Skillsoft (SKIL) - 2022 Q4 - Annual Report

Part I Business Skillsoft is a global leader in corporate digital learning, serving over 75% of the Fortune 1000 with AI-driven platforms and content, operating in a growing market driven by upskilling needs - Skillsoft is a global leader in corporate digital learning, serving over 75% of the Fortune 1000 and more than 90 million learners globally through its primary solutions: Percipio, Global Knowledge, Codecademy, Pluma, and SumTotal[18] - The company operates in three main segments: Content, Global Knowledge, and SumTotal[31] Corporate Digital Learning Market Overview | Metric | Value/Rate | | :--- | :--- | | Global Professional Digital Learning TAM (2021) | ~$28 billion | | Anticipated CAGR through 2025 | ~10% | | Global HCM Market Size | ~$17.6 billion | | Anticipated HCM Market CAGR | ~7% | - A key strategic focus is migrating customers to the AI-driven Percipio platform, with approximately 90% of the content segment's annual recurring revenue base contracted for Percipio as of January 31, 2022[38] - Skillsoft acquired Codecademy on April 4, 2022, to enhance its Technology & Developer offerings[61] - The business experiences significant seasonality, with the fourth quarter representing about 40% of annual bookings volume[60] Risk Factors The company faces diverse risks including global economic conditions, intense competition, system disruptions, acquisition integration challenges, significant leverage, and shareholder influence - Business operations are susceptible to adverse global economic trends, public health crises, and geopolitical events, which could reduce demand for training products[64][74][84] - The corporate learning market is highly competitive and fragmented, potentially leading to price reductions, reduced revenue, and loss of market share[90][91] - The business is vulnerable to system disruptions, security breaches, and cybersecurity attacks, which could lead to customer loss, reputational damage, and significant liabilities[103][105][108] - The company may be unable to successfully integrate Codecademy's business or achieve anticipated merger benefits, potentially impacting results if expanded operations are not managed effectively[72][178][179] - Significant leverage could adversely affect operations, limit flexibility, and expose the company to interest rate risk, with debt agreements containing restrictive covenants[160][161] - Major shareholder Prosus holds approximately 37.5% of the voting power of Skillsoft's Class A common stock as of April 11, 2022, potentially exerting substantial influence[210][212] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[215] Properties The company's U.S. headquarters are in Nashua, New Hampshire, and worldwide in Dublin, Ireland, with other facilities in North America and India, deemed adequate for current needs - The company's U.S. headquarters are in Nashua, New Hampshire, and its worldwide headquarters are in Dublin, Ireland[216][217] - Management believes existing facilities are adequate for current needs and suitable additional space will be available if required[218] Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 14 of the Consolidated Financial Statements - The company incorporates information regarding legal proceedings by reference to Note 14 of the financial statements[219] Mine Safety Disclosures This item is not applicable to the company - Not applicable[220] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Skillsoft's Class A common stock trades on the NYSE under "SKIL," with 164 stockholders of record as of April 11, 2022, and no anticipated cash dividends - The company's Class A common stock trades on the NYSE under the symbol "SKIL"[223] - As of April 11, 2022, there were 164 stockholders of record[223] - The company has never declared or paid cash dividends and does not anticipate paying any in the foreseeable future, intending to retain earnings for growth and debt obligations[224] Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses Skillsoft's financial condition and results, including the Global Knowledge and Codecademy acquisitions, presenting non-GAAP combined results for comparability, and detailing liquidity and fresh-start accounting - On June 11, 2021, the company completed a business combination with Software Luxembourg Holding S.A. and acquired Global Knowledge, operating as Skillsoft Corp[226] - The company acquired Codecademy on April 4, 2022, for approximately $390.3 million in stock and cash[227] Non-GAAP Combined Financial Results (Fiscal Year Ended Jan 31) | (In thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Total revenues | $567,390 | $382,619 | | Operating loss | ($79,891) | ($428,982) | | Net (loss) income | ($96,070) | $2,670,290 | - The 48.3% increase in total revenues in fiscal 2022 was primarily driven by the inclusion of $132.6 million in revenue from the Global Knowledge acquisition, with prior year revenue impacted by a fresh-start accounting adjustment[248] - As of January 31, 2022, the company had $154.7 million in cash and cash equivalents and access to a $75.0 million accounts receivable facility[280][288] - In July 2021, the company entered into a new $480 million term loan facility to refinance existing debt, maturing in July 2028[281] - The company adopted fresh-start accounting on August 28, 2020, following its emergence from Chapter 11, materially impacting financial statement comparability[297][436] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the company qualifies as a smaller reporting company - Not applicable as a smaller reporting company[333] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal year 2022, including balance sheets, income statements, and cash flows, presented for "Successor" and "Predecessor" periods due to bankruptcy emergence and acquisitions, with detailed notes Consolidated Balance Sheet Highlights (as of Jan 31) | (In thousands) | 2022 (Successor) | 2021 (Predecessor) | | :--- | :--- | :--- | | Total Assets | $2,221,948 | $1,545,737 | | Cash and cash equivalents | $154,672 | $71,479 | | Goodwill | $871,504 | $495,004 | | Total Liabilities | $1,162,050 | $965,768 | | Deferred revenue | $332,853 | $260,584 | | Long-term debt | $462,185 | $510,236 | | Total Shareholders' Equity | $1,059,898 | $579,969 | - The company adopted fresh-start reporting effective August 27, 2020, upon emergence from Chapter 11, making financial statements after this date not comparable to prior periods[341][437] - Note 5 details business combinations, including the acquisition of Skillsoft Legacy for $832.7 million and Global Knowledge for $258.5 million, with preliminary purchase price allocations provided[469][478] - Note 22 provides segment information, breaking down revenues and operating loss/income for the Skillsoft, SumTotal, and Global Knowledge segments[616][621] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of January 31, 2022, with no material changes to internal control over financial reporting - Based on an evaluation as of January 31, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[655] - There were no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls[656] Part III Directors, Executive Officers and Corporate Governance This section provides biographical information for Skillsoft's directors and executive officers, detailing the nine-member staggered board, its independent majority, and three standing committees, along with adopted governance guidelines - The report lists the nine members of the Board of Directors and ten executive officers, including CEO Jeffrey R. Tarr[661][662] - The Board is divided into three classes serving staggered three-year terms, which can increase the time needed to change a majority of the Board[693] - The Board has determined that a majority of its directors are independent, with the Audit, Compensation, and Nominating and Governance committees composed entirely of independent directors[695][696] Executive Compensation This section details fiscal year 2022 compensation for Named Executive Officers, including base salary, bonuses, and equity, with CEO Jeffrey R. Tarr's total compensation at approximately $28.6 million, and bonus payouts adjusted by discretion FY 2022 Summary Compensation for Named Executive Officers | Name and Principal Position | Salary ($) | Stock Awards ($) | Option Awards ($) | All Other Comp. ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Jeffrey R. Tarr, CEO | $477,273 | $21,500,000 | $3,330,000 | $2,916,668 | $28,586,524 | | Gary W. Ferrera, CFO | $220,455 | $2,362,189 | $1,332,996 | $317,055 | $4,232,745 | | Apratim Purakayastha, CTO | $450,000 | $2,496,150 | $865,060 | $381,838 | $4,192,650 | - The fiscal 2022 annual cash bonus was based on a Bookings target of $739 million, resulting in a 76% payout, though the Compensation Committee exercised discretion to approve a 100% payout for certain executives[715][716] - The company maintains the 2020 Omnibus Incentive Plan for granting equity awards to align interests with long-term shareholder value[719][720] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section discloses beneficial ownership of Skillsoft's Class A common stock as of April 7, 2022, with MIH Learning B.V. (Prosus) and Churchill Sponsor II LLC as the two largest owners holding a majority of voting power Principal Stockholders (as of April 7, 2022) | Name of Beneficial Holder | Number of Shares | Percentage of Shares | | :--- | :--- | :--- | | MIH Learning B.V. (Prosus) | 77,916,895 | 43.4% | | Churchill Sponsor II LLC | 33,550,000 | 18.7% | - Beneficial ownership is based on 162,911,755 shares of Class A common stock outstanding on April 7, 2022[744] Certain Relationships and Related Transactions, and Director Independence This section details significant related party transactions, including business combinations with Churchill and Global Knowledge, and the Codecademy acquisition, involving major shareholders like Prosus and affiliates, with advisory fees paid to The Klein Group - The consummation of the Skillsoft and Global Knowledge mergers on June 11, 2021, involved complex transactions with related parties, including PIPE investments from MIH Learning B.V. (Prosus) and Lodbrok Capital LLP[752][754] - The acquisition of Codecademy involved related parties, as Prosus held a significant equity stake in both Skillsoft (37.5%) and Codecademy (23.8%), with the transaction approved by Skillsoft's audit committee and board without Prosus-affiliated directors' participation[757] - The Klein Group, LLC, an affiliate of director Michael Klein, was engaged as a consultant for the Codecademy transaction and was paid a transaction fee of $2.0 million[640][758] Principal Accountant Fees and Services This section details fees paid to Ernst & Young LLP for fiscal years 2022 and 2021, with all services pre-approved by the Audit Committee Accountant Fees (in thousands) | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit fees | $3,195 | $3,310 | | Tax fees | $2,211 | $2,700 | | Total | $5,406 | $6,010 | Part IV Exhibits and Financial Statement Schedules This section incorporates financial statements from Item 8 by reference, noting the omission of schedules and referring to the Exhibit Index for filed exhibits - The financial statements required by this item are incorporated by reference from Item 8 of the Annual Report[763] - All financial statement schedules have been omitted because they are not required, not applicable, or the information is included elsewhere in the report[763] Form 10-K Summary The company indicates that there is no Form 10-K summary - None[765]