Skillsoft (SKIL) - 2022 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION - UNAUDITED Item 1. Financial Statements Skillsoft Corp.'s unaudited condensed consolidated financial statements are presented, segmented by Successor and Predecessor periods due to recent business combinations and reorganization Condensed Consolidated Balance Sheets Balance sheets show significant asset and liability increases in the Successor period, driven by goodwill, intangible assets, and warrant liabilities from business combinations Condensed Consolidated Balance Sheets (in thousands) | ASSETS (in thousands) | July 31, 2021 (Successor) | January 31, 2021 (Predecessor (SLH)) | | :---------------------- | :------------------------ | :----------------------------------- | | Cash and cash equivalents | $90,772 | $71,479 | | Accounts receivable, net | $120,980 | $179,784 | | Total current assets | $275,078 | $284,553 | | Goodwill | $761,177 | $495,004 | | Intangible assets, net | $946,731 | $728,633 | | Total assets | $2,034,421 | $1,545,737 | | LIABILITIES (in thousands) | | | | Current maturities of long-term debt | $3,600 | $5,200 | | Deferred revenue | $165,900 | $257,549 | | Total current liabilities | $342,068 | $351,436 | | Long-term debt | $463,799 | $510,236 | | Warrant liabilities | $28,525 | $900 | | Total liabilities and shareholders' equity | $2,034,421 | $1,545,737 | Condensed Consolidated Statement of Operations Statements of operations show net losses across all periods, with the Successor period reporting $57.9 million in revenue and a $37.5 million net loss due to substantial operating expenses Condensed Consolidated Statement of Operations (in thousands) | (in thousands) | Successor (June 12, 2021 to July 31, 2021) | Predecessor (SLH) (May 1, 2021 to June 11, 2021) | Predecessor (SLH) (Feb 1, 2021 to June 11, 2021) | Predecessor (PL) (Three months ended July 31, 2020) | Predecessor (PL) (Six months ended July 31, 2020) | | :--------------- | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------------------------------ | :----------------------------------------------- | | Total revenues | $57,912 | $47,935 | $139,636 | $116,835 | $235,164 | | Total operating expenses | $107,525 | $56,855 | $176,259 | $118,019 | $574,093 | | Operating loss | $(49,613) | $(8,920) | $(36,623) | $(1,184) | $(338,929) | | Net loss | $(37,535) | $(11,859) | $(49,264) | $(70,981) | $(504,883) | | Loss per share (Successor) | $(0.28) | * | * | * | * | Condensed Consolidated Statement of Comprehensive Loss Statements of comprehensive loss reflect a comprehensive loss across all periods, mirroring net loss with additional foreign currency adjustments Condensed Consolidated Statement of Comprehensive Loss (in thousands) | (in thousands) | Successor (June 12, 2021 to July 31, 2021) | Predecessor (SLH) (May 1, 2021 to June 11, 2021) | Predecessor (SLH) (Feb 1, 2021 to June 11, 2021) | Predecessor (PL) (Three months ended July 31, 2020) | Predecessor (PL) (Six months ended July 31, 2020) | | :--------------- | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------------------------------ | :----------------------------------------------- | | Net loss | $(37,535) | $(11,859) | $(49,264) | $(70,981) | $(504,883) | | Other comprehensive income (loss) — Foreign currency adjustment, net of tax | $906 | $(202) | $(431) | $(1,731) | $(2,360) | | Comprehensive loss | $(36,629) | $(12,061) | $(49,695) | $(72,712) | $(507,243) | Condensed Consolidated Statement of Stockholders' (Deficit) Equity Stockholders' equity reflects significant changes from the Skillsoft Merger and equity issuances, with Successor period equity increasing to $1,060.7 million from paid-in capital Condensed Consolidated Statement of Stockholders' (Deficit) Equity (in thousands) | (in thousands) | Balance June 11, 2021 (Predecessor (SLH)) | Balance June 12, 2021 (Successor) | Balance July 31, 2021 (Successor) | | :--------------- | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Total Shareholders' Equity (Deficit) | $530,275 | $105,027 | $1,060,675 | | Key Equity Changes (Successor Period): | | | | | Issuance of shares, PIPE Investment | — | — | $608,166 | | Issuance of shares, Skillsoft merger consideration | — | — | $306,375 | | Reclassify Public Warrants to equity | — | — | $56,120 | | Net loss | $(11,859) | $(37,535) | $(37,535) | Condensed Consolidated Statements of Cash Flows Cash flow statements highlight significant investing and financing activities in the Successor period, driven by acquisitions and related debt and equity financing, with minimal operating cash Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Successor (June 12, 2021 to July 31, 2021) | Predecessor (SLH) (Feb 1, 2021 to June 11, 2021) | Predecessor (PL) (Six months ended July 31, 2020) | | :--------------- | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net cash provided by operating activities | $738 | $33,811 | $11,573 | | Net cash used in investing activities | $(562,563) | $(2,991) | $(6,386) | | Net cash provided by financing activities | $379,106 | $14,907 | $59,800 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(182,969) | $45,930 | $62,723 | | Cash, cash equivalents and restricted cash, end of period | $105,514 | $120,373 | $96,527 | - Significant cash outflows for investing activities in the Successor period were due to the acquisitions of Skillsoft ($386.0 million), Global Knowledge ($156.9 million), and Pluma ($18.6 million)[24] - Financing activities in the Successor period included $464.3 million from Term Loan proceeds and $530.0 million from PIPE equity investment, partially offset by $605.6 million in repayments of First and Second Out loans[24] Notes to Condensed Consolidated Financial Statements Notes detail the company's organization, accounting policies, and impact of recent business combinations, clarifying reporting periods, intangible assets, debt, equity, and revenue recognition (1) Organization and Description of Business Skillsoft Corp. (Successor) formed on June 11, 2021, through mergers and acquisitions, provides enterprise learning solutions via its AI-driven Percipio platform, with financial reporting segmented by period - Skillsoft Corp. (Successor) was formed on June 11, 2021, via the merger of Churchill Capital Corp II and Software Luxembourg Holding S.A., and the acquisition of Global Knowledge[28][30] - The company offers enterprise learning solutions through Skillsoft, Global Knowledge, and SumTotal brands, focusing on leadership, business, technology, developer, and compliance curricula, delivered via the AI-driven Percipio platform[35] - Financial statements are presented for 'Successor' (post-June 11, 2021), 'Predecessor (SLH)' (Aug 28, 2020 to June 11, 2021), and 'Predecessor (PL)' (prior to Aug 28, 2020) periods[32][34] (2) Summary of Significant Accounting Policies Key accounting policies cover stock-based compensation, derivative liabilities, and contract acquisition costs, with a policy change in the Successor period for amortizing contract acquisition costs - Stock-based compensation expense is recognized over the service period, using the Black-Scholes model for options and an accelerated attribution method for market/performance-conditioned RSUs[42] - Derivative liabilities are classified based on specific instrument terms and accounting guidance (ASC 480, ASC 815), with changes in fair value recognized in the statements of operations for liability-classified instruments[43][44] - For the Successor period, the company no longer applies the practical expedient for contract acquisition costs, meaning costs are amortized over the expected customer relationship period (3-5 years for new customers) or contractual term for renewals, rather than expensed as incurred if the amortization period is one year or less[45] (3) Business Combinations Skillsoft completed three acquisitions (Skillsoft Legacy, Global Knowledge, Pluma) using the acquisition method, resulting in significant goodwill and intangible assets, with preliminary purchase price allocations subject to refinement - On June 11, 2021, Churchill Capital Corp II merged with Software Luxembourg Holding S.A. (Skillsoft Legacy), with Churchill determined as the accounting acquirer[46][47] Skillsoft Legacy Acquisition Purchase Consideration (in thousands) | Description | Amount | | :---------- | :----- | | Class A Common Stock issued | $258,000 | | Class B Common Stock issued | $48,375 | | Cash payments | $505,000 | | Second Out Term Loan | $20,000 | | Cash settlement of seller transaction costs | $1,308 | | Total Purchase Price | $832,683 | Global Knowledge Acquisition Purchase Consideration (in thousands) | Description | Amount | | :---------- | :----- | | Cash consideration | $170,199 | | Warrants Issued | $14,000 | | Joinder Term Loans | $70,000 | | Cash settlement of seller transaction costs | $4,251 | | Total Purchase Price | $258,450 | - On June 30, 2021, Skillsoft acquired Pluma, Inc. for $22 million, enhancing its leadership development portfolio and adding individualized coaching, resulting in $11.9 million of goodwill and $10.0 million of identified intangible assets[63] - The preliminary purchase price allocations for all acquisitions are subject to refinement during the measurement period, as the company continues to refine valuations of intangible assets, deferred income taxes, and liabilities[66] (4) Intangible Assets Intangible assets increased to $946.7 million (net) due to business combinations, with annual impairment testing; significant impairment charges were recorded in the Predecessor period due to COVID-19 and capital structure uncertainty Intangible Assets (in thousands) | Description | July 31, 2021 (Successor) Net Carrying Amount | January 31, 2021 (Predecessor (SLH)) Net Carrying Amount | | :------------------------------ | :-------------------------------------- | :--------------------------------------------------- | | Developed software/courseware | $301,132 | $241,089 | | Customer contracts/relationships | $378,821 | $275,873 | | Vendor relationships | $39,360 | — | | Trademarks and trade names | $7,614 | $5,845 | | Publishing rights | $39,981 | $32,267 | | Backlog | $69,723 | $82,059 | | Skillsoft trademark | $84,700 | $91,500 | | Global Knowledge trademark | $25,400 | — | | Total | $946,731 | $728,633 | Amortization Expense (in thousands) | Period | Amount | | :----------------------------------------- | :------- | | June 12, 2021 - July 31, 2021 (Successor) | $20,023 | | May 1, 2021 - June 11, 2021 (Predecessor SLH) | $16,000 | | Feb 1, 2021 - June 11, 2021 (Predecessor SLH) | $50,902 | | Three months ended July 31, 2020 (Predecessor PL) | $12,800 | | Six months ended July 31, 2020 (Predecessor PL) | $30,100 | - In the Predecessor (PL) period ended April 30, 2020, the company recorded $332.4 million in goodwill and intangible asset impairment charges due to the COVID-19 pandemic and an over-leveraged capital structure, including $62.3 million for SumTotal definite-lived intangible assets, $92.2 million for the Skillsoft trade name, $107.9 million for Skillsoft goodwill, and $70.0 million for SumTotal goodwill[75][76][77][80][81] (5) Taxes Tax benefits were recorded across all periods due to pretax losses, with the Successor period recognizing a $5.5 million benefit on a $43.0 million pretax loss, influenced by valuation allowance changes and foreign rates Tax Benefit on Pretax Loss (in thousands) | Period | Pretax Loss | Tax Benefit | | :----------------------------------------- | :---------- | :---------- | | June 12, 2021 - July 31, 2021 (Successor) | $(43,039) | $(5,504) | | May 1, 2021 - June 11, 2021 (Predecessor SLH) | $(13,478) | $(1,619) | | Feb 1, 2021 - June 11, 2021 (Predecessor SLH) | $(52,972) | $(3,708) | | Three months ended July 31, 2020 (Predecessor PL) | $(71,890) | $(909) | | Six months ended July 31, 2020 (Predecessor PL) | $(514,683) | $(9,800) | (6) Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets increased to $48.6 million as of July 31, 2021, from $30.3 million, driven by higher prepaid expenses, insurance, and new course material Prepaid Expenses and Other Current Assets (in thousands) | Item | July 31, 2021 (Successor) | January 31, 2021 (Predecessor (SLH)) | | :-------------------------- | :------------------------ | :----------------------------------- | | Deferred commission costs – current | $2,179 | $3,147 | | Reclaimable tax | $9,842 | $9,927 | | Prepaid software maintenance costs | $10,020 | $8,587 | | Prepaid royalties | $2,981 | $2,958 | | Prepaid insurance costs | $6,270 | $752 | | Prepaid employee benefits | $1,570 | $1,620 | | Other Prepaid expenses | $9,506 | $2,336 | | Course material | $1,333 | — | | Other receivables | $1,834 | $964 | | Other current asset | $3,049 | $35 | | Total | $48,584 | $30,326 | (7) Other Assets Other assets slightly decreased to $8.1 million as of July 31, 2021, from $8.6 million, primarily due to reduced non-current deferred commission costs Other Assets (in thousands) | Item | July 31, 2021 (Successor) | January 31, 2021 (Predecessor (SLH)) | | :-------------------------- | :------------------------ | :----------------------------------- | | Deferred commission costs – non-current | $2,933 | $4,437 | | Deposits | $3,043 | $1,618 | | Other | $2,116 | $2,581 | | Total | $8,092 | $8,636 | (8) Accrued Expenses Accrued expenses significantly increased to $62.5 million as of July 31, 2021, from $23.1 million, primarily due to accrued acquisition-related costs and refundable payments Accrued Expenses (in thousands) | Item | July 31, 2021 (Successor) | January 31, 2021 (Predecessor (SLH)) | | :-------------------------- | :------------------------ | :----------------------------------- | | Professional fees | $8,881 | $8,832 | | Accrued sales tax/VAT | $6,583 | $5,379 | | Accrued royalties | $1,580 | $2,152 | | Accrued tax | $5,581 | $2,634 | | Accrued interest | $1,168 | $491 | | Accrued acquisition related costs | $14,526 | — | | Refundable payments | $3,597 | — | | Other accrued liabilities | $20,557 | $3,637 | | Total | $62,473 | $23,125 | (9) Restructuring Restructuring charges and credits were recorded for strategic initiatives, including a $0.3 million charge in the Successor period and a $0.7 million credit in the Predecessor (SLH) period - Restructuring charges of $0.3 million were recorded in the Successor period (June 12, 2021 to July 31, 2021)[90] - A restructuring credit of $0.7 million was recorded in the Predecessor (SLH) period (February 1, 2021 to June 11, 2021)[90] - Restructuring charges of $0.8 million and $1.1 million were recorded for the three and six months ended July 31, 2020 (Predecessor PL), primarily for employee severance costs[90] (10) Leases, Commitments and Contingencies ROU assets and lease liabilities of $24.6 million and $25.8 million were recognized for legacy leases, with a weighted-average operating lease term of 5.3 years; no material legal proceedings are currently active - ROU assets and lease liabilities of $24.6 million and $25.8 million, respectively, were recognized for Skillsoft and Global Knowledge's legacy lease agreements at the acquisition date[91] - The weighted-average remaining lease term for operating leases is 5.3 years as of July 31, 2021[94] Future Minimum Lease Payments (in thousands) | Fiscal Year Ended January 31 | Operating Leases | Finance Lease | | :--------------------------- | :--------------- | :------------ | | 2022 (Remaining 6 months) | $5,033 | $905 | | 2023 | $8,782 | — | | 2024 | $4,457 | — | | 2025 | $3,195 | — | | 2026 | $1,396 | — | | Thereafter | $6,150 | — | | Total future minimum lease payments | $29,013 | $905 | - The company is not currently a party to any material legal proceedings, and two lawsuits related to the Skillsoft Merger were dismissed in July 2021[97][98] (11) Long-Term Debt Long-term debt decreased to $463.8 million as of July 31, 2021, after refinancing with a new $480 million Term Loan Facility, maturing July 16, 2028, at LIBOR plus 4.75% Long-Term Debt (in thousands) | Item | July 31, 2021 (Successor) | January 31, 2021 (Predecessor (SLH)) | | :-------------------------- | :------------------------ | :----------------------------------- | | Term Loan - current portion | $3,600 | $5,200 | | Long-term debt | $463,799 | $510,236 | - On July 16, 2021, Skillsoft Finance II entered into a $480 million Term Loan Facility, maturing on July 16, 2028, to refinance previous debt[106] - The Term Loan Facility bears interest at LIBOR (subject to a 0.75% floor) plus 4.75% for Eurocurrency Loans[109] - The company received $464.3 million in net proceeds from the Term Loan Facility and used it to pay down $608.7 million of outstanding borrowings from the Exit Credit Facility[111] Debt Maturity Schedule (in thousands) | Fiscal year ended January 31 | Amount | | :--------------------------- | :----- | | 2022 (remaining 6 months) | $1,200 | | 2023 | $4,800 | | 2024 | $4,800 | | 2025 | $4,800 | | 2026 | $4,800 | | Thereafter | $459,600 | | Total payments | $480,000 | (12) Long-Term Liabilities Other long-term liabilities decreased to $5.0 million as of July 31, 2021, from $6.9 million, mainly due to a reduction in uncertain tax positions Other Long-Term Liabilities (in thousands) | Item | July 31, 2021 (Successor) | January 31, 2021 (Predecessor (SLH)) | | :-------------------------- | :------------------------ | :----------------------------------- | | Uncertain tax positions; including interest and penalties – long-term | $4,448 | $5,794 | | Other | $597 | $1,104 | | Total | $5,045 | $6,898 | (13) Shareholders' Equity Skillsoft Corp.'s authorized share capital as of July 31, 2021, included 375 million Class A common shares and 10 million preferred shares, with 133 million Class A shares outstanding; Predecessor (SLH) underwent a 2020 reorganization - As of July 31, 2021, Skillsoft Corp. had 375,000,000 authorized Class A common shares, 3,840,000 Class C common shares, and 10,000,000 preferred shares, with 133,059,021 Class A common shares issued and outstanding[115] - The Predecessor (SLH) underwent a reorganization on August 27, 2020, transferring Pointwell ownership to lenders and cancelling share-based compensation plans[118] (14) Warrants The company holds both liability-classified and equity-classified warrants; Sponsor's Private Placement Warrants are liability-classified at $28.5 million, while Public and PIPE Private Placement Warrants are equity-classified post-merger - Private Placement Warrants held by the Sponsor (16.3 million shares) are classified as liabilities and measured at fair value, with a fair value of $28.5 million as of July 31, 2021[126][147] - Public Warrants (23 million shares) and PIPE Private Placement Warrants (16.7 million shares) were reclassified to equity after the Skillsoft Merger on June 11, 2021, as they now meet equity classification criteria[127] - Global Knowledge Private Placement Warrants (5 million shares) and CEO Private Placement Warrants (1 million shares) are also equity-classified[127] (15) Stock-based compensation Skillsoft adopted the 2020 Omnibus Incentive Plan in June 2021, making 13.1 million shares available; total unrecognized stock-based compensation costs were $7.1 million for options, $28.1 million for RSUs, and $4.6 million for PSUs - The 2020 Omnibus Incentive Plan, adopted in June 2021, initially made 13,105,902 shares available for issuance, with 7,443,086 shares remaining available as of July 31, 2021[132] Unrecognized Stock-based Compensation Costs (in thousands) | Award Type | Total Unrecognized Costs | Weighted-Average Recognition Period | | :--------- | :----------------------- | :---------------------------------- | | Stock Options | $7,100 | 3.9 years | | RSUs | $28,100 | 3.9 years | | PSUs | $4,600 | 1.6 years | - Stock-based compensation expense for the period from June 12, 2021, to July 31, 2021, totaled $4.8 million, including $2.8 million attributable to warrants issued to the CEO[140] (16) Revenue Successor period revenues totaled $57.9 million, primarily from SaaS and subscriptions; deferred revenue was $167.6 million, significantly impacted by fair value adjustments from recent acquisitions Revenues by Type (in thousands) | Revenue Type | Successor (June 12, 2021 to July 31, 2021) | Predecessor (SLH) (May 1, 2021 to June 11, 2021) | Predecessor (SLH) (Feb 1, 2021 to June 11, 2021) | Predecessor (PL) (Three months ended July 31, 2020) | Predecessor (PL) (Six months ended July 31, 2020) | | :-------------------------- | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------------------------------ | :----------------------------------------------- | | SaaS and subscription services | $34,534 | $40,577 | $119,233 | $100,398 | $201,492 | | Professional services | $3,060 | $5,384 | $13,495 | $10,247 | $21,189 | | Virtual, on-demand and classroom | $18,639 | — | — | — | — | | Total net revenues | $57,912 | $47,935 | $139,636 | $116,835 | $235,164 | Revenues by Geographic Region (in thousands) | Region | Successor (June 12, 2021 to July 31, 2021) | Predecessor (SLH) (May 1, 2021 to June 11, 2021) | Predecessor (SLH) (Feb 1, 2021 to June 11, 2021) | Predecessor (PL) (Three months ended July 31, 2020) | Predecessor (PL) (Six months ended July 31, 2020) | | :-------------------------- | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :------------------------------------------------ | :----------------------------------------------- | | United States | $36,572 | $34,913 | $101,884 | $90,565 | $181,242 | | Europe, Middle East and Africa | $14,281 | $6,799 | $19,729 | $14,360 | $28,583 | | Total net revenues | $57,912 | $47,935 | $139,636 | $116,835 | $235,164 | Deferred Revenue Activity (in thousands) | Item | Amount | | :---------------------------------------- | :------- | | Deferred revenue at January 31, 2021 (Predecessor (SLH)) | $260,584 | | Deferred revenue at June 11, 2021 (Predecessor (SLH)) | $230,398 | | Acquisition of Skillsoft and GK | $146,318 | | Billings deferred | $74,395 | | Recognition of prior deferred revenue | $(57,912) | | Acquisition of Pluma | $4,848 | | Deferred revenue at July 31, 2021 (Successor) | $167,649 | (17) Fair Value Measurements The company measures certain assets and liabilities at fair value, primarily liability-classified warrants, using a Level 3 hierarchy; Sponsor's Private Placement Warrants were valued at $28.5 million using a Black-Scholes model - The company uses a Level 3 fair value hierarchy for instruments with significant unobservable inputs, such as Private Placement Warrants – Sponsor[147] Fair Value of Private Placement Warrants – Sponsor (in thousands) | Date | Fair Value | | :--- | :--------- | | July 31, 2021 | $28,525 | - The fair value of these warrants is estimated using a Black-Scholes option pricing model, with key assumptions including risk-free interest rates (0.67% at July 31, 2021), volatility factor (33%), and expected lives (4.9 years)[150] (18) Segment Information Skillsoft operates three segments: Skillsoft, SumTotal, and Global Knowledge, offering diverse learning and HCM solutions; all segments experienced operating losses in the Successor period - The company's three operating segments are Skillsoft, SumTotal, and Global Knowledge (GK)[153] - Skillsoft segment focuses on content learning solutions (Leadership & Business, Technology & Developer, Compliance) delivered via Percipio[155] - SumTotal provides unified, comprehensive SaaS talent management solutions including Talent Acquisition, Learning Management, Talent Management, and Workforce Management[156] - Global Knowledge offers IT and business skills training through instructor-led (in-person/virtual) and self-paced (on-demand) modalities[157] Segment Revenues and Operating Loss (Successor: June 12, 2021 to July 31, 2021, in thousands) | Segment | Revenues | Operating Loss | | :------ | :------- | :------------- | | Skillsoft | $23,379 | $(37,008) | | SumTotal | $9,873 | $(5,010) | | Global Knowledge | $24,660 | $(7,595) | | Consolidated | $57,912 | $(49,613) | Segment Assets (in thousands) | Segment | July 31, 2021 (Successor) | January 31, 2021 (Predecessor (SLH)) | | :------ | :------------------------ | :----------------------------------- | | Skillsoft | $1,471,444 | $1,398,379 | | SumTotal | $196,071 | $147,358 | | Global Knowledge | $366,906 | — | | Consolidated | $2,034,421 | $1,545,737 | (19) Net Loss Per Share The company reported a basic and diluted net loss per share of $(0.28) for the Successor period; potentially dilutive securities were excluded from diluted EPS due to anti-dilutive effects from net losses Net Loss Per Share (in thousands, except per share data) | Period | Net Loss | Weighted Average Common Shares Outstanding | Net Loss Per Share | | :----------------------------------------- | :------- | :----------------------------------------- | :----------------- | | June 12, 2021 - July 31, 2021 (Successor) | $(37,535) | 133,059 | $(0.28) | | May 1, 2021 - July 31, 2021 (Predecessor SLH) | $(11,859) | 4,000 | $(2.96) | | Feb 1, 2021 - July 31, 2021 (Predecessor SLH) | $(49,264) | 4,000 | $(12.32) | | Three months ended July 31, 2020 (Predecessor PL) | $(70,981) | 100.1 | $(709.10) | | Six months ended July 31, 2020 (Predecessor PL) | $(504,883) | 100.1 | $(5,043.79) | - Potentially dilutive securities, including 61,967 thousand warrants, 2,198 thousand stock options, and 3,465 thousand RSUs, were excluded from diluted EPS calculations due to the anti-dilutive effect of net losses[162] (20) Related Party Transactions Predecessor (SLH) exit facility debt, financed by Class A shareholders, was repaid in July 2021; the Successor entered a strategic support agreement with its largest shareholder, with no new affiliate transactions in the period - The Predecessor's exit facility debt was financed by Class A shareholders and was fully repaid in connection with the July 2021 refinancing[163] - The Successor company entered a strategic support agreement with its largest shareholder for business development and investor relations, but no new affiliate transactions occurred in the period from June 11, 2021, to July 31, 2021[164] (21) Subsequent Events All subsequent events through the Form 10-Q filing date were evaluated, with no additional disclosures required beyond those already presented in the financial statements - No subsequent events requiring disclosure have occurred between July 31, 2021, and the filing date of the Form 10-Q, beyond those already disclosed[165] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Skillsoft's financial condition and operational results, highlighting the impact of business combinations and fiscal year change, presenting combined (non-GAAP) results for comparability - Skillsoft Corp. completed a business combination on June 11, 2021, merging with Software Luxembourg Holding S.A. and acquiring Global Knowledge, and subsequently changed its fiscal year end to January 31[168][169] - The company is a global leader in corporate digital learning, serving approximately 70% of Fortune 1000 companies and over 45 million learners, with solutions delivered through Percipio, Skillport, Global Knowledge, and SumTotal[170][171] - Management presents combined (non-GAAP) financial results for the three and six months ended July 31, 2021, to provide a more meaningful comparison to prior periods, acknowledging these are not GAAP pro forma results[174][175][176][177] Completion of the Business Combination Skillsoft Corp. completed its business combination with Software Luxembourg Holding S.A. and acquired Global Knowledge on June 11, 2021, now trading as 'SKIL' on the NYSE - Skillsoft Corp. completed its business combination with Software Luxembourg Holding S.A. and acquired Global Knowledge on June 11, 2021[168] - The combined company operates as Skillsoft Corp. and began trading on the New York Stock Exchange under 'SKIL' on June 14, 2021[168] Change in Fiscal Year Skillsoft's board approved changing the fiscal year end from December 31 to January 31, effective June 21, 2021, aligning with the pre-combination fiscal year - Skillsoft's board of directors approved a change in the company's fiscal year end from December 31 to January 31, effective June 21, 2021[169] Company's Business following the Business Combination Post-combination, Skillsoft Corp. is a global leader in corporate digital learning, offering enterprise solutions like Percipio, Global Knowledge, and SumTotal to address skill gaps in a growing digital learning market - Skillsoft is a global leader in corporate digital learning, serving approximately 70% of Fortune 1000 companies and over 45 million learners globally[170] - Primary learning solutions include Skillsoft Percipio (AI-driven platform), Skillport (legacy platform), Global Knowledge (IT & professional skills training), and SumTotal (SaaS-based HCM solution)[171] - The corporate digital learning industry is experiencing rapid growth due to focus on upskilling/reskilling workforces and the accelerated shift to digital training, partly driven by the COVID-19 pandemic[173] Results of Operations Skillsoft's combined results show revenue decreases of 9.4% (three months) and 16.0% (six months) due to fresh-start reporting and business combination adjustments, while operating expenses significantly increased from intangible asset amortization Combined (Non-GAAP) Financial Highlights (in thousands) | Item | Three Months Ended July 31, 2021 | Six Months Ended July 31, 2021 | | :---------------------------------- | :------------------------------- | :----------------------------- | | Total revenues | $105,847 | $197,548 | | Total operating expenses | $164,380 | $283,784 | | Operating loss | $(58,533) | $(86,236) | | Net loss | $(49,394) | $(86,799) | Revenue Comparison (Non-GAAP, in thousands) | Period | Combined Three Months Ended July 31, 2021 | Predecessor (PL) Three Months Ended July 31, 2020 | Combined Six Months Ended July 31, 2021 | Predecessor (PL) Six Months Ended July 31, 2020 | | :----- | :---------------------------------------- | :------------------------------------------------ | :-------------------------------------- | :---------------------------------------------- | | Total revenues | $105,847 | $116,835 | $197,548 | $235,164 | | Change | $(10,988) (-9.4%) | | $(37,616) (-16.0%) | | - The decrease in GAAP revenue was primarily due to fresh-start reporting ($5.9 million for three months, $25.8 million for six months) and business combination accounting ($22.4 million for three and six months), partially offset by the Global Knowledge acquisition[189] Revenues Skillsoft generates revenue from SaaS, subscriptions, professional services, and training, with SaaS recognized ratably and non-subscription revenue upon delivery; the United States is the largest geographic contributor - Skillsoft's revenue sources include SaaS and subscription services, software maintenance, professional services, perpetual software licenses, and virtual, on-demand, and classroom training[181][182][183][184] - SaaS and subscription revenue is generally recognized ratably over the contract term (typically two to five years), while non-subscription revenue (e.g., classroom training) is recognized on the delivery date[186][187] Revenue by Geographic Region (Non-GAAP, % of total revenues) | Region | Combined Three Months Ended July 31, 2021 | Predecessor (PL) Three Months Ended July 31, 2020 | Combined Six Months Ended July 31, 2021 | Predecessor (PL) Six Months Ended July 31, 2020 | | :----- | :---------------------------------------- | :------------------------------------------------ | :-------------------------------------- | :---------------------------------------------- | | United States | 67.5% | 77.5% | 70.1% | 77.1% | | Other Americas | 7.1% | 4.1% | 6.7% | 4.8% | | Europe, Middle East and Africa | 19.9% | 12.3% | 17.2% | 12.2% | | Asia-Pacific | 5.4% | 6.1% | 6.0% | 6.0% | Revenue by Product and Service Type (Non-GAAP, in thousands) | Product/Service Type | Combined Three Months Ended July 31, 2021 | Predecessor (PL) Three Months Ended July 31, 2020 | Combined Six Months Ended July 31, 2021 | Predecessor (PL) Six Months Ended July 31, 2020 | | :------------------- | :---------------------------------------- | :------------------------------------------------ | :-------------------------------------- | :---------------------------------------------- | | SaaS and subscription services | $75,111 | $100,398 | $153,767 | $201,492 |\ | Virtual, on-demand and classroom | $18,639 | — | $18,639 | — |\ | Total revenues | $105,847 | $116,835 | $197,548 | $235,164 | Operating expenses Total operating expenses increased 39.3% (three months) but decreased 50.6% (six months); the three-month rise was due to higher cost of revenues, G&A, and intangible asset amortization from acquisitions, while the six-month decrease was due to the absence of prior year impairment charges Operating Expenses (Non-GAAP, in thousands) | Expense Category | Combined Three Months Ended July 31, 2021 | Predecessor (PL) Three Months Ended July 31, 2020 | Combined Six Months Ended July 31, 2021 | Predecessor (PL) Six Months Ended July 31, 2020 | | :--------------- | :---------------------------------------- | :------------------------------------------------ | :-------------------------------------- | :---------------------------------------------- | | Cost of revenues | $39,366 | $21,618 | $63,887 | $45,831 | | Content and software development | $17,355 | $16,835 | $33,962 | $33,778 | | Selling and marketing | $35,672 | $34,033 | $64,174 | $66,769 | | General and administrative | $21,928 | $15,324 | $34,290 | $32,015 | | Amortization of intangible assets | $35,982 | $12,779 | $70,925 | $30,148 | | Impairment of goodwill and intangible assets | — | — | — | $332,376 | | Recapitalization and transaction related costs | $15,001 | $16,659 | $16,933 | $32,035 | | Restructuring | $(924) | $771 | $(387) | $1,141 | | Total operating expenses | $164,380 | $118,019 | $283,784 | $574,093 | Cost of revenues Cost of revenues increased 82.1% to $39.4 million (three months) and 39.4% to $63.9 million (six months), primarily due to Global Knowledge's expenses in compensation, royalties, and consulting Cost of Revenues Components (Non-GAAP, in thousands) | Component | Combined Three Months Ended July 31, 2021 | Predecessor (PL) Three Months Ended July 31, 2020 | Combined Six Months Ended July 31, 2021 | Predecessor (PL) Six Months Ended July 31, 2020 | | :-------- | :---------------------------------------- | :------------------------------------------------ | :-------------------------------------- | :---------------------------------------------- | | Compensation and benefits | $16,753 | $12,996 | $29,941 | $26,539 | | Royalties | $8,814 | $4,033 | $13,664 | $8,300 | | Consulting and outside services | $7,387 | $731 | $8,468 | $2,246 | | Total cost of revenues | $39,366 | $21,618 | $63,887 | $45,831 | - The increases were primarily a result of including Global Knowledge's expenses incurred from June 12, 2021, to July 31, 2021[194] Content and software development Content and software development expenses slightly increased 3.1% to $17.4 million (three months) and 0.5% to $34.0 million (six months), with compensation increases offset by reduced consulting due to offshore shifts Content and Software Development Expenses Components (Non-GAAP, in thousands) | Component | Combined Three Months Ended July 31, 2021 | Predecessor (PL) Three Months Ended July 31, 2020 | Combined Six Months Ended July 31, 2021 | Predecessor (PL) Six Months Ended July 31, 2020 | | :-------- | :---------------------------------------- | :------------------------------------------------ | :-------------------------------------- | :---------------------------------------------- | | Compensation and benefits | $12,374 | $10,755 | $23,182 | $21,999 | | Consulting and outside services | $3,111 | $3,950 | $6,869 | $7,627 | | Total | $17,355 | $16,835 | $33,962 | $33,778 | - Increases in compensation and benefits were due to higher incentive-based compensation accruals, while decreases in consulting and outside services resulted from shifting software development to offshore employees[196] Selling and marketing Selling and marketing expenses increased 4.8% to $35.7 million (three months) but decreased 3.9% to $64.2 million (six months), with the three-month rise driven by Global Knowledge's S&M compensation Selling and Marketing Expenses Components (Non-GAAP, in thousands) | Component | Combined Three Months Ended July 31, 2021 | Predecessor (PL) Three Months Ended July 31, 2020 | Combined Six Months Ended July 31, 2021 | Predecessor (PL) Six Months Ended July 31, 2020 | | :-------- | :---------------------------------------- | :------------------------------------------------ | :-------------------------------------- | :---------------------------------------------- | | Compensation and benefits | $27,019 | $25,210 | $48,230 | $48,543 | | Advertising and promotions | $4,657 | $4,737 | $8,142 | $8,137 | | Facilities and utilities | $1,751 | $2,487 | $3,454 | $5,020 | | Total S&M expenses | $35,672 | $34,033 | $64,174 | $66,769 | - The three-month increase in compensation and benefits was due to Global Knowledge's S&M costs, offset by Skillsoft's sales workforce reduction and deferred commission eliminations due to fresh-start reporting and business combination accounting[198] General and administrative General and administrative expenses increased 43.1% to $21.9 million (three months) and 7.1% to $34.3 million (six months), primarily due to Global Knowledge's G&A, executive stock-based compensation, and higher insurance General and Administrative Expenses Components (Non-GAAP, in thousands) | Component | Combined Three Months Ended July 31, 2021 | Predecessor (PL) Three Months Ended July 31, 2020 | Combined Six Months Ended July 31, 2021 | Predecessor (PL) Six Months Ended July 31, 2020 | | :-------- | :---------------------------------------- | :------------------------------------------------ | :-------------------------------------- | :---------------------------------------------- | | Compensation and benefits | $14,685 | $11,164 | $22,375 | $23,177 | | Consulting and outside services | $3,854 | $2,665 | $6,716 | $5,620 | | Insurance | $1,556 | $299 | $1,927 | $618 | | Total G&A expenses | $21,928 | $15,324 | $34,290 | $32,015 | - Increases were driven by Global Knowledge's G&A expenses, stock-based compensation for executives, higher audit and tax services, and increased Directors and Officers insurance policies due to the business combination[201] Amortization of intangible assets Amortization of intangible assets significantly increased 181.6% to $36.0 million (three months) and 135.3% to $70.9 million (six months), directly attributable to intangible assets from June 2021 business combinations Amortization of Intangible Assets (Non-GAAP, in thousands) | Period | Combined Three Months Ended July 31, 2021 | Predecessor (PL) Three Months Ended July 31, 2020 | Combined Six Months Ended July 31, 2021 | Predecessor (PL) Six Months Ended July 31, 2020 | | :----- | :---------------------------------------- | :------------------------------------------------ | :-------------------------------------- | :---------------------------------------------- | | Amortization of intangible assets | $35,982 | $12,779 | $70,925 | $30,148 | | Change | $23,203 (181.6%) | | $40,777 (135.3%) | | - The increases were primarily due to intangible assets arising from the business combinations completed in June 2021[203] Impairment of goodwill and intangible assets No goodwill or intangible asset impairment charges were recorded for the combined three or six months ended July 31, 2021, contrasting with a $332.4 million charge in the prior year due to COVID-19 and capital structure uncertainty - No impairment of goodwill and intangible assets was recorded for the combined three or six months ended July 31, 2021[191] - In the six months ended July 31, 2020 (Predecessor PL), a $332.4 million impairment charge was recorded due to the COVID-19 pandemic's impact and uncertainty around the company's over-leveraged capital structure[191][204][208] Recapitalization and transaction-related costs Recapitalization and transaction costs decreased 10.0% to $15.0 million (three months) and 47.1% to $16.9 million (six months), primarily related to the June 2021 business combination, lower than prior year Chapter 11 costs Recapitalization and Transaction-Related Costs (Non-GAAP, in thousands) | Period | Combined Three Months Ended July 31, 2021 | Predecessor (PL) Three Months Ended July 31, 2020 | Combined Six Months Ended July 31, 2021 | Predecessor (PL) Six Months Ended July 31, 2020 | | :----- | :---------------------------------------- | :------------------------------------------------ | :-------------------------------------- | :---------------------------------------------- | | Recapitalization and transaction related costs | $15,001 | $16,659 | $16,933 | $32,035 | | Change | $(1,658) (-10.0%) | | $(15,102) (-47.1%) | | - Costs in 2021 relate to the June 2021 business combination, while prior year costs were for Chapter 11 filing and recapitalization efforts[209] Restructuring Restructuring recoveries of $0.9 million (three months) and $0.4 million (six months) were recorded due to severance estimate changes, contrasting with prior year charges of $0.7 million and $1.1 million for severance and lease termination Restructuring (Non-GAAP, in thousands) | Period | Combined Three Months Ended July 31, 2021 | Predecessor (PL) Three Months Ended July 31, 2020 | Combined Six Months Ended July 31, 2021 | Predecessor (PL) Six Months Ended July 31, 2020 | | :----- | :---------------------------------------- | :------------------------------------------------ | :-------------------------------------- | :---------------------------------------------- | | Restructuring | $(924) | $771 | $(387) | $1,141 | | Change | $(1,695) (-219.8%) | | $(1,528) (-133.9%) | | - Restructuring recoveries in 2021 were due to severance cost estimate changes from a plan initiated in January 2021 to improve operating efficiency[210][212] - Prior year charges were for employee severance cost adjustments and lease termination fees related to strategic initiatives in 2020[213] Interest and other expense Interest and other expense, net, significantly decreased 73.6% to $15.9 million (three months) and 83.2% to $27.8 million (six months), primarily due to reduced debt after the August 2020 Chapter 11 reorganization Interest and Other Expense, Net (Non-GAAP, in thousands) | Item | Combined Three Months Ended July 31, 2021 | Predecessor (PL) Three Months Ended July 31, 2020 | Combined Six Months Ended July 31, 2021 | Predecessor (PL) Six Months Ended July 31, 2020 | | :--- | :---------------------------------------- | :------------------------------------------------ | :-------------------------------------- | :---------------------------------------------- | | Other income, net | $(738) | $898 | $(1,190) | $1,819 | | Interest income | $66 | $65 | $76 | $84 | | Interest expense, net | $(15,227) | $(61,076) | $(26,676) | $(167,054) | | Interest and other expense, net | $(15,899) | $(60,113) | $(27,790) | $(165,151) | | Change | $44,214 (-73.6%) | | $137,361 (-83.2%) | |