Skillsoft Corp. Form 8-K Summary
Business Context and Reporting Period
Filed June 17, 2021, regarding events occurring June 11, 2021. Churchill Capital Corp II completed its business combination with Software Luxembourg Holding S.A. (Skillsoft) and subsequently acquired Global Knowledge. Churchill ceased to be a shell company and changed its name to Skillsoft Corp. The company provides cloud-based learning, content, and talent-management solutions through the Percipio, Skillport, and SumTotal platforms.
The operating results discussed cover the three months ended April 30, 2021, compared with the predecessor period ended April 30, 2020. Because of the August 2020 reorganization and fresh-start accounting, the periods are not fully comparable.
Key Financial Metrics
| Metric | Three Months Ended April 30, 2021 | Prior Comparable Period | Change |
|---|---|---|---|
| GAAP revenue | $91.7 million | $118.3 million | Down 22.5% |
| Adjusted revenue | $111.6 million | $118.3 million | Down 5.7% |
| Net loss | $37.4 million | $433.9 million | Improved |
| EBITDA | $9.3 million | $15.5 million | Down |
| Adjusted EBITDA | $31.9 million | $36.9 million | Down $5.1 million |
| Operating cash flow | $39.7 million | $24.8 million | Improved |
| Free cash flow | $37.8 million | $21.0 million | Improved |
| Cash and cash equivalents | $105.0 million at April 30, 2021 | Not clearly provided | Not applicable |
GAAP revenue was reduced by approximately $19.9 million from fresh-start and purchase accounting. Excluding that impact, adjusted revenue declined primarily because of SumTotal runoff and lower Skillport retention and sales. The GAAP net loss benefited from the absence of the $332.4 million goodwill and intangible-asset impairment recorded in the prior period.
Operating expenses were $119.4 million, compared with $456.1 million in the prior period. Amortization increased to $34.9 million from $17.4 million because of fresh-start accounting, while recapitalization and transaction costs declined to $1.9 million from $16.4 million.
Debt, Liquidity, and Capital Structure
- The August 2020 restructuring reduced consolidated debt from approximately $3.4 billion to approximately $0.6 billion.
- The exit credit facility originally totaled $520 million, comprising a $110 million First Out Term Loan and a $410 million Second Out Term Loan. The loans bear interest at LIBOR plus 7.50%, subject to a 1.00% LIBOR floor.
- The First Out Term Loan matures in December 2024 and the Second Out Term Loan matures in April 2025. Scheduled principal repayments began in the quarter ended April 30, 2021.
- June 11, 2021 transactions added $20 million of second-out debt related to the Skillsoft merger and $50 million of first-out debt plus $20 million of second-out debt related to Global Knowledge.
- The company stated that it expects sufficient internal and external liquidity for operations and expected needs for at least the next 12 months, including up to $75 million of borrowing capacity under its accounts receivable facility.
Material Changes Versus the Prior Period
- GAAP revenue declined 22.5%, but the decline was 5.7% on an adjusted basis after excluding fresh-start and purchase accounting.
- Content business adjusted revenue declined to $81.8 million from $84.3 million. SumTotal adjusted revenue declined to $29.8 million from $34.0 million.
- Content order intake increased slightly to $38.9 million from $38.5 million, while SumTotal order intake fell to $25.4 million from $32.2 million.
- Content annualized recurring revenue increased to $319.3 million from $317.3 million at January 31, 2021. SumTotal ARR declined to $97.2 million from $99.1 million.
- Content dollar retention improved to 91% from 88%, while SumTotal dollar retention declined to 95% from 96% for the respective three-month periods.
- Free cash flow improved because of lower transaction-related cash costs and favorable vendor-payment timing, partly offset by approximately $11.1 million of interest paid under the new credit facility.
Merger, Financing, and Governance Developments
- Public shareholders redeemed 34,690,979 shares for approximately $350.4 million, or approximately $10.10 per share.
- The PIPE investments issued 53 million Class A shares and warrants to purchase approximately 17.7 million Class A shares for aggregate gross proceeds of $530 million.
- Following the transactions, 133,059,021 Class A shares were outstanding. Trading under SKIL and SKIL WS began on the NYSE on June 14, 2021, subject to continued listing review.
- Prosus-affiliated MIH Learning B.V. owned approximately 37.6% of the outstanding shares immediately after closing; the Churchill sponsor beneficially owned approximately 13.0%.
- Global Knowledge equity holders received 5 million warrants exercisable at $11.50 per share.
- Jeffrey R. Tarr became Chief Executive Officer. Ryan Murray became Interim Chief Financial Officer and Chief Accounting Officer. The filing also identifies new chief revenue, technology, strategy, legal, marketing, and content officers.
Guidance, Outlook, Risks, and Unusual Items
- Management expects fiscal 2022 adjusted revenue to be lower than the prior fiscal year because of weaker prior-year order intake and the normal 12-month revenue-recognition cycle.
- Management expects 90% of content revenue to be on Percipio or dual deployment by the end of the fiscal year and expects migration to improve retention and new sales.
- Management expects Content order intake to be consistent with the prior year and to begin growing in the following fiscal year. SumTotal order intake is expected to stabilize as core talent-development growth offsets legacy-product runoff.
- Cash flow is seasonal: the company expects positive free cash flow in the fourth and first fiscal quarters and breakeven or negative free cash flow in the second and third quarters.
- Key risks include execution of the mergers and expected synergies, high leverage and restrictive covenants, liquidity needs, COVID-19 effects, competition, customer demand, platform migration, cybersecurity and information-technology failures, foreign-exchange volatility, intellectual-property protection, employee retention, litigation, and the ability to raise or deploy capital.
- The company disclosed shareholder lawsuits and threatened claims alleging fiduciary-duty and Exchange Act disclosure violations related to the merger. The matters were in early stages, potential losses could not be estimated, and no loss contingency was recorded.
- Global Knowledge reported a net loss of $11.1 million and adjusted EBITDA of $3.8 million for the quarter ended April 2, 2021. Illustrative, unaudited results for a quarter ending April 30, 2021 were a $12.5 million net loss and $6.0 million of adjusted EBITDA; these figures are not GAAP results for the reported period.
Important Facts for Investors to Verify
- Reconcile GAAP revenue with adjusted revenue and understand the remaining effects of fresh-start accounting on subsequent quarters.
- Review the combined company’s pro forma financial statements, including Global Knowledge’s contribution after closing.
- Confirm post-closing debt balances, interest rates, amortization schedules, leverage covenant testing, and available accounts receivable capacity.
- Monitor Percipio migration, Content and SumTotal ARR, order intake, and dollar-retention trends.
- Assess whether management’s liquidity expectations remain valid under seasonal cash flow, continued revenue pressure, and required debt repayments.
- Track the merger-related litigation and any resulting financial or governance consequences.
- Verify the company’s NYSE listing status, share and warrant dilution, and the ownership and governance rights of Prosus and the sponsor.