Skillsoft (SKIL) - 2025 Q2 - Quarterly Results

Executive Summary & Q2 FY25 Highlights Q2 FY25 Financial Performance Skillsoft reported a 6% decline in total revenue for Q2 FY25, primarily due to a significant drop in Global Knowledge revenue. Despite this, the company showed strong improvements in Adjusted EBITDA and margin expansion, alongside a reduction in Adjusted Net Loss | Metric | Q2 FY25 (Millions) | Q2 FY24 (Millions) | Change (%) | | :-------------------------------- | :----------------- | :----------------- | :--------- | | Talent Development Solutions Revenue | $102 | $103 | -1% | | Global Knowledge Revenue | $31 | $39 | -20% | | Total Revenue | $132 | $141 | -6% | | Net Loss | $(40) | $(32) | -25% | | Net Loss per share | $(4.84) | $(4.00) | -21% | | Adjusted Net Loss | $(20) | $(30) | 33% (Improvement) | | Adjusted Net Loss per share | $(2.40) | $(3.68) | 35% (Improvement) | | Adjusted EBITDA | $28 | $25 | 12% | | Adjusted EBITDA Margin | 21% | 18% | +300 bps | | Cash, cash equivalents, and restricted cash | $130 | N/A | N/A | CEO & CFO Commentary The CEO highlighted that Q2 FY25 revenue and Adjusted EBITDA met expectations, attributing improved outcomes to the 'Fix the Basics' strategy and the transition to a dual business unit structure. The CFO reaffirmed the full-year FY25 financial outlook, emphasizing a focus on operational execution and long-term growth - CEO Ron Hovsepian stated that revenue and adjusted EBITDA performance were in line with expectations, and progress on the 'Fix the Basics' strategy, including a dual business unit structure, shows improved outcomes[3] - CFO Rich Walker expressed satisfaction with progress towards longer-term goals of growing at or above market rates and reaffirmed the FY25 financial outlook, emphasizing near-term operational execution[4] Q2 FY25 Business Highlights Skillsoft achieved several strategic milestones in Q2 FY25, including a partnership with Microsoft for GenAI upskilling, the launch of an AI-driven platform user experience, and recognition with multiple industry awards for its eLearning and AI innovations. The company also released a report on critical skills gaps in cybersecurity, AI, and data science, and hosted an Investor Day to outline strategic priorities - Microsoft and Skillsoft partnered to innovate GenAI upskilling programs, designed to empower organizations and their workforce to harness Microsoft AI and GenAI technology[3] - Launched a reimagined Skillsoft platform user experience, featuring a personalized, AI-driven learner experience with enhanced intuitive design and sequenced learning paths[3] - Recognized as 'Overall eLearning Company of the Year' in the Edtech Breakthrough Awards and a 'Top AI in Training' company by Training Industry[3] - Released the 2024 C-Suite Perspectives report, highlighting a critical skills crisis in cybersecurity, AI, and data science, and new training approaches to address these gaps[3] - Hosted Investor Day, where leadership outlined strategic priorities, recent innovations, and financial performance, focusing on AI-driven learning solutions and long-term growth[3] Full-Year Fiscal 2025 Financial Outlook Skillsoft reaffirmed its financial outlook for the full fiscal year ending January 31, 2025, projecting GAAP Revenue between $510 million and $525 million, and Adjusted EBITDA between $105 million and $110 million | Metric | Full-Year Fiscal 2025 Outlook | | :---------------- | :---------------------------- | | GAAP Revenue | $510 million – $525 million | | Adjusted EBITDA | $105 million – $110 million | About Skillsoft Skillsoft is a leading platform for transformative learning experiences, partnering with enterprise organizations globally to prepare employees for future economic demands. The company offers blended, multimodal learning experiences through high-quality content, an AI-enabled personalized platform, and a broad partner ecosystem, aiming to overcome critical skills gaps and unlock human potential - Skillsoft delivers transformative learning experiences to propel organizations and people to grow together, partnering with enterprise organizations and serving a global community of learners[6] - The company provides blended, multimodal learning experiences through a portfolio of high-quality content, an AI-enabled platform, and a broad ecosystem of partners[6] - Skillsoft aims to drive continuous growth and performance by overcoming critical skills gaps, unlocking human potential, and transforming the workforce[6] Non-GAAP Financial Measures and Key Performance Metrics Introduction and Purpose Skillsoft uses non-GAAP financial measures and key performance metrics to provide additional insights into its business performance, particularly for comparison with peer companies. These measures are not substitutes for GAAP results and have limitations, as calculations may vary across companies. The company provides reconciliations for historical non-GAAP measures but not for forward-looking ones due to forecasting difficulties - Skillsoft organizes its business into two segments: Talent Development Solutions and Global Knowledge, tracking non-GAAP financial measures and key performance metrics as indicators of success[8] - Non-GAAP measures are used by analysts and investors to evaluate performance against comparable companies, offering insight into key components of U.S. GAAP financial disclosures[8] - The company provides reconciliations of historical non-GAAP financial measures to comparable GAAP measures but does not reconcile forward-looking non-GAAP measures due to variability and difficulty in making accurate forecasts[9] Key Non-GAAP Definitions This section defines key non-GAAP financial measures and performance metrics used by Skillsoft, including Dollar Retention Rate (DRR), Adjusted Net Income (Loss), Adjusted EBITDA, various Adjusted Operating Expenses and Margins, and Free Cash Flow metrics, detailing the components and adjustments for each - Dollar retention rate (DRR) measures subscription renewals, upgrades, churn, and downgrades for existing customers, reflecting the long-term value of contracts and ability to retain/expand revenue[11] - Adjusted net income (loss) excludes non-cash items, discrete/event-specific costs, and certain accounting income/expenses to enhance comparability and assess operating performance, including acquisition costs, restructuring, transformation, system migration, stock-based compensation, executive exit costs, fair value adjustments, foreign currency impact, gain/loss on sale of business, income from discontinued operations, and impairment charges[12] - Adjusted EBITDA is defined as adjusted net income (loss) excluding interest expense/income, income taxes, depreciation, and amortization expense[13] - Free cash flow is GAAP net cash from operating activities less purchases of property and equipment and internally developed software. Adjusted free cash flow (levered) adds the cash impact for adjusted EBITDA excluded charges[14] Cautionary Notes Regarding Forward-Looking Statements This section serves as a disclaimer regarding forward-looking statements in the document, emphasizing that such statements are speculative, based on current beliefs and expectations, and subject to significant risks and uncertainties. Investors are cautioned against undue reliance, and the company disclaims any obligation to update these statements in the future - The document includes 'forward-looking statements' regarding future activities, events, or developments, such as outlook, product development, sales pipeline, financial results, and business strategies[15] - These statements are based on current beliefs and expectations of management and are subject to significant risks and uncertainties, as detailed in the company's Form 10-K[15][16] - The company cautions against unduly relying on these speculative statements and specifically disclaims any obligation to update them to reflect actual results or changes in assumptions[15][16] Unaudited Condensed Consolidated Financial Statements Unaudited Condensed Consolidated Balance Sheets Skillsoft's balance sheet as of July 31, 2024, shows a decrease in total assets and shareholders' equity compared to January 31, 2024. Key changes include a reduction in cash and cash equivalents, accounts receivable, and intangible assets, alongside a decrease in total liabilities, particularly deferred revenue | ASSETS (in thousands) | July 31, 2024 | January 31, 2024 | | :------------------------------------ | :------------ | :--------------- | | Cash and cash equivalents | $122,652 | $136,308 | | Restricted cash | $7,491 | $10,215 | | Accounts receivable, net | $110,042 | $185,638 | | Total current assets | $301,058 | $385,331 | | Goodwill | $317,071 | $317,071 | | Intangible assets, net | $484,294 | $539,293 | | Total assets | $1,126,392 | $1,273,634 | | LIABILITIES AND SHAREHOLDERS' EQUITY (in thousands) | July 31, 2024 | January 31, 2024 | | :-------------------------------------------------- | :------------ | :--------------- | | Total current liabilities | $342,394 | $413,228 | | Long-term debt | $575,364 | $577,487 | | Deferred revenue | $226,573 | $282,570 | | Total liabilities and shareholders' equity | $1,126,392 | $1,273,634 | | Total shareholders' equity | $141,422 | $205,587 | Unaudited Condensed Consolidated Statements of Operations For the three months ended July 31, 2024, Skillsoft reported a decrease in total revenues and an increased net loss compared to the prior year. Operating expenses also decreased, primarily due to lower costs of revenues and amortization of intangible assets, but restructuring charges significantly increased | Metric (in thousands) | Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | Six Months Ended July 31, 2024 | Six Months Ended July 31, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $132,223 | $141,187 | $260,016 | $276,741 | | Total operating expenses | $151,551 | $166,485 | $303,176 | $337,421 | | Operating income (loss) | $(19,328) | $(25,298) | $(43,160) | $(60,680) | | Net income (loss) | $(39,566) | $(31,999) | $(67,202) | $(76,223) | | Net income (loss) per share | $(4.84) | $(4.00) | $(8.26) | $(9.48) | | Restructuring charges | $11,299 | $2,501 | $12,266 | $7,719 | Unaudited Condensed Consolidated Statements of Cash Flows For the six months ended July 31, 2024, Skillsoft generated positive net cash from operating activities, a significant improvement from the prior year. However, investing activities resulted in a net cash outflow, primarily due to capitalized software costs. Financing activities also saw a net cash outflow, leading to an overall decrease in cash, cash equivalents, and restricted cash | Metric (in thousands) | Six Months Ended July 31, 2024 | Six Months Ended July 31, 2023 | | :-------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $3,497 | $1,985 | | Net cash provided by (used in) investing activities | $(9,195) | $(14,494) | | Net cash provided by (used in) financing activities | $(8,255) | $(11,730) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(16,380) | $(24,711) | | Cash, cash equivalents and restricted cash, end of period | $130,143 | $152,845 | Reconciliation of Non-GAAP Financial Measures Revenue by Segment Skillsoft's total revenues for the three months ended July 31, 2024, were $132,223 thousand, with Talent Development Solutions contributing $101,652 thousand and Global Knowledge contributing $30,571 thousand. Talent Development Solutions revenue saw a slight decrease, while Global Knowledge experienced a more significant decline compared to the prior year | Segment (in thousands) | Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | | :----------------------- | :------------------------------- | :------------------------------- | | Talent Development Solutions | $101,652 | $103,188 | | Global Knowledge | $30,571 | $37,999 | | Total revenues | $132,223 | $141,187 | Net Income (Loss) to Adjusted Net Income (Loss) For the three months ended July 31, 2024, Skillsoft's GAAP Net Loss of $(39,566) thousand was adjusted to an Adjusted Net Loss of $(19,647) thousand. Key adjustments included adding back restructuring charges ($11,299 thousand) and executive exit costs ($3,326 thousand), and adjusting for fair value changes and tax impacts | Metric (in thousands) | Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net income (loss), as reported | $(39,566) | $(31,999) | | Acquisition and integration related costs | $921 | $937 | | Restructuring | $11,299 | $2,501 | | Transformation costs | $527 | $323 | | System migration costs | $1 | $403 | | Stock-based compensation expense | $(809) | $5,831 | | Executive exit costs | $3,326 | — | | Fair value adjustment of interest rate swaps | $6,506 | $(6,935) | | Foreign currency impact | $399 | $1,225 | | Tax impact of adjustments | $(2,251) | $(934) | | Adjusted net income (loss) from continuing operations | $(19,647) | $(29,441) | Adjusted Net Income (Loss) to Adjusted EBITDA Skillsoft's Adjusted EBITDA for Q2 FY25 was $28,349 thousand, up from $25,428 thousand in the prior year. This was derived from Adjusted Net Loss by adding back net interest expense, income taxes (excluding tax impacts of adjustments), depreciation, and amortization of intangible assets | Metric (in thousands) | Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Adjusted net income (loss) from continuing operations | $(19,647) | $(29,441) | | Interest expense, net | $15,370 | $15,384 | | Expense (benefit from) income taxes, excluding tax impacts above | $195 | $(955) | | Depreciation | $643 | $1,219 | | Amortization of intangible assets | $31,788 | $39,221 | | Adjusted EBITDA from continuing operations | $28,349 | $25,428 | Per Share and Margin Information Skillsoft reported an Adjusted Net Loss per share of $(2.40) for Q2 FY25, an improvement from $(3.68) in the prior year. Adjusted EBITDA margin expanded to 21.4% from 18.0%, and Adjusted gross margin improved to 75.6% from 71.6% year-over-year | Metric | Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | | :------------------------------ | :------------------------------- | :------------------------------- | | Net income (loss) per share | $(4.84) | $(4.00) | | Adjusted net income (loss) per share | $(2.40) | $(3.68) | | Adjusted net income (loss) margin % | (14.9)% | (20.9)% | | Adjusted EBITDA margin % | 21.4% | 18.0% | | Adjusted gross margin | 75.6% | 71.6% | | Adjusted contribution margin | 21.5% | 18.0% | Adjusted Operating Expenses Skillsoft's total GAAP operating expenses decreased to $107,543 thousand for Q2 FY25 from $123,826 thousand in the prior year. After adjustments for depreciation, stock-based compensation, system migration, transformation, and executive exit costs, Adjusted total operating expenses were $103,813 thousand, down from $115,759 thousand | Operating Expense Category (in thousands) | Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | | :---------------------------------------- | :------------------------------- | :------------------------------- | | GAAP costs of revenues | $32,471 | $40,467 | | Adjusted costs of revenues | $32,232 | $40,047 | | GAAP content and software development | $14,993 | $17,863 | | Adjusted content and software development | $14,008 | $15,556 | | GAAP selling and marketing | $40,684 | $40,411 | | Adjusted selling and marketing | $39,689 | $40,560 | | GAAP general and administrative | $19,395 | $25,085 | | Adjusted general and administrative | $17,884 | $19,596 | | Total GAAP operating expenses | $107,543 | $123,826 | | Adjusted total operating expenses | $103,813 | $115,759 | Free Cash Flow Reconciliation For the six months ended July 31, 2024, Skillsoft reported a total free cash flow of $(5,698) thousand, an improvement from $(7,372) thousand in the prior year. After accounting for cash impacts of adjusted EBITDA excluded charges, the Adjusted free cash flow (levered) was $1,400 thousand, significantly up from $420 thousand in the prior year | Metric (in thousands) | Six Months Ended July 31, 2024 | Six Months Ended July 31, 2023 | | :-------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $3,497 | $1,985 | | Purchase of property and equipment | $(399) | $(3,406) | | Internally developed software - capitalized costs | $(8,796) | $(5,951) | | Total free cash flow | $(5,698) | $(7,372) | | Cash impact for adjusted EBITDA excluded charges | $7,098 | $7,792 | | Adjusted free cash flow (levered) | $1,400 | $420 |