Skillsoft (SKIL) today was up 30% when the market opened but ended the day down 12%. There was both good and bad in the earnings release and the 10-K, enough to explain both price movements.

Ultimately SKIL has a structural challenge, a debt overhang that requires a recapitalization. It makes it difficult to own the stock for the average retail investors.

Most of the enterprise value is in debt. SKIL has $583M of term loan debt and $58M of annual interest expense. A portion of that debt carries an effective rate near 9%. That isn’t trivial. And this for a company with revenue declining YoY.

The good news, there is no near term liquidity crisis. SKIL has over $100M of cash and access to credit. SKIL is in compliance with its debt covenants.

Guidance for the upcoming fiscal year reflects the problem that they are facing. Recall that they don’t provide guidance for the combined company but just for the core business excluding Global Knowledge which is up for sale:

TDS Revenue: $388 – $406M

TDS Adjusted EBITDA: $108 – $116M

TDS Free Cash Flow: $14 – $22M

The core business generates EBITDA, but a good portion of it goes to debt servicing.

SKIL trades at more than 4x EV/EBITDA. So its not necessarily cheap (Coursera trades at a lower EV/EBITDA).

Unclear how much Global Knowledge will yield with a sale. If a recap happens, no idea how much dilution the equity shareholders will have.

So again, probably not a great buy for a retail investor.

Disclaimer: This is for entertainment purposes only, do your own investment research.