Thank you for standing by, and welcome to Skillsoft's Second Quarter Fiscal 2026 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 and a replay of the call and webcast will be available shortly after the call concludes for a period of twelve months. 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 second quarter ended July 31, 2025. 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 that constitute forward-looking statements within the meaning of The U.S. Private Securities Litigation Reform Act of 1995, 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, expectations, and assumptions and therefore are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions, forecasts, estimates, or projections in the forward-looking statements made today. 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 other documents that we file with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements or information 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. For example, listeners should be cautioned that references to phrases such as adjusted EBITDA and free cash flow denote non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation or as a substitute for GAAP financial measures. A presentation of the most directly comparable financial measures determined in accordance with GAAP, as well as the definitions, uses, and reconciliations of non-GAAP financial measures included in today's commentary to the most directly comparable GAAP financial measures, is included in our earnings press release, which has been furnished to the SEC on Form 8-Ks, is available at www.sec.gov, 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 John Frederick, 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. Economic uncertainty extended Q1 headwinds into Q2 and weighed on revenue primarily through lower customer discretionary training spending. The impact was most pronounced on our live learning offers, which include nearly all of global knowledge products while affecting only one product, coaching and TDS. With clearer visibility and established buying patterns, and given Q1 and Q2 contribute 30 to 40% of our annual bookings, we are updating our full-year revenue guidance. Despite a lower revenue base, we delivered consistent profitability and improved adjusted EBITDA margins, reflecting the success of our expense reduction, operational improvement, and resource allocation initiatives executed to date. As a result, we are maintaining our full-year expectations for adjusted EBITDA and free cash flow, which John will cover in more detail. Ahead of our results, we want to update you on our transformation. We're about one year into our execution plan, which is producing encouraging proof points. Most notably, a fourth consecutive quarter of revenue growth in our TDS enterprise solution, which represents more than 90% of the TDS segment. The people transformation and new roles are foundational to the next phase of our transformation, which are driving the new AI innovation-based product roadmap and our new positioning that will focus on intelligent learning design, skills intelligence, and immersive learning experiences. To summarize our key transformation actions, since launch last August, we have created and implemented a dual business unit structure, improved our operational execution, conducted a significant shift in critical resources, and recently finished building out our talented bench of leaders to drive our strategy forward. In total, these actions help deliver $45 million in expense reductions, contributed significantly to profitability and margin expansion, and we have begun to stabilize our core TDS enterprise segment. Turning…

Thank you, Ron, and good afternoon, everyone. As a reminder, and as noted at the opening of the call, consistent with prior quarters, this section covers non-GAAP measures, unless otherwise stated. As Ron noted, we continue to advance our transformation and are seeing encouraging signs even amid persistent macroeconomic and geopolitical challenges, particularly in public sector spending within our global knowledge segment. We have made considerable investments in our go-to-market enterprise customer resources and products, and while it's too early to conclude on the efficacy of these investments, I wanted to share some initial insights. With respect to enterprise customers, we invested in specialized subject matter experts, SMEs, to help our customers make the most of their talent development journey. These SMEs improved dollar retention rates by more than 10 percentage points better than the average. Investments made in Q2 will take time in the market for us to see the effects. Aiding this rollout of key investments, we now have a new marketing leader and expect to make some exciting product announcements in the upcoming weeks, as Ron referenced earlier. Now turning to the results. Revenue per talent development solutions, or TDS, was $101.2 million in the second quarter, slightly down year over year. Our TDS performance continues to benefit from our efforts to capitalize on the evolving market shift from traditional learning and skills development towards more comprehensive talent development solutions. However, during the quarter, growth in our TDS enterprise solutions was masked by declines in our learner product line, reflecting fundamental changes in the B2C market over time. Global knowledge revenue of $276 million in the quarter was down approximately $2.9 million or 9.6% year over year. We continued to see softening demand reflecting lower discretionary spending, particularly in North America, and from geopolitical instability in The…

Thank you. And at this time, we will conduct a question and answer session. Our first question comes from Ken Wong with Oppenheimer. Please state your question.

Fantastic. Thanks for taking my question. Ron, I wanted to touch on your comments about the softer live learning environment. Appreciate the color in North America and The Middle East. Are you able to give any additional color on if any particular sectors stood out in terms of kind of material softening? I know last quarter, we saw some softer government discretionary, but would love a sense of kind of what end markets might be impacted.

Yeah. No. Thank you, Ken. The answer is, yeah, it's kind of an interesting story. It's a tale of two cities here. What I see in North America specifically, I did see public sector get affected in North America and The Middle East in terms of live learning. Right? That was a direct hit there. When I look at what's happening in our live learning, in particular, in Europe, we're actually showing good progress there. I think as John referenced in his comments. So it's interesting. We've been and that's a booking statement. Is what you're hearing from me. We're seeing that progress. So it gives me confidence we see a clear path on how to fix that business and get that business to growth again. And proof points that we can do it. And we'll give more color in the near term on what we'll see then. We'll have some things to share. The interesting part, though, is where we got really, really hit in the quarter was really public sector. The uncertainty in The Middle East was a big one on that piece of it. And then in North America, the uncertainty that we're all familiar with and the expense got.

Got it. And any I'm sure the natural question from some investors might be, you know, why you're confident that this might be more of a macro dynamic versus potentially a competitive situation here. Any color you're seeing in the pipeline or just your deal commentary with customers that suggest that it's more the former rather than the latter?

Yeah. When I look down into the bookings and what I'm seeing happen specifically in Europe, which is probably six to nine months ahead of its recovery compared to, like, The US. What I see there is actually really nice large dedicated public sector deals being signed by the team. And that will become revenue and convert over time. And those are nice numbers. We haven't shared those numbers publicly, and we'll figure out when and where, if any, of that gets shared. But I can tell you that part is working. So that's where I'm getting the confidence from when you hear me say that, and that is where we're really seeing good progress. I would share with you that the rest of the market, when I look inside the sector of virtual instructor-led training and physical instructor-led training, those two pieces of it, it's the people who deliver it, are also seeing I looked at about six companies that deliver portions of it. And I saw a range of negatives from those companies reporting in that one live learning bucket is what I'm referring to. So I saw four out of the six not have growth. One of them have growth at 1%. So I didn't feel like we were way out of line with what's occurring across the market, again, in that narrow sector. There's another four or five companies I track, but they don't publish numbers. So that's a very important piece, Ken, of what I saw happening inside the market, as well. As I think about it. Yeah. And I think so hi, Ken. This is John.

A couple of things. So first, from a confidence perspective, we did see some green shoots as Ron alluded to in Europe with respect to GK. So we're starting to see some improvement from a bookings perspective such that that business is largely that piece of the business is largely inflected in that quarter. So that's a one-quarter inflection point. I wouldn't call it a full inflection, but it certainly gives us a reason to feel a little bit more confident with some of the activities we're conducting in that region. The second piece really is around confidence. When we adjusted our guidance down, almost all of that guidance adjustment pertained to GK specifically. So we're really trying to do our best to be careful and thoughtful about taking that piece of the risk profile of the forecasting out of the mix, if you will.

Got it. Okay. Perfect. And that somewhat segues into my next question, John, and just you feel that that $17 million, that three-point cut to revenue, that feels appropriately fenced off. I mean, you characterize that as being based on what you saw in your bookings in the quarter, or did you guys embed some further erosion as a potential safeguard?

Yeah. So it's a great question. Thank you. So first half revenue for the company was down about $7 million. When you think about this business from a normal seasonality perspective, from a bookings perspective, about 35% of our business is in the first half, about 65% is in the second half. So we have a bunch of commercial activity happening in the back half of the year. We took that into consideration when we set the low end of our guidance range. So, you know, said differently and more directly, first half down $7 million. That implies the back half being down $13 million to get to the low end of our guidance. So we tried to take that heavier seasonality in the back half of the year into consideration, if you will.

Perfect. Okay. Really appreciate the color there. I think that makes a lot of sense. And then yeah, I guess this could go for either you, Ron, or John. But with you know, you guys were projecting to a little bit of growth previously, and now the new guy, you know, bit of a decline from fiscal 2024. And I know the aim with all the moving pieces, the first, you know, first part of the year was to get back to growth, Ron. Do you think that that timeline is now hugely dependent on macro, or do you feel there's still elements that are within your control that potentially get this business back on track?

Ken, this is John. So great question. Why don't we start with what our strategic aim was last year? So we started with the transformation. We reduced some costs. We made a bunch of investments in the first half of the year, predominantly in the second quarter. So, you know, we haven't had quite enough time in the market to see how those investments were really gonna pay off. We certainly expect that they will. And when you play this out, I'd say that we've tried to do our very best to, to actually, I wanna actually, really wanna shift to a different topic here, but to give you a little bit more context. But I think what we really wanna do is make the investments. We have confidence in the investments that we've made. We've seen some green shoots in the business. We've also seen in the TDS enterprise product line that that business has continued to grow over the last four quarters. And that gives us a lot of confidence that given that that's 90% of the TDS segment, you kind of break the two pieces out, we derisk the forecast on the GK side. We've got the transformation seeming to work on the TDS enterprise product side. Our strategic target was that enterprise customer. If you go back to that beginning last August, so to kind of just summarize, the target was the enterprise customer. That segment of the customer is growing. We've derisked the GK side. I think we're feeling pretty good about what the outlook is.

Yeah. And just to finish answering your question on the macro uncertainty and the impact on the long term or near term plan, from my perspective, this macro uncertainty has hit us for about three to six months on timing roughly. As I look out into it. We were a little slow in some of the hiring. The macro uncertainty piece hit. So that piece of it is what I would contextualize it in. I feel very comfortable over the next twelve months to eighteen months we can make up at least one quarter of that. So I'm not I'm gonna let the economy do its thing. And as I shared with you and the rest of the group at the beginning of the year, we did not account for macro uncertainty because it was too difficult to predict at the beginning of the year. As we got through the first half here, we had a lot more facts in our patterns. We could see things and everything John said then kicked in in his prepared comments and just now. But when I look at it, I'm just looking at the time window of it. I see it hitting us for about six months right now, and I believe we can easily make up one of those quarters over the next twelve to eighteen months. Right? I don't wanna act like we can get back time, but some of that we can make up. And that's a financial statement in terms of getting back to the growth plans that we have. That's not that's I don't see it making a big shift or a tectonic plate shift, which is what you were, I think, really asking.

Perfect. Okay. Fantastic. And then yeah, maybe shifting to, again, more a more positive note. Does sound like TDS, especially the enterprise customers, was tracking the plan. Any update or any incremental color on maybe how the dollar retention rate looked for that business? And then to the extent that there's any color on maybe the 10% that's not the enterprise mix, any color on how that performed?

Yeah. Great question. So our year-to-date DRR was around 99 as you probably heard. And within the quarter, we had a fairly significant impact from our North American federal business. I think in terms of the prepared remarks, we were that had about a four percentage point impact negative in the quarter. So, you know, obviously, we're absent that effect. We would have had a bit better DRR. When I think about it relative to the competitive set in the marketplace, I think we're really holding our own nicely from a DRR perspective and setting the table for future growth. For sure. I think when you look at the smaller piece of the business that remaining less than 10% of the TDS business, which is really the B2C business, if you just kind of run the math. That business is down double digits on a year-over-year basis. So that was putting some fairly intense pressure on the TDS segment. Having said that, our real focus is on the enterprise customer.

Got it. Okay. Perfect.

Good. Yeah. That's fine. Keep going.

Yeah. I was gonna just ask and I know this is always it's always tricky, but I mean, given the cuts that you guys have laid out there, obviously, some incremental weakness to account for the seasonality in the second half. I mean, would it be fair to call Q2 a trough or I guess it'd be more I guess, could be maybe three Q depending on how we weight the guidance. But how would you help us kind of frame kind of where we are in terms of the magnitude of headwinds that you're facing?

Yeah. I think we've programmed in a bit of reduction in the back half of the year for sure. So if we were to kind of separate the two segments, we don't obviously, we don't give segment guidance. But we're certainly more negative in our outlook on the GK piece in terms of the guidance adjustment that we made. I think in the end, we can certainly expect that the TDS business should continue to perform at or about the level it's been from a revenue perspective. It's, you know, the seasonality is relatively modest in that business. It's basically a fifty-fifty business. Can it has some predictability to it. So I don't see a lot of negativity coming the way of TDS. With respect to a trough, we programmed in more of a trough on the GK side in the back half of the year. I think the way to think about it is kind of the tale of two cities again, with TDS performing reasonable to expectations. In fact, I'll say it more directly. Had we not had some of the headwinds on GK, we probably would be having the conversation about reducing guidance.

Got it. Understood.

And I think on the guidance, Ken, I think John answered that perfectly, so I don't want to add anything to add there. But just for I just want to remind everybody, we're balancing in this conversation your trough question. When I look at it, at the top level. We're balancing macro uncertainty, right, that we talked about, which your question was built on, but I'm also balancing a transformation at the same time. So your question about is it the trough, we're right you know, right in the middle of that transformation as well. Right? You as I indicated in my comments, you'll see you'll see a set of announcements shortly, very shortly. You will you we are hiring, as John pointed out in his things, very quickly, right, in this past quarter in particular. Right? So as you look at it, I the transformation also happening. That'll add to a little bit of the trough here that we're in. And so there's a financial part you were and then there's the transformational part. I think we just gotta remember we're doing both at once, which adds a little, you know, extra degree of difficulty. To what we're getting done from an overall business perspective. So in terms of the transformation layer of it, I believe we're hitting as we enter next year, I feel very good about the overall strategy and the execution of the go-to-market changes, the product changes, and the overall business changes that we're making. And those things will start to then be they'll be fully instantiated as we hit next year. And we will begin to see those things start to pay off. So I'll let you design the timing on the trough on that one.

Understood. I appreciate that, Ron. And then maybe the last question for me just look. While you know, little disappointing on the revenue side, you guys were able to maintain EBITDA and it sounds like cash flow will still be on the positive end. How should we think about kind of the levers that were pulled to the extent that there's further softening? I mean, do you feel there's still some capacity to sustain the kind of profit that you guys have been pushing forward since the start of the year?

Yeah. So we, Ken, we're certainly always cognizant of how we can become more efficient during the course of the year. So we're, you know, we're almost in a constant mode of assessing, particularly as part of this transformation, as we make these investments trying to become continuing to be more efficient. And so you can reasonably expect that we'll have a business model that comports with the current trajectory of the business. Yeah.

Understood. And I guess maybe a follow-up to that. I guess, how much of the cost management, the incremental productivity is just simply because a variable component to your cost structure, obviously, if your bookings and the revenue do not align with a certain compensation level for sales and marketing, you can dial that back. Versus, you know, what might have been more deliberately cut, whether it's on G and A or product to get aligned with kind of the current conditions.

Actually, very little of it was pure variable cost changes as a result of revenue. It was mostly the effects of fixed costs that we've taken out previously.

Alright. Perfect. I think that's it on my end, guys. Really appreciate the incremental color there. And yes, best of luck on the back half.

Thank you. Thank you.

Thank you. And there are no further questions at this time. I'll hand the floor back to Ron Hovsepian for closing remarks. Thank you.

Thank you, Diego. I'm as excited as ever about the opportunities in front of us at Skillsoft. While the challenging macroeconomic headwinds in some markets have caused choppiness in our revenues over the short term, the disciplined execution of our transformation, key investments, and the up-and-coming product announcements put us on sound footing to participate in the AI-fueled opportunities emerging in this market. Allowing us to really return the company to market growth in line with our long-range plan. So I'm confident where we're heading, and I look forward to seeing where and when and how fast we can get ourselves there. With that, thank you all for participating in the call today. Talk soon.

Thank you. This concludes today's call. All parties may disconnect. Have a good day.