (29,219 )

Provision for (benefit from) income taxes

     (772 )     (1,583 )

Net income (loss)

   $ (38,049 )   $ (27,636 )

 

Our segment assets primarily consist of cash and cash equivalents, accounts receivable, prepaid expenses, deferred taxes, property and equipment, goodwill and intangible assets. The following sets forth our segment assets as of the periods presented (in thousands):

 

   

April 30, 2025

    

January 31, 2025

  

TDS

   $ 946,490     $ 1,026,295  

GK

     75,996       79,774  

Total assets

   $ 1,022,486     $ 1,106,069