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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934

For the quarterly period ended July 31, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934

For the transition period from ____________ to ____________

Commission File Number: 001-38960

Skillsoft Corp.

(Exact name of registrant as specified in its charter)

Delaware

 

83-4388331

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

300 Innovative Way, Suite 201
Nashua, New Hampshire 03062

(Address of principal executive offices)

Tel: (603) 324-3000

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

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

SKIL

SKIL.WS

New York Stock Exchange

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes        No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   

 

Accelerated filer   

Non-accelerated filer   

 

Smaller reporting company   

Emerging growth company   

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No    

The number of shares of registrant’s common stock outstanding as of September 6, 2022 was 164,438,599.

SKILLSOFT CORP.

FORM 10-Q

FOR THE QUARTER ENDED JULY 31, 2022

INDEX

PAGE NO.

PART I — FINANCIAL INFORMATION - UNAUDITED

Item 1. Unaudited Financial Statements:

4

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

4

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended July 31, 2022 (Successor), the Period from June 12, 2021 through July 31, 2021 (Successor), the Period from May 1, 2021 through June 11, 2021 (Predecessor (SLH)), and the Period from February 1, 2021 through June 11, 2021 (Predecessor (SLH))

5

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended July 31, 2022 (Successor), the Period from June 12, 2021 through July 31, 2021 (Successor), the Period from May 1, 2021 through June 11, 2021 (Predecessor (SLH)), and the Period from February 1, 2021 through June 11, 2021 (Predecessor (SLH))  

7

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended July 31, 2022 (Successor), the Period from June 12, 2021 through July 31, 2021 (Successor), the Period from May 1, 2021 through June 11, 2021 (Predecessor (SLH)), and the Period from February 1, 2021 through June 11, 2021 (Predecessor (SLH))

8

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended July 31, 2022 (Successor), the Period from June 12, 2021 through July 31, 2021 (Successor), and the Period from February 1, 2021 through June 11, 2021 (Predecessor (SLH))

10

Notes to Unaudited Condensed Consolidated Financial Statements

12

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

42

Item 3. Quantitative and Qualitative Disclosures about Market Risk

58

Item 4. Controls and Procedures

58

PART II — OTHER INFORMATION

59

Item 1. Legal Proceedings

59

Item 1A. Risk Factors

59

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

59

Item 3. Defaults Upon Senior Securities

59

Item 4. Mine Safety Disclosures

59

Item 5. Other Information

59

Item 6. Exhibits

60

SIGNATURES

61

1

CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q”) includes statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created by those laws. All statements, other than statements of historical facts, that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our outlook, our product development and planning, our pipeline, future capital expenditures, share repurchases, financial results, the impact of regulatory changes, existing and evolving business strategies and acquisitions and dispositions, demand for our services, competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, and our ability to successfully implement our plans, strategies, objectives, expectations and intentions are forward-looking statements. Also, when we use words such as “may,” “will,” “would,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “forecast,” “seek,” “outlook,” “target,” goal,” “probably,” or similar expressions, we are making forward-looking statements. Such statements are based upon the current beliefs and expectations of Skillsoft’s management and are subject to significant risks and uncertainties. All forward-looking disclosure is speculative by its nature.

There are important risks, uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained in this document, including:

our ability to realize the benefits expected from the business combination between Skillsoft, Churchill Capital Corp. II, and Global Knowledge, and other recent transactions, including our acquisitions of Pluma and Codecademy, and disposition of SumTotal;
the impact of U.S. and worldwide economic trends, financial market conditions, geopolitical events, natural disasters, climate change, public health crises, the ongoing COVID-19 pandemic (including any variant), political crises, or other catastrophic events on our business, liquidity, financial condition and results of operations;
our ability to attract and retain key employees and qualified technical and sales personnel;
our reliance on third parties to provide us with learning content, subject matter expertise and content productions and the impact on our business if our relationships with these third parties are terminated;
fluctuations in our future operating results;
our ability to successfully identify, consummate and achieve strategic objectives in connection with our acquisition opportunities and realize the benefits expected from the acquisition;
the demand for, and acceptance of, our products and for cloud-based technology learning solutions in general;
our ability to compete successfully in competitive markets and changes in the competitive environment in our industry and the markets in which we operate;
our ability to market existing products and develop new products;
a failure of our information technology infrastructure or any significant breach of security, including in relation to the migration of our key platforms from our systems to cloud storage;
future regulatory, judicial and legislative changes in our industry;
our ability to comply with laws and regulations applicable to our business, including shifting global privacy, data protection, and cyber and information security laws and regulations, as well as state privacy and data protection laws, such as those in California, Colorado, and Virginia;
a failure to achieve and maintain effective internal control over financial reporting;
fluctuations in foreign currency exchange rates;
our ability to protect or obtain intellectual property rights;
our ability to raise additional capital;
the impact of our indebtedness on our financial position and operating flexibility;
our ability to meet future liquidity requirements and comply with restrictive covenants related to long-term indebtedness;
our ability to implement our share repurchase program successfully;
our ability to successfully defend ourselves in legal proceedings; and
our ability to continue to meet applicable listing standards.

Additional information regarding factors that could cause results to differ can be found in our Annual Report on Form 10-K for our fiscal year ended January 31, 2022 (filed April 18, 2022) and our other filings with the Securities and Exchange Commission. Actual

2

results and events in future periods may differ materially from those expressed or implied by the forward-looking statements in this Form 10-Q.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. Given the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved. Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results. Additionally, statements as to market share, industry data and our market position are based on the most currently available data available to us and our estimates regarding market position or other industry data included in this document or otherwise discussed by us involve risks and uncertainties and are subject to change based on various factors, including as set forth above.

Our forward-looking statements speak only as of the date made and we do not undertake to update these forward-looking statements unless required by applicable law. With regard to these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur, and we caution you against unduly relying on these forward-looking statements.

3

PART I – FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS.

SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT NUMBER OF SHARES)

Successor

Successor

    

July 31, 2022

  

  

January 31, 2022

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

43,344

$

138,176

Restricted cash

 

5,300

 

14,015

Accounts receivable, less reserves of approximately $136 and $125 as of July 31, 2022 and January 31, 2022 respectively

 

98,522

 

173,876

Prepaid expenses and other current assets

 

45,355

 

37,082

Assets held for sale, current portion

44,079

64,074

Total current assets

 

236,600

 

427,223

Property and equipment, net

 

12,583

 

11,475

Goodwill

 

1,032,706

 

795,811

Intangible assets, net

 

826,511

 

793,859

Right of use assets

 

16,310

 

17,988

Other assets

 

11,284

 

10,780

Assets held for sale, long-term portion

156,043

164,812

Total assets

$

2,292,037

$

2,221,948

LIABILITIES AND SHAREHOLDERS' EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Current maturities of long-term debt

$

37,795

$

4,800

Borrowings under accounts receivable facility

 

35,477

 

74,629

Accounts payable

 

22,412

 

24,159

Accrued compensation

 

19,710

 

40,822

Accrued expenses and other current liabilities

 

48,799

 

47,757

Lease liabilities

 

5,036

 

6,387

Deferred revenue

 

214,482

 

259,701

Liabilities held for sale, current portion

74,734

87,467

Total current liabilities

 

458,445

 

545,722

Long-term debt

 

583,975

 

462,185

Warrant liabilities

 

11,247

 

28,199

Fair value of hedge instruments

15,065

Deferred tax liabilities

 

83,474

 

99,395

Long term lease liabilities

 

13,505

 

11,750

Deferred revenue - non-current

 

1,280

 

1,248

Other long-term liabilities

 

11,638

 

11,125

Liabilities held for sale, long-term portion

2,092

2,426

Total long-term liabilities

 

722,276

 

616,328

Commitments and contingencies

 

 

Shareholders’ equity:

 

  

 

  

Shareholders’ common stock - Class A common shares, $0.0001 par value: 375,000,000 shares authorized and 164,308,000 shares issued and outstanding at July 31, 2022 and 133,258,027 shares issued and outstanding at January 31, 2022

 

14

11

Additional paid-in capital

 

1,504,428

 

1,306,146

Accumulated deficit

 

(390,371)

 

(247,229)

Accumulated other comprehensive (loss) income

 

(2,755)

 

970

Total shareholders’ equity

 

1,111,316

 

1,059,898

Total liabilities and shareholders’ equity

$

2,292,037

$

2,221,948

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

4

SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

    

Quarter to Date Results

Fiscal 2023

Fiscal 2022

Successor

Successor

Predecessor (SLH)

Three Months

From

From

Ended

June 12, 2021 to

May 1, 2021 to

    

July 31, 2022

    

July 31, 2021

June 11, 2021

Revenues:

 

  

 

  

Total revenues

$

140,574

$

75,466

$

34,814

Operating expenses:

 

Costs of revenues

 

34,998

22,290

6,949

Content and software development

 

19,693

6,208

4,510

Selling and marketing

 

41,848

19,650

10,905

General and administrative

 

26,367

16,824

4,652

Amortization of intangible assets

 

45,200

18,493

14,575

Impairment of goodwill and intangible assets

70,475

Recapitalization and acquisition-related costs

8,452

9,900

4,927

Restructuring

4,323

287

(910)

Total operating expenses

251,356

93,652

45,608

Operating loss

(110,782)

(18,186)

(10,794)

Other income (expense), net

80

(992)

304

Fair value adjustment of warrants

6,846

17,115

800

Fair value adjustment of hedge instruments

(15,065)

Interest income

10

9

53

Interest expense

(11,470)

(9,265)

(5,354)

Loss before benefit from income taxes

 

(130,381)

(11,319)

(14,991)

Benefit from income taxes

 

(3,065)

(1,996)

(464)

Loss from continuing operations

(127,316)

(9,323)

(14,527)

Income (loss) from discontinued operations, net of tax

5,817

(2,531)

2,668

Net loss

$

(121,499)

$

(11,854)

$

(11,859)

Gain (loss) per share:

 

  

  

  

Class A and B – Basic and Diluted (SLH) - continuing operations

 

*

*

(3.63)

Class A and B – Basic and Diluted (SLH) - discontinued operations

 

*

*

0.67

Class A and B – Basic and Diluted (SLH)

*

*

(2.96)

Ordinary – Basic and Diluted (Successor) - continuing operations

(0.78)

(0.07)

*

Ordinary – Basic and Diluted (Successor) - discontinued operations

0.04

(0.02)

*

Ordinary – Basic and Diluted (Successor)

(0.74)

(0.09)

*

Weighted average common share outstanding:

 

  

  

  

Class A and B – Basic and Diluted (SLH)

 

*

*

4,000

Ordinary – Basic and Diluted (Successor)

 

164,089

 

133,059

*

*Not applicable

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

5

SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Year to Date Results

Fiscal 2023

Fiscal 2022

Successor

Successor

Predecessor (SLH)

Six Months

From

From

Ended

June 12, 2021 to

February 1, 2021 to

    

July 31, 2022

July 31, 2021

June 11, 2021

Revenues:

 

  

  

Total revenues

$

275,413

$

75,466

$

102,494

Operating expenses:

 

 

Costs of revenues

 

73,008

 

22,290

22,043

Content and software development

 

36,026

 

6,208

15,012

Selling and marketing

 

81,410

 

19,650

34,401

General and administrative

 

55,711

 

16,824

16,471

Amortization of intangible assets

 

84,758

 

18,493

46,492

Impairment of goodwill and intangible assets

70,475

Recapitalization and acquisition-related costs

21,764

9,900

6,641

Restructuring

8,279

287

(576)

Total operating expenses

431,431

93,652

140,484

Operating loss

(156,018)

(18,186)

(37,990)

Other income (expense), net

1,132

(992)

(167)

Fair value adjustment of warrants

16,952

17,115

900

Fair value adjustment of hedge instruments

(15,065)

Interest income

170

9

60

Interest expense

(23,007)

(9,265)

(16,763)

Loss before benefit from income taxes

 

(175,836)

 

(11,319)

(53,960)

Benefit from income taxes

 

(25,402)

(1,996)

(3,521)

Loss from continuing operations

(150,434)

(9,323)

(50,439)

Income (loss) from discontinued operations, net of tax

7,292

(2,531)

1,175

Net loss

$

(143,142)

$

(11,854)

$

(49,264)

Income (loss) per share:

 

  

 

  

  

Class A and B – Basic and Diluted (SLH) - Continuing operations

 

*

 

*

(12.61)

Class A and B – Basic and Diluted (SLH) - Discontinued operations

*

*

0.29

Class A and B – Basic and Diluted (SLH)

 

*

 

*

$

(12.32)

Ordinary – Basic and Diluted (Successor) - Continuing operations

(0.98)

(0.07)

*

Ordinary – Basic and Diluted (Successor) - Discontinued operations

0.05

(0.02)

*

Ordinary – Basic and Diluted (Successor)

$

(0.93)

$

(0.09)

*

Weighted average common share outstanding:

 

  

 

  

  

Class A and B – Basic and Diluted (SLH)

 

*

 

*

 

4,000

Ordinary – Basic and Diluted (Successor)

 

153,442

 

133,059

*

*Not applicable

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

6

SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

Quarter to Date Results

Fiscal 2023

Fiscal 2022

Successor

Successor

Predecessor (SLH)

Three Months

From

From

Ended

June 12, 2021 to

May 1, 2021 to

    

July 31, 2022

    

July 31, 2021

June 11, 2021

Comprehensive loss:

 

  

  

  

Net loss

$

(121,499)

$

(11,854)

$

(11,859)

Other comprehensive (loss) income — Foreign currency adjustment, net of tax

 

(1,477)

 

906

(202)

Comprehensive loss

$

(122,976)

$

(10,948)

$

(12,061)

Year to Date Results

Fiscal 2023

Fiscal 2022

Successor

Successor

Predecessor (SLH)

Six Months

From

From

Ended

June 12, 2021 to

February 1, 2021 to

    

July 31, 2022

July 31, 2021

June 11, 2021

Comprehensive loss:

 

  

  

  

Net loss

$

(143,142)

$

(11,854)

$

(49,264)

Other comprehensive (loss) income — Foreign currency adjustment, net of tax

 

(3,725)

906

(430)

Comprehensive loss

$

(146,867)

$

(10,948)

$

(49,694)

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

7

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 Shareholders'

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

Translation adjustment

 

 

 

 

 

(202)

 

(202)

Net loss

 

 

 

 

(11,859)

 

 

(11,859)

Balance June 11, 2021 (Predecessor (SLH))

 

4,000,000

 

40

 

674,333

 

(142,986)

 

(1,112)

 

530,275

Balance June 12, 2021 (Successor)

 

51,559,021

 

3

 

305,447

 

(200,423)

 

 

105,027

Issuance of shares, PIPE Investment

 

53,000,000

 

5

 

608,161

 

 

 

608,166

Issuance of shares, Skillsoft Merger consideration

28,500,000

 

3

 

306,372

 

 

306,375

Issuance of shares, Global Knowledge acquisition

 

 

14,000

 

 

14,000

Reclassify Public Warrants to equity

56,120

56,120

Reclassify Private Placement Warrants - CEO to equity

2,800

2,800

Cash payout for fractional shares

(1)

(1)

Share-based compensation

 

 

4,817

 

 

4,817

Translation adjustment

 

 

 

 

906

906

Net loss

 

 

 

(11,854)

 

(11,854)

Balance July 31, 2021 (Successor)

 

133,059,021

 

$

11

 

$

1,297,716

 

$

(212,277)

 

$

906

 

$

1,086,356

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

8

SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT NUMBER OF SHARES)

Ordinary Shares

Accumulated Other

Total

Number of

Additional Paid-

Accumulated

Comprehensive

Shareholders'

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 awards

(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

Share-based compensation

 

 

 

10,017

 

 

 

10,017

Common stock issued

 

828,831

 

 

 

 

 

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

 

(281,136)

 

(1,409)

 

(1,409)

Translation adjustment

 

 

 

 

 

(1,477)

 

(1,477)

Net loss

 

 

 

 

(121,499)

 

 

(121,499)

Balance July 31, 2022 (Successor)

164,308,000

$

14

$

1,504,428

$

(390,371)

$

(2,755)

$

1,111,316

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

9

SKILLSOFT CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

    

Fiscal 2023

Fiscal 2022

Successor

Successor

Predecessor (SLH)

Six Months

From

From

Ended

June 12, 2021 to

February 1, 2021 to

July 31, 2022

July 31, 2021

June 11, 2021

Cash flows from operating activities:

Net loss

$

(143,142)

$

(11,854)

$

(49,264)

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

 

 

 

Share-based compensation

 

16,915

4,817

 

Depreciation and amortization

3,897

1,705

3,572

Amortization of intangible assets

91,103

20,023

50,902

Change in bad debt reserve

113

(170)

(174)

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

(36,535)

1,239

(5,886)

Non-cash interest expense

1,053

434

487

Fair value adjustment to warrants

(16,952)

(17,115)

(900)

Right-of-use asset

1,977

1,445

748

Impairment of goodwill

70,475