Skillsoft Corp

Previous wording

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the financial condition of Skillsoft Corp. as of April 30, 2024, compared with January 31, 2024, and the results of operations for the three months ended April 30, 2024, compared with the corresponding period in 2023. Unless otherwise stated or the context otherwise requires, “Skillsoft”, “Company”, “we”, “our” or “us” refers to Skillsoft Corp. and its consolidated subsidiaries.

Current wording

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the financial condition of Skillsoft Corp. as of July 31, 2024, compared with January 31, 2024, and the results of operations for the three and six months ended July 31, 2024, compared with the corresponding periods in 2023. Unless otherwise stated or the context otherwise requires, “Skillsoft”, “Company”, “we”, “our” or “us” refers to Skillsoft Corp. and its consolidated subsidiaries.

Previous wording

The MD&A is provided as a supplement to, and should be read in conjunction with, the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements (“Notes”) presented in “Part I – Item 1. Financial Statements”; our Form 10-K for the year ended January 31, 2024 (“2024 Form 10-K”); and other reports filed with the Securities and Exchange Commission (“SEC”). For more detailed information on the risks and uncertainties associated with the Company’s business activities, see the risks described in “Part I – Item 1A. Risk Factors” in our 2024 Form 10-K.

Current wording

The MD&A is provided as a supplement to, and should be read in conjunction with, the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements (“Notes”) presented in “Part I – Item 1. Financial Statements”; our Form 10-K (as amended) for the year ended January 31, 2024 (“2024 Form 10-K”); and other reports filed with the Securities and Exchange Commission (“SEC”). For more detailed information on the risks and uncertainties associated with the Company’s business activities, see the risks described in “Part I – Item 1A. Risk Factors” in our 2024 Form 10-K.

Previous wording

At Skillsoft, we propel organizations and people to grow together through transformative learning experiences. We drive continuous growth and performance for employees and their organizations by helping them overcome critical skills gaps, unlock human potential, and transform the workforce to meet today’s challenges and tomorrow’s opportunities.

Current wording

At Skillsoft, we propel organizations and people to grow together through transformative learning experiences. We drive continuous growth and performance for employees and their organizations by helping them overcome critical skills gaps, unlock human potential, and invigorate the workforce to meet today’s challenges and tomorrow’s opportunities.

Previous wording

Skillsoft serves as a trusted partner to approximately 60% of the Fortune 1000, supporting today's sought-after competencies: leadership and business skills, technology skills, and essential safety and risk management compliance. We address the full continuum of market needs, from functional and tactical learning initiatives to enterprise-wide strategic skills transformations. We leverage various learning modalities adaptable to different employee preferences, schedules, and learning styles. Our content is continuously updated with the latest expert insights, information, and training methods.

Current wording

Skillsoft serves as a trusted partner to approximately 60% of the Fortune 1000, supporting the most sought-after competencies: leadership and business skills, technology skills, and essential safety and risk management compliance. We address the full continuum of market needs, from functional and tactical learning initiatives to enterprise-wide strategic skills transformations. We leverage various learning modalities adaptable to different employee preferences, schedules, and learning styles. Our content is continuously updated with the latest expert insights, information, and training methods.

Previous wording

Today's learners want the right learning experience, delivered when, where, and how they want it. That's why our approach is mobile-first, and our expert-curated, cloud-based content is served on an open platform that reaches learners wherever they are.

Current wording

Today's learners want the right learning experience, delivered when, where, and how they want it. That is why our approach is mobile-first, and our expert-curated, cloud-based content is served on an open platform that reaches learners wherever they are.

Previous wording

We have a community of more than 90 million learners in more than 150 countries that learn in more than 30 languages. As often as they need or want, learners turn to Skillsoft to acquire critical job skills in the flow of work, and grow as leaders, employees, and people. We've helped fuel performance and career growth for more than 25 years.

Current wording

We have a community of more than 90 million learners in more than 150 countries that learn in more than 30 languages. As often as they need or want, learners turn to Skillsoft to acquire critical job skills in the flow of work, and grow as leaders, employees, and people. We have helped fuel performance and career growth for more than 25 years.

Previous wording

We provide, through our Content & Platform and Instructor-Led Training segments, enterprise learning solutions designed to prepare organizations for the future of work, and to overcome critical skills gaps, drive demonstrable behavior-change, and unlock the potential in their people.

Current wording

We provide, through our Talent Development Solutions and Global Knowledge segments, enterprise learning solutions designed to prepare organizations for the future of work, and to overcome critical skills gaps, drive demonstrable behavior-change, and unlock the potential in their people.

Previous wording

Our Content & Platform segment generates revenues from its comprehensive suite of premium, original, and authorized partner content, featuring one of the deepest libraries of leadership and business, technology and development, and compliance curricula. With access to a broad spectrum of learning options (including video, audio, books, bootcamps, live events, and practice labs), organizations can meaningfully increase learner engagement and retention. Content & Platform offerings are predominantly delivered through Percipio, our award-winning, artificial intelligence (“AI”)-driven, immersive learning platform purpose built to make learning easier, more accessible, and more effective. In addition, we also have proprietary platforms used for our Codecademy and Skillsoft Coaching offerings. Our learning solutions are typically sold on a subscription basis for a fixed term.

Current wording

Our Talent Development Solutions segment generates revenues from its comprehensive suite of premium, original, and authorized partner content, featuring one of the deepest libraries of leadership and business, technology and development, and compliance curricula. With access to a broad spectrum of learning options (including video, audio, books, bootcamps, live events, and practice labs), organizations can meaningfully increase learner engagement and retention. Talent Development Solutions' offerings are predominantly delivered through Percipio, our award-winning, AI-driven, immersive learning platform purpose built to make learning easier, more accessible, and more effective. In addition, we also have proprietary platforms used for our Codecademy and Skillsoft Coaching offerings. Our learning solutions are typically sold on a subscription basis for a fixed term.

Previous wording

Our Instructor-Led Training segment generates revenues from virtual, in-classroom, and on-demand training solutions geared at foundational, practitioner and expert information technology professionals. Our offerings include authorized content from various partners aimed at providing professional certifications for individuals that successfully complete all requirements. Instructor-Led Training’s digital and in-classroom learning solutions provide enterprises, government agencies, and educational institutions a broad selection of customizable courses to meet their technology and development needs.

Current wording

Our Global Knowledge segment generates revenues from virtual, in-classroom, and on-demand training solutions geared at foundational, practitioner and expert information technology professionals. Our offerings include authorized content from various partners aimed at providing professional certifications for individuals that successfully complete all requirements. Global Knowledge’s digital and in-classroom learning solutions provide enterprises, government agencies, and educational institutions a broad selection of customizable courses to meet their technology and development needs.

Previous wording

*Software as a service (“SaaS”) Subscription Revenue.*Represents revenue generated from contracts specifying a minimum fixed fee for services delivered over the life of the contract. The initial term of enterprise contracts is generally one to three years and is usually non-cancellable for the term of the subscription. The fixed fee is commonly paid upfront on an annual basis. These contracts typically consist of subscriptions to our various offerings which provide access to our SaaS platforms, associated content and services, over the contract term.

Current wording

*Software as a service (“SaaS”) Subscription Revenue.*Represents revenue generated from contracts specifying a minimum fixed fee for services delivered over the life of the contract. The initial term of enterprise contracts is generally one to three years and is usually non-cancellable for the term of the subscription. The fixed fee is commonly paid upfront on an annual basis. These contracts typically consist of subscriptions to our various offerings which provide access to our SaaS and coaching platforms, associated content and services, over the contract term.

Previous wording

Total decline in revenues, when comparing the three months ended April 30, 2024 and April 30, 2023, mainly in our Instructor-Led Training segment was primarily due to weaker market demand, particularly in Europe, as well as a higher mix of reseller business, which is recorded in revenue net of fees.

Current wording

The total decline in revenues, when comparing the three and six months ended July 31, 2024 and 2023, in our Global Knowledge segment was primarily due to weaker market demand, as well as a higher mix of reseller business, which is recorded in revenue net of fees. When comparing these same periods, the reduction in our Talent Development Solutions segment total revenues was primarily the result of actions taken by us to focus on the more profitable parts of this market.

Previous wording

For the corporate level operating expenses that we can directly attribute to our two segments, such costs are allocated accordingly between Content & Platform and Instructor-Led Training. However, in other cases, these corporate level operating expenses are reported in the Content & Platform segment.

Current wording

For the corporate level operating expenses that we can directly attribute to our two segments, such costs are allocated accordingly between Talent Development Solutions and Global Knowledge. However, in other cases, these corporate level operating expenses are reported in the Talent Development Solutions segment.

Previous wording

The decreases in courseware, instructor fees and outside services, when comparing the three months ended April 30, 2024 to the same period in 2023, were primarily attributable to the decline in our Instructor-Led Training segment revenue as discussed inSubscription and Non-Subscription Revenue above. When comparing the three months ended April 30, 2024 to the same period in 2023, both the compensation and benefits, and hosting and software maintenance categories increased primarily due to the investments in technology and our employees. The decrease in facilities and utilities expenses, when comparing the three months ended April 30, 2024 to the same period in 2023, was primarily attributable to cost savings from consolidation of our facilities.

Current wording

The decreases in courseware, instructor fees and outside services and compensation and benefits, when comparing the three and six months ended July 31, 2024 to the same periods in 2023, were primarily attributable to the decline in our Talent Development Solutions and Global Knowledge segment revenues as discussed inSubscription and Non-Subscription Revenue above. The decrease in facilities and utilities expenses, when comparing the three and six months ended July 31, 2024 to the same period in 2023, was primarily attributable to cost savings from consolidation of our facilities.

Previous wording

The decreases in compensation and benefits, when comparing the three months ended April 30, 2024 to the same period in 2023, were primarily a result of lower stock-compensation expense due to forfeitures and lower grants of share-based payment awards. The decrease in facilities and utilities expenses, when comparing these same periods, was primarily attributable to cost savings from consolidation of our facilities. These decreases were partially offset by the increase in software maintenance, which was primarily the result of investments in technology.

Current wording

The decreases in compensation and benefits, when comparing the three and six months ended July 31, 2024 to the same periods in 2023, were primarily a result of lower headcount (a portion of which was attributable to the comprehensive resource reallocation plan discussed above)andlower stock-compensation expense due to forfeitures and lower grants of share-based payment awards. The decrease in facilities and utilities expenses, when comparing these same periods, was primarily attributable to cost savings from consolidation of our facilities.

Previous wording

The decreases in compensation and benefits, advertising and promotions and consulting and outside services, when comparing the three months ended April 30, 2024 to the same period in 2023, were primarily attributable to a reduction in branding initiatives. The decrease in facilities and utilities expenses, when comparing the three months ended April 30, 2024 to the same period in 2023, was primarily attributable to cost savings from consolidation of our facilities. These decreases were partially offset by the increase in software maintenance, which was primarily the result of investments in our go-to-market transformation activities and enablement programs.

Current wording

The decreases in advertising and promotions and consulting and outside services, when comparing the three and six months ended July 31, 2024 to the same periods in 2023, were primarily attributable to proactive reductions in branding initiatives and paid media spend. The decrease in facilities and utilities expenses, when comparing the three and six months ended July 31, 2024 to the same periods in 2023, was primarily attributable to cost savings from consolidation of our facilities. These decreases were partially offset by the increase in software maintenance, which was primarily the result of investments in our go-to-market transformation activities and enablement programs. In addition, the increase in compensation and benefits, when comparing the three and six months ended July 31, 2024 to the same period in 2023, was primarily due to a S&M executive forfeiture of a share-based payment award that lowered stock-compensation expense during the three months ended July 31, 2023.

Previous wording

Total G&A expenses remained relatively flat, when comparing the three months ended April 30, 2024 to the same period in 2023, as investments in employees and technology were offset by expense reductions and savings from the Company's integration and restructuring activities, including cost savings from consolidation of our facilities and lower insurance. When comparing these same periods, the reduction in consulting and outside services also contributed to the increase in compensation and benefits.

Current wording

The decreases in compensation and benefits, when comparing the three and six months ended July 31, 2024 to the same periods in 2023, were primarily a result of lower stock-compensation expense due to forfeitures and lower grants of share-based payment awards, partially offset by severance costs for the former Chief Executive Officer whose employment with the Company ended on May 9, 2024. The Company's integration and restructuring activities, including cost savings from consolidation of our facilities and lower insurance also contributed to the overall decline in G&A expenses. When comparing these same periods, the reduction in consulting and outside services were partially offset by an increases to compensation and benefits (even though it declined in total as discussed above). Further, while increases in software maintenance, when comparing these same periods, primarily reflect investments in technology.

Previous wording

The decrease in amortization of intangible assets, when comparing the three months ended April 30, 2024 to the same period in 2023, was primarily due to certain intangible assets becoming fully amortized or written down as a result of impairment during the fourth quarter of fiscal 2024.

Current wording

The decrease in amortization of intangible assets, when comparing the three and six months ended July 31, 2024 to the same periods in 2023, was primarily due to certain intangible assets becoming fully amortized or written down as a result of impairment during the fourth quarter of fiscal 2024.

Previous wording

In connection with the acquisition integration process and our workplace flexibility policy, we continued our initiatives and commitment to reduce our costs and better align operating expenses with existing economic conditions and our operating model to improve operating efficiency, competitiveness and business profitability. These included workforce reductions and consolidation of facilities as we adopted new work arrangements for certain locations. The restructuring charges for the three months ended April 30, 2024 totaling $1.0 million are substantially all related toseverance costs of terminated employees. The restructuring charges for the three months ended April 30, 2023 totaling$5.2 million were substantially all related toseverance costs of terminated employees and lease termination and lease impairment charges.

Current wording

As discussed above, on July 11, 2024, the Company announced a comprehensive resource reallocation plan. In connection with this plan and the acquisition integration process and our workplace flexibility policy, we continued our initiatives and commitment to reduce our costs and better align operating expenses with existing economic conditions and our operating model to improve operating efficiency, competitiveness and business profitability. These included workforce reductions and consolidation of facilities as we adopted new work arrangements for certain locations. The restructuring charges for the three and six months ended July 31, 2024 totaling $11.3 million and $12.3 million, respectively, are substantially all related toseverance costs of terminated employees and lease termination and lease impairment charges. The restructuring charges for the three and six months ended July 31, 2023 totaling $2.5 million and $7.7 million, respectively, were substantially all related toseverance costs of terminated employees and lease termination and lease impairment charges.

Previous wording

The other income (expense), net was primarily the foreign exchange gains and losses (specifically, resulting from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities), which fluctuates as the U.S. dollar appreciates or depreciates against other currencies. Interest income for the three months ended April 30, 2024 compared to the corresponding prior year period, increased primarily due to the use of money market investments to realize increased returns on cash balances. The increase in interest expense, when comparing the three months ended April 30, 2024 to the corresponding period in 2023, was primarily due to higher interest rates. As a result of the interest rate swaps we executed on June 17, 2022, we have a fixed cash interest rate of 8.94% on $300 million of our outstanding term loans.

Current wording

The other income (expense), net was primarily the foreign exchange gains and losses (specifically, resulting from foreign currency denominated transactions and the revaluation of foreign currency denominated assets and liabilities), which fluctuates as the U.S. dollar appreciates or depreciates against other currencies. Interest income for the three and six months ended July 31, 2024 compared to the corresponding prior year periods, increased primarily due to the use of money market investments to realize increased returns on cash balances. The increase in interest expense, when comparing the three and six months ended July 31, 2024 to the corresponding periods in 2023, was primarily due to higher interest rates. As a result of the interest rate swaps we executed on June 17, 2022, we have a fixed cash interest rate of 8.94% on $300 million of our outstanding term loans.

Previous wording

The gains attributable to warrants are primarily a result of the Company's underlying common stock performance during the three months ended April 30, 2023. As of January 31, 2024, the fair value of our liability-classified warrants was insignificant, however prior to then they were marked-to-market at each balance sheet date, with gains and losses being recorded in current period earnings..

Current wording

The gains attributable to warrants are primarily a result of the Company's underlying common stock performance during the three and six months ended July 31, 2023. As of January 31, 2024, the fair value of our liability-classified warrants was insignificant, however prior to then they were marked-to-market at each balance sheet date, with gains and losses being recorded in current period earnings.

Previous wording

The gains (losses) reflected for the change in value of the interest rate swaps are primarily attributable to increases (decreases) in the expectation for one-month SOFR interest rates through June 5, 2027, during the three months ended April 30, 2024 and 2023.

Current wording

The gains (losses) reflected for the change in value of the interest rate swaps are primarily attributable to increases (decreases) in the expectation for one-month SOFR interest rates through June 5, 2027, during the six months ended July 31, 2024 and 2023.

Previous wording

The effective income tax rate for the three months ended April 30, 2024 and 2023 differed from the United States federal statutory rate of 21.0% due primarily to the impact of non-deductible items, foreign rate differential, changes in uncertain tax positions, and changes in the valuation allowance on the Company’s deferred tax assets.

Current wording

The effective income tax rate for the three and six months ended July 31, 2024 and 2023 differed from the United States federal statutory rate of 21.0% due primarily to the impact of non-deductible items, foreign rate differential, changes in uncertain tax positions, and changes in the valuation allowance on the Company’s deferred tax assets.

Previous wording

As of April 30, 2024, we had $142.0 million of cash and cash equivalents on hand. Our investment policy is approved by the Board of Directors and reviewed annually by the Audit Committee. Our current investment policy’s primary objectives when investing excess cash are, in order of importance: (1) preservation of capital and protection of principal; (2) maintenance of liquidity that is sufficient to meet cash flow needs; and (3) maximize rate of return. Pursuant to this policy, as of April 30, 2024, most of our cash and cash equivalents were held at large financial institutions with high rating agency designations and our exposure to regional banks was not significant. We have funded operations primarily through the use of cash collected from our customers and the proceeds received from the Term Loan Facility, supplemented with borrowings under our accounts receivable facility. Our cash requirements vary depending on factors such as the growth of the business, changes in working capital and capital expenditures. We expect to operate the business and execute our strategic initiatives principally with funds generated from operations and supplemented by borrowings up to a maximum of $75.0 million under our accounts receivable facility. We anticipate that we will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for at least the next twelve months, as well as for the foreseeable future with capital sources currently available.

Current wording

As of July 31, 2024, we had $122.7 million of cash and cash equivalents on hand. Our investment policy is approved by the Board of Directors and reviewed annually by the Audit Committee. Our current investment policy’s primary objectives when investing excess cash are, in order of importance: (1) preservation of capital and protection of principal; (2) maintenance of liquidity that is sufficient to meet cash flow needs; and (3) maximize rate of return. Pursuant to this policy, as of July 31, 2024, most of our cash and cash equivalents were held at large financial institutions with high rating agency designations and our exposure to regional banks was not significant. We have funded operations primarily through the use of cash collected from our customers and the proceeds received from the Term Loan Facility, supplemented with borrowings under our accounts receivable facility. Our cash requirements vary depending on factors such as the growth of the business, changes in working capital and capital expenditures. We expect to operate the business and execute our strategic initiatives principally with funds generated from operations and supplemented by borrowings up to a maximum of $75.0 million under our accounts receivable facility. We anticipate that we will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for at least the next twelve months, as well as for the foreseeable future with capital sources currently available.

Previous wording

The First Amendment provided for the incurrence of up to $160 million of Term B-1 Loans (the “Term B-1 Loans”) under the Amended Credit Agreement. In addition, the First Amendment, among other things, (a) provided for early opt-in to the SOFR subject to a 0.75% floor, for the existing term loans under the Credit Agreement (such existing term loans together with the Term B-1 Loans, the “Initial Term Loans”) and (b) provided for the applicable margin for the Initial Term Loans at 4.25% with respect to base rate borrowings and 5.25% with respect to SOFR borrowings.

Current wording

The First Amendment provided for the incurrence of up to $160 million of Term B-1 Loans (the “Term B-1 Loans”) under the Amended Credit Agreement. In addition, the First Amendment, among other things, (a) provided for early opt-in to SOFR subject to a 0.75% floor, for the existing term loans under the Credit Agreement (such existing term loans together with the Term B-1 Loans, the “Initial Term Loans”) and (b) provided for the applicable margin for the Initial Term Loans at 4.25% with respect to base rate borrowings and 5.25% with respect to SOFR borrowings.

Previous wording

We also have access to up to $75.0 million of borrowings under our accounts receivable facility, where borrowing can be made against eligible accounts receivable, with advance rates between 50.0% and 85.0%. Borrowings under the facility bear interest at 3.11% per annum plus the applicable Term SOFR rate. The maturity date of the accounts receivable facility is the earlier of (i) December 27, 2024 or (ii) 90 days prior to the maturity of any corporate debt. The accounts receivable facility requires a minimum outstanding balance of $10 million at all times. Based on seasonality of billings and the characteristics of accounts receivable, some of which are not eligible for advances, we are not always able to access the full $75.0 million available capacity. As of April 30, 2024,$42.4 million was drawn under our accounts receivable facility.

Current wording

We also have access to up to $75.0 million of borrowings under our accounts receivable facility, where borrowing can be made against eligible accounts receivable, with advance rates between 50.0% and 85.0%. Borrowings under the facility bear interest at 3.11% per annum plus the applicable Term SOFR rate. The maturity date of the accounts receivable facility is the earlier of (i) December 27, 2024 or (ii) 90 days prior to the maturity of any corporate debt. The accounts receivable facility requires a minimum outstanding balance of $10 million at all times. Based on seasonality of billings and the characteristics of accounts receivable, some of which are not eligible for advances, we are not always able to access the full $75.0 million available capacity. As of July 31, 2024, $40.4 million was drawn under our accounts receivable facility.

Previous wording

The decrease in cash flows from operating activities in the three months ended April 30, 2024 compared to the same period in 2023, was primarily the result of the timing of working capital settlements.

Current wording

The increase in cash flows from operating activities in the six months ended July 31, 2024 compared to the same period in 2023, was primarily the result of the timing of working capital settlements.

Previous wording

Cash flows from investing activities in the three months ended April 30, 2024 include$4.4 million of cash payments for internally developed software.

Current wording

Cash flows from investing activities in the six months ended July 31, 2024 include$8.8 million of cash payments for internally developed software.

Previous wording

Cash flows from investing activities for the three months ended April 30, 2023 include $2.7 millionof cash payments for internally developed software.

Current wording

Cash flows from investing activities for the six months ended July 31, 2023 include $5.6 millionof cash payments for internally developed software and net cash transferred of $5.1 million related to the completion of the SumTotal sale.