Business context and reporting period
Skillsoft Corp. provides corporate digital learning, training and talent-management solutions through Skillsoft, Global Knowledge and SumTotal. This Form 10-Q covers the quarter ended October 31, 2021, the third quarter of fiscal 2022. Skillsoft completed its business combination and acquired Global Knowledge on June 11, 2021, and acquired Pluma later that month.
Because the June 2021 transactions created a new accounting successor period, reported periods are not directly comparable. Management also presents combined predecessor/successor comparisons; these are non-GAAP presentations and are not pro forma results.
Financial performance and liquidity
Unless noted otherwise, amounts are in millions of dollars. The quarter figures below are for the three months ended October 31, 2021; comparative figures are management’s combined, non-GAAP results for the three months ended October 31, 2020.
| Metric | Current period | Comparable period / note |
|---|---|---|
| Revenue | $170.6 | $75.7; up 125.4% |
| Gross profit / margin | $121.7 / 71.3% | Calculated from reported revenue and cost of revenue |
| Operating loss / margin | $(4.4) / (2.6)% | $(33.2) / (43.8)% |
| Net loss | $(42.9) | $(38.7) reported for predecessor periods; combined comparison is distorted by prior-year reorganization accounting |
| Basic and diluted loss per share | $(0.32) | Prior-period per-share comparison is not applicable on a comparable basis |
| Operating cash flow | $(0.5) for June 12–October 31, 2021 | Combined nine-month operating cash flow was $33.3, versus $6.8 in the prior-year combined period |
Revenue growth primarily reflects Global Knowledge, which contributed $53.2 million in quarterly virtual, on-demand and classroom revenue. Management also cited a $41.7 million prior-year revenue reduction from fresh-start accounting. After adjusting for Global Knowledge and fresh-start effects, management said Content and SumTotal revenue was slightly lower, attributed to lower prior-year bookings. Quarterly subscription and SaaS revenue was $101.0 million.
Quarterly operating expenses were $174.9 million, including $37.1 million of intangible-asset amortization and $3.7 million of recapitalization and acquisition-related costs. The $36.8 million quarterly loss from remeasuring liability-classified warrants was a significant non-cash factor in the net loss.
At October 31, cash and cash equivalents were $80.7 million. Current assets were $262.3 million and current liabilities $395.7 million, a working-capital deficit of $133.4 million; current liabilities included $246.2 million of deferred revenue. Long-term debt carrying value was $463.0 million, plus $4.8 million of current maturities. The company also had $11.1 million drawn under its accounts-receivable facility. Cash, restricted cash and cash equivalents totaled $83.4 million.
Successor-period cash flow was $(0.5) million from operations, $(568.3) million from investing—principally acquisitions—and $364.5 million from financing. The company reported $480 million principal outstanding on its term loan, maturing July 2028, with quarterly amortization and variable-rate interest; the loan is secured by substantially all material assets of the loan parties. The accounts-receivable facility has up to $75 million of capacity, subject to eligible receivables and availability constraints.
Material changes versus comparable periods
- Reported quarterly revenue rose 125.4% against the combined prior-year comparison, principally reflecting the Global Knowledge acquisition and prior-year fresh-start accounting effects; this is not organic growth.
- Quarterly operating loss narrowed to $4.4 million from $33.2 million in the combined comparison, while net loss was affected by the warrant remeasurement loss.
- Combined nine-month revenue was $401.2 million, up 29.1% from $310.8 million. Combined nine-month operating loss was $57.5 million versus $372.1 million, with the prior period including $332.4 million of impairment charges.
- The July 2021 refinancing replaced the predecessor first- and second-out debt with a $480 million term loan due 2028. Management reported lower interest expense compared with the combined prior-year nine-month period, partly due to earlier restructuring and refinancing.
- The company early-adopted ASU 2021-08 retrospectively for the successor period. The filing reports a $33.1 million revenue increase for June 11–July 31, 2021 and a $123.5 million increase in acquisition-related goodwill from revised deferred-revenue accounting.
Outlook, commentary and risks
No specific numerical revenue, profit or cash-flow guidance is provided. Management expects to fund operations and strategic initiatives principally from operating cash flow, supplemented by the receivables facility, and stated that available internal and external liquidity should cover operations and expected cash needs for at least the next 12 months and the foreseeable future.
Management cited demand for workforce upskilling and the shift toward digital training as industry tailwinds. Key risks identified include realizing expected business-combination and acquisition benefits; customer demand and competition; COVID-19 impacts; platform security and cloud migration; foreign-exchange movements; employee retention; indebtedness, liquidity and restrictive covenants; and the ability to raise capital. The company recorded a $5.2 million reserve for an uncertain tax position related to the base erosion and anti-abuse tax. It reported no material legal proceedings; two shareholder suits related to the merger had been dismissed. Management stated disclosure controls were effective as of October 31, 2021.
Important facts for investors to verify
- Assess underlying subscription and content trends separately from acquired Global Knowledge revenue and the accounting effects of fresh-start reporting and ASU 2021-08.
- Review liquidity and debt-service capacity, including the working-capital deficit, receivables-facility availability, variable interest rates, security and loan covenants.
- Evaluate the effect of warrant fair-value movements on reported earnings; the quarter’s $36.8 million loss was non-cash and market-sensitive.
- Monitor acquisition integration, expected synergies, purchase-price allocation estimates and the substantial goodwill and intangible-asset balances.
- Reconcile reported successor-period cash flows with management’s combined non-GAAP cash-flow comparison and note the different period bases.