Skillsoft Corp. Q1 FY2027 earnings call

Strategic Transformation

• Over the past 18 months, Skillsoft completed a comprehensive market assessment and repositioned from a traditional learning company to an AI-native enterprise skills platform, leveraging its core foundational assets of content, platform, and data.
• The company reduced gross costs by approximately $45 million, reinvesting half of the savings into go-to-market capabilities and AI-driven product innovation, maintaining strict capital allocation discipline.

AI Product Progress

• The company advanced its product roadmap, releasing an upgraded version of its AI simulation offering KC, and launched its new AI-native Precipio platform to general availability in February 2026.
• As of the call, 15 paying customers have been secured for the new platform, and Skillsoft uses the platform internally to refine the product and improve operational efficiency.
• Customer engagement metrics for AI-related offerings show very strong year-over-year growth: AI skill benchmark completions +994%, AI content completions +261%, AI journey completions +222%, KC learners +146%, and KC engagement +341%.
• Recent large customer wins include a major Singaporean telecommunications provider for AI-led workforce transformation and a large global healthcare organization for an AI-first operating model partnership.

Operational and Financial Progress

• All core structural fiscal 2025-2026 financial objectives were met: $45 million annualized expense reduction, margin expansion, return to top-line growth for TDS Enterprise, and positive free cash flow generation for both fiscal 2025 and 2026.
• Free cash flow for Q4 FY2026 was $26.5 million, up from $13.2 million year-over-year, driven in part by recaptured delayed collections from the prior quarter. Full year fiscal 2026 free cash flow came in just above the high end of management expectations at $6.5 million.
• A strategic review of the Global Knowledge segment is underway, as management prioritizes capital and focus on higher growth, higher margin, higher cash flow businesses, particularly TDS Enterprise.

Market Perspective

• Management believes AI is increasing (rather than reducing) demand for enterprise skills development, as it widens the skills gap and creates urgency for verified workforce capability to avoid business risks like poor decision-making, compliance exposure, and lower productivity.
• Skillsoft's differentiated positioning comes from three core strengths: deep, role-mapped skills intelligence, an integrated end-to-end system (not a narrow point solution), and the ability to operationalize AI securely and responsibly for enterprise environments.

Skillsoft operates three core segments: TDS (which includes TDS Enterprise and a B2C Learner product), and Global Knowledge (GK). In Q4 FY2026:

• TDS: Revenue of $102.6 million, nearly flat year-over-year. TDS Enterprise growth offset continued decline from the smaller B2C Learner segment (which makes up 9% of total TDS revenue). TDS contributed approximately $33 million to adjusted EBITDA, driving most of the company's overall adjusted EBITDA improvement. TDS LTM dollar retention rate (DRR) was 98% as of Q4, down from 105% in the prior year quarter, as customer retention improved but upgrade rates declined amid macro uncertainty.
• Global Knowledge (GK): Revenue of $28 million in the quarter, down $2.9 million (9.4%) year-over-year, with continued soft demand for instructor-led training. GK has 20% of its revenue exposed to the Middle East.
• Consolidated: Total company revenue was $130.7 million, down $3.1 million (2.3%) year-over-year. Adjusted EBITDA for the total company was $31.2 million, up 4% year-over-year, with an adjusted EBITDA margin of 23.9% (up from 22.4% in the prior year).

• For full fiscal 2027, management provided guidance exclusively for the core TDS segment, as the strategic review of GK remains ongoing:
  • TDS full year revenue is expected to be between $388 million and $406 million. At the midpoint of the range, nearly all of the ~$7 million year-over-year revenue decline is attributable to the expected continued decline of the small B2C Learner segment, while TDS Enterprise is expected to grow.
  • Adjusted EBITDA for TDS is expected to be between $108 million and $116 million, equaling approximately 28% of revenue, representing continued margin expansion.
  • Free cash flow for TDS is expected to be in the range of $14 million to $22 million, excluding GK.
• The low end of the guidance range incorporates pressures from Middle East geopolitical instability, while the high end assumes tempered B2C decline and stable performance in the Middle East.
• Management expects dollar retention rate (DRR) to resume an upward trajectory and return to levels above 100% in fiscal 2027, as the new platform ramps, and the company laps prior year headwinds from federal customer churn and large upgrade comps.

• Ongoing macroeconomic and geopolitical uncertainty has led to more cautious enterprise spending and negatively impacted bookings, particularly from government clients.
• The ongoing conflict in the Middle East has meaningfully disrupted the strategic sale process for Global Knowledge, due to GK's 20% revenue exposure to the region and potential buyer location in the market. There is no guarantee of a successful transaction.
• The current downtick in TDS dollar retention rate reflects lower customer upgrade rates amid broad enterprise expense tightening.
• Large enterprise customer migrations to the new AI-native platform can take 6 months to 2 years, meaning revenue upside from new platform adoption will be realized gradually over time.

Q: Why is TDS revenue slightly down, how conservative is the FY27 guidance, and when will AI engagement translate to monetization? / A: Nearly all of the projected year-over-year TDS revenue decline at guidance midpoint comes from the small B2C Learner segment, while TDS Enterprise has hit its inflection point and is performing well. Guidance incorporates Middle East geopolitical risk at the low end of the range and stronger performance at the high end. The 15 new platform customers are already paying, and early adopter pricing is structured to drive adoption first; large enterprise migrations typically take 6 months to 2 years, with customers growing from hundreds of thousands to multi-million dollar annual contracts over time.

Q: Can TDS dollar retention rate return to historical levels above 100%? / A: The 98% current DRR compares to an unusually strong 105% prior year quarter driven by large one-time upgrade deals, and lower upgrade rates this year stem from federal customer headwinds and broad enterprise expense tightening. Customer retention actually improved in Q4 FY26. Management expects DRR to move back to 100%+ in FY27, as the new platform gains traction, marketing supports the new launch, and the company laps prior year churn headwinds.

Q: How does Skillsoft compete against existing and new AI-focused rivals? Is softness driven by competition or macro? / A: Recent market softness is driven by macro uncertainty, not competition. Most competitors offer narrow point solutions, and Skillsoft's unified offering combining 20 years of deep skills ontology data, proprietary content, and a full-lifecycle AI-native platform is a unique, differentiated position. Management expects customers will migrate from fragmented point solutions to a unified integrated platform for enterprise skills management, creating a strong growth opportunity for Skillsoft.

Q: Is the Global Knowledge business stabilizing at its current $28 million quarterly revenue run rate? / A: GK performed better than expected amid the dual headwinds of the strategic sale process and Middle East conflict, with the EMEA and Middle East portions of the business performing well, while North America still needs operational improvement. While the business has growth potential, management has concluded it makes strategic sense to divest GK to focus on TDS, and could partner with GK post-transaction.