Skillsoft Corp. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, three months ended April 30, 2023. Comparisons are with the three months ended April 30, 2022. Unaudited; amounts below are in millions except per-share data.
Financial results and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Revenue | $135.6 | $134.8 | Up 0.5% |
| Gross profit / margin | $97.7 / 72.1% | $96.8 / 71.8% | Margin improved slightly |
| Operating loss / margin | $(35.4) / (26.1)% | $(45.2) / (33.7)% | Loss narrowed |
| Net loss | $(44.2) | $(21.6) | Loss widened |
| Basic and diluted loss per share | $(0.27) | $(0.15) | Loss per share increased |
| Operating cash flow | $21.5 | $7.9 | Improved |
| Cash, cash equivalents and restricted cash at period end | $187.1 | $80.7 | Up $106.4 |
Revenue mix shifted toward subscriptions: SaaS and subscription revenue rose 10.3% to $93.6 million; non-subscription revenue fell 16.1% to $41.9 million. Instructor-Led Training revenue declined 18.3% to $37.0 million, while Content & Platform revenue increased to $98.6 million.
At April 30, 2023, cash and cash equivalents were $178.0 million, restricted cash was $9.1 million, and current assets were $345.1 million versus current liabilities of $374.4 million. Term-loan principal was approximately $601.0 million, with $588.7 million presented as current and long-term debt net of unamortized discounts and financing costs. The company also had $45.2 million drawn under its accounts receivable facility. It reported compliance with debt covenants.
Changes and management commentary
- Management attributed the slight revenue increase primarily to Codecademy revenue included after its April 2022 acquisition and growth in Content & Platform, partly offset by weaker Instructor-Led Training bookings and revenue. The latter decline was linked primarily to changes in training programs at two large technology partners.
- Operating expenses decreased 5.1% to $170.9 million. Acquisition-related costs fell to $1.4 million from $13.3 million, while selling and marketing expense rose 16.1% to $45.9 million. Restructuring expense was $5.2 million, including $4.4 million of lease termination and impairment charges.
- Net loss widened despite the smaller operating loss. Interest expense increased to $15.9 million from $11.5 million, primarily due to additional acquisition-related debt and higher rates. The income-tax benefit fell to $4.4 million from $22.3 million; the prior-year benefit included a $21.6 million valuation-allowance release.
- Operating cash flow improved mainly due to working-capital movements. Accounts receivable collections contributed $73.6 million of cash-flow benefit; deferred revenue decreased $34.1 million.
- Cash used in investing activities was $9.5 million, including $2.7 million for internally developed software. Financing cash outflow was $1.9 million, including $7.2 million of treasury-stock purchases.
- Skillsoft completed the SumTotal sale in August 2022; final net proceeds were $174.9 million after working-capital adjustments in April 2023. The remaining $140.6 million of net proceeds was subject to debt-agreement reinvestment provisions, and management expected qualifying expenditures to avoid another mandatory debt prepayment.
Outlook, risks and unusual items
- Management said available internal and external liquidity should be sufficient for operations and expected cash needs for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- The company had $300 million of variable-rate debt covered by interest-rate swaps; it reported a fixed cash interest rate of 9.05% on that portion. A hypothetical 100-basis-point rate change was estimated to affect annualized pretax interest expense by approximately $3.4 million, after swaps.
- Management reported no impairment indicators from its quarterly qualitative review, but warned that worsening market inputs, higher discount rates, weaker profitability expectations, or a sustained gap between market capitalization and estimated reporting-unit value could lead to future impairment charges.
- Disclosure controls and procedures were reported as not effective, with the filing referring to the material weakness discussed in the fiscal 2023 Form 10-K. No material changes in internal control over financial reporting were identified during the quarter.
- The company reported no material litigation accruals and did not expect known proceedings to materially affect its financial position, results or cash flows. It also reported a $0.7 million loss adjustment related to the SumTotal sale in the quarter.
Important facts for investors to verify
- Whether subscription growth can offset continued weakness in Instructor-Led Training and the effects of partner-program changes.
- Debt-service capacity and interest-rate exposure, including the $45.2 million receivables-facility borrowing and the restrictions on remaining SumTotal proceeds.
- Progress addressing the disclosed material weakness in disclosure controls and procedures.
- Whether goodwill and intangible-asset valuations remain supportable if market conditions, discount rates or operating expectations deteriorate.
- The sustainability of positive operating cash flow, given the quarter’s working-capital contribution and decline in deferred revenue.