Thank you for standing by and welcome to Skillsoft's Third 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 would now like to hand the conference over to your first speaker today, 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 third quarter ended October 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 our 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.

Thanks, Stephen. Good afternoon and thank you for joining us. I am pleased with our fiscal third quarter results, which demonstrate the real progress we are making on the transformation plan we laid out earlier this year. As a reminder, our transformation strategy focuses on two key principles: fix the basics and invest to grow. Fix the basics aims to improve operational execution for growth and margin expansion. Invest to grow reallocates resources strategically to achieve above market growth rates. As we work towards becoming the number one talent development partner for both organizations and learners, our near-term commitments include the following: driving at least $45 million in annualized expense reductions this fiscal year on a run rate basis, with 40% to 50% of these savings being invested back into the business; returning to top line growth and continued margin expansion in fiscal year 2026; and generating positive free cash flow for the full fiscal year 2026. Putting it all together, we expect to deliver above market growth and deliver a leading financial profile in the coming years. Let me update you on our progress and action so far. We've implemented the new business unit structure with two general managers now accountable for their business unit performances. We're making quicker decisions closer to the customer and markets and early results are promising. We're able to do this while staying on track with our resource allocation efforts, and we are seeing customer validation of our strategy. During the quarter, we delivered key new customer wins, including a successful customer upgrade solution that was fueled by Skillsoft's AI Accelerator program. NTT Data, a global business and technology services organization set out on a journey to build a curricula to upskill their global leaders, frontline teams, consultants, and more in AI. Understanding AI…

Thanks Ron. Welcome everyone and thanks for joining today. As Ron shared in his opening comments, it was a notable quarter for Skillsoft as we executed across all facets of our transformation plan, which benefited our financial results and allows us to continue allocating resources to drive our future growth. While our transformation journey will span multiple quarters, I am pleased that we delivered revenue ahead of our expectations, improved profitability, and delivered strong free cash flow performance. Turning now to a detailed review of our financial results, starting with revenue. Talent Development Solutions, or TDS, revenue of $103 million was up 2% year-over-year, primarily due to our efforts to capitalize on the market shift from learning and skills to talent development. Our LTM dollar retention rate, or DRR, for Q3 stayed flat sequentially with the second quarter at 98%, compared to approximately 101% in Q3 of last year. The year-over-year decrease was primarily the result of two elements. Softness in our coaching and compliance product offerings. We are addressing the challenges in coaching through a revised product and pricing approach where we are moving to a subscription model and away from a seat licensing model. In our compliance area, as Ron mentioned earlier, we recently released our new integrated compliance platform that we expect to have a near term impact on our retention rates going forward. I am confident we understand the challenges, have identified the proper action plans, and have sufficient resources dedicated to improving the trend line. Our full year outlook is aligned to the current trends and our efforts to improve on this critical metric. And it remains one of our highest strategic priorities moving into Q4. Global Knowledge revenue of $34 million was down approximately $4 million, or 10% year-over-year. As Ron commented earlier, GK…

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. Please proceed.

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?

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.

Got it. Perfect. 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?

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.

Okay, perfect. Thanks a lot guys.

Thank you.

Thank you. [Operator Instructions] All right. I'm not seeing any questions. I would like to pass the call back over to Ron for closing remarks.

Great. Thank you, operator, and thank you, everyone, for joining us. Just in closing for this quarter, our actions in this quarter really, really helped drive the reduction in the cost structure and the expansion of the margins, which really is allowing us to reposition the company for the bigger growth initiatives and fund them appropriately while returning value to the shareholders. I feel very good about where we are with that reallocation expense targets. I feel that the appropriate notableness of what we see inside of GK's overall performance is a very good first step in my language, and I'm excited about where it could go. Confident we're building a very strong, financially sound business right now, and you're just seeing that very first return against that work. We have a very clear road map also for free -- for strong free cash flow generation as we continue to look at this quarter by quarter. And I look forward to sharing the progress with you after our Q4 performance. So thank you all very much for joining today.

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