Skillsoft Corp. - Annual Report: 2023 (Form 10-K)

CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10‑K (this “Form 10‑K” or “Annual Report”) includes statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created by those laws. All statements, other than statements of historical facts, that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our outlook, our product development and planning, our pipeline, future capital expenditures, financial results, the impact of regulatory changes, existing and evolving business strategies and acquisitions and dispositions, demand for our services, competitive strengths, the benefits of new initiatives, growth of our business and operations, our ability to successfully implement our plans, strategies, objectives, expectations and intentions are forward-looking statements. Also, when we use words such as “may,” “will,” “would,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “forecast,” “seek,” “outlook,” “target,” goal,” “probably,” or similar expressions, we are making forward-looking statements. Such statements are based upon the current beliefs and expectations of Skillsoft’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. All forward-looking disclosure is speculative by its nature, and we caution you against unduly relying on these forward-looking statements. 

Factors that could cause or contribute to such differences include those described under “Part I - Item 1A. Risk Factors” of this Annual Report. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements included in this Annual Report and in our other periodic filings with the Securities and Exchange Commission. The forward-looking statements contained in this Form 10-K represent our estimates only as of the date of this filing and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update these forward-looking statements in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements, or otherwise.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. Given the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved. Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results. Additionally, statements as to market share, industry data and our market position are based on the most currently available data available to us and our estimates regarding market position or other industry data included in this document or otherwise discussed by us involve risks and uncertainties and are subject to change based on various factors, including as set forth above.

PART I

Item 1. Business

GENERAL

TRANSFORMATIVE LEARNING EXPERIENCES FOR A SUSTAINABLE WORKFORCE

At Skillsoft, we propel organizations and people to grow together through transformative learning experiences.

ABOUT SKILLSOFT

Through a portfolio of high-quality content, a platform that is personalized and connected to customer needs, and a broad ecosystem of partners, Skillsoft drives continuous growth and performance for employees and their organizations by overcoming critical skill gaps, unlocking human potential, and transforming the workforce. With 150,000+ expert-led skills-building courses in modalities ranging from video and audio to instructor-led training and practice labs, Skillsoft offers transformative learning experiences for leaders to frontline workers, readers to hands-on learners.

Skillsoft supports approximately 70% of the Fortune 1000 with today's sought-after competencies: leadership and business skills, technology and developer skills, and essential safety and risk management compliance. We leverage various learning modalities adaptable to different preferences, schedules, and learning styles — from books to videos, full courses to micro-learning, audiobooks to live bootcamps and coaching. Content is continuously updated with the latest insights, information, and training methods.

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.

Our community of 86 million learners in 150+ countries around the globe learn in more than 30 languages. As often as they need or want to, typical 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 20 years.

TRANSFORMATIVE LEARNING EXPERIENCES

There is a distinct Skillsoft experience that we create, one that we know from our research and work with customers leads to workforce transformation and growth. The experience is designed around four foundational pillars:

Our transformative learning experiences are designed to help learners strengthen current skills and embrace new ones so they can stay in-demand and grow. More than 1,250 skill-based learning paths are frequently updated with the latest insights and knowledge. Our aim is to continually refresh and add to courses, so that our products incorporate the most current trends and thought leadership.

We help organizations achieve competitive advantages by unleashing the potential of their people. We deliver robust, cloud-based, turnkey, and fully customizable learning solutions for enterprise-wide knowledge and up-to-date, mission-critical skills training. We offer a proven track record of working with human resources (HR), talent development, and executive leadership to ensure that learning solutions are expertly developed and deployed.

As an organization, we’re committed to the advancement of all human potential through learning and development. So, we strive to make sure both individuals and organizations have exactly what they need to unleash that potential. Learning with Skillsoft is designed to help organizations grows a cross-skilled, more capable, adaptive, and engaged workforce — a workforce that performs. We believe that when organizations and their people grow together, it leads to greater employee engagement, stronger retention, and a continually competitive workforce. 

WHAT WE OFFER

Skillsoft’s learning experiences fall into three categories of content: Leadership and Business Skills (L&B); Technology and Developer (Tech & Dev); and Compliance.

LEADERSHIP AND BUSINESS SKILLS

Today’s challenges — and opportunities — require a new generation of leaders who are agile, resilient, and digitally fluent. Yet, in the 2023 Global Leadership Forecast, only 40% of surveyed leaders report that their company has high-quality leaders, and 72% report that they feel “used up” by the end of the day.

Developing leaders requires behavior change, and the confidence in their ability to effect that change. By giving leaders knowledge and the ability to use this understanding in their daily jobs, we help our customers empowers their leaders to successfully deliver on strategic initiatives, drive results, and achieve their personal goals. Skillsoft's transformative leadership development programs bring together curated content and coaching that can be scaled and delivered to every level of leadership throughout an organization, and tools like Skillsoft Aspire and Career Journeys to reinforce key concepts.

Skillsoft has designed its Leadership Program to be:

Skillsoft Coaching

As businesses look to retain top talent and fill the talent pipeline, building effective leaders becomes an integral part of skilling at every level, across organizations. To succeed in today’s climate of digital transformation and hybrid workforces, businesses must prepare all employees to be leaders, not only in their roles, but also at their company. And in a world that has become rapidly virtualized, digital coaching plays a critical role throughout the employee lifecycle.

As part of Skillsoft’s Leadership and Business category, the company offers Skillsoft Coaching, formerly Pluma. With coaching, companies can pair professionals at all levels, from individual contributors to C-level executives, with ICF-accredited executive-quality coaches who focus on developing behaviors and skills needed to lead successfully. Our 350 qualified coaches span six continents and cover more than 20 languages.

At Skillsoft, we are dedicated to driving real behavioral change. Here are typical coaching results after using Skillsoft Coaching in six months’ time:

TECHNOLOGY AND DEVELOPER
Sixty-six percent of IT decision-makers experience critical skills gaps on their teams, and nearly 10% aren’t sure whether they have gaps or not. (Skillsoft 2022 IT Skills & Salary Report).

The need for technology skills building is real … and urgent. COVID-19 accelerated the move to cloud-based applications, but with the rapid transition came vulnerabilities and on-going DevOps requirements not enough people can fill. What's more, business transformation is blocked by having limited resources with the necessary skills to execute a huge backlog of projects. Leaders across industries need increased confidence in their organization's ability to respond to new threats and opportunities as they arise.

There are myriad resources available for tech classes. However, technical teams need more than classes — they need practice applying new skills in real-time. That's why learning programs that close the gap between a course and applying knowledge on the job are a high priority. Skillsoft’s integrated Tech & Dev curriculum spans multiple forms of learning, from practice labs, live instructor training, on-demand courses, and bootcamps, to certificate preparation and coding practice. Our hands-on coding environment is designed to build confidence quickly. Using spaced repetition principles, we create personalized coding practice experiences so learners can retain more, gain immediate gratification and corrective feedback.

Our curated content is vetted by recognized tech experts and technology and partners is proven to drive on the job application. In fact, 97% of learners report they have applied or will apply what they learned on the job, and our students experience a 92% certification pass rate.

Having acquired Codecademy in fiscal 2023, we have integrated Codecademy for Enterprise into the Skillsoft Percipio platform, providing access to an immersive, self-paced, interactive learning environment. Codecademy for Enterprise offers interactive, hands-on courses in 14 programming languages across multiple domains such as web development and data science, including HTML & CSS, Python, JavaScript, Java, SQL, Bash/Shell, Ruby, C++, R, C#, PHP, Go, Swift, and Kotlin.

COMPLIANCE

At Skillsoft, we believe an effective online compliance training online program isn’t just about rules — it’s about people and their behavior. Compliance training courses for employees can protect them and communicate a company’s values and principles so leaders can focus on improving safety outcomes, growing revenue, and reducing risk. Skillsoft’s compliance training helps more than 1,800 organizations empower employees to make the right decisions and transform corporate culture.

Skillsoft offers Skillsoft Legal Compliance; Skillsoft Environmental, Health, and Safety Compliance; and Skillsoft Compliance Complete. Each is designed to help enable customers to execute a mature compliance training program guided by the latest best practices for employee development. Skillsoft combines a continuously updated library of customizable legal and safety compliance content with purpose-built technology and value-added services for total compliance coverage. Customers can add company-specific policy documents and non-instructional videos with self-service course configuration tools.

Skillsoft Compliance offers:

SKILLSOFT PERCIPIO PLATFORM

Skillsoft’s advanced learning platform, Percipio, which is designed to facilitate deeper learning through better experiences using the power of artificial intelligence (AI). The platform is built to be open, personal, and connected, creating a unified experience across organizations, but one that is personalized to both customer and employee needs. For example, central to the Skillsoft learning experience are microlearning videos, optimized for mobile and designed for the way people learn online.

The platform offers more than 1,250 customizable Aspire Journeys, a pre-curated set of role-based and skill-based learning paths, that lead employees on their own path. With its modern, intuitive design, customers can easily configure the platform to add custom, third-party content, allowing learners to access the best of Skillsoft, their organization, and other providers.

Because it's mobile-first and cloud-based, it's available anytime, anywhere, on any device. With AI-driven recommendations, learners can watch, read, listen, and practice anytime, even in the flow of work, while celebrating their accomplishments along the way. We believe our platform helps customers build a culture of future-fit, self-motivated, capable learners, ready to add exponential value to their organization.

GLOBAL KNOWLEDGE - INSTRUCTOR-LED TRAINING

Instructor-led training (ILT), also known as Global Knowledge, helps customers create a unique blended learning approach designed to help them reach strategic business goals. Combining digital learning content with an instructor-led course can take the mastery of a topic to a higher level.

Live courses, whether delivered in-person or via digital channels:

The addition of instructor-led training to the Skillsoft platform offers learners a centralized portal to register and access live courses alongside their other assignments.

PROFESSIONAL SERVICES

At Skillsoft, we strive to help customers unlock the full value of their skilling strategy — so they can focus on creating a future-fit workforce. Our Professional Services team is available for expanded engagements to help customers build and connect transformative learning experiences to their specific business needs and goals.

The team combines deep expertise, implementation services, learning and development program design, and custom content development to help customers increase employee engagement, create a culture of learning and recognition, and cultivate effective leaders.

SERVING OUR CUSTOMERS

SERVING ORGANIZATIONS

A sweeping moment of re-evaluation, spurred by the pandemic, has caused many employees to reassess their relationship to work — and to their employer. Organizations are being asked to demonstrate value in new ways, with new metrics, and for more employees. In fact, employers have identified talent retention and acquisition as a primary risk factor. Employees are craving personal growth — in their abilities, in their careers, and ultimately in their fulfillment at work. Employers are craving business growth — not only financially, but growth that prepares the organization to meet new challenges, head-on.

At Skillsoft, we propel organizations and people to grow together through transformative learning experiences. And we’re here to help customers retain those critical team members by offering continuous learning and development opportunities.

At Skillsoft, we serve approximately 14,300 organizations. With Skillsoft, these customers don't just accelerate learning — they invest in their employees in a way that inspires them to invest their energy and time in kind. Learning with Skillsoft grows a cross-skilled, more capable, adaptive, and engaged workforce — a workforce that performs. When organizations and their people grow together, it leads to greater employee engagement, stronger retention, and a continually competitive workforce. 

SERVING LEARNERS

The nature of work is changing, and many employees may have found themselves on unfamiliar ground. A sweeping moment of re-evaluation, spurred by the pandemic, has caused workers to redefine life paths, and reassess their relationship to work. But there's one thing that both employees and employers are looking for today: Growth.

Through transformative journeys personalized to individual goals, Skillsoft helps catalyzes career growth, on-the-job readiness, and deeper engagement with work. We strive to empower learners all around the world. Our extensive library of multimodal content combined with our advanced learning platform, Skillsoft Percipio, makes it easy to find exactly what they’re looking for now — from tech skills to power skills — and what they’ll need to know to grow, both personally and professionally.

At Skillsoft, we serve 86 million learners, either through their organization’s contractual relationship with Skillsoft or directly through Codecademy. They have access to quality content from trusted experts, career mentoring and coaching, and transformative learning experiences to help them hone and build in-demand skills, drive their own advancement, and embrace the joy of lifelong learning.

MARKET OPPORTUNITY

The market opportunity is large and growing. According to a Valuates Report, the global corporate e-learning market size is forecast to grow from USD 22.5 Billion in 2021 to USD 44.6 Billion by 2028.

Digital transformation, which was already affecting industries around the globe, only accelerated during the pandemic. There are already in-demand jobs that didn’t exist five or ten years ago: like DevOps engineer, Blockchain Analyst, Telemedicine Provider, Drone Operator, Cloud Architect, and Podcast Producers. The need for skilling, upskilling, and reskilling workforces continues to grow as organizations grapple with talent acquisition and retention. There is a new — and necessary — focus on building and nurturing a sustainable workforce.

Meanwhile, remote and hybrid workforce models were adopted in response to COVID-19 out of concern for employees, families, friends, and communities. But, what may have been a struggle at first soon became an accepted way of conducting business. Many workers came to value the upside of remote work and the new normal.

Working remotely had its challenges, but people appreciated greater flexibility. In fact, there appears to be a new social contract between organizations and individuals. Expectations are that employers will afford the workforce greater flexibility and autonomy, while concurrently investing in holistic employee experiences with opportunities for learning and growth at the center. These new and renewed priorities will continue to drive demand for Skillsoft’s transformative learning experiences.

Although the corporate learning market is evolving, there are industry tailwinds that Skillsoft can leverage:

Our Competition

The corporate digital learning market is large and fragmented. Many of our peers are smaller than us and do not have the long history we have of serving our customers. The market is highly competitive and we expect the market to remain competitive in the future due to its highly attractive qualities such as: (i) continued demand for high quality, deep, and broad digital content solutions, (ii) the market’s whitespace opportunity, which we believe is material given the estimated size of the total addressable market and the size of our peers, and (iii) the increased importance of digital learning, in part due to the impact of the COVID-19 pandemic, which has accelerated the need for enterprises to adopt digital training solutions. Our direct and indirect competitors include, among others:

COMPETITIVE ADVANTAGES

Any online learning partner will claim to deliver valuable training and career development. But Skillsoft draws from more than 20 years of helping learners build skills and organizations build teams to stay ahead in a rapidly changing world. What drives us at our core is commitment to our mission — to propel organizations and people to grow together through transformative learning experiences.

We believe we have assembled the best collection of learning assets in our industry through a combination of mergers and acquisitions, and internal innovation. And, we believe we have significant competitive advantages that will fuel Skillsoft’s growth now and going forward.

Today’s customers seek full-suite capabilities from fewer vendors, and full-stack skills from their workforce. Our new Lean into Learning report confirms this. Trending topics range from technical “hard skills” like Cloud Security and Java Programming, to cross-discipline “power skills” like Communication Essentials and Working Effectively as a Team.

We are in a “skills-champions” market that requires a broader skilling framework lens beyond just catalogs of courses. At Skillsoft, we start by understanding each customer’s skills taxonomy, exactly what skills are the top priority for their organization. And, we provide 500+ Skill Benchmarks, skill diagnostic assessments to help learners and organizations accurately measure competencies. benchmarking tools and assessments to identify gaps, reinforce skills, and quantify the impact.

The concept of training has evolved, and skills have become mission-critical organizational assets. That’s why customers are looking for more than “content libraries.” Today, they are most interested in skilling solutions designed to address the most critical use cases — like onboarding, reskilling, performance management, and leadership development — that enable them to transform their workforce.

That said, our content is expert-curated, multimodal, and digitally delivered, enabling learning anywhere, any time, and on any device. “Bite-sized” microlearning experiences are designed for time-pressed corporate customers and learners. Content is available in 30 languages, fully localized for accuracy and relevance, and can be customized and branded for customers. Learning experiences, including Skillsoft Aspire Journeys and Skillsoft Digital Badges (over 42 million issued to date), provide consistency for the learner. And, Skillsoft Coaching, instructor-led training, hands-on learning, and professional services enhance digital course curricula to deliver a fuller, more powerful — and more transformative — skilling experience.

Even though every company today is a technology company, power skills (empathy, resilience, agility) are in high demand. For example, our IT Skills & Salary report found that Communication was one of the most important — and in-demand — skills for tech professionals. And finally, employee health and engagement, as well as ESG, are top of mind for organizational leaders as they grapple with labor and skills shortages, and the priorities of younger generations of workers. Skillsoft’s transformative learning experiences support these important and timely focuses.

In the Fortune/Deloitte CEO Report, published this fall, Talent and Labor were cited most often as the biggest challenge CEOs face, along with, “Keeping up with the pace of global change,” “Resisting the urge to tap the breaks on hiring, investing, M&A, and growth initiatives,” and finally “Leading transformation.” At Skillsoft, we are in the business of workforce transformation that drives and enables strategic business imperatives.

Unlike many in the digital learning market, we are a “one-stop shop” for enterprise skilling, with a breadth of learning experiences designed to drive workforce transformation across the entire organization — from Leadership and Business Skills to Technology and Developer to Compliance. This enables us to address some of today’s most pressing strategic issues. For example, our customers can combine Skillsoft’s T&D learning experiences with our Compliance content to help safeguard against cybersecurity threats. And, customers can create a learning experience around the timely issue of Diversity, Equity, and Inclusion (DEI) by integrating Compliance content with L&B learning journeys. All three of these rich libraries are enhanced by an AI-fueled learning experience platform; and enterprise-grade customer support and service.

SKILLSOFT AND ESG, A RESPONSIBLE BUSINESS FOR A SUSTAINABLE FUTURE

For more than 20 years, Skillsoft has been a digital learning solutions innovator. By its very nature, our industry has helped organizations reduce their carbon footprints by curtailing unnecessary travel, printing, and other activities that can tax environmental resources. We’ve helped customer organizations digitally transform and support distributed workforces. And, we’ve had the honor of training hundreds of millions of people. We support our customers to advance their own understanding and expertise in ESG practices — whether that’s through our Diversity, Equity, and Inclusion curriculum, our Corporate Sustainability learning experiences, or our Global Code of Conduct Solution.

As an organization, developing meaningful ESG goals and programs is a journey we have already started, and one we are intent upon continuing. Sustainability and ESG principles tie into our core values at Skillsoft. We encourage Team Members to work remotely, and our learning solutions are developed, produced, and delivered with minimal environmental impact. In the past two years, we have closed 61% of our facilities, reducing our footprint by 56%. We have decreased the size of another 10% of our facilities, reducing our footprint by 19%. In total, 60% of Skillsoft’s footprint has been reduced.

Finally, Skillsoft has a unique appreciation for ESG, as we provide a full spectrum of coursework spanning almost every ESG area, from more than 500 course hours on sustainability, to content co-developed with several CSR partners, to one of the world’s largest compliance content businesses. This gives us the ability to deliver learning journeys spanning all ESG domains. In addition, we deliver an electronic product that we believe consumes minimal natural resources and are committed to continuously reducing our carbon footprint. Further, our CSR efforts span the globe - from local organizations like Green Our Planet and the Be.A.Shero foundation, to regional organizations like iamtheCODE and global organizations like the Special Olympics. Our ESG efforts are sponsored by our CEO and Executive Leadership Team (ELT) and led by our Chief Marketingand Sustainability Officer.

GROWTH STRATEGY

At Skillsoft we’ve identified opportunities and brought together four organizations over the past several years that are unique in the market and aligned to a valuable and fast-growing customer market. Skilling has become a strategic imperative, and Skillsoft is in a unique position to fill what has become a mission-critical need. In fact, we believe that we are in a better position than ever to capture a wider audience.

Organizations around the globe are on different journeys when it comes to skills investments. With strategic segmentation and a customer engagement focus, Skillsoft is able to meet them where they are today, fulfill current use cases, and build a sustainable skilling solution for the future. We believe this differentiation, offering a true solution rather than merely content or platform, will enable us to grow and win. We have the ability to expand customer relationships and capture more share, without losing our rich installed base. We’ve identified four strategic priorities:

Executing against this strategy helps us achieve our financial plan — and we believe this sets us up for significant future growth. Early analysis shows the headroom available for us to capture if we execute well. This model will drive prioritization for our go-to-market, product, organizational, and operational strategy.

At this point, we believe Skillsoft is leveraging its:

We were among the industry’s innovators 20 years ago, and we’ve continued to innovate and evolve, most recently reinventing ourselves as a public company, merging with another industry leader, and acquiring two more. We are proud to be taking corporate learning to the next level.

MARKETING AND SALES

The Skillsoft Go To Market motion spans the entire value chain that serves the customer – Marketing, Sales, Professional Services and Customer Success – placing the client at the center of a process designed around business outcomes and value realization in the context of the customer’s business, including their industry, geography, and the mega trends and macroeconomic forces impacting them.

The Skillsoft global marketing team leverages data science and marketing technology to:

Our sales organization, totaling more than 700 sellers and customer success managers, follows a customer engagement model that includes a three-phase process:

Over the past two years, we have:

SEASONALITY

Our business is subject to significant seasonality in bookings and billings, with the fourth quarter representing about 40% of annual volume. Our Content business experiences the most seasonality, with the fourth quarter representing about 50% of annual volume. We generally recognize revenue from subscription fees ratably over the term of the contract; thus, while our billings are seasonal, revenue recognition is not subject to significant seasonality. However, accounts receivable and deferred revenue balances as well as cash flow are impacted significantly by our seasonality.

OUR INTELLECTUAL PROPERTY

Our success is contingent upon the protection of our rights in intellectual property. We rely upon a combination of copyright and trademark laws as well as license agreements, intellectual property assignment agreements, confidentiality procedures, and employee invention assignment agreements to protect our proprietary rights. In certain cases, we have also entered into, and will continue to enter into, confidentiality agreements with our employees, consultants and third parties to protect the distribution of confidential information. We believe our intellectual property rights are a crucial component of our business.

As of January 31, 2023, we did not have any patents and pending patent applications in the United States or abroad. We have an ongoing trademark and service mark registration program pursuant to which we register our brand names and product names, taglines, and logos in the United States and other countries to the extent we deem appropriate. We also have common law rights in some unregistered trademarks that were established over years of use.

HUMAN CAPITAL RESOURCES

At Skillsoft, our values are born with purpose, shaped by our people, lived every day

At Skillsoft, we are committed to employing a diverse workforce that brings a variety of experiences, ideas, and perspectives. We’re making progress, but recognize that we still have work to do. We are in the process of implementing a variety of diversity recruitment initiatives. We’re benchmarking our current diversity employment applications and hires, which will inform program goals and next steps.

Our job posts are currently distributed among a network of 200+ diversity sites and 15,500+ local community organizations that work with women, minorities, older workers, individuals with disabilities, veterans, and other candidates for visibility. We recognize that just as important as our best intentions are action, follow-through, and accountability. Therefore, we commit to measuring our progress — and measurably improving, year over year.

Our workforce is diverse when it comes to experience. We have learning professionals who have been in the industry — and at Skillsoft — for years, providing us with a wealth of institutional knowledge. We have young “digital natives,” who fuel innovation. We’ve integrated employees from multiple companies, enabling us to implement a broader set of best practices. And, we have a phenomenon we call “boomerangs,” professionals who have left Skillsoft for other opportunities (often with competitors) but returned to us.

We encourage all of Skillsoft’s employees to take advantage of the same transformative learning experiences we deliver to our enterprise customers worldwide. In the past year, Skillsoft Team Members more than 22,000, learning and completed more than 12,000 Skillsoft courses.

As of January 31, 2023, we have 2,324 full-time employees and 107 part-time employees. Geographically, the workforce breaks down as follows: 30 in APAC, 242 in Canada, 783 in EMEA, 372 in India, and 1,004 in the U.S. We also have 14 fixed contract and 577 temporary workers. And, we have a worldwide network of professional executive coaches of 297. None of our valued employees are members of unions.

AVAILABLE INFORMATION

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge through our website at investor.skillsoft.com, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). The SEC maintains an Internet site, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Item 1A. Risk Factors

An investment in our securities involves a high degree of risk. You should carefully consider the following risk factors, together with all of the other information included in this Annual Report on Form 10-K (this “Form 10-K” or “Annual Report”), before making an investment decision. The occurrence of one or more of the events or circumstances described in these risk factors and elsewhere in this Annual Report or subsequent filings that we make with the SEC, alone or in combination with other events or circumstances, may have an adverse effect on our business, cash flows, financial condition, and results of operations. You should also carefully consider the following risk factors in addition to the other information included in this Annual Report, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” We may face additional risks and uncertainties that are not presently known to us or that we currently deem immaterial, which may also impair our business, cash flows, results or financial condition. Therefore, the risk factors below should not be considered a complete list of potential risks that we may face. The following discussion should be read in conjunction with the financial statements and notes to the financial statements included herein.

Risks Related to Our Business and Operations

Market adoption of online learning solutions is relatively new and may not grow as we expect, which may harm our business and results of operations.

Our future success will depend in part on the growth, if any, in the demand for online learning solutions. The market for online learning solutions is less mature than the market for in-person learning and training, which many businesses currently utilize, and these businesses may be slow or unwilling to migrate from these legacy approaches. We cannot predict whether shifts in the traditional models of training as a result of the COVID-19 pandemic (e.g., willingness to adopt remote, online and asynchronous learning and training) will continue as COVID-19 vaccines and treatment options have become more widely available, many educational institutions have re-opened their campuses, and businesses have reversed or materially limited remote work policies. It is difficult to predict learner or partner demand for our platform, learner or partner adoption and renewal, the rate at which existing learners and partners expand their engagement with our platform, the size and growth rate of the market for our platform, the entry of competitive offerings into the market, or the success of existing competitive offerings. It may take customers a substantial amount of time and resources to fully transition to an online platform or companies may face delays in doing so due to budget constraints, weakening economic conditions, or other factors. We cannot assure you that adoption of our platform will also increase as market demand increases. If the market for online learning solutions does not grow as we expect or our platform does not achieve widespread adoption, it could result in reduced customer spending, learner and partner attrition, and decreased revenue, any of which would adversely affect our business and results of operations.

Increased competition may result in decreased demand for our products and services, which may result in reduced revenue and gross profits and loss of market share.

The market for corporate learning and talent development solutions is highly fragmented, rapidly evolving, and competitive. In addition to increased competition from new companies entering the market, established companies are entering the market through acquisitions of smaller companies, which directly compete with us, and this trend is expected to continue. We may also face competition from publishing companies, educational institutions, vendors of enterprise application software, and human resource outsourcers, including those vendors with whom we have formed development and marketing alliances. Our primary sources of direct competition are:

Growing competition may result in price reductions, reduced revenue and gross profits, and loss of market share, any one of which would have a material adverse effect on our business. Current and potential competitors have and may have substantially greater financial, technical, sales, marketing, and other resources, as well as greater name recognition, and we may face increasing price pressures from competitors as buyers demand more value for their learning and talent development budgets. Accordingly, we may be unable to provide digital learning and talent development solutions that compare favorably with new technology-led techniques, other interactive training software or human capital management platforms, or new learning solutions. Our future success will depend upon the extent to which we are able to develop and implement products which address emerging market requirements on a cost effective and timely basis. Product development is risky because it is difficult to foresee developments in technology, coordinate technical personnel, and identify and eliminate design flaws. Any significant delay in releasing new products could have a material adverse effect on the ultimate success of our products and could reduce sales of predecessor products.

Emerging technologies also impact the competitive landscape for learning and talent development solutions. New content development methodologies and/or features and functionality that enhance the learner experience could adversely impact our ability to compete in the market. Large language model programs such as OpenAI’s ChatGPT have the potential to decrease the cost of producing content significantly and may decrease the willingness of buyers to purchase learning solutions altogether. New market entrants that provide technologies that improve the content delivery and/or management of learning solutions could also increase the level of competition in the market. In addition, even if companies implement technology-based learning solutions, they may still choose to design, develop, deliver, or manage all or part of their learning and development programs internally. If the shift to technology-based learning is not realized, or if companies do not use the products and services of third parties to develop, deliver, or manage their learning and development needs, then some of our products and services may not achieve commercial success.

Lower priced solutions from competitors and access to free content will put pricing pressure on our solutions, and our ability to compete and maintain pricing will be dependent on our ability to differentiate our learning content and the learner experience our platform delivers.

Demand for our products and services is susceptible to general global market and economic conditions.

Weakness in the United States, the European Union and/or the worldwide economy has had and could continue to have a negative effect on demand for our products and our results of operations. We sell our products business organizations and consumers whose decisions fluctuate based on general economic and business conditions. The revenue growth and potential profitability of our business depends on demand for digital learning content and enterprise human capital management application software generally and for learning and talent development solutions in particular. Companies may not view training products and services as critical to the success of their businesses. If companies experience declines in their business or anticipate that they will experience such declines, whether as a result of adverse economic conditions, competitive issues or other factors, they may decrease or forgo employee education and training expenditures to lower their expenses and may do so before limiting their other expenditures. In addition, during economic downturns, companies may slow the rate at which they pay us or may become unable to pay their debts as they become due, which would have a negative effect on our results of operations and financial condition.

In addition, a portion of our customer contract value is attributable to the number of users of our products at each of our customers, which in turn is influenced by the employment and hiring patterns of our customers and potential customers globally. To the extent that economic uncertainty or weak economic conditions cause our customers and potential customers to freeze or reduce their headcount, demand for our products may be negatively affected. Additionally, economic downturns have historically resulted in overall reductions in spending on information technology and learning and talent development solutions as well as pressure from customers and potential customers for extended billing terms. If economic, political, or market conditions deteriorate, or if there is uncertainty around these conditions, our customers and potential customers may elect to decrease their information technology and people development budgets by deferring or reconsidering product purchases, which would limit our ability to grow our business and negatively affect our operating results.

New products introduced by us may not be successful.

An important part of our growth strategy is the continued development and enhancement of our existing offerings and the introduction of new learning content and the delivery of enhanced platform features and functionality. These activities can open new revenue streams, ensure the currency of our content portfolio, and support customer renewals and upgrades. Despite our efforts, we cannot assure you that we will be successful in updating and enhancing our current learning assets, developing and introducing new learning content, or delivering enhanced or new platform features and functionality, or that what we develop or introduce will be met with commercial acceptance. The failure to successfully introduce new, and enhance existing, learning content and platform functionality will not only hamper our growth prospects, but may also adversely impact our net income due to the development and marketing expenses associated with those offerings. Further, even if we are successful in introducing new learning content and platform functionality, our new offerings could cannibalize the market share of our existing offerings, resulting in lower growth than anticipated. There can be no assurance that sales cannibalization will not occur or become more significant in the future as we increase our presence in existing markets.

We rely on third parties to provide us with learning content and subject matter expertise and have content production relationships with third parties for our courses and learning content, and our relationships with these third parties may be terminated or fail to meet our requirements.

We rely on independent third parties and subject matter experts to provide us with some of the learning content for certain of our courses and learning assets based on learning objectives and specific instructional design templates which we develop. We also have arrangements with content development partners for the production of our learning courseware and other digital learning assets. If these group development partners and content providers/subject matter experts were to stop working with us, we cannot predict whether content would be available from reliable alternative sources or that we could enter into development partner relationships on reasonable terms and in a timely manner. In addition, a reliance on third-party subject matter experts and delivery partner organizations that could change their subject matter personnel, content, offerings, leadership, quality, or event schedule at any time, could cause revenue interruption. If one or more of these publishers were to terminate their license with us, we may not be able to find substitute publishers for such content or we may be forced to pay increased royalties to these publishers to continue our licenses with them.

In the event that we are unable to maintain or expand our current development relationships or enter into new development relationships, our operating results and financial condition could be materially adversely affected. In addition, the collaborative nature of the development process under these arrangements may result in longer development times and less control over the timing of delivery of certain product offerings. Our strategic partners may from time to time renegotiate the terms of their agreements with us, which could result in changes to the royalty or other economic terms, which could reduce our gross margins.

The partners we rely on as part of the production process and for content or subject matter expertise may compete with us, which could harm our results of operations. Our agreements with these third parties generally do not restrict them from developing content for our competitors or from competing directly with us.

Acquisitions, including our recent acquisitions of Global Knowledge, Pluma, and Codecademy, may not produce the benefits we anticipate and could harm our current operations.

One aspect of our business strategy is to pursue acquisitions of businesses or technologies that will contribute to our future growth. However, we may not be successful in identifying or consummating attractive acquisition opportunities. Moreover, any acquisitions we do consummate may not produce benefits commensurate with the purchase price we pay or our expectations for the acquisition. Acquisitions involve numerous risks, including:

The size of our business increased significantly following our recent acquisitions of Global Knowledge, Pluma, and Codecademy. Our future success will depend, in part, on our ability to manage the combined company, which poses numerous risks and uncertainties, including the need to integrate the operations and business of Global Knowledge, Pluma, and Codecademy into our existing business in an efficient and timely manner, to combine systems and management controls, and to integrate relationships with customers, vendors, and business partners. There can be no assurance that we will be able to successfully integrate or otherwise realize the anticipated benefits of our recent acquisitions.

We have a limited operating history as a combined company after the acquisitions of Global Knowledge, Pluma, and Codecademy and the disposition of SumTotal, which makes it difficult to predict our future business prospects and financial performance.

Since 2021, our business has changed significantly with the acquisitions of Global Knowledge, Pluma, and Codecademy and the sale of SumTotal. We have added substantial depth to our corporate offerings, including information technology and development training through Global Knowledge and individualized coaching through Pluma, and expanded into consumer-focused offerings with Codecademy. However, we have a limited operating history and experience in our business operations as a combined company, which makes it difficult to evaluate our future prospects and ability to become profitable. We have encountered in the past, and may encounter in the future, risks and uncertainties frequently experienced by growing companies in rapidly changing industries, and we face new types of risks and uncertainties as a combined company. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks adequately, our results of operations could differ materially from our expectations and our business may suffer.

Goodwill recorded in connection with our acquisitions is subject to impairment, which could reduce our earnings.

We review our goodwill for impairment at least annually and when events or changes in circumstances indicate that the carrying value may not be recoverable. Should we experience business challenges or significant negative industry or general economic trends, we could recognize additional impairment to our goodwill. Any impairment of the value of goodwill will result in a charge against earnings, which could have a material adverse impact on our reported results of operations and financial condition.

In fiscal 2023, we experienced a substantial decline in stock price resulting in the total market value of our stock being less than the carrying value of our reporting units. In addition, Global Knowledge’s instructor led training business experienced a significant decline in bookings and revenue. As a result, the Company recorded a $70.5 million goodwill impairment in the quarter ended July 31, 2022 and an additional $570.9 million goodwill impairment in the quarter ended October 31, 2022. After these impairments, the Company has $457.7 million of goodwill on its balance sheet which may be subject to future impairment. For additional information on goodwill impairments, see Note 7 to our Consolidated Financial Statements.

Our management team identified a material weakness in our internal controls over financial reporting, which, if not remediated appropriately or timely, could result in the loss of investor confidence and could negatively impact on our stock price and financial condition.

As a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of SOX requires that we evaluate and determine the effectiveness of our internal controls over financial reporting. Our internal controls over financial reporting will not prevent or detect all errors and fraud. Because of the inherent limitations in all control systems, no evaluation can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

In connection with the preparation of our consolidated financial statements as of January 31, 2023 and for the fiscal year then ended, we identified a material weakness in our internal controls over financial reporting. Management concluded that a material weakness existed related to controls over the Global Knowledge North America financial close processes. The accounting personnel responsible did not properly compute the foreign exchange effects of intangible assets recorded in connection with the Global Knowledge acquisition as well as not reconciling certain balance sheet accounts at an appropriate level of precision. The related errors primarily affected recorded amounts of intangible assets, accumulated other comprehensive income, amortization expense and accrued expenses.

As further described in Item 9A of this Annual Report on Form 10-K, we have begun implementing a remediation plan to improve our internal control over financial reporting. To address this material weakness, we have hired additional qualified accounting and financial personnel with extensive experience in technical accounting, financial reporting, and in implementing procedures and controls in the financial close process, including a Chief Accounting Officer, Corporate Controller, and a SOX Program Director. We have also implemented enhanced reconciliation controls and enhanced review controls and financial close checklists to ensure all necessary reviews and reconciliations are occurring as designed. We will continue to provide more comprehensive training to our personnel to ensure process owners and control operators have robust understanding of the documentation requirements. Additionally, we will continue to consult with a professional accounting services firm to help assess our internal controls environment and to ensure the procedures and controls are working as designed as we centralize accounting systems, processes and accounting teams.

We will not be able to fully remediate this material weakness until these steps have been completed and have been operating effectively for a sufficient period of time. Furthermore, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the deficiencies that led to this material weakness in our internal controls over financial reporting or that they will prevent or avoid potential future material weaknesses. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, additional weaknesses in our disclosure controls and internal controls over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our annual or interim financial statements.

Our independent registered public accounting firm has not performed an evaluation of our internal controls over financial reporting in accordance with the SEC rules because no such evaluation has been required. Our independent registered public accounting firm is not expected to formally attest to the effectiveness of our internal controls over financial reporting until the Company ceases to be an emerging growth company under applicable rules of the SEC. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal controls over financial reporting is documented, designed or operating. Any failure to implement and maintain effective internal controls over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal controls over financial reporting that we will eventually be required to include in our periodic reports that are filed with the SEC. Ineffective disclosure controls and procedures and internal controls over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.

Disruption to or failures of our platform could result in our customers becoming unsatisfied with our platform and could harm our reputation.

The performance and reliability of our platform and the underlying technology are critical to our operations, reputation, and ability to attract and retain partners and learners. Our partners rely on our platform to offer their courses and programs online, and learners must access our platform on a frequent and reliable basis. Our platform is complex and relies on infrastructure provided by third parties, and may contain defects, errors, or vulnerabilities, or may not perform as contemplated. These errors, defects, disruptions, breaches, or other performance problems with our platform could damage our or our partners’ reputations, decrease partner and learner satisfaction and retention, negatively impact our ability to attract new learners and partners, and could result in large indemnity payments to learners and partners for losses suffered or incurred in connection with any such defects or errors on our platform, or other liabilities relating to or arising from our platform. In addition, sustained or recurring disruptions in our platform or its underlying technology could adversely affect our and our partners’ compliance with applicable regulations and accrediting body standards.

Further, if we fail to accurately predict the rate or timing of the growth of our platform or use of our other systems or networks, we may be required to incur significant additional costs to maintain reliability. We also depend on the development and maintenance of the Internet infrastructure, including maintenance of reliable Internet networks with the necessary speed, data capacity, and security. If we experience failures in our technology infrastructure or do not expand our technology infrastructure successfully, then our ability to attract and retain partners and learners, our growth prospects, and our business would suffer.

We have experienced, and expect that in the future we will experience, interruptions, delays, and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions, and capacity constraints, which could affect the availability of services on our platform and prevent or inhibit the ability of learners to access or complete courses and programs on our platform. Any disruption in its services, or any failure of a third-party provider to handle the demands of our platform, could significantly harm our business and damage our reputation. We do not have control over the operations of the facilities of the third-party providers that we use, and these facilities may be vulnerable to damage or interruption from natural disasters, cybersecurity attacks, terrorist attacks, power outages, and similar events or acts of misconduct.

We are regularly subject to cybersecurity and other similar attacks. If our security measures are breached or unauthorized access to customer data is otherwise obtained, our platforms may be perceived as insecure, we may lose existing customers or fail to attract new customers, our reputation may be harmed, and we may incur significant liabilities.

Unauthorized access to, or other security breaches of, our platforms or the other systems or networks used in our business, including those of our vendors, contractors, or those with which we have strategic relationships, could result in the loss, compromise or corruption of data, loss of business, reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation, and other liabilities. Our cyber/professional liability insurance coverage for certain information security and privacy damages and claim expenses may be insufficient to compensate us for all liabilities that we may incur.

Our platform and the other systems or networks used in our business are also at risk for breaches as a result of third-party action, or employee, vendor, or contractor error or malfeasance. Security is one of the learning curricula we provide on our platform, which may cause our platform to be a target for hackers and others, and which may cause our brand, credibility, and reputation to be particularly sensitive to any security breaches. We have incurred and expect to continue to incur significant expenses to prevent security breaches, including deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants. However, since the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not identified until after they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period and, therefore, have a greater impact on our platform, the proprietary and other confidential data contained therein or otherwise stored or processed in our operations, and ultimately on our business.

If the mobile solutions available to our learners and partners are not effective, the use of our platform could decline.

Learners have been increasingly accessing our platform on mobile devices through our app in recent years. The smaller screen size and reduced functionality associated with some mobile devices may make the use of our platform more difficult or our partners may believe that online learning through such mobile devices is not effective. Learners accessing our network primarily on mobile devices may not enroll in the courses or the certification, degree, or other credentialing programs offered on our platform as often as those accessing our platform through personal computers, which could result in less revenue for us. If we are not able to provide our partners with the functionality to deliver a rewarding experience on mobile devices, their ability to attract learners to their programs may be harmed and, consequently, our business may suffer.

As new mobile devices and mobile features are released, we may encounter problems in developing or supporting apps for them. In addition, supporting new devices and mobile device operating systems may require substantial time and resources.

The success of our mobile apps could also be harmed by factors outside our control, including actions taken by mobile app distributors; unfavorable treatment received by our mobile apps, especially as compared to competing apps, such as the placement of our mobile apps in a mobile app download store; increased costs in the distribution and use of our mobile app; or changes in mobile operating systems, such as iOS and Android, that degrade the functionality of our mobile website or mobile apps or that give preferential treatment to competitive offerings.

If our partners or customers, including learners, encounter difficulty accessing or using, or if they choose not to use, our mobile platform, our growth prospects and our business may be adversely affected.

We depend on senior leadership to manage and operate the business, and if we fail to retain and attract highly qualified employees our business could be harmed.

Our success is largely dependent on the personal efforts and abilities of our senior management. Failure to retain these executives, or the loss of certain additional senior management personnel or other key employees and the associated loss of institutional knowledge and expertise, could have a material adverse effect on our business and future prospects. We have recently made significant changes to our management team, including the appointment of multiple new executive officers.

Ours is a global business, and our success is also dependent, in part, on our ability to attract and retain qualified sales, marketing, and operational personnel capable of supporting a larger and more diverse worldwide customer base associated with our growth initiatives. The loss of a significant number of our technology, content or sales personnel and their services could be disruptive to our innovation, development efforts or customer relationships. In addition, if any of our key employees joins a competitor or decides to otherwise compete with us, we may experience a material disruption of our operations and business strategy, which may cause us to lose customers or increase operating expenses and may divert our attention as we seek to recruit replacements for the departed employees.

Failure to effectively optimize, retain, expand, and continue to increase the productivity of our direct sales teams and develop and expand our indirect sales channel may impede our growth.

We will need to continue to increase the productivity and enhance the efficiency and effectiveness of our sales and marketing infrastructure in order to grow our customer base and our business. Identifying, recruiting, and onboarding these people and partners requires significant time, expense, and attention. Our business will be seriously harmed, and our financial resources will be wasted, if our efforts do not generate a corresponding increase in revenue, and we may be required to sacrifice near-term growth and divert management time and attention in order to drive growth. In particular, if we are unable to successfully optimize our sales structure to strengthen core competencies, align incentives, improve retention, and grow new business, we may not be able to significantly increase our revenue, profitability, and/or free cash flows.

The market for instructor led, synchronous, learning may continue to decline.

The COVID‑19 pandemic had a significant and negative impact on in-classroom learning, as schools and other physical learning facilities were shut down in response to the global pandemic. As a result, the delivery of in-classroom learning has either been greatly curtailed or has pivoted to synchronous or asynchronous remote learning. In addition, during fiscal 2023, Global Knowledge’s remote instructor led training business experienced a decline in bookings and revenue. Global Knowledge’s future success will depend on its ability to offer clients the learning solutions they need in the format they desire and trust. It remains unclear what the lasting impact of the COVID‑19 pandemic and evolving customer preferences will be on the in-classroom learning market and other instructor led training, including synchronous remote learning.

A loss of Global Knowledge’s status as an authorized training provider with one or more key technology vendors could adversely affect the Global Knowledge business.

Global Knowledge derives a large portion of its consolidated revenue in any financial reporting period from delivering corporate training as an authorized training provider for certain technology companies and has a concentrated portfolio of relationships with these technology companies. Global Knowledge’s status as an authorized training partner for certain key technology companies provides certain benefits, including, among others, the ability to use official curricula created by key technology vendors, subsidies and other financial incentives provided by these technology vendors to support training on their products, representation on official training websites operated by the technology vendors, and the ability to issue certified training certificates from the technology vendors. Global Knowledge’s operating results depend to a significant degree on its ability to maintain its status as an authorized training partner with such key technology vendors, and an inability to retain such status, or a significant change in Global Knowledge’s relationship with one or more of its technology vendors, could significantly reduce Global Knowledge’s revenue.

Our worldwide operations are subject to risks that could negatively impact our future operating results.

We expect that international operations will continue to account for a large portion of our revenue and are subject to inherent risks, including:

Any of these factors could have a material adverse effect on our future operations outside of the United States, which could negatively impact our future operating results. We intend to expand our international operations and continue to establish a worldwide partner and learner base. Our expansion efforts into international markets may not be successful.

Additionally, our business and financial conditions have been, and may continue to be, impacted by worldwide macroeconomic and geopolitical conditions outside of our control, such as inflation, recessionary pressures, interest rate and exchange rate fluctuations, and volatility in the global financial markets, including instability in the banking sector. If we are not able to effectively prepare for and respond to changes in such conditions, our business, results of operations and financial condition could be materially adversely impacted.

Increasing scrutiny and evolving expectations from customers, partners, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us, expose us to new or additional risks, or harm our reputation.

Companies are facing increasing scrutiny from customers, partners, regulators, and investors related to their environmental, social and governance (“ESG”) practices and disclosure. Additionally, public interest and legislative pressure related to public companies’ ESG practices continues to grow. If our ESG practices fail to meet regulatory requirements or investor or other industry stakeholders’ evolving expectations as they relate to the environment, health and safety, diversity, labor conditions and human rights, product quality, supply chain management, corporate governance and transparency and employing ESG strategies in our operations, our reputation and employee retention may be negatively impacted, and customers may be unwilling to do business with us. Additionally, any disclosure we make may include our policies and practices on a variety of ESG matters, including corporate governance, environmental compliance, employee health and safety practices, human capital management, and workforce inclusion and diversity. It is possible that stakeholders may not be satisfied with our ESG reporting, our ESG practices or our speed of adoption. We could also incur additional costs and devote additional resources to monitor, report and implement various ESG practices. If we fail, or are perceived to be failing, to meet the standards included in any sustainability disclosure or the expectations of our various stakeholders, it could negatively impact our reputation, customer and learner acquisition and retention, access to capital, and employee retention.

Our business is subject to the risks of pandemics, earthquakes, fire, floods and other natural catastrophic events, and to interruption by man-made problems such as power disruptions, computer viruses, data security breaches, terrorism or war.

Our operations are subject to interruption by natural disasters, flooding, fire, power shortages, public health epidemics or pandemics such as COVID-19, terrorism, political unrest, cyber-attacks, geopolitical instability, war, the effects of climate change and other events beyond our control. A significant natural disaster, such as a hurricane, fire or flood, occurring at our headquarters, at one of our other facilities or where a partner or service provider is located could adversely affect our business, results of operations and financial condition. Climate change could result in an increase in the frequency or severity of natural disasters. Further, if a natural disaster or man-made problem were to affect our service providers, this could adversely affect the ability of our customers to use our products and platform. Natural disasters, public health epidemics or pandemics, such as the COVID-19 pandemic, and geopolitical events, such as the war in Ukraine, could cause disruptions in our businesses, national economies or the world economy as a whole, and may also negatively affect the financial resources available to learners or the operating budgets of our partners or customers, any of which could in turn negatively impact our business and operating results.

We also rely on our network and third-party infrastructure and enterprise applications and internal technology systems for our sales and marketing activities and operations. Although we maintain incident management and disaster response plans, in the event of a major disruption caused by a natural disaster or man-made problem, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our development activities, lengthy interruptions in service, breaches of data security and loss of critical data, any of which could adversely affect our business, results of operations and financial condition.

Legal, Regulatory and Related Risks

Failure or perceived failure to comply with regulations relating to some career training services could result in the imposition of penalties or the interruption of our ability to provide services in certain jurisdictions.

In many jurisdictions in which we operate, some career training services are subject to licensing requirements. We do not believe that the services we provide are subject to such licensing requirements. Regulators could disagree with our assessment regarding the applicability of licensure requirements and take enforcement action against us, including by imposing penalties or prohibiting us from offering career- related training services in a relevant jurisdiction until we are able to obtain the requisite license. For example, regulatory action has in the past been taken against Global Knowledge in respect of licensing requirements applicable to providers of career training services in certain jurisdictions and regulatory inquiries have occasionally been made about Global Knowledge’s licensure.

Existing or future laws and regulations relating to privacy or data security could increase the cost of our products, limit their use and adoption, and subject us or our customers to litigation, regulatory investigations and penalties, and other potential liabilities.

The U.S. and various state governments have adopted or proposed laws governing the collection, use, storage, sharing and processing of personal data. Several foreign jurisdictions, including but not limited to the EU and its member states, the UK, Korea, Japan, Singapore, Australia, and India, have adopted legislation (including directives or regulations) that increase or change the requirements governing the personal data of individuals in these jurisdictions. In some cases, these laws impose obligations not only on many of our customers, but also directly on us. These laws and regulations are complex and change frequently, at times due to differing economic conditions and changes in political climate, with new laws and regulations proposed frequently and existing laws and regulations subject to different and conflicting interpretations. These laws have the potential to increase costs of compliance, risks of noncompliance and penalties for noncompliance, and the cost and complexity of selling and delivering our solutions.

For example, the EU’s General Data Protection Regulation (“GDPR”) imposes obligations on our customers and directly on us. Among other obligations under the GDPR, we are required to give more detailed disclosure about how we collect, use, and share personal data; contractually commit to data protection measures in our contracts with customers; maintain adequate data security measures; notify regulators and affected individuals of certain personal data breaches; meet extensive privacy governance and documentation requirements; and honor individuals’ expanded data protection rights, including their rights to access, correct, and delete their personal data. Companies that violate the GDPR can face fines of up to the greater of 20 million euros or 4% of their worldwide annual revenue, and restrictions on data processing. Our customers’ or our vendors’ failure to comply with the GDPR could lead to significant fines imposed by regulators or restrictions on our ability to process personal information as needed to provide our services. We may also be obligated to assist our customers with their own compliance obligations under the GDPR.

In addition, the mechanisms allowing companies to transfer personal data outside of the European Economic Area (“EEA”) face ongoing legal challenges in the EU and threaten our ability to lawfully process personal data where we operate outside of the EEA. These challenges have been brought against the European Commission’s Standard Contractual Clauses for transfers of personal data, on which we rely to transfer personal data from the EEA. Loss of our ability to lawfully transfer personal data out of the EEA to any other jurisdictions may cause reluctance or refusal by current or prospective European customers to use our products. Additionally, other countries outside of the EEA have passed or are considering passing laws requiring local data residency, which could increase the cost and complexity of delivering our services.

In addition, many states have passed laws giving residents rights similar to the individual rights given under the GDPR, including the right to access and delete their personal information, opt-out of certain personal information sharing, and receive detailed information about how their personal information is used. These state laws also include enforcement mechanisms, including private rights of action and state enforcement agencies, that could exposure us to significant fines and judgments. Other states or the U.S. Congress may pass comparable legislation, with potentially greater penalties, and more rigorous compliance requirements relevant to our business.

The costs of compliance with, and other burdens imposed by, privacy and data security laws and regulations may limit the use and adoption of our services, lead to negative publicity, reduce overall demand for our services, make it more difficult to meet expectations of or commitments to customers, require us to take on more onerous obligations in our contracts with customers, lead to significant fines, penalties or liabilities for noncompliance, or slow the pace at which we close sales transactions, any of which could harm our business. These laws could also impact our ability to offer, or our customers’ ability to deploy, our services in certain locations. The costs, burdens, and potential liabilities imposed by existing privacy laws could be compounded if other jurisdictions in the United States or abroad begin to adopt similar or more stringent laws.

Furthermore, concerns regarding data privacy and security may cause our customers’ customers to resist providing data that allows our customers to use our services more effectively. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our products or services and could limit adoption of our cloud-based solutions.

Any of these matters could materially adversely affect our business, financial condition, or operational results.

We may be unable to protect our proprietary rights. Unauthorized use of our intellectual property may result in development of products or services that compete with ours. Claims that we infringe upon the intellectual property rights of others could result in costly litigation or royalty payments to third parties, or require us to reengineer or cease sales of our products or services.

Our success depends to a degree upon the protection of our rights in intellectual property. We rely upon a combination of trade secret, copyright, and trademark laws to protect our proprietary rights. We have also entered into, and will continue to enter into, confidentiality agreements with our employees, consultants and third parties to seek to limit and protect the distribution of confidential information. However, we may not have signed protective agreements in every case.

Although we have taken steps to protect our proprietary rights, these steps may be inadequate. Existing trade secret, copyright, and trademark laws offer only limited protection. Moreover, the laws of other countries in which we market our products may afford little or no effective protection of our intellectual property. Additionally, unauthorized parties may copy aspects of our products, services, or technology or obtain and use information that we regard as proprietary. Other parties may also breach protective contracts we have executed or will in the future execute. We may not become aware of, or have adequate remedies in the event of, a breach related to such agreements. Litigation may be necessary in the future to enforce or to determine the validity and scope of our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Even if we were to prevail, such litigation could result in substantial costs and diversion of management and technical resources.

Additionally, third parties have in the past and could in the future claim that our current or future products infringe their intellectual property rights. Any claim, with or without merit, could result in costly litigation or require us to reengineer or cease sales of our products or services, any of which could have a material adverse effect on our business. The risk of such claims is exacerbated by the fact that certain learning content is provided by third parties over whom we exert limited control. Infringement claims could also result in an injunction barring the sale of our products or require us to enter into royalty or licensing agreements. Licensing agreements, if required, may not be available on terms acceptable to the combined company or at all. From time to time we learn of parties that claim broad intellectual property rights in the learning and talent development area that might implicate our offerings. These parties or others could initiate actions against us in the future.

Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws and regulations relating to our international operations could subject us to penalties and other adverse consequences.

We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), the UK Bribery Act, and other anti-corruption, anti-bribery, and anti-money laundering laws in various jurisdictions both domestic and abroad. We leverage third parties, including channel partners, to sell subscriptions to our solution and conduct our business abroad. We and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners, and agents, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with such laws, we cannot guarantee that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violation of the FCPA, the UK Bribery Act, or other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. or other government contracts, all of which may have an adverse effect on our reputation, business, operating results, and prospects.

We could also be affected by nationalization of our international operations, unstable governments, unfamiliar or biased legal systems, intergovernmental disputes or animus against the United States. Any determination that our operations or activities did not comply with applicable U.S. or foreign laws or regulations could result in the imposition of fines and penalties, interruptions of business, terminations of necessary licenses and permits, and other legal and equitable sanctions.

Changes in tax laws, unfavorable resolution of tax examinations, or exposure to additional tax liabilities could have a material adverse affect on our results of operations, financial condition, and liquidity.

We operate in a number of tax jurisdictions globally, including in the U.S., Ireland and Luxembourg. Governments in the jurisdictions in which we operate implement changes to tax laws and regulations periodically. Any implementation of tax laws that fundamentally change the taxation of corporations in the U.S., Ireland, or Luxembourg and other applicable jurisdictions could materially impact our effective tax rate and could have a significant adverse impact on our financial results. In addition, our effective tax rate could fluctuate due to changes in the mix of earnings and losses in countries with differing statutory tax rates. Our tax expense could also be impacted by changes in non-deductible expenses, changes in the tax treatment of equity-based compensation, changes in the valuation of deferred tax assets and liabilities and our ability to utilize them, the applicability of withholding taxes, effects from acquisitions, and the evaluation of new information that results in a change to a tax position taken in a prior period.

In August 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”) which, among other provisions, implemented a 15% minimum tax on book income of certain large corporations. Based on our evaluation of the IRA, we do not believe we will be subject to the 15% book minimum tax in 2023. However, we will continue to monitor the application of the minimum tax and other provisions of the IRA in future periods.

Additionally, the Organization for Economic Co-Operation and Development (“OECD”) has asked countries around the globe to act to prevent what it refers to as base erosion and profit shifting (“BEPS”). The OECD considers BEPS to refer to tax planning strategies that shift, perhaps artificially, profits across borders to take advantage of differing tax laws and rates among countries. Most recently, the OECD, through an association of almost 140 countries known as the “inclusive framework,” has announced a consensus around further changes in traditional international tax principles (“BEPS 2.0”) to address, among other things, perceived challenges presented by global digital commerce (“Pillar 1”) and the perceived need for a minimum global effective tax rate of 15% (“Pillar 2”). On December 15, 2022, the European Union formally adopted the Pillar Two Directive and EU member states are expected to transpose the Pillar Two Directive into domestic law by December 31, 2023. Other countries are taking similar actions. We are evaluating developments to determine whether Pillar 2 will materially impact our financial position in the future. Any material change in tax laws or policies, or their interpretation, resulting from BEPS, BEPS 2.0, or other legislative proposals or inquiries could result in a higher effective tax rate on our earnings and have an adverse effect on our financial condition, results of operations, and cash flows.

We are also subject to examinations of our tax returns by tax authorities in various jurisdictions around the world. We regularly assess the likelihood of adverse outcomes resulting from ongoing tax examinations to determine the adequacy of our provision for taxes. These assessments can require a high degree of judgment and estimation. Intercompany transactions associated with the sale of services and intellectual property and cost share arrangements are complex and affect our tax liabilities. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in multiple jurisdictions. Successful unilateral or multi-jurisdictional actions by various tax authorities, including in the context of our current or future corporate operating structure and third-party and intercompany arrangements (including transfer pricing and the manner in which we develop, value and use our intellectual property), may increase our worldwide effective tax rate, result in additional taxes or other costs or have other material consequences, which could harm our operations, financial results and condition. A difference in the ultimate resolution of tax uncertainties from what is currently estimated could have an adverse effect on our financial results and condition.

Risks Related to our Indebtedness and Certain Other Obligations

Our degree of leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk, and prevent us from meeting obligations on our indebtedness.

Our degree of leverage could have potentially adverse consequences, including making it more difficult for us to make payments on our indebtedness; increasing our vulnerability to general economic and industry conditions; requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures, research and development and future business opportunities; exposing us to the risk of increased interest rates under our credit facilities to the extent such facilities have variable rates of interest; limiting our ability to make strategic acquisitions and investments; limiting our ability to refinance our indebtedness as it becomes due; and limiting our ability to adjust quickly or at all to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

Our financing agreements contain various covenants that limit our ability to engage in specific types of transactions. These covenants limit our and our subsidiaries’ ability to incur or guarantee additional debt and issue or sell certain preferred stock; pay dividends on, redeem or repurchase our capital stock; make certain acquisitions or investments; incur or assume certain liens; enter into transactions with affiliates; and sell assets to, or merge or consolidate with, another company. A breach of any of these covenants could result in a default under our debt instruments.

We may not be able to generate sufficient cash to service all of our indebtedness, and we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure you that we will maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

Additionally, our subsidiaries may not be able to, or may not be permitted to, make distributions or debt repayments to enable us to make payments in respect of our indebtedness. Each such subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from them. While our existing credit agreements limit the ability of our guarantor subsidiaries to incur consensual encumbrances and include restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to certain qualifications and exceptions. In the event that we do not receive cash from our subsidiaries, we will be unable to make required principal and interest payments on our indebtedness.

If our cash flow and capital resources are insufficient to fund our debt service obligations and operating lease obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our existing credit agreements restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could otherwise realize from such dispositions and any such proceeds that are realized may not be adequate to meet any debt service obligations then due.

Risks Related to Ownership of Our Class A common stock

Certain financial instruments we have issued are accounted for as liabilities and the changes in value of these instruments could have a material effect on our financial results.

On April 12, 2021, the Staff at the SEC issued a statement (the “SEC Statement”) discussing the accounting implications of certain terms that are common in warrants issued by special purpose acquisition companies. In light of the SEC Statement and guidance in Accounting Standards Codification (“ASC”) 815‑40, “Derivatives and Hedging  —  Contracts in Entity’s Own Equity,” Churchill Capital Corp. management evaluated the terms of the warrant agreement entered into in connection with Skillsoft’s initial public offering and concluded that the warrant agreement governing public warrants and the private placement warrants (together, the “warrants”) include provisions that, based on the SEC Statement, preclude the warrants from being classified as components of equity. As a result, Churchill Capital Corp. classified the warrants, the 2020 note, and that certain Subscription Agreement, dated as of October 12, 2020, by and among Skillsoft, Churchill Sponsor II, LLC, and Prosus (the “Prosus Subscription Agreement”) (together, the “Derivative Instruments”) as liabilities. Under this accounting treatment, Churchill Capital Corp. was required to measure the fair value of the Derivative Instruments at the end of each reporting period and recognize changes in the fair value from the prior period in their operating results for the current period. As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate quarterly based on factors which are outside our control. We expect that we will recognize non-cash gains or losses due to the quarterly fair valuation of the Derivative Instruments and that such gains or losses could be material.

Because there are no current plans to pay cash dividends on our Class A common stock for the foreseeable future, you may not receive any return on investment unless you sell your Class A common stock for a price greater than that which you paid for it.

Skillsoft intends to retain future earnings, if any, for future operations, expansion and debt repayment and there are no current plans to pay any cash dividends for the foreseeable future. The declaration, amount and payment of any future dividends on shares of Class A common stock will be at the sole discretion of Skillsoft’s Board. Skillsoft’s Board may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions, implications on the payment of dividends by us to our stockholders or by our subsidiaries to us and such other factors as our Board may deem relevant. In addition, our ability to pay dividends is limited by covenants of Skillsoft’s existing and outstanding indebtedness and may be limited by covenants of any future indebtedness Skillsoft incurs. As a result, stockholders must rely on their sales of Class A common stock after appreciation, which may never occur, as the only way to realize any future gains on their investments.

Future sales, or the perception of future sales, by Skillsoft or its stockholders in the public market could cause the market price for our Class A common stock to decline.

As of April 7, 2023, Skillsoft had a total of 160,550,498 shares of Class A common stock outstanding and warrants to purchase an aggregate of 61,966,639 shares of Class A common stock outstanding. We have registered the resale of 91,515,341 shares of Class A common stock beneficially owned by certain securityholders, and the market price of our Class A common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These sales, or the possibility that these sales may occur, also might make it more difficult for Skillsoft to sell equity securities in the future at a time and at a price that it deems appropriate.

We might require additional capital to support our growth, and this capital might not be available on acceptable terms, if at all.

We intend to continue to make investments to support our growth and may require additional funds to respond to business challenges, including the need to develop new features or enhance our existing platform or acquire complementary businesses, technologies, and content. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our ordinary shares. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our growth and to respond to business challenges could be significantly impaired.

Anti-takeover provisions in our organizational documents could delay or prevent a change of control.

Certain provisions of our Charter and bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders.

These provisions provide for, among other things:

These anti-takeover provisions could make it more difficult for a third party to acquire Skillsoft, even if the third-party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause Skillsoft to take other corporate actions you desire.

The Charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with Skillsoft or its directors, officers, employees or stockholders.

The Charter provides that, subject to limited exceptions, any (1) derivative action or proceeding brought on behalf of Skillsoft, (2) action asserting a claim of breach of a fiduciary duty owed by any director, officer, stockholder or employee to Skillsoft or its stockholders, (3) action asserting a claim arising pursuant to any provision of the DGCL or the Charter or our bylaws or (4) action asserting a claim governed by the internal affairs doctrine shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, another state or federal court located within the State of Delaware. Any person or entity purchasing or otherwise acquiring any interest in shares of Skillsoft’s capital stock shall be deemed to have notice of and to have consented to the provisions of the Charter described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with Skillsoft or its directors, officers or other employees, which may discourage such lawsuits against Skillsoft and its directors, officers and employees. Alternatively, if a court were to find these provisions of the Charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, the Skillsoft may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect Skillsoft’s business and financial condition. Notwithstanding the foregoing, the Charter will not apply to suits brought to enforce any liability or duty created by the Exchange Act, or any other claim for which the federal district courts of the United States of America shall be the sole and exclusive forum. While Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.

Any person or entity purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to the forum provisions in the Charter. If any action the subject matter of which is within the scope of the forum provisions is filed in a court other than a court located within the State of Delaware (a “foreign action”) in the name of any stockholder, such stockholder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”); and (y) having service of process made upon such stockholder in any such enforcement action by service upon such stockholder’s counsel in the foreign action as agent for such stockholder.

This choice-of-forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with Skillsoft or its directors, officers, stockholders, agents or other employees, which may discourage such lawsuits. We note that there is uncertainty as to whether a court would enforce this provision, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings. Further, investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. It is possible that a court could find these types of provisions to be inapplicable or unenforceable, and if a court were to find this provision of the Charter inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.

The NYSE may not continue to list our securities, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.

Our Class A common stock and Public Warrants are currently listed on the NYSE. There can be no assurance that we will be able to comply with the continued listing standards of NYSE. During fiscal 2023, the price of our Class A common stock decreased to $1.03 per share, and as of January 31, 2023, the closing price of our Class A common stock was $1.92 per share. If we are unable to maintain the price of our Class A common stock above $1.00 per share or maintain compliance with the other continued listing standards of the NYSE, our Class A common stock would be subject to delisting.

If the NYSE delists our Class A common stock from trading on its exchange for failure to meet the listing standards, our stockholders could face significant material adverse consequences including:

Prosus and its affiliates may have interests that differ from those of other stockholders.

As of April 7, 2023, Prosus holds approximately 38.1% of the number of shares and voting power of Skillsoft’s outstanding Class A common stock.

Pursuant to the terms of the Prosus Subscription Agreement, and subject to any required approval of Skillsoft’s stockholders pursuant to the applicable rules and listing standards of the NYSE (which Skillsoft will use reasonable best efforts to obtain), if Skillsoft intends to issue New Securities (as defined in the Prosus Subscription Agreement) to any person, then, at least fifteen (15) business days prior to the issuance of the New Securities, Skillsoft shall deliver Prosus an offer (the “Offer”) to issue New Securities to Prosus for cash in an aggregate amount, on a pro forma basis after giving effect to the issuance of the New Securities, that would result in Prosus maintaining beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of at least the percentage of the issued and outstanding shares of Class A common stock that it beneficially owns immediately prior to the issuance of such New Securities on a fully-diluted and as-converted basis but, solely prior to the expiration of the earlier of (i) June 11, 2024 and (ii) the occurrence of a Significant Event (as defined in the Prosus Subscription Agreement), not to the extent such issuance would result in Prosus having beneficial ownership of more than 35% of the issued and outstanding shares of Class A common stock on a fully-diluted and as converted basis (excluding any warrants issued to Prosus pursuant to the Prosus Subscription Agreement). Accordingly, Prosus may maintain its beneficial ownership in the Company at least through June 11, 2024.

So long as Prosus and its affiliates continue to directly or indirectly own a significant amount of Skillsoft’s outstanding Class A common stock, Prosus may be able to exert substantial influence on Skillsoft and may be able to exercise its influence in a manner that is not in the interests of Skillsoft’s other stakeholders. Additionally, Prosus and its affiliates are in the business of making investments in companies and owning real estate, and may from time to time acquire and hold interests in businesses that compete directly or indirectly with Skillsoft or that supply Skillsoft with goods and services. Prosus or its affiliates may also pursue acquisition opportunities that may be complementary to (or competitive with) Skillsoft’s business, and as a result those acquisition opportunities may not be available to Skillsoft.

Stockholders should consider that the interests of Prosus may differ from their interests in material respects.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our United States headquarters are located in Nashua, New Hampshire where we lease an aggregate of 25,982 square feet. The lease for this location currently runs through June 2024. In addition to our United States headquarters, our other primary facilities are located in New York, New York, Dublin, Ireland; Denver, Colorado; Fredericton, Canada, Paris, France, and Hyderabad, India.

Our worldwide headquarters are located in Dublin, Ireland, where we currently lease and occupy a 12,166 square foot facility, which primarily houses our main content development center. We also lease small sales offices and classroom training facilities in several other countries throughout Europe, the Middle East, and Asia-Pacific regions.

We believe that our existing facilities are adequate to meet our current needs and that suitable additional or substitute space will be available on commercially reasonable terms when needed, including with respect to our Nashua locations.

Item 3. Legal Proceedings

Incorporated by reference herein is information regarding legal proceedings as set forth under “Litigation” contained in Note 15 – “Leases, Commitments and Contingencies” in the Notes to the Consolidated Financial Statements in Item 8 of Part II of this Form 10‑K.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Class A common stock is traded on the New York Stock Exchange under the symbol “SKIL.” According to the records of our transfer agent, we had 190 stockholders of record as of April 7, 2023.

The following table presents information with respect to the Company’s repurchases of common stock during the quarter ended January 31, 2023.

On September 7, 2022, our Board of Directors authorized the Company to repurchase up to $30 million of our common stock, which authorization will expire September 7, 2023 unless extended. The Company’s remaining authorization for repurchases was $27.2 million as of January 31, 2023.

We have never declared or paid cash dividends on our Class A common stock, and we do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to fund the growth of our business, make payments on our outstanding debt obligations and/or repurchase shares.

Item 6.         Reserved

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of Skillsoft (as defined below) should be read in conjunction with Skillsoft’s audited consolidated financial statements and the accompanying notes appearing elsewhere in this Annual Report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Skillsoft’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in Part I, Item 1A of this report. Unless otherwise noted, amounts referenced in this discussion, other than in reference to share numbers, are in thousands.

Significant Transactions

On June 11, 2021, Churchill Capital Corp II and Software Luxembourg Holding S.A., a global leader in digital learning and talent management solutions, completed a business combination and subsequent acquisition of Albert DE Holdings Inc. (“Global Knowledge” and such acquisition, the “Global Knowledge Merger”), a worldwide leader in IT and professional skills development. The combined company operates as Skillsoft Corp. (“Skillsoft”, “we”, “us”, “our” and the “Company”) and is listed on the New York Stock Exchange under the ticker symbol “SKIL” beginning on June 14, 2021.

On April 4, 2022, the Company acquired Codecademy, a leading online learning platform for technical skills. Codecademy is an innovative and popular learning platform providing high-demand technical skills to approximately 40 million registered learners in nearly every country worldwide. The platform offers interactive, self-paced courses and hands-on learning in 14 programming languages across multiple domains such as application development, data science, cloud and cybersecurity. Total consideration for the acquisition consisted of approximately $ 386.0 million, consisting of the issuance of 30,374,427 common shares and a net cash payment of $ 203.4 million. 

On June 12, 2022, we entered into the Purchase Agreement to sell our SumTotal business to a third party for $200 million in cash, subject to adjustments as set forth in the Purchase Agreement. The sale was completed on August 15, 2022. Final net proceeds from the sale are $174.9 million, after final working capital adjustments in April 2023. The disposal of SumTotal assets met the criteria to be reported as held for sale and discontinued operations as of July 31, 2022. As a result, SumTotal’s assets and liabilities are reported as assets and liabilities related to discontinued operations and the results of operations are presented, net of tax, separate from the results of continuing operations for all periods presented.

The sale of SumTotal business will enable us to sharpen our focus on accelerating growth in our core business, providing customers with transformative learning experiences that propel organizations and people to grow together.

Results of Operations

Our financial results for the fiscal year ended January 31, 2023 and the period from June 12, 2021 to January 31, 2022 are referred to as those of the “Successor” periods. Our financial results for the periods of August 28, 2020 to January 31, 2021 and February 1, 2021 to June 11, 2021 are referred to as those of the “Predecessor (SLH)” periods. Our financial results for the period from February 1, 2020 to August 27, 2020 is referred to as those of the “Predecessor (PL)” period. Our results of operations as reported in our Consolidated Financial Statements for these periods are prepared in accordance with GAAP.

The following table sets forth certain items from our consolidated statements of operations as a percentage of total revenues for the periods indicated:

We provide, through our Skillsoft, Global Knowledge, Codecademy, and Skillsoft Coaching offerings, enterprise learning solutions designed to prepare organizations for the future of work, overcome critical skill gaps, drive demonstrable behavior-change, and unlock the potential in their people.

Skillsoft 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. Skillsoft’s content offerings are predominately 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.

Our Global Knowledge brand generates revenues from virtual, in-classroom, and on-demand training solutions in information technology geared at foundational, practitioner and expert information technology professionals. 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.

The following sets forth the percentage of our revenues attributable to geographic regions for the periods indicated:

Subscription and Non-Subscription Revenue

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.

Non-Subscription Revenue. Primarily comprised of Global Knowledge instructor led training offerings, which consist of both in-person and virtual environments. Instructor led training, including virtual offerings, are first scheduled, then delivered later, with revenue realized on the delivery date. Non-subscription revenues also includes professional services related to implementation of our offerings and subsequent, ongoing consulting engagements. Our non-subscription services complement our subscription business in creating strong and comprehensive customer relationships.

The following is a summary of our revenues by product and service type for the periods indicated:

The increases in total revenues, when comparing fiscal 2023 to the Successor and Predecessor (SLH) periods in fiscal 2022, were primarily the result of the inclusion of Global Knowledge’s revenues earned subsequent to the merger on June 11, 2021, inclusion of Codecademy’s revenues earned subsequent to its acquisition on April 4, 2022 and organic growth in our Content products due to higher bookings in the prior year, as revenue from our subscription offerings is typically recognized over the twelve months that follow a booking. Our Global Knowledge instructor led training (“ILT”) business experienced a decline in bookings and revenues during fiscal 2023 compared to the prior year primarily due to changes in in training programs at two large technology partners.

Revenues in the Successor periods included $170.7 million and $132.6 million of Global Knowledge revenue for the fiscal year ended January 31, 2023 (Successor) and period from June 12, 2021 through January 31, 2022 (Successor), respectively. 

Revenues in the Predecessor (SLH) and Predecessor (PL) periods in fiscal 2021 were lower, compared to the fiscal year ended January 31, 2022, due to the application of fresh-start reporting in August 2020, which under the accounting guidance at the time, required deferred revenue to be reduced by approximately $89.0 million to its estimated fair value. As a result of the adoption of ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021 08”), we did not experience declines in revenue for business combinations subsequent to June 11, 2021, as we did with the application of fresh-start reporting as of August 2020. For additional information related to ASU 2021 08, refer to Note 2, Recently Adopted Accounting Guidance, to our consolidated financial statements included elsewhere in this Annual Report.

Operating expenses

Summary of operating expenses

The following provides select operating expenses, which are discussed in the associated captions that immediately follow:

Cost of revenues

Cost of revenues consists primarily of employee salaries and benefits for hosting operations, professional service and customer support personnel; royalties; hosting and software maintenance services; facilities and utilities costs; consulting services; instructor fees, course materials, logistics costs and overhead costs associated with virtual, in-classroom, and on-demand training solutions. The following provides details regarding the changes in components of cost of revenues:

The increase in the first three cost of revenues categories immediately above, when comparing fiscal 2023 to the Successor and Predecessor (SLH) periods in fiscal 2022, were primarily the result of inclusion of Global Knowledge’s expenses incurred subsequent the merger on June 11, 2021 and inclusion of Codecademy’s expenses incurred subsequent to its acquisition on April 4, 2022. These increases were partially offset by cost of revenues declines in our ILT business and a decrease in royalties to publishers. Refer to Subscription and Non-Subscription Revenue above for additional information related to the declines in our ILT business. When comparing these same periods, the decrease in facilities and utilities expenses were primarily attributable to cost savings from consolidation of our facilities.

The increases in all components of cost of revenues, when comparing the Successor and Predecessor (SLH) periods in fiscal 2022 to the Predecessor (SLH) and Predecessor (PL) periods in fiscal 2021, were primarily the result of inclusion of Global Knowledge’s expenses incurred subsequent to its acquisition on June 11, 2021.

Content and software development

Content and software development expenses include costs associated with the development of new products and the enhancement of existing products, consisting primarily of employee salaries and benefits; development-related professional services; facilities costs; depreciation; and software maintenance costs. The following provides details regarding the changes in components of content and software development expenses:

The increases in compensation and benefits and software maintenance expenses, when comparing fiscal 2023 to the Successor and Predecessor (SLH) periods in fiscal 2022, were primarily the result of organic growth in our Content products, and to a lesser extent, the inclusion of Global Knowledge’s expenses incurred subsequent to the merger on June 11, 2021 and inclusion of Codecademy’s expenses incurred subsequent to its acquisition on April 4, 2022. Refer to Subscription and Non-Subscription Revenue above for additional information related to the organic growth in our Content products. When comparing these same periods, merits, market-based compensation adjustments, stock-based compensation associated with restricted stock units granted to key employees during fiscal 2023 and the reductions in consulting and outside services also contributed to the increase in compensation and benefits. When comparing these same periods, the decrease in facilities and utilities expenses were primarily attributable to cost savings from consolidation of our facilities.

The increases in all components of content and software development expenses, excluding facilities and utilities expenses, when comparing the Successor and Predecessor (SLH) periods in fiscal 2022 to the Predecessor (SLH) and Predecessor (PL) periods in fiscal 2021, were primarily the result of inclusion of Global Knowledge’s expenses incurred subsequent to its acquisition on June 11, 2021. The lower facilities and utilities expenses in the Successor and Predecessor (SLH) periods in fiscal 2022, compared to the Predecessor periods in fiscal 2021, were primarily a result of cost savings initiatives.

Selling and marketing

Selling and marketing, or S&M, expenses consist primarily of employee salaries and benefits for selling, marketing and pre-sales support personnel; commissions; travel expenses; advertising and promotional expenses; consulting and outside services; facilities costs; depreciation; and software maintenance costs. The following provides details regarding the changes in components of S&M expenses:

The increase in total S&M expenses, excluding facilities and utilities, when comparing fiscal 2023 to the Successor and Predecessor (SLH) periods in fiscal 2022, was primarily the result of inclusion of Global Knowledge’s expenses incurred subsequent to the merger on June 11, 2021, inclusion of Codecademy’s expenses incurred subsequent to its acquisition on April 4, 2022 and investments in go to market personnel, enablement programs and increases in travel post Covid-19. When comparing these same periods, the decrease in facilities and utilities expenses was primarily attributable to cost savings from consolidation of our facilities.

The increases in compensation and benefits and advertising and promotions expenses, when comparing the Successor and Predecessor (SLH) periods in fiscal 2022 to the Predecessor (SLH) and Predecessor (PL) periods in fiscal 2021, were primarily the result of inclusion of Global Knowledge’s expenses incurred subsequent to the merger on June 11, 2021. Also contributing to the higher compensation and benefits expenses in the Successor period was the stock-based compensation related to the stock options and restricted stock units granted to key employees. The increase in compensation and benefits expenses was partially offset by the decreases in commission expenses as a result of the application of fresh-start reporting in August 2020 and Topic 805 business combination guidance in June 2021, which required us to eliminate the balance of deferred commissions which otherwise would have been recognized as commission expense in the Successor period.

General and administrative

General and administrative, or G&A, expenses consist primarily of employee salaries and benefits for executive, finance, administrative, and legal personnel; audit, legal and consulting fees; insurance; franchise, sales and property taxes; facilities costs; and depreciation. The following provides details regarding the changes in components of G&A expenses:

The increase in total G&A expenses, excluding franchise, sales, and property tax, when comparing fiscal 2023 to the Successor and Predecessor (SLH) periods in fiscal 2022, was primarily the result of inclusion of Global Knowledge’s expenses incurred subsequent to the merger on June 11, 2021, inclusion of Codecademy’s expenses incurred subsequent to its acquisition on April 4, 2022 and increased executive staffing, advisory, director and officers liability insurance and other organizational costs associated with being a public-company. These increases were partially offset by lower bonuses. When comparing these same periods, the decrease in franchise, sales, and property tax were primarily attributable to declines in our ILT business. Refer to Subscription and Non-Subscription Revenue above for additional information related to the declines in our ILT business.

The increases in total G&A expenses, excluding franchise, sales, and property tax, when comparing the Successor and Predecessor (SLH) periods in fiscal 2022 to the Predecessor (SLH) and Predecessor (PL) periods in fiscal 2021, were primarily the result of inclusion of Global Knowledge’s expenses incurred subsequent to the merger on June 11, 2021. Also contributing to the higher compensation and benefits expenses in the Successor period was the stock-based compensation related to the stock options and restricted stock units granted to key employees. Furthermore, the higher consulting and outside services expenses in the Successor period, compared to the Predecessor (SLH) and Predecessor (PL) periods in fiscal 2021, was primarily due to increased legal, audit and tax services attributable to the merger and public-company readiness as well as business process improvement projects related consulting services. The higher insurance expenses in the Successor period, compared to the Predecessor (SLH) and Predecessor (PL) periods in fiscal 2021, was due to the higher directors and officers insurance policies attributable to the Company now being publicly listed. When comparing these same periods, the decrease in franchise, sales, and property tax were primarily attributable to credits received during fiscal 2022.

Amortization of intangible assets

Intangible assets arising from business combinations are developed technology, customer-related intangibles, trade names and other identifiable intangible assets with finite lives. These intangible assets are amortized over the estimated useful lives of such assets. We also capitalize certain internal use software development costs related to our SaaS platform incurred during the application development stage. The internal use software is amortized on a straight-line basis over its estimated useful life.

The increases in amortization of intangible assets were primarily due to the intangible assets that arose from the business combinations completed in June 2021 and April 2022.

Impairment of goodwill and intangible assets

Successor Fiscal Year Ended January 31, 2023

During the three months ended July 31, 2022, our Global Knowledge ILT business experienced a significant decline in bookings and GAAP revenues compared to the corresponding period in the prior year. In accordance with ASC 350, we considered whether there were any indicators of impairment for Global Knowledge goodwill, concluding that triggering events had occurred, necessitating an interim goodwill impairment test as of July 31, 2022. In comparing the estimated fair value of the Global Knowledge reporting unit to its carrying value, we considered the results of both a discounted cash flow analysis and a market multiples approach. The results of the impairment test performed indicated that the carrying value of the Global Knowledge reporting unit exceeded its estimated fair value. Based on the results of the goodwill impairment testing procedures, we recorded a $70.5 million goodwill impairment for the three months ended July 31, 2022.

During the three months ended October 31, 2022, we experienced a substantial decline in our stock price resulting in the total market value of our shares of stock outstanding (“market capitalization”) being less than the carrying value of our reporting units. We considered the impact of current macroeconomic conditions on our projected operating results and assumptions used in the income approach or discounted cash flow method and market approach models that impact the fair value of our reporting units. The macroeconomic conditions considered included deterioration in the equity markets evidenced by sustained declines in our stock price, those of our peers, and major market indices, which reduced the market multiples, along with an increase in the weighted-average cost of capital primarily driven by an increase in interest rates. In addition, we lowered our projected operating results primarily due to the foreign exchange impact, the underperformance of Global Knowledge's business, and macroeconomic uncertainty. After considering all available evidence in the evaluation of goodwill impairment indicators, we determined it appropriate to perform an interim quantitative assessment of the Skillsoft content and Global Knowledge reporting units as of October 31, 2022. The results of the impairment test performed indicated that the carrying value of the Skillsoft content and Global Knowledge reporting units exceeded the estimated fair value. Based on the results of the goodwill impairment testing procedures, we recorded a $569.3 million goodwill impairment for the Skillsoft content segment and an additional $1.6 million goodwill impairment for the Global Knowledge segment in the three months ended October 31, 2022.

During the fourth quarter of fiscal year 2023, we performed our annual goodwill impairment assessment. Considering the slow recovery of our stock price and the triggering events presented in the second and third fiscal quarters, we performed the quantitative goodwill impairment test, which indicated that for each reporting unit, the fair value exceeded its carrying value. As such, no further impairment was necessary. We review our goodwill for impairment at least annually and when events or changes in circumstances indicate that the carrying value may not be recoverable. Should we experience business challenges or significant negative industry or general economic trends, we could recognize additional impairment to our goodwill. Any impairment of the value of goodwill will result in a charge against earnings, which could have a material adverse impact on our reported results of operations and financial condition.

The cumulative goodwill impairment for the fiscal year ended January 31, 2023 (Successor) amounted to $569.3 million for the Skillsoft content segment and $72.1 million for Global Knowledge, for a combined total of $641.4 million.

Predecessor Period Ended August 27, 2020

During the Predecessor (PL) period for the three months ended April 30, 2020, the emergence of COVID‑19 as a global pandemic had an adverse impact on our business. While the online learnings tools we offer have many advantages over traditional in person learning, some of our customers sought to temporarily reduce spending, resulting in reductions in contract sizes and in some cases cancellations when such contracts came up for renewal. In addition, identifying and pursuing opportunities for new customers became much more challenging. As a result of the expected impact of the COVID‑19 pandemic, management decreased its estimate of future cash flows. In addition to the uncertainty introduced by the COVID‑19 pandemic, our over-leveraged capital structure continued to create headwinds. In April 2020, we received temporary forbearance from our lenders due to a default on amounts owed under the Senior Credit Facility as a long-term consensual solution was being negotiated with lenders. The uncertainty around our capital structure and future ownership continued to hurt our business, as new and existing customers displayed apprehension about the ultimate resolution of our capital structure and its impact on operations, causing delays and sometimes losses in business. The uncertainty surrounding our capital structure combined with the potential impact that the COVID‑19 pandemic would have had on our company and the global economy, resulted in a significant decline in the fair value of our reporting units during the predecessor period ended August 27, 2020.

In light of the circumstances above, we also concluded that a triggering event had occurred with respect to the Company’s indefinite-lived Skillsoft trade name as of April 30, 2020. Accordingly, we estimated the fair value of the Skillsoft trade name using a discounted cash flow (“DCF”) analysis which reflected estimates of future revenue, royalty rates, cash flows, and discount rates. Based on this analysis, we concluded the carrying value of the Skillsoft trade name exceeded its fair value, resulting in an impairment charge of $92.2 million for the Predecessor period from February 1, 2020 to August 27, 2020.

In accordance with ASC 350, for goodwill we determined triggering events had occurred and performed an impairment test as of April 30, 2020 that compared the estimated fair value of each reporting unit to their respective carrying values. We considered the results of a DCF analysis, which were also materially corroborated by an EBITDA multiple approach. The results of the impairment tests performed indicated that the carrying values of the Skillsoft reporting units exceeded their estimated fair values determined by the Company. Based on the results of the goodwill impairment testing procedures, the Company recorded a $107.9 million goodwill impairment for the Skillsoft reporting unit.

In total, as described in detail above, we recorded $200.1 million of impairment charges in the period from February 1, 2020 to August 27, 2020, consisting of $92.2 million impairment for the Skillsoft trade name and $107.9 million impairment for the Skillsoft reporting unit.

Acquisition-related and recapitalization costs

Acquisition-related and recapitalization costs consist of professional fees for legal, investment banking and other advisor costs incurred in connection with the business combinations completed in April 2022 and June 2021 and the subsequent integration related activities, as well as our recapitalization efforts including the evaluation of strategic alternatives, preparation for the Chapter 11 filing and subsequent emergence in August 2020. The changes in acquisition-related and recapitalization costs were primarily due to the timing of these aforementioned activities.

Restructuring

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. In January 2021, we committed to a restructuring plan that encompassed a series of measures intended to improve our operating efficiency, competitiveness and business profitability. These included workforce reductions and consolidation of facilities as we adopted new work arrangements for certain locations. Our restructuring charges recognized during the three years ended January 31, 2023, have been primarily associated with employee severance cost and lease termination related fees.

Interest and other expense

Interest and other expense, net, consists of gain and loss on derivative instruments, interest income, interest expense, and other expense and income.

The net other (expense) income 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. The increase in interest expense, when comparing fiscal 2023 to the Successor and Predecessor (SLH) periods in fiscal 2022, was primarily due to the additional $160 million of term loans in connection with the closing of the Codecademy acquisition on April 4, 2022, and 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. The lower interest expense, when comparing the Successor and Predecessor (SLH) periods in fiscal 2022 to the Predecessor (SLH) and Predecessor (PL) periods in fiscal 2021, was the result of our reorganization through the voluntarily filed “pre-packaged” Chapter 11 cases completed in August 2020, which resulted in substantially less outstanding debt.

Fair value adjustments to warrants

The gains attributable to warrants are due to declines in the value of our common stock during the Predecessor (SLH) and Successor periods, which decreased the fair value of our liability-classified warrants that are marked to market at each balance sheet date, with gains and losses being recorded in current period earnings.

Fair value adjustments of hedge instruments

We entered into two fixed-rate interest rate swap agreements on June 17, 2022 for a notional amount of $300 million and a maturity date of June 5, 2027. The objective of the interest rate swaps is to eliminate the variability of cash flows in interest payments on the first $300 million of variable rate debt attributable to changes in benchmark one-month Secured Overnight Financing Rate (SOFR) interest rates. The interest rate swaps are not designated for hedge accounting and are carried on the statement of financial position at their fair value. Unrealized gains and losses from changes in fair value of the interest rate swaps are included in the income statement as they occur.

Gain on sale of business

On June 12, 2022, we entered into the Purchase Agreement to sell our SumTotal business to a third party for $200 million in cash, subject to adjustments as set forth in the Purchase Agreement. The sale was completed on August 15, 2022. Final net proceeds from the sale are $174.9 million, after final working capital adjustments in April 2023. In accordance with ASC 810, we recorded a gain on sale upon completion of the transaction. The $56.6 million gain was calculated by measuring the difference between the fair value of consideration received less the carrying amount of the assets and liabilities sold.

Fiscal 2021 reorganization items, net

Reorganization items, net was related to our emergence from the Chapter 11 bankruptcy filing, which consisted primarily of the net gain from the consummation of the Plan of Reorganization and the related extinguishment of certain debt obligations. In addition, Reorganization items, net included professional fees recognized between the June 14, 2020 Petition Date and the August 27, 2020 Effective Date in connection with our emergence from bankruptcy. A net charge of $32.0 million attributed to the discontinued operations was recorded within Income (loss) from discontinued operations, net of tax in the Consolidated Statements of Operations.

(Benefit from) provision for income taxes

The effective income tax rate for fiscal 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. Due to the acquisition of Codecademy on April 4, 2022, the Company analyzed the realizability of its existing deferred tax assets with the addition of the Codecademy assets and liabilities. Based on this analysis the Company determined that a valuation allowance release of $21.6 million was required and recorded in full as a discrete income tax benefit.

The effective income tax rates in fiscal 2022 differed from the United States federal statutory rate of 21.0% for the Successor period and the Luxembourg statutory rate of 24.9% for the Predecessor (SLH) period due primarily to the impact of non-deductible items, current period changes in the Company’s valuation allowance on its deferred tax assets and the impact of foreign rate differential.

The effective income tax rates in fiscal 2021 differed from the Luxembourg statutory rate of 24.9% for the Predecessor (SLH) and the Ireland statutory rate of 12.5% for the Predecessor (PL) period due primarily to the impact of cancellation of indebtedness income (“CODI”) and changes to the tax basis in certain assets recognized upon the Company’s emergence from bankruptcy, as well as changes to the valuation allowance on the Company’s deferred tax assets.

Liquidity and Capital Resources

Liquidity and Sources of Cash

As of January 31, 2023, we had $170.4 million of cash and cash equivalents on hand. We have funded operations primarily through the use of cash collected from our customers and the proceeds received from the Term Loan Facility (described below), 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 12 months as well as for the foreseeable future with capital sources currently available.

Term Loan

On July 16, 2021, Skillsoft Finance II, Inc. (“Skillsoft Finance II”), a subsidiary of Skillsoft Corp., entered into a Credit Agreement (the “Credit Agreement”), by and among Skillsoft Finance II, as borrower, Skillsoft Finance I, Inc. (“Holdings”), the lenders party thereto and Citibank, N.A., as administrative agent and collateral agent, pursuant to which the lenders provided a $480 million term loan facility (the “Term Loan Facility”) to Skillsoft Finance II, the proceeds of which, together with cash on hand, were used to refinance existing debt. The Term Loan Facility is scheduled to mature on July 16, 2028.

In connection with the closing of the Codecademy acquisition, Skillsoft Finance II entered into Amendment No. 1 to the Credit Agreement, dated as of April 4, 2022 (the “First Amendment”), among Skillsoft Finance II, Holdings, certain subsidiaries of Skillsoft Finance II, as guarantors, Citibank N.A., as administrative agent, and the financial institutions parties thereto as Term B-1 Lenders, which amended the Credit Agreement (as amended by the First Amendment, the “Amended Credit Agreement”).

The First Amendment provides 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) provides for early opt-in to the Secured Overnight Financing Rate ("SOFR") 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) provides 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.

Prior to the maturity thereof, the Initial Term Loans will be subject to quarterly amortization payments of 0.25% of the principal amount. The proceeds of the Term B-1 Loans were used by the Company to finance, in part, the Codecademy acquisition, and to pay costs, fees, and expenses related thereto.

SumTotal Proceeds

On August 15, 2022, we completed the sale of our SumTotal business to a third party, and received final net proceeds from the sale are $174.9 million, after final working capital adjustments in April 2023. Under the terms of our Amended Credit Agreement, the net proceeds attributable to the sale of SumTotal required a mandatory prepayment of $31.4 million which was made in August 2022. The remaining net cash proceeds of $140.6 million are subject to reinvestment provisions and may not be used for general corporate purposes. In the event any of the remaining net cash proceeds have not been designated for eligible investments (such as permitted acquisitions, capital expenditures and other such eligible uses as defined in the Amended Credit Agreement) on or before August 15, 2023, such remaining net cash proceeds will be used to prepay outstanding indebtedness under our Amended Credit Agreement. We expect to have sufficient qualifying expenditures under the Amended Credit Agreement such that no additional mandatory prepayment with remaining SumTotal proceeds will be necessary.

Accounts Receivable Facility

We also have access to up to $75.0 million of borrowings under our accounts receivables 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 3.00% per annum plus the greater of (i) the prime rate or (ii) the sum of 0.5% per annum plus the federal funds rate. The maturity date of the accounts receivable facility is the earlier of (i) December 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 million of capacity. As of January 31, 2023, $6.2 million was drawn from our accounts receivable facility. 

Share Repurchase Program

On September 7, 2022, our Board of Directors authorized the Company to repurchase up to $30 million of our common stock, which authorization will expire September 7, 2023 unless extended. Although our Board of Directors has authorized the share repurchase program, we are not obligated to repurchase any specific dollar amount or to acquire any specific number of shares under the program. In addition, the share repurchase program may be suspended, modified, or terminated at any time without prior notice. The amount, timing, and execution of our share repurchase program may fluctuate based on our priorities for the use of cash for other purposes such as reducing debt, and because of changes in cash flows, tax laws, and the market price of our common stock. From inception through January 31, 2023, we repurchased 1,630,275 of our shares for $2.8 million. 

Cash Flows

The following summarizes our cash flows for the period presented:

Cash Flows from Operating Activities

The year-over-year decline in cash flows from operating activities in fiscal 2023, compared to the Successor and Predecessor (SLH) periods in fiscal 2022, was primarily the result of costs associated with our acquisition and disposal activities as well as related integration, transformation, and restructuring efforts. In addition, changes in working capital, net of effects from acquisitions, and the additional expense associated with being a publicly traded company moderated cash flows from operating activities. Significant recapitalization and transaction costs associated with our preparation for, and completion of a voluntary prepackaged Chapter 11 filing tempered cash provided by operations for the Predecessor (SLH) and Predecessor (PL) periods in fiscal 2021.

Cash flows from operating activities directly attributable to SumTotal, which was sold on August 15, 2022, were not significant for the periods presented herein.

Cash Flows from Investing Activities

Cash flows from investing activities in fiscal 2023 include $172.0 of net cash proceeds from the sale of SumTotal business, and $198.9 million of cash payments related to the acquisition of Codecademy. See Note 5 “Business Combinations” and Note 6 "Discontinued Operations" of the Notes to Consolidated Financial Statements for more details. Cash flows from investing activities for the Successor and Predecessor (SLH) periods in fiscal 2022 include cash paid of $386.0 million related to the acquisition of Skillsoft, $156.9 million related to the merger with Global Knowledge, and $18.6 million related to the acquisition ofSkillsoft Coaching. See Note 5 “Business Combinations” of the Notes to Consolidated Financial Statements for more details. Our purchases of property and equipment largely consist of computer hardware and software, as well as capitalized software development costs, to support content and software development activities.

Capital expenditures for fiscal 2023, the Successor and Predecessor (SLH) periods in fiscal 2022, and the Predecessor (SLH) and Predecessor (PL) periods in fiscal 2021 included $0.1 million, $4.8 million, and $2.9 million, respectively, attributable to the SumTotal business that was disposed of on August 15, 2022.

Cash Flows from Financing Activities

Cash flows from financing activities consist of borrowings and repayments under our Predecessor and Successor debt facilities and our accounts receivable facility. The Company received $153.2 million of net proceeds (net of $4.0 million of financing costs and $2.8 million of original issuance discounts) from the Term Loan Facility on April 4, 2022. The Company used the net proceeds and cash on hand for the closing of the Codecademy acquisition. The Company was required to prepay $31.4 million of principal outstanding under the Amended Credit Agreement from the proceeds of the SumTotal sale in August 2022. We received $530 million of proceeds from PIPE equity investments and used the funds for the acquisitions of Skillsoft and Global Knowledge on June 11, 2021.

Cash flows from financing activities directly attributable to SumTotal, which was sold on August 15, 2022, were not significant for the periods presented herein.

Contractual and Commercial Obligations

The scheduled maturities of our debt and future minimum rental commitments under non-cancelable lease agreements as of January 31, 2023 were as follows:

Contingencies

From time to time, we are a party to or may be threatened with litigation in the ordinary course of our business. We regularly analyze then current information, including, as applicable, our defense and insurance coverage and, as necessary, provide accruals for probable and estimable liabilities for the eventual disposition of these matters. For information regarding legal proceedings see “Litigation” set forth under Note 15 – “Leases, Commitments and Contingencies” in the Notes to the Consolidated Financial Statements in Item 8 of Part II of this Form 10 K.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of assets, liabilities, revenues and expenses during the reporting period. We regularly reevaluate our estimates and judgments, including those related to the following: business combinations, revenue recognition, impairment of goodwill and intangible assets, accounting for warrants, income tax assets and liabilities; and restructuring charges and accruals. We base our estimates and judgments on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, or results of operations could be impacted.

We believe the following critical accounting estimates most significantly affect the portrayal of our financial condition and involve our most difficult and subjective estimates and judgments.

Revenue Recognition

The Company enters into contracts that provide customers access to a broad spectrum of learning options including cloud-based learning content, talent management solutions, virtual, on-demand and classroom training, and individualized coaching. The Company recognizes revenue that reflects the consideration that we expect to be entitled to receive in exchange for these services. We apply judgment in determining our customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience, credit, or financial information. The Company is not required to exercise significant judgment in determining the timing for the satisfaction of performance obligations or the transaction price.

The Company’s cloud-based solutions generally do not provide customers with the right to take possession of the software supporting the platform or to download course content without continuing to incur fees for hosting services and, as a result, are accounted for as service arrangements. Access to the platform and course content represents a series of distinct services as the Company continually provides access to, and fulfill its obligation to, the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. Accordingly, the fixed consideration related to subscription revenue is generally recognized on a straight-line basis over the contract term, beginning on the date that the service is made available to the customer. The Company’s subscription contracts typically vary from one year to three years. The Company’s cloud-based solutions arrangements are generally non-cancellable and non-refundable.

Revenue from virtual, on-demand and classroom training, and individualized coaching is recognized in the period in which the services are rendered. The Company also sells professional services related to its cloud solutions which are typically considered distinct performance obligations and are recognized over time as services are performed. For fixed-price contracts, revenue is recognized over time based on a measure of progress that reasonably reflects our progress toward satisfying the performance obligation.

While the majority of the Company’s revenue relates to SaaS subscription services where the entire arrangement fee is recognized on a ratable basis over the contractual term, the Company sometimes enter into contractual arrangements that have multiple distinct performance obligations, one or more of which have different periods over which the services or products are delivered. These arrangements may include a combination of subscriptions and non-subscription products such as professional services. The Company allocates the transaction price of the arrangement based on the relative estimated standalone selling price, or SSP, of each distinct performance obligation.

Reimbursements received from customers for out-of-pocket expenses are recorded as revenues, with related costs recorded as cost of revenues. The Company presents revenues net of any taxes collected from customers and remitted to government authorities.

As the Company’s contractual agreements predominately call for advanced billing, contract assets are rarely generated.

Capitalized Software Development Costs

The Company capitalizes certain internal use software development costs related to its SaaS platform incurred during the application development stage when management with the relevant authority authorizes and commits to the funding of the project, it is probable that the project will be completed, and the software will be used as intended. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable that the expenditures will result in additional functionality. Costs related to preliminary project activities and to post-implementation activities are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, which is generally 3 to 5 years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of the assets. Capitalized costs are recorded as intangible assets in the accompanying balance sheets.

Income Taxes

We provide for deferred income taxes resulting from temporary differences between the basis of assets and liabilities for financial reporting purposes as compared to tax purposes, using rates expected to be in effect when such differences reverse. We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized.

We follow the authoritative guidance on accounting for and disclosure of uncertainty in tax positions which requires us to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced to the largest benefit that has a greater than fifty percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority. Interest and penalties related to uncertain tax positions is included in the provision for income taxes in the consolidated statement of operations.

Intangible Assets and Goodwill

Intangible assets arising from fresh-start accounting and business combinations are generally recorded based upon estimates of the future performance and cash flows from the acquired business. We use an income approach to determine the estimated fair value of certain identifiable intangible assets including customer relationships and trade names and use a cost approach for other identifiable intangible assets, including developed software/courseware. The income approach determines fair value by estimating the after-tax cash flows attributable to an identified asset over its useful life (Level 3 inputs) and then discounting these after-tax cash flows back to a present value. The cost approach determines fair value by estimating the cost to replace or reproduce an asset at current prices and is reduced for functional and economic obsolescence. Developed technology represents patented and unpatented technology and know-how. Customer contracts and relationships represents established relationships with customers, which provide a ready channel for the sale of additional content and services. Trademarks and tradenames represent acquired product names and marks that we intend to continue to utilize.

We review intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in remaining useful life. Conditions that would indicate impairment and trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, or an adverse action or assessment by a regulator.

We review indefinite-lived intangible assets, including goodwill and certain trademarks, during the fourth quarter of each year for impairment, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist and reassesses their classification as indefinite-lived assets.

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and specifically identified intangible assets acquired. Goodwill in fresh-start accounting results when the reorganization value of the emerging entity exceeds what can be attributed to specific tangible or identified intangible assets. We test goodwill for impairment during the fourth quarter every year in accordance with ASC 350, Intangibles — Goodwill (“ASC 350”). In connection with the impairment evaluation, the Company may first consider qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not (i.e., a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. Performing a quantitative goodwill impairment test is not necessary if an entity determines based on this assessment that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company fails or elects to bypass the qualitative assessment, the goodwill impairment test must be performed. This test requires a comparison of the carrying value of the reporting unit to its estimated fair value. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded, not to exceed the amount of goodwill allocated to the reporting unit. In determining reporting units, the Company first identifies its operating segments, and then assesses whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component.

Derivative Instruments

We account for debt and equity issuances as either equity-classified or liability-classified instruments based on an assessment of the instrument's specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the instruments are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments meet all of the requirements for equity classification under ASC 815, including whether the instruments are indexed to our own common stock and whether the holders could potentially require “net cash settlement” in a circumstance outside of our control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance of the instruments and as of each subsequent quarterly period end date while the instruments are outstanding.

For issued or modified instruments that meet all of the criteria for equity classification, the instruments are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified instruments that do not meet all the criteria for equity classification, the instruments are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the instruments are recognized as a non-cash gain or loss on the statements of operations.

Recent Accounting Pronouncements

Our recently adopted and to be adopted accounting pronouncements are set forth in Note 2 of the Notes to Consolidated Financial Statements for the fiscal year ended January 31, 2023.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable as a smaller reporting company.

SKILLSOFT CORP.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT NUMBER OF SHARES)

The accompanying notes are an integral part of these consolidated financial statements.

SKILLSOFT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)