Thank you for standing by and welcome to Skillsoft’s Second Quarter Fiscal 2025 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ present, there will be a question-and-answer session. Please note that today's call is being recorded. I will now hand the call over to your first speaker, Stephen Poe, Investor Relations. Thank you, please go ahead.

Thank you, operator. Good day and thank you for joining us to discuss our results for the Second Quarter Ended July 31, 2024. 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 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 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 filing with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements or information which speak as of their respective dates. During the call, unless otherwise noted, all financial metrics we discuss will be 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, is included in our earnings press release, which has been furnished to the SEC and is also available on our website at www.skillsoft.com. Following today's prepared remarks, Ron Hovsepian, Skillsoft's Executive Chair and Chief Executive Officer, and Rich Walker, Skillsoft's Chief Financial Officer, will be available for Q&A. With that, it's my pleasure to turn the call over to Ron.

Good afternoon, everyone. I appreciate you joining us today to discuss our fiscal second quarter. Our performance on the top-line and on adjusted EBITDA were in-line with our expectations for the quarter. Our leadership team remains fully engaged in the considerable work to operationalize our targets. However, we've made notable progress and I'm encouraged by the early signs of operational execution. Most of our initiatives planning took place late in the second quarter, and we expect to see the benefit in future periods. As we outlined during our July 2024 Investor Day, our strategy is centered around two fundamental principles, fix the basics and invest to grow. These strategies have been carefully crafted to strengthen our core operations while strategically channeling resources into areas with significant growth opportunities. More specifically, our Fix the Basics strategy is focused on how we can improve internal operations and our go-to-market strategies to better serve our customers, specifically by transitioning to a dual business unit structure. This structure aligns us more closely with our customer needs and allows us to reallocate a portion of the $45 million expense reduction to support our growth initiatives. By executing on these foundational improvements, we are positioning ourselves to achieve profitable growth in the next fiscal year. Let me share more details on where we stand in implementing these strategies. We have fully operationalized our new business unit structure and are making progress in breaking out business unit detailed financials. We've moved away from our functionally driven model and transitioned to a structure where two general managers now lead their respective units with clear accountability and P&L responsibility. This brings decision-making closer to our customers and markets and is already driving improved outcomes, aligning our corporate support functions more efficiently as well. Said differently, this structure is better…

Thank you, Ron, and thank you everyone for joining today's call. As Ron shared in his opening comments, it was an active quarter for the company, as we pushed ahead on our journey to pivoting to consistent top-line growth in all areas of the business. In light of the significant changes we've implemented in the quarter, I am pleased we delivered total company revenue in-line with the expectations we outlined at Investor Day. Our longer-term goal remains unchanged to grow at or above market rates. Continued expense discipline across the company drove improved adjusted EBITDA and margin expansion year-over-year. From a timing perspective, it is important to note the resource reallocation efforts we articulated at Investor Day had only a minimal impact on Q2 financial results as we didn't begin implementation of those actions until early August, following the quarter-end. Consistent with our strategy, we are self-funding the important investments to fix the basics and activate key value drivers that Ron outlined in his comments. These investments are essential for setting a durable foundation for sustainable growth and we look forward to updating you on continued progress in the coming quarters, as their impact will become more evident. From an internal management reporting perspective, we made good progress on building out our dual business unit financial reporting structure, another step in our journey that we shared at Investor Day. This level of business unit performance at nearly a fully allocated expense level is essential to aligning our resources with our most profitable opportunities, driving improved efficiencies at the most fundamental level, and improving overall company financial performance. This exercise has allowed us to inspect every dollar of our shared services spent, better design allocation methodologies between the business units, and drive decision-making and P&L stewardship deeper into the organization. We…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question is from Ken Wong with Oppenheimer & Company. Please proceed with your question.

Great. Thank you for taking my question. Ron, the first one for you mentioned three new hires. When we think about the operational changes you're trying to put in place, would you say that you have all the executives in place now to implement that plan? And then considering it just rolled out in Q3, would Q3 be too early to get a read on how things are going, or are we going to have to wait until the end of the fiscal year?

Hey, Ken, how are you? It's Ron. Thank you for the questions. In terms of the three new hires that I highlighted there, I think that helps us get the team on the ground at the most senior level that we need in a company to execute the things we talked about at Investor Day and beyond. In terms of timing, I look forward to giving you a proper update on the next call, and I believe we will have some early directional returns at a minimum to share with you.

Okay. Okay, perfect. And Rich, Just a quick one on cash flow, considering the impact of the implementations don't kick in until 3Q, is that the quarter where you would assume that free cash flow will trough? And then I guess to the extent that you have any quantification and any rough sense of what the potential headwinds from the implementation costs might be?

Yeah, a couple of comments unpacking it. In the quarter itself, as you said, Ken, there were no impacts to the realized financials. What we enjoyed in EBITDA and margin expansion is just further validation of our continuous managing our expense base. So in the second half of this year, we're going to get the benefit of the expense actions that we've identified. We'll be concurrently redeploying a lot of that resource to both fixing the basics and investing to grow. And reaffirming our full year guidance kind of gives you the context around those pieces and how they come together. We've done $47 million of EBITDA in the first half of the year between the two quarters and reaffirming our guidance. So what we had said publicly around reinvestment is as much as 40% to 50% of that resource work funding capability will go back into the business. And as Ron said, we look forward to giving you updates on the next call where we're deploying that capital.

Okay, great. Thanks a lot. Good.

Thanks, Ken.

Thank you. Our next question is from Raj Sharma with B. Riley Securities. Please proceed with your question.

Hi. Thank you for taking my questions. I have two. The first is the cost and the declines as a percentage of sales and are these really -- this cost and restructuring are these a reduction of the excess cost base, or is this an alignment of the cost structure to a lower potential sales level in the industry? If there is a structural decline that you're foreseeing in the talent and development solutions business? And also, if you could comment on the global knowledge turnaround and how that is going, the declines are still year-on-year, sort of a similar level to last quarter.

Hi, great. This is Ron. Raj, how are you?

Good.

Good. Thank you. To your three questions, I'll take the last two on the TDS and the GK question and I'll let Rich address the cost structure piece of it. So that is no indication, quite the opposite of what we see for the potential in TDS. We do anticipate and had projected to you the opportunity in front of us in TDS in creating more of these talent champions, as we refer to them in shorthand. These are customers that are addressing very complex issues in their organizations, and this allows us to see growth there. And we see the market data that we are looking at shows continued growth in those spaces. Even with the shifts within the $400 billion of spending across all categories in this space, the ones that we're selecting can range from growth anywhere from a low of about 7% to a high of 13% or 14% in very small and smaller sub-segments. So again, these are the sub-segments within that number. So we see growth in where we're going and that's what we've focused on from a TDS perspective. So you shouldn't read any indication of a cyclical or a market segment cycle happening there from our perspective. On the GK piece of it, yeah, great. On the GK piece of it, very specifically, on that piece of it, this is really just letting Darren get ramped up and get the team going. And I look forward to really reporting where we are progressing in that business in the next quarter. But from a structural perspective, that market is still growing, albeit at a slower rate. That particular one is at the lower end of the growth rate, and they as a sub-segment -- it's shifting from being an in-classroom to virtual. What's…

And on the expense [Technical Difficulty] Raj, I would say cost of revenue as you identified initially, yes. In that case, as GK's revenue base shrunk in the quarter on a comparative basis year-over-year, the most significant cost of revenue for GK is both instructor and our courseware costs. So as that revenue has declined, we benefited from lower expenses in those areas. All other areas of the expense discipline are where we're taking proactive measures to prioritize where we're spending, where we're deploying resource. It is a big global growing market. And our longer-term objective is to grow at the market and ultimately above market. And this exercise is to make sure that we are investing for those growth initiatives that we see in front of us. And right sizing the company for the opportunity we're managing against in the near term. Our enthusiasm for the market and the opportunities for us in it is not changed. We're just being good stewards of our financial resources to prioritize and align to that growth.

Great, Thank you. Thank you for the call. I'll take it offline. Thank you.

Okay, Raj. Thank you.

Thank you. There are no further questions at this time. I would like to hand the floor back over to Ron Hovsepian for any closing comments.

Great. Thank you, operator, and thank you all for joining. As Rich highlighted, we reaffirmed the guidance that we gave you for year-end. And I think the importance of understanding that is we do look at this business on an annual basis and a quarterly basis as we reported. And we -- our confidence was reaffirmed as part of that journey over the last 90 days and I feel very good about the early things that I'm seeing inside the business like that example I just shared with you where we're seeing the pieces begin to work better across the business. And we saw a number of opportunities that were generated because of the business unit structure, the two business units and the full focus that it brings to the company. So I look forward to sharing more of those examples with you as time comes, as time goes on and we'll talk more about the details of the execution and the milestones that we had set with you, as part of our journey. So thank you all very much and stay tuned and talk soon. Thank you.

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