Greetings, and welcome to the Skillsoft Corp Third Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chad Lyne, Head of Investor Relations. Thank you, Chad. You may begin.

Thank you, operator. Good afternoon. And thank you for joining us today for Skillsoft's earning call to discuss our results for the third quarter ended October 31, 2023. Participating on today's call are Jeff Tarr, Skillsoft's CEO; and Richard Walker, Skillsoft's CFO. Today after market close, Skillsoft issued a press release announcing its financial results, which is available on our Investor Relations Web site. Before I hand the call over to Jeff, I want to remind you that today's call will contain forward-looking statements about the company's business outlook and expectations, 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 and expectations as of today and therefore, are subject to risks and uncertainties that could cause actual results to differ materially. 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 and Form 10-Q filings with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements or information, which speak as of the respective dates. During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures included in today's commentary to the most directly comparable GAAP financial measures as well as how we define these metrics and other metrics is included in our earnings press release, which has been furnished to the SEC and is also available on our Web site at www.skillsoft.com. After our prepared remarks, Jeff and Rich will be available to take questions. With that it's my pleasure to turn the call over to Jeff.

Thanks, Chad. Good afternoon and thank you for joining us. Our team delivered another quarter of revenue and bookings growth in our high margin SaaS based content and platform segment. Our LTM dollar retention rate was 101%, up 3 percentage points, highlighting our progress and growing share of wallet within existing customers. Adjusted EBITDA margins were 21%, up 100 basis points. Our instructor led training segment remained stable sequentially but was down year-over-year, in part, due to a noncore product line that we are exiting. Rich will cover our results in more detail. Today, I'll focus my remarks on how we are positioning Skillsoft to seize the substantial growth opportunity in front of us. In my recent discussions with business leaders across a range of industries, skills gaps and workforce transformation challenges are a consistent theme, and generative AI is almost always a topic of conversation. According to the World Economic Forum's Future of Jobs report, nearly one quarter of all jobs will be disrupted in the next five years due to new technologies, including generative AI. According to Goldman Sachs, two thirds of occupations are exposed to at least partial automation by AI. In the face of this wide ranging disruption to the labor market, more than eight out of 10 companies view investments and learning as the most promising strategy to deliver on their business’ goals. For these organizations, effective upskilling and reskilling initiatives are C-suite priorities. This is where Skillsoft is winning. Over the last two years, we've transformed Skillsoft from a vendor of video e-learning content into a provider of transformative multimodal learning experiences that deliver measurable results. We built Skillsoft Percipio into a best of breed AI enabled learning experience platform that integrates with nearly every major LMS and e-learning content provider. We added skills…

Thanks, Jeff. Welcome everyone and thanks for joining today. Covering our financial results, let's turn first to our content and platform segment, which accounts for nearly three-fourths of our business. As we've discussed in the past, given its quarterly seasonality, it's best to view bookings and retention rates in this primarily subscription based segment on an LTM basis. Content and platform bookings were $420 million on an LTM basis, up 4% compared to the prior LTM period with growth across all areas of the content and platform portfolio. Retention rates in our content and platform segment remain strong, demonstrating the value we deliver to our customers and our team's ability to up sell and cross sell our broad range of solutions. Our LTM dollar retention rate was 101%, up 300 basis points from the comparable prior period and marking our third consecutive quarter at this level. In an environment where many SaaS companies are facing higher levels of churn and erosion, our dollar retention rates are trending positively. Content and platform third quarter revenue was $101 million, up 3% year-over-year and marking another quarter of growth for this segment. Similar to my bookings commentary, all areas of the portfolio contributed to the revenue growth. Let's turn now to our more transactional ILT segment where bookings were stable and roughly flat sequentially at $46 million but down 4% year-over-year. IoT revenue was a similar story, flat sequentially at $38 million but down 9% year-over-year, which was consistent with the second quarter comparison. The demand environment for in person and virtual instructor led training continues to be choppy as we've seen corporations shifting some of their IT training priorities and budget resources. We've also seen the current macro impact ILT's European operations more acute, while performance in our North America, Middle East…

Thanks, Rich. I'm excited by the opportunity in front of us. Skillsoft has assembled the industry's most complete suite of learning solutions for the enterprise. We are leveraging those capabilities to grow our share of wallet within the world's largest and most sophisticated organizations. And we're addressing our customers' most critical skills gaps with measurable outcomes. These strengths are reflected in our improving dollar retention rates, especially at the high end of our market where DRR is 110% and a healthy pipeline of new opportunity. Our team is firmly committed to translating this progress into improved profitable growth and meaningful shareowner value creation. With that, operator, please open the call to questions.

Thank you. We will now be conducting a question-and-answer session [Operator Instructions] Our first question comes from the line of Ken Wong with Oppenheimer.

Jeff, maybe I wanted to maybe first touch on the softness you saw in Europe. Maybe give us some details in terms of what you guys saw in the KPIs, what you're seeing from customers in terms of what's causing that particular down pressure? And then just, Richard, as far as the guide is down, is that specific to just Europe or have you embedded potential weakness in other regions as well?

We feel good about the platform and content business. We've seeing acceleration in the LTM growth of platform and content and good metrics there. So on the ILT side, early in the quarter, we were seeing good metrics and some real momentum in that business. It stalled in the second half of the quarter or at least softened, such that we were able to deliver a good sequential performance but year-over-year we were down and we had hoped to be up. In general, I'd say, overall, the market for that product is softer and because it's a transactional business, has a little less visibility than the rest of our company. Rich?

I would echo, we had expected to see the growth in the second half accelerated. And we've heard from our largest tech partners that ILT spending is down overall year-over-year, and we experienced that same trend.

But the platform and content business is healthy.

Our next question comes from the line of Raimo Lenschow with Barclays.

This is Sheldon on for Raimo. Thanks for taking our questions. I wanted to ask a little more on what you're seeing on the content the platform side. Like you said on the on the call, retention is remaining healthy around that 101%. So I wanted to ask what you're seeing on sales cycles goals for new business, and anything to call out there maybe by region? And are you doing anything on value selling or trying to package together maybe smaller deals to help increase the velocity on that in that new side? And then I have a quick follow-up.

Well, I can tell you where we're seeing strength and where we're seeing relative softness. First, overall, the platform and content business is performing well and we're seeing momentum in that business. You can see that in the LTM metrics, you can see that in the dollar retention rates, all of which are trending in the right direction. In terms of where we see the greatest strength, it's at the high end of our market, it's with our larger customers, it's where the needs for reskilling and upskilling are particularly complex and where our ability to deliver integrated global solution is competitively very strong, that's where we're seeing the growth. At the lower end of the market, we're seeing price competition as we've seen over the last few years and we're taking steps to address that with a competitive entry level offering, which we recently launched. And we're investing in our inside sales capabilities so that we can address that low end more efficiently. But net-net, we believe that we're performing well in the high growth segment of the market and that's the upper end of that market, and feel good about how we're positioned.

And I wanted to ask how is CAISY trending? And when you're talking to customers in the early stages, is that reviving customer interest to reengage more meaningfully with Skillsoft?

Absolutely. Yes, I'm glad you asked that. Absolutely. What we're seeing from customers and analysts is a very strong reception, there's a few that we have a market leading offering here in CAISY. People learn by doing and CAISY is enabling our learners to do just that. And it's very exciting, we're partnering with customers to create new scenarios, so they're highly engaged. In terms of how that drives revenue, it's embedded in a higher tier subscription offering along with a number of other capabilities and we are actively upselling from our entry level offering into the subscription that has KC and other elements of interactivity.

Our next question comes from the line of Raj Sharma with B. Riley.

I wanted to understand, either for Jeff or Rich. Just is it easy or tough to measure the contribution of generative AI on revenues today for the near to medium term in the future?

To measure just the impact of generative AI isn't really possible, because the biggest impact is on the curriculum side. So we've been actively developing, learning journeys and courses that are designed to give people the skills to use generative AI across the enterprise, across all functions, across all content areas, and there's been a really strong uptake. In fact, just to give you a metric, this year alone, we've delivered 17 million AI related courses year-to-date. And that's a strong metric, it's important we're investing, but that's across the entirety of our portfolio. And so it's difficult to measure how the actual impact on growth. Where we may be able to get some -- quantify some impact is our success upselling higher value subscriptions. But even then, as I mentioned, CAISY is part of the higher value subscription, but it's not the only element of interactivity in the higher value subscription. Rich, anything to add?

Yes, just a quick one. Jeff talks, Raj, about what we teach, how we teach. That last piece I think was directed to me, how we operate the business. And while it's very early days, I think over time, key areas of marketing and content development, it's going to be part of the reason we'll continue to see margins expand and absolute EBITDA grow.

Just in terms of the bookings and whether it's weakness or strength and how it varies across the market, across the customers, larger customers doing better, or could you add more color to that? And also, you mentioned -- Jeff, you mentioned the high DRR sectors. Could you talk about who those customers are?

When we look at our largest customers, the dollar retention rates are north of 110%. So obviously, if you then consider that our dollar retention rate is a little over 100% for the company overall then at the low end of the market, the dollar retention rates are lower, and that's where we have an opportunity to meaningfully improve our customer retention at the high end. We believe we have substantial headroom to grow share of wallet, because we're really just scratching the surface of the cross sell and upsell opportunity.

Raj, I'd add one thing. In the content and platform, another reason why it's so important to look at business on an LTM basis. So the content and platform bookings were up 4% this quarter. If you go back to the first quarter on an LTM basis, they were 1%. Last quarter, 2% on an LTM. So we're seeing acceleration in the content and platform business and also converting into revenue, seeing nice revenue growth in content platform.

I wanted to just touch upon the Codecademy. So I just want to understand, is it a standalone product or is it integrated into Percipio? And how is that performing in terms of its organic growth, is there a way to measure it now or…

The consumer product is standalone, the B2B product, which is where most of the growth is, is integrated. In fact, we've rebranded the entirety of our tech and dev offering as Codecademy for enterprise. So it's not possible to break it out. But we can tell you that that it contributed to growth in the quarter. Rich?

I'd just add that while we -- the segment we report on doesn't give granularity down to the individual products. On an LTM basis and content platform, all three of the segments grew and contributed to that growth. Certainly, Codecademy enterprise, our tech and dev offering, was part of that.

And I'd say the B2B is growing stronger than the B2C, which the B2B market has been softer for everyone, B2B is strong.

And then just on the guidance, is that correct, you said that it's the earlier guidance range, but the revenues would be the lower end of guidance and EBITDA would be at the upper end of guidance? Did I read that correctly?

That's correct. We didn't update the range for both bookings and revenue, we said approximately at the low end of the bottom of the range and on the adjusted EBITDA, pointing you to the high end.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Jeff for closing comments.

Well, I just want to take this moment to thank everyone. I want to thank our team members who have been working really hard to set us up for a really solid Q4 and for what they delivered in Q3. I want to thank our analysts for the hard work that you're doing and our investors, and of course our customers. We look forward to connecting with you over the coming days, and we'll look forward to giving you an update when we wrap up the year. Thanks very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.