Skillsoft Corp. — Q1 Fiscal 2023 Form 10-Q
Reporting period: Three months ended April 30, 2022. Financial statements are unaudited. The company provides corporate digital learning, training, and talent-management solutions through Skillsoft, Global Knowledge, SumTotal, and Codecademy.
Comparability: The prior-year quarter is reported for Predecessor (SLH), while the current quarter is Successor. The periods are not directly comparable because of the June 2021 business combinations, including Global Knowledge, and fresh-start accounting effects in the prior period.
Financial results and liquidity
| Metric | Q1 FY2023 | Prior comparable quarter |
|---|---|---|
| Revenue | $163.9 million | $91.7 million |
| Operating loss | $42.4 million | $27.7 million |
| Net loss | $21.6 million | $37.4 million |
| Operating cash flow | $7.9 million | $39.7 million |
| Investing cash flow | $(202.5) million | $(1.9) million |
| Financing cash flow | $108.5 million | $(4.4) million |
- Revenue increased 78.7%. Cost of revenue was 29.1% of revenue, implying a gross margin of approximately 70.9%; operating margin was (25.9)% and net margin was (13.2)%. Prior-period margins are affected by acquisition and accounting comparability.
- Revenue included $45.1 million of Global Knowledge instructor-led training; SaaS subscription revenue was $107.5 million. The filing attributes much of reported growth to Global Knowledge’s inclusion and the prior-year fresh-start reduction in recognized revenue. Excluding these effects, management described revenue as slightly higher, reflecting acquired Pluma and one month of Codecademy revenue as well as organic growth.
- Cash and cash equivalents were $75.6 million, plus $5.1 million restricted cash, at April 30. Current assets were $257.8 million and current liabilities $447.6 million; working capital was therefore negative $189.8 million.
- Reported debt included $6.4 million of current and $616.5 million of long-term term debt, plus $28.0 million borrowed under the receivables facility. Term-loan principal payments total $637.2 million, with most scheduled after fiscal 2027. The term loan matures July 2028; the company reported compliance with its covenants.
- Cash, cash equivalents, and restricted cash declined $88.3 million during the quarter, largely reflecting the Codecademy acquisition. Operating cash flow fell from the prior-year level; management cited acquisition and restructuring costs, incentive compensation, and payment timing.
Material changes and unusual items
- Codecademy was acquired April 4 for approximately $386.0 million: $202.1 million cash, $182.6 million in shares, and other transaction consideration. The company recorded preliminary goodwill of $310.0 million and intangible assets of $112.0 million. The allocation remains provisional.
- The acquisition was funded in part by $153.2 million net proceeds from additional term loans and cash on hand. The company issued 30.4 million shares in the transaction.
- Operating expenses included $13.4 million of recapitalization and acquisition-related costs and $4.0 million of restructuring charges, principally severance. The quarter also included $43.9 million of intangible amortization.
- A $10.1 million noncash gain from the fair-value remeasurement of warrants reduced the reported loss. A $21.7 million income-tax benefit included a $21.6 million discrete release of a valuation allowance following the Codecademy acquisition.
Outlook, commentary, and risks
- Management said it expects available internal and external liquidity to fund operations and anticipated needs for at least the next 12 months. It expects to use operating cash flow, supplemented as needed by receivables-facility borrowings; the filing does not provide numerical revenue or earnings guidance.
- Global Knowledge bookings declined year over year, which management said would likely result in lower revenue for the quarter ending July 31, 2022 because bookings convert to revenue with a lag. Management reported no impairment indicators at April 30, but warned continued underperformance could reduce fair value and require goodwill or intangible-asset impairment.
- Key disclosed risks include acquisition integration and expected synergies, debt and covenant obligations, liquidity, demand and competition, foreign exchange, cybersecurity and data protection, and reliance on third-party content providers.
- A stockholder lawsuit and six related demand letters allege proxy-statement misstatements or omissions concerning the Codecademy acquisition. The company had not accrued a liability because the claims did not meet the probable-and-estimable recognition criteria. Management stated it was not party to material legal proceedings.
- Management concluded disclosure controls and procedures were effective as of April 30, 2022. No material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Whether Global Knowledge bookings stabilize and the anticipated near-term revenue softness develops as described.
- Codecademy integration progress, realized growth or cost synergies, and final purchase-price allocation.
- Cash generation, working-capital needs, receivables-facility availability, and covenant compliance given negative working capital and substantial debt.
- The sustainability of reported net-loss improvement after separating the discrete tax benefit and warrant fair-value gain from operating performance.
- Potential impairment exposure if Global Knowledge or other acquired businesses continue to underperform, and developments in the proxy-related lawsuit and demand letters.