Skillsoft (SKIL) - 2023 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and related disclosures for Skillsoft Corp Item 1. Unaudited Financial Statements This section provides the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, reflecting recent acquisitions, divestitures, and a significant goodwill impairment Unaudited Condensed Consolidated Balance Sheets The balance sheet shows a significant decrease in total assets and shareholders' equity primarily due to goodwill impairment and reclassification of divested assets Balance Sheet Items (in thousands) | Balance Sheet Items (in thousands) | October 31, 2022 | January 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,595,401 | $2,221,948 | | Goodwill | $462,080 | $795,811 | | Intangible assets, net | $769,680 | $793,859 | | Total Liabilities | $1,021,526 | $1,162,050 | | Long-term debt | $582,870 | $462,185 | | Total Shareholders' Equity | $573,875 | $1,059,898 | | Accumulated deficit | ($918,714) | ($247,229) | Unaudited Condensed Consolidated Statements of Operations The statements of operations reveal a massive operating and net loss for the quarter and nine months ended October 31, 2022, primarily due to a substantial impairment charge Statements of Operations (in thousands) | (in thousands) | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | | :--- | :--- | :--- | | Total revenues | $139,390 | $140,153 | | Impairment of goodwill and intangible assets | $570,887 | $0 | | Operating loss | ($608,702) | ($10,447) | | Gain on sale of business | $53,756 | $0 | | Net loss | ($528,343) | ($42,855) | Statements of Operations (in thousands) | (in thousands) | Nine Months Ended Oct 31, 2022 (Successor) | Combined Nine Months Ended Oct 31, 2021 (Successor & Predecessor) | | :--- | :--- | :--- | | Total revenues | $414,803 | $318,114 | | Impairment of goodwill and intangible assets | $641,362 | $0 | | Operating loss | ($764,718) | ($66,677) | | Gain on sale of business | $53,756 | $0 | | Net loss | ($671,485) | ($103,972) | Unaudited Condensed Consolidated Statements of Cash Flows The cash flow statement indicates net cash used in operating and investing activities, partially offset by cash provided from financing activities, resulting in a net increase in cash Statements of Cash Flows (in thousands) | (in thousands) | Nine Months Ended Oct 31, 2022 (Successor) | | :--- | :--- | | Net cash used in operating activities | ($23,561) | | Net cash used in investing activities | ($40,199) | | Net cash provided by financing activities | $83,690 | | Net increase in cash, cash equivalents and restricted cash | $13,107 | - Key investing activities included the acquisition of Codecademy (net cash used of $198.8 million) and the sale of SumTotal (net cash received of $172.0 million)[28] - Key financing activities included proceeds from the issuance of term loans ($157.1 million net) and repayments on the accounts receivable facility ($33.2 million)[28] Notes to Unaudited Condensed Consolidated Financial Statements The notes provide detailed explanations of accounting policies, business combinations, the SumTotal divestiture, and significant impairment charges - The company acquired Codecademy on April 4, 2022, for a total purchase price of $386.0 million, consisting of cash and stock[61][63] - The SumTotal business was sold on August 15, 2022, for approximately $200 million, resulting in a preliminary gain on sale of $53.8 million, and is now reported as a discontinued operation[72][73][74] - The company recorded a total goodwill impairment of $641.4 million in the nine months ended October 31, 2022, with $570.9 million recorded in the third quarter alone, due to a decline in stock price, underperformance of Global Knowledge, and macroeconomic uncertainty[87][89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting the impact of strategic moves, revenue trends, the significant goodwill impairment, and liquidity - The sale of the SumTotal business for $200 million is intended to sharpen the company's focus on its core corporate digital learning business[200][201] - Q3 revenue decreased 0.5% YoY, as a 22.1% decline in Global Knowledge non-subscription revenue offset a 12.8% increase in Content SaaS subscription revenue[211][212] - A goodwill impairment of $570.9 million was recorded in Q3 2022 due to a substantial decline in stock price, deterioration in equity markets, increased interest rates, and underperformance of the Global Knowledge business[227] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section is omitted as permissible for a smaller reporting company - Not applicable as a smaller reporting company[266] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of October 31, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of October 31, 2022, the company's disclosure controls and procedures were effective[268] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[269] PART II — OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other miscellaneous information Item 1. Legal Proceedings A stockholder complaint related to the Codecademy acquisition was dismissed, and the company is not currently involved in other material legal proceedings - A stockholder complaint filed in relation to the Codecademy acquisition was dismissed on May 29, 2022[108][271] Item 1A. Risk Factors A new risk factor highlights that the share repurchase program may not be fully consummated or enhance long-term shareholder value - A new risk factor was added regarding the share repurchase program, noting it may not be fully completed and may not enhance shareholder value[273] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company details its share repurchase activity under the new program, including shares purchased and remaining authorization Share Repurchase Activity (in millions) | Period | Total shares purchased | Average price paid per share | Approximate dollar value of shares that may yet be purchased (in millions) | | :--- | :--- | :--- | :--- | | September 1-30, 2022 | 645,248 | $2.2205 | $28.6 | - On September 7, 2022, the Board authorized a repurchase program for up to $30 million of its Class A common stock[138][275] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[276] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[277] Item 5. Other Information The company reports no other information for this item - None[278] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including employment agreements and officer certifications - Lists exhibits filed with the report, including certifications by the Principal Executive Officer and Principal Financial Officer[280]