Dollar retention rate ("DRR") - For existing customers at the beginning of a given period, DRR represents subscription renewals, upgrades, churn, and downgrades in such period divided by the beginning total renewable base for such customers for such period. Renewals reflect customers who renew their subscription, inclusive of auto-renewals for multi-year contracts, while churn reflects customers who choose to not renew their subscription. Upgrades include orders from customers that purchase additional licenses or content (e.g., a new Leadership and Business module), while downgrades reflect customers electing to decrease the number of licenses or reduce the size of their content package. Upgrades and downgrades also reflect changes in pricing. We use our DRR to measure the long-term value of customer contracts as well as our ability to retain and expand the revenue generated from our existing customers.

Adjusted net income (loss) - Adjusted net income (loss) is defined as GAAP net income (loss) excluding non-cash items, discrete and event-specific costs that do not represent normal, recurring, cash operating expenses necessary for our business operations, and certain accounting income and/or expenses that management believes are necessary to enhance the comparability and are useful in assessing our operating performance, include the following (including the related tax effects):

   -- Acquisition and integration related costs -- Costs incurred to effectuate 
      an acquisition, including contingent compensation expenses, and 
      integration related costs. 
 
   -- Restructuring charges -- Severance costs and the abandonment of 
      right-of-use assets resulting from the acquisition integration process 
      and cost saving initiatives. 
 
   -- Transformation costs -- Costs incurred to transform our operations 
      through significant strategic non-ordinary course transactions. 
 
   -- System migration costs -- Costs of temporary resources needed for the 
      migration of content and customers from our legacy system to a global 
      platform. 
 
   -- Stock-based compensation expense -- Non-cash expense associated with 
      stock-based compensation. 
 
   -- Executive exit costs -- Costs associated with departure of executives 
      that are not a result of restructuring initiatives. 
 
   -- Fair value adjustments -- Mark-to-market adjustments of warrants and 
      hedge instruments. 
 
   -- Foreign currency impact -- Unrealized and realized foreign exchange gains 
      or losses due to fluctuations in currency exchange rates. 
 
   -- (Gain) loss on sale of business - Gain or loss on non-routine sale of 
      business. 
 
   -- Income from discontinued operations -- Income from discontinued 
      operations that do not reflect our current operating performance. 
 
   -- Impairment charges - Non-cash goodwill, intangible or other asset 
      impairment charges. 

Adjusted EBITDA - Adjusted EBITDA is defined as adjusted net income (loss) excluding interest expense or income, benefit from or provision for income taxes, depreciation and amortization expense.

Adjusted operating expenses -- Adjusted operating expenses are defined as GAAP costs of revenues, content and software development, selling and marketing, and general and administrative expenses, excluding depreciation expense, stock-based compensation expense, system migration costs, transformation costs, and other non-cash charges, as applicable.

Adjusted gross margin -- Adjusted gross margin is defined as GAAP revenue less GAAP cost of revenues, excluding stock-based compensation expense and depreciation expense, divided by GAAP revenue for the same period.

Adjusted contribution margin -- Adjusted contribution margin is defined as GAAP revenue less adjusted operating expenses, divided by GAAP revenue for the same period.

Free cash flow -- Free cash flow is defined as GAAP net cash provided by (used in) operating activities less purchases of property and equipment and internally developed software.

Adjusted free cash flow (levered) -- Adjusted free cash flow (levered) is defined as free cash flow plus the cash impact for adjusted EBITDA excluded charges.

Free cash flow conversion -- Free cash flow conversion is defined as free cash flow divided by adjusted EBITDA for the same period.

Net leverage -- Net leverage is defined as current maturities of long-term debt, plus borrowings under accounts receivable facility, plus long-term debt, less cash and equivalents and restricted cash, divided by adjusted EBITDA for the preceding twelve-month period.

Reclassifications

Certain amounts reported in prior years have been reclassified to conform to the presentation in the current year. These reclassifications had no effect on total assets, total liabilities, total stockholders' equity, or net income (loss) for the prior year.

Cautionary Notes Regarding Forward Looking Statements

This document 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 (including revenue, non-GAAP EBITDA, and free cash flow), our product development and planning, our sales pipeline, future capital expenditures, share repurchases, 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, and 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. 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" in our Form 10--K for the fiscal year ended January 31, 2024. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements included in our other periodic filings with the Securities and Exchange Commission. The forward-looking statements contained in this document 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 purposes 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 current 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.

 
                            SKILLSOFT CORP. 
            UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 
                 (in thousands, except number of shares) 
 
                                                        January 31, 
                                      July 31, 2024         2024 
                                     ---------------   -------------- 
ASSETS 
Current assets: 
   Cash and cash equivalents         $       122,652   $      136,308 
   Restricted cash                             7,491           10,215 
   Accounts receivable, net of 
    allowance for credit losses of 
    approximately $618 and $562 as 
    of July 31, 2024 and January 
    31, 2024, respectively                   110,042          185,638 
   Prepaid expenses and other 
    current assets                            60,873           53,170 
                                         -----------       ---------- 
      Total current assets                   301,058          385,331 
   Property and equipment, net                 4,319            6,639 
   Goodwill                                  317,071          317,071 
   Intangible assets, net                    484,294          539,293 
   Right of use assets                         5,336            8,044 
   Other assets                               14,314           17,256 
                                         -----------       ---------- 
         Total assets                $     1,126,392   $    1,273,634 
                                         ===========       ========== 
LIABILITIES AND SHAREHOLDERS' 
EQUITY 
Current liabilities: 
   Current maturities of long-term 
    debt                             $         6,404   $        6,404 

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