Skillsoft Corp. 2027 Q2 Earnings Call

Thank you, operator. Good day, and thank you for joining us to discuss our results for the second quarter ended July 31, 2026. Before we jump in, I want to remind you that today's call will contain forward-looking statements about the company's business outlook and our expectations that constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including statements concerning financial and business trends, our expected future business and financial performance, financial condition, and market outlook. These forward-looking statements, and all statements that are not historical facts, reflect management's current beliefs, expectations, and assumptions, and therefore are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions, forecasts, estimates, or projections in the forward-looking statements made today.

For a discussion of the material risks and other important factors that could affect our actual results, we refer you to our most recent Form 10-K, the Form 10-Q filed today, and other documents that we file with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements or information which speaks as of their respective dates. During the call, unless otherwise noted, all financial metrics we discuss, other than revenue, will be non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles, and except with respect to consolidated free cash flow, or otherwise noted, refer to continuing operations. For example, listeners should be cautioned that references to phrases such as adjusted EBITDA and free cash flow denote non-GAAP financial measures.

Non-GAAP financial measures do not have standardized meanings, may not be comparable to similar measures presented by other public companies that describe similar metrics, and should not be considered in isolation or as a substitute for GAAP financial measures. A presentation of the most directly comparable financial measures determined in accordance with GAAP, as well as the definitions, uses, and reconciliations of non-GAAP financial measures included in today's commentary to the most directly comparable GAAP financial measures are included in our earnings press release for second quarter fiscal 2027, which has been furnished to the SEC on Form 8-K and is available at www.sec.gov, and is also available on our website at www.skillsoft.com. Note that we do not provide reconciliations for forward-looking non-GAAP financial measures as we are unable to provide a meaningful or accurate calculation or estimation of reconciling items, and the information is not available without unreasonable effort.

Following today's prepared remarks, Ron Hovsepian, Skillsoft's Executive Chair and Chief Executive Officer, and Ron Kisling, Skillsoft's Chief Financial Officer, will be available for Q&A. With that, it's my pleasure to turn the call over to Ron Hovsepian.

Thanks, Nick, and good afternoon. Thank you to everyone for joining us today. Over the past several quarters, we have simplified Skillsoft, sharpened our focus, and concentrated our investments on the areas where we have the greatest opportunity to differentiate and deliver measurable customer outcomes. With the completed divestiture of Global Knowledge, we are now centered on our core mission, helping enterprises build workforce readiness through an AI-native skills management platform. The platform connects trusted learning content with skills and work, helping customers develop capability faster and deploy talent where it creates measurable business impact. Today, I'll cover three priorities. Our sharper focus after the sale, our AI platform investments and growth opportunity ahead, and our plan to address our capital structure. Let me start with our strategic focus. GK played a meaningful role in Skillsoft's history and will remain an important partner for customers that value instructor-led training.

But ownership of that business added complexity, diluted our growth profile, and required management attention that can now be directed toward our enterprise platform opportunity. We now have a simpler story, a cleaner operating model, and a clearer path to improving growth, predictability, and free cash flow visibility over time, all of which is contributing to the stability of our business. By concentrating our capital, talent, and investments, we are better positioned to serve our customers, driving recurring revenue, and expand margins over the long term. For the consumer business, our objective entering the year was to maximize profitability and cash generation, and that strategy has remained unchanged.

While broader consumer weakness and the growing impact of AI on the coding-related learning demand have increased top-line pressure in the segment, we are proactively adjusting our investment profile to preserve margins and deliver against profitability objectives established at the start of the year. Shifting to our enterprise offering, AI is changing job requirements, operating models, and the mix of human and AI skills that organizations need. Skills connect people to roles, projects, and business priorities. Yet we believe most organizations lack a consistent way to understand the skills they have, the skills they need, and whether their workforce is ready. Skillsoft brings content and an AI-native technology platform together around skills management to address that gap. We have added new content creation capabilities. Our trusted learning content helps organizations build the leadership, technology, compliance, and the AI capabilities strategies require.

While our platform helps them identify gaps, focus development, and assess readiness. Customers can begin their skills management journey by integrating our differentiated, interoperable platform with their own data and current point solutions. We believe that this combination uniquely positions us to help customers translate AI disruption into workforce capability in a secure, measurable, and scalable way. We are now seeing customers respond to our broader value proposition. New platform activity continued to expand during the quarter. Retention remained healthy, with dollar retention of 95%, and our pipeline reflecting growing interest from organizations working to identify and quickly close skills gaps. We continue to see our customers validate the incremental value created by new AI capabilities in the platform. We remain on track to hit our goal of $5 million in platform bookings by the end of this fiscal year.

Two recent developments show how AI is creating greater value across our platform. We are helping customers create company-specific content faster and expand access to personalized hands-on development. First, our next-generation AI-based LX Design Studio platform capability reached general availability. LX Design Studio enables customers to turn their own expertise into custom courses, assessments, and interactive practice experiences within the Skillsoft platform. In early adopter testing conducted from February through June 2026, the LX Design Studio capability reduced production time of comparable interactive courses from a typical two to three weeks to three to five days. In addition, 80% of the participating customers designed and published a custom CAISY Conversation experience in just 15 minutes. A global IT and business consulting firm shows how customers are putting this capability to work.

The customer used LX Design Studio to create and publish more than 70 interactive courses and assessments by combining its internal expertise with Skillsoft's unique instructional design expertise and trusted content library. In more than half of these, employees leveraged CAISY simulations to practice high-stakes conversations and receive feedback on their performance. Second, we are expanding access to personalized hands-on development. In July, we launched early access for AI Coach. AI Coach brings personalized coaching into the Skillsoft platform, expanding access to a service historically reserved for a limited employee population. It helps employees reflect, set development goals, and act on what they have learned. This creates a more continuous and personalized development experience. More than 30 customers were identified for early access. Early customer traction continues to build, with seven organizations already piloting the solution, including top-tier global technology, telecommunications, and financial services companies.

Customers consistently cite AI Coach's ability to scale expertise across complex organizations as a key driver of interest. While its alignment to the International Coaching Federation standards continues to resonate as a differentiator. AI Coach builds on the momentum we are already seeing for AI-powered practice through CAISY, our conversation simulator. CAISY enables employees to practice role-specific scenarios in a safe environment and receive immediate, actionable feedback before applying those skills on the job. By the end of Q2, the number of CAISY learners increased 23% year-over-year, while the number of organizations using CAISY grew 9%, reflecting the growing demand for AI-enabled practice in skills development. Our work with a global professional services firm shows the enterprise value behind that growth. The customer used CAISY to scale its cybersecurity expertise through personalized hands-on practice that prepares consultants for client conversations.

This work was recognized last month with a Silver Award for the best use of AI for learning in the 2026 Brandon Hall Group HCM Excellence Award. Our enterprise-first strategy is paying off in demand and competitive displacement. We are winning against competitors while we stay disciplined in our focus on the enterprise. Most recently, a global reinsurance company became a new customer, selecting Skillsoft over a content-focused competitor through a three-year agreement. The customer is working to become a skills-based organization with technical capability and AI fluency at the center of its strategy. The decision to choose Skillsoft followed a six-month evaluation that extended beyond content to include skills, AI-enabled learning, enterprise integration, and the requirements of a highly regulated organization. This win illustrates where our strategy is resonating. Customers continue to need high-quality content, but they increasingly want that content connected to a broader skills strategy.

Our combination of trusted content, custom content creation through LX Design Studio, and enterprise platform capabilities differentiate Skillsoft from providers primarily focused on content access. Trusted content remains a key driver in our growth strategy. In June, Skillsoft received six Telly Awards, including three gold awards for scenario-based training developed as part of our compliance solution. This recognition reinforces the quality of our content and the expertise we bring to critical workforce needs. Looking ahead, we believe the opportunity to connect content and development more directly to how organizations plan and execute their work. That is why we developed the skills supply chain, a framework that begins with a business outcome and connects it to the human and AI work, skills, and workforce readiness required to deliver it. Skills intelligence will be an important next step in bringing that framework to life.