Skillsoft Corp. — Q2 FY2023 Form 10-Q
Reporting period: Three and six months ended July 31, 2022. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless stated otherwise. The filing’s prior-year comparisons combine predecessor and successor periods following the June 2021 business combination and are not GAAP or pro forma results; reported growth should therefore be read with caution.
Business context and reporting period
Skillsoft provides enterprise digital learning through Skillsoft/Percipio, Global Knowledge and Codecademy. Codecademy was acquired on April 4, 2022 for approximately $386 million. SumTotal was classified as discontinued operations and held for sale at July 31; its sale to Cornerstone closed August 15, 2022. Skillsoft reported that the sale generated $176.7 million of net proceeds, subject to final adjustments.
Financial performance
| Metric | Q2 FY2023 | Six months FY2023 |
|---|---|---|
| Continuing-operations revenue | $140.6 million | $275.4 million |
| Operating loss | $(110.8) million | $(156.0) million |
| Loss from continuing operations | $(127.3) million | $(150.4) million |
| Net loss | $(121.5) million | $(143.1) million |
| Net loss per share | $(0.74) | $(0.93) |
| Operating cash flow | — | $(13.0) million |
| Cash used in investing activities | — | $(207.9) million |
| Cash provided by financing activities | — | $113.0 million |
Q2 gross profit, calculated as revenue less cost of revenue, was approximately $105.6 million, or 75.1% of revenue. Operating expenses included a $70.5 million Global Knowledge goodwill impairment, $45.2 million of intangible amortization, and $4.3 million of restructuring costs. The impairment was non-cash.
For comparison, management’s combined prior-year figures show revenue of $110.3 million for the quarter and $178.0 million for the six months, implying increases of 27.5% and 54.8%, respectively. These comparisons are not fully like-for-like. Separately, unaudited pro forma results assuming the acquisitions had occurred at the start of the prior year show revenue of $140.6 million versus $154.9 million for the quarter, and $283.5 million versus $292.5 million for the six months.
Liquidity, debt and balance sheet
- At July 31, cash and cash equivalents were $43.3 million and restricted cash was $5.3 million. Management’s liquidity discussion cites $48.6 million of cash and cash equivalents; the distinction from balance-sheet presentation is not clearly reconciled in the provided filing text.
- Current assets were $236.6 million and current liabilities were $458.4 million. These totals include assets and liabilities classified as held for sale.
- Long-term debt was $584.0 million and current debt maturities were $37.8 million; borrowings under the accounts receivable facility were $35.5 million. The term loan matures in 2028 and is secured by substantially all specified borrower and guarantor assets.
- Management stated that the company was in compliance with debt covenants and expected available liquidity to fund operations and expected needs for at least the next 12 months. It also noted that the $75 million receivables facility’s capacity depends on eligible receivables and may not always be fully available.
- Of SumTotal’s $176.7 million net sale proceeds, $31.4 million was required to prepay debt. The remaining $145.3 million is subject to reinvestment restrictions; any amount not designated for eligible uses by August 15, 2023 must be applied to debt.
Material changes, outlook and risks
- Q2 and six-month revenue comparisons reflect acquisitions, including Global Knowledge, Pluma and Codecademy, as well as the impact of prior-year fresh-start accounting. Management attributed underlying revenue improvement in part to subscription bookings and acquired businesses.
- Global Knowledge instructor-led training bookings and GAAP revenue declined significantly versus the prior-year quarter. Management cited customer caution amid recession concerns, difficulty maintaining sales capacity in a challenging labor market, and changing post-pandemic training preferences. The decline triggered an interim goodwill test and the $70.5 million impairment.
- On June 17, Skillsoft entered into interest-rate swaps covering $300 million of variable-rate debt through June 2027. Management stated these fixed the cash interest rate on that portion at 8.94%; the swaps are not designated for hedge accounting, and fair-value changes affect earnings. The company recorded a $15.1 million Q2 fair-value loss on the swaps.
- The six-month tax benefit included a $20.7 million discrete valuation-allowance release following the Codecademy acquisition.
- The company recorded $8.3 million of restructuring charges in the first half, primarily severance and abandoned right-of-use assets. Management cited acquisition integration and cost alignment.
- On September 7, the Board authorized up to $30 million of share repurchases through September 7, 2023. The program is discretionary and may be suspended or terminated; repurchases could reduce cash available for other purposes.
- Key disclosed risks include economic uncertainty and reduced customer spending, demand and competition in digital learning, integration and realization of acquisition benefits, employee and sales capacity, cybersecurity and data protection, foreign currency exposure, and debt, liquidity and covenant constraints.
- A stockholder lawsuit related to the Codecademy acquisition proxy statement was dismissed on May 29, 2022. The filing reports no material legal proceedings and no accrual for the matter. Management assessed disclosure controls as effective at July 31, 2022.
Important facts for investors to verify
- Underlying organic subscription growth, bookings and renewal trends, separately from acquisition contributions and discontinued SumTotal results.
- Global Knowledge’s bookings and revenue trajectory, and the assumptions behind its goodwill valuation and potential further impairment sensitivity.
- Cash availability after SumTotal sale restrictions, required debt prepayment, working-capital needs and any further debt repayments.
- Debt costs and exposure to benchmark rates beyond the $300 million hedged amount, including the accounting volatility from non-hedge-designated swaps.
- Whether acquisition integration, restructuring and cost actions produce improved operating performance and cash generation.
- Execution and financial impact of the discretionary share repurchase program relative to liquidity and debt-reduction priorities.