Skillsoft Corp. — Form 10-Q Summary
Reporting period: Fiscal 2024 third quarter and nine months ended October 31, 2023; comparative periods ended October 31, 2022. Amounts below are in millions except per-share data. The filing is unaudited.
Business context
Skillsoft provides corporate learning content and platforms, including SaaS subscriptions, and instructor-led, virtual and on-demand training. Its two reportable segments are Content & Platform and Instructor-Led Training. SumTotal was sold in August 2022 and is presented as discontinued operations in comparative results.
Financial performance
| Metric | Three months 2023 | Three months 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $139.0 | $139.4 | $415.7 | $414.8 |
| Operating income (loss) | $(19.9) | $(608.7) | $(80.6) | $(764.7) |
| Net income (loss) | $(27.7) | $(528.3) | $(104.0) | $(671.5) |
| Net loss per share | $(3.45) | $(64.29) | $(12.92) | $(85.46) |
Revenue was nearly flat year over year. Subscription revenue increased 2.9% in the quarter and 5.5% over nine months; non-subscription revenue declined 6.8% and 9.8%, respectively. Instructor-Led Training revenue fell 9.2% for the quarter and 12.5% for nine months, which management attributed mainly to weaker demand, especially in Europe, and product and partner mix. Content & Platform revenue grew.
Gross profit, calculated as revenue less cost of revenue, was approximately $102.5 million in the quarter (73.8% margin) and $301.0 million for nine months (72.4%). The prior-year nine-month gross margin was approximately 73.6%. The much smaller reported losses compared with 2022 primarily reflect the absence of prior-year goodwill impairment charges of $570.9 million in the quarter and $641.4 million for nine months. Prior-year results also included a $53.8 million gain on the SumTotal sale in the quarter.
For the quarter, Content & Platform recorded an operating loss of $20.9 million, while Instructor-Led Training recorded operating income of $1.0 million. For nine months, the segments recorded operating losses of $70.7 million and $9.8 million, respectively.
Cash, debt and liquidity
- Nine-month operating cash flow was negative $8.7 million, improved from negative $23.6 million in the prior-year period. Investing cash outflow was $16.9 million and financing cash outflow was $13.5 million.
- Cash, cash equivalents and restricted cash totaled $136.8 million at October 31, 2023, down $40.8 million from the beginning of the period; unrestricted cash and equivalents were $129.8 million.
- Current assets were $300.1 million and current liabilities $320.6 million, implying negative working capital of approximately $20.5 million. Deferred revenue was $205.8 million, down from $282.5 million at January 31, 2023.
- Term-loan principal was $596.2 million, with a $578.6 million long-term carrying amount and $6.4 million current portion. The loan matures in July 2028; the company reported covenant compliance. A further $40.5 million was drawn under the accounts-receivable facility, which has a stated maximum of $75 million. The balance sheet classifies this facility borrowing as current.
- $300 million of term debt is covered by interest-rate swaps; management reported a fixed cash interest rate of 9.05% on that portion. Nine-month interest expense was $48.7 million, versus $37.5 million a year earlier.
Outlook, risks and unusual items
Management stated that 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 numerical revenue, earnings or cash-flow guidance. Management cautioned that further goodwill or intangible-asset impairment could occur in fiscal 2024 if market inputs deteriorate, discount rates rise, or the share price and market capitalization remain weak relative to estimated reporting-unit values. Restructuring charges were $8.6 million for nine months, mainly severance and lease-related costs.
A shareholder derivative action filed November 21, 2023 alleges that directors and controlling shareholders caused Skillsoft to overpay for Codecademy; the company said it cannot estimate a possible loss. No material amounts were accrued for other ordinary-course claims. The company reported disclosure controls were effective, while noting continued evaluation of remediation actions for a previously identified material weakness. A 1-for-20 reverse stock split took effect September 29, 2023. The warrants were delisted from the NYSE and began trading OTC under SKILW on October 26, 2023.
Important facts for investors to verify
- Whether subscription growth can offset continued weakness in Instructor-Led Training and declining deferred revenue.
- Cash conversion, working-capital needs and available borrowing capacity under the receivables facility.
- Debt-service burden, variable-rate exposure and covenant headroom.
- Assumptions behind impairment testing and the potential outcome of the Codecademy-related derivative suit.
- Progress and operating effectiveness of remediation for the previously identified material weakness.