Skillsoft Corp. Q3 FY2025 earnings call

• Transformation strategy focuses on 'fix the basics' (improve operational execution for growth and margin expansion) and 'invest to grow' (strategic resource reallocation for above-market growth).
• Implemented new business unit structure with two general managers accountable for business unit performances.
• Key customer wins include NTT Data and a top 30 global brand in media and entertainment.
• In TDS: Delivered four new innovations - AI Coaching Assistant (reduced average time to complete a coaching plan by 77%), AI assistants (personalize learning experience), new compliance suite (48% increase in net promoter score), and new end-to-end certification paths.
• In Global Knowledge: Moved to a regionally focused go-to-market model, aiding in stabilization and sequential revenue improvement.

Talent Development Solutions (TDS) revenue was $103 million, up 2% year-over-year, contributing approximately 75.2% of total revenue. Global Knowledge revenue was $34 million, down approximately 10% year-over-year, contributing approximately 24.8% of total revenue. TDS's LTM dollar retention rate (DRR) for Q3 stayed flat sequentially with the second quarter at 98%, compared to ~101% in Q3 of last year, affected by softness in coaching and compliance; Global Knowledge moved to a regionally focused go-to-market model, showing sequential revenue improvement with a year-over-year decline in revenue improved to 10% from 20% in previous quarters.

• Raised and tightened full-year fiscal 2025 revenue guidance to $520 million to $530 million.
• Reaffirmed adjusted EBITDA outlook of $105 million to $110 million.
• Expect to be at or near breakeven free cash flow for the full fiscal year due to progress in working capital management and collections.

• Challenges in coaching and compliance product offerings affecting DRR.
• Transition uncertainties in moving from seat licensing model to subscription model for coaching, and potential headwinds in business erosion during transition to new compliance platform.

Q: Hi. Thanks for taking my question. Ron, I wanted to touch on the GK stabilization. It sounds like the new GM regional sales model is starting to work. But besides kind of this one early data point, are there any other proof points that you saw within the quarter that gives you confidence that we may be finally turning the corner on this business?

A: Good to hear your voice, and thank you for the question. The answer is, yes, there were a lot of singles and doubles hit, not a home run in terms of one transaction. So when you look underneath the transaction base of what the team did and what they delivered, it had two attributes, the range and size of the transactions, but then the second part was also it built momentum throughout the quarter as well. So to me, that's -- those are really two big important pieces of what we want to accomplish there. On the product side of it, we received Partner of the Year from a number of prestigious companies and organizations. CompTIA, in particular, and the EC, the European Council were two of the big ones. But then you get to the countries, you get Cisco. You get Palo Alto Networks. You get a number of those players associated with that as part of it. So I see the right signals. But it's one quarter, as I told the team, and we need to continue to work really hard at the way we are. And it -- I wouldn't say we're there yet in any way shape or form, but I sure feel very good about that first quarter that they put together.

Q: And then, Rich, I just wanted to follow up on the -- you mentioned for the coaching and compliance, a little bit of headwinds there, but you're also changing the way you guys license that product. Any potential additional headwinds we should be thinking about, whether it's further erosion of the business or just some sort of a transition -- some transition uncertainties, some transition risks that could come about as you try to move customers to the new model?

A: Yes. You captured it, Ken. No change sequentially from the second quarter. It is always best to look at it on an LTM basis. So still at about 98%, 300 basis points different from the prior year. Some context within that, our large accounts, our largest customers are at about 105%. Obviously, mid-market and SMB have a very different DRR profile. The softness in coaching and compliance together explain most of that delta on a year-over-year basis. Quickly on coaching, that is where we're moving from a subscription away from a seat license model into a subscription model. We think that will allow customers to utilize the coaching more consistently than just more of a programmatic push from their HR teams. On the compliance side, as you alluded to, we think that platform is going to be much improved experience for customers. We saw almost a 48% increase in NPS for those customers that have migrated. All of those activities remain a strategic priority as we go into the fourth quarter, but feel that we're aware of where the challenges are, and we've got the right resources focused on improving those trend lines.