Skillsoft (US:SKIL)2024-06-10 20:07PART I — FINANCIAL INFORMATION Unaudited Financial Statements Skillsoft's Q1 FY2025 unaudited financials show decreased assets and equity, a narrowed net loss, and lower operating cash flow Unaudited Condensed Consolidated Balance Sheets Total assets decreased to $1.18 billion and equity to $182.1 million as of April 30, 2024 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | April 30, 2024 | January 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $142,020 | $136,308 | | Accounts receivable, net | $110,643 | $185,638 | | Total current assets | $318,534 | $385,331 | | Goodwill | $317,071 | $317,071 | | Intangible assets, net | $511,399 | $539,293 | | Total assets | $1,180,860 | $1,273,634 | | Liabilities & Equity | | | | Deferred revenue (Current) | $243,701 | $282,570 | | Total current liabilities | $350,792 | $413,228 | | Long-term debt | $576,422 | $577,487 | | Total liabilities | $998,725 | $1,068,047 | | Total shareholders' equity | $182,135 | $205,587 | Unaudited Condensed Consolidated Statements of Operations Q1 FY2025 operations show revenues of $127.8 million, with net loss narrowing to $27.6 million from $44.2 million Statement of Operations Highlights (in thousands, except per share data) | Metric | Q1 FY2025 (ended Apr 30, 2024) | Q1 FY2024 (ended Apr 30, 2023) | | :--- | :--- | :--- | | Total revenues | $127,793 | $135,554 | | Total operating expenses | $151,625 | $170,936 | | Operating income (loss) | $(23,832) | $(35,382) | | Net income (loss) | $(27,636) | $(44,224) | | Basic and diluted net loss per share | $(3.42) | $(5.42) | Unaudited Condensed Consolidated Statements of Cash Flows Q1 FY2025 cash flow from operations decreased to $14.9 million, with net cash ending at $149.6 million Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $14,937 | $21,464 | | Net cash used in investing activities | $(4,517) | $(9,456) | | Net cash provided by (used in) financing activities | $(4,252) | $(1,907) | | Net increase (decrease) in cash | $3,081 | $9,544 | | Cash, cash equivalents and restricted cash, end of period | $149,604 | $187,100 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, a reverse stock split, segment reporting, and subsequent events including a CEO change - On September 29, 2023, the company effected a 1-for-20 reverse stock split of its common stock. All share and per-share information has been retroactively adjusted39 - The company operates in two segments: Content & Platform, which includes SaaS solutions like Percipio, and Instructor-Led Training104105106 - Restructuring charges of $1.0 million were recorded in Q1 2024, primarily for severance, compared to $5.2 million in Q1 2023 which also included lease impairment charges57 - Subsequent to the quarter end, the former CEO's employment terminated on May 9, 2024, and the company adopted a new Employment Inducement Incentive Award Plan in May 2024113 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 FY2025 revenue decline, reduced operating expenses, and sufficient liquidity with $142.0 million cash Results of Operations Q1 FY2025 total revenue decreased 5.7% to $127.8 million, with operating expenses falling 11.3% due to cost savings Revenue by Type (in thousands) | Revenue Type | Q1 FY2025 | Q1 FY2024 | Change (%) | | :--- | :--- | :--- | :--- | | SaaS and subscription revenues | $93,162 | $93,819 | (0.7)% | | Non-subscription revenues | $34,631 | $41,735 | (17.0)% | | Total revenues | $127,793 | $135,554 | (5.7)% | Operating Expenses (in thousands) | Expense Category | Q1 FY2025 | Q1 FY2024 | Change (%) | | :--- | :--- | :--- | :--- | | Cost of revenues | $34,471 | $37,824 | (8.9)% | | Selling and marketing | $42,292 | $45,927 | (7.9)% | | Amortization of intangible assets | $31,583 | $38,245 | (17.4)% | | Restructuring | $967 | $5,218 | (81.5)% | | Total operating expenses | $151,625 | $170,936 | (11.3)% | Liquidity and Capital Resources Skillsoft maintains $142.0 million in cash, supported by operating cash flow and access to a $75.0 million accounts receivable facility - The company had $142.0 million of cash and cash equivalents on hand as of April 30, 2024149 - The company has access to a $75.0 million accounts receivable facility, with $42.4 million drawn as of April 30, 2024. The facility matures on December 27, 2024154 - The Term Loan Facility requires quarterly principal payments of $1.6 million and matures in July 2028150153 Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $14,937 | $21,464 | | Net cash used in investing activities | $(4,517) | $(9,456) | | Net cash provided by (used in) financing activities | $(4,252) | $(1,907) | Critical Accounting Policies and Estimates Key accounting policies include revenue recognition, impairment of goodwill and intangibles, and income tax estimates - Key critical accounting estimates include revenue recognition, impairment of goodwill and intangible assets, and income taxes162163 - SaaS subscription revenue is recognized on a straight-line basis over the contract term, which is typically one to three years166 - Goodwill and indefinite-lived intangible assets are reviewed for impairment annually during the fourth quarter, or more frequently if impairment indicators are present173 Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rate and foreign currency fluctuations, mitigated by interest rate swaps - A hypothetical 100 basis point increase/decrease in interest rates would change annualized pre-tax interest expense by approximately $2.9 million181 - The company has two interest rate swap agreements covering a notional amount of $300.0 million to fix the interest rate on a portion of its variable rate debt181 - A hypothetical 10% increase/decrease in foreign currency exchange rates would impact annualized pre-tax income (loss) by approximately $3.0 million184 Controls and Procedures Disclosure controls and procedures were effective as of April 30, 2024, with no material changes to internal control - The Principal Executive Officer and CFO concluded that disclosure controls and procedures were effective as of April 30, 2024186 - There were no material changes in internal control over financial reporting during the quarter ended April 30, 2024188 PART II — OTHER INFORMATION Legal Proceedings The company is a nominal defendant in a shareholder derivative action related to the Codecademy acquisition - The company is named as a nominal defendant in a shareholder derivative action related to the Codecademy acquisition, alleging breach of fiduciary duties64192 - Management does not anticipate that the outcome of any current proceedings will materially affect the company's financial position, results of operations, or cash flows65 Risk Factors No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for FY2024 - The report incorporates by reference the risk factors discussed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2024193 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - None194 Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the quarter197 Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL data - Exhibits filed include the Skillsoft Corp. 2024 Employment Inducement Incentive Award Plan and related award agreements, CEO/CFO certifications, and Inline XBRL documents200