Skillsoft Stock

Thank you for standing by, and welcome to Skillsoft's second quarter fiscal year 2027 results conference call. [Operator Instructions] 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 12 months.

I would now like to hand the conference over to your first speaker today, Nick Teves, 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, 2026. 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, and our expectations for the future of the company 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, the Form 10-Q filed today, and other documents that we file with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements or information which speaks as of their respective dates.

During the call, unless otherwise noted, all financial metrics we discuss, other than revenue, will be non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles and, except with respect to consolidated free cash flow or otherwise noted, will refer to continuing operations. 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 do not have standardized meanings, may not be comparable to similar measures presented by other public companies that describe similar metrics, and 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 are included in our earnings press release for second quarter fiscal 2027, which has been furnished to the SEC on Form 8-K and is available at www.sec.gov and is also available on our website at www.skillsoft.com.

Note that we do not provide reconciliations for forward-looking non-GAAP financial measures as we are unable to provide a meaningful or accurate calculation or estimation of reconciling items, and the information is not available without unreasonable effort. Following today's prepared remarks, Ron Hovsepian, Skillsoft's Executive Chair and Chief Executive Officer, and Ron Kisling, Skillsoft's Chief Financial Officer, will be available for Q&A.

With that, it's my pleasure to turn the call over to Ron Hovsepian.

Thanks, Nick, and good afternoon. Thank you to everyone for joining us today. Over the past several quarters, we have simplified Skillsoft, sharpened our focus, and concentrated our investments on the areas where we have the greatest opportunity to differentiate and deliver measurable customer outcomes. With the completed divestiture of Global Knowledge, we are now centered on our core mission, helping enterprises build workforce readiness through an AI-native skills management platform. The platform connects trusted learning content with skills and work, helping customers develop capability faster and deploy talent where it creates measurable business impact.

Today, I'll cover 3 priorities. Our sharper focus after the sale, our AI platform investments and growth opportunity ahead, and our plan to address our capital structure. Let me start with our strategic focus. GK played a meaningful role in Skillsoft's history and will remain an important partner for customers that value instructor-led training. But ownership of that business added complexity, diluted our growth profile, and required management attention that can now be directed toward our enterprise platform opportunity. We now have a simpler story, a cleaner operating model, and a clearer path to improving growth, predictability, and free cash flow visibility over time, all of which is contributing to the stability of our business.

By concentrating our capital, talent, and investments, we are better positioned to serve our customers, driving recurring revenue, and expand margins over the long term. For the consumer business, our objective entering the year was to maximize profitability and cash generation, and that strategy has remained unchanged. While broader consumer weakness and the growing impact of AI on the coding-related learning demand have increased top-line pressure in the segment, we are proactively adjusting our investment profile to preserve margins and deliver against profitability objectives established at the start of the year.

Shifting to our enterprise offering, AI is changing job requirements, operating models, and the mix of human and AI skills that organizations need. Skills connect people to roles, projects, and business priorities. Yet we believe most organizations lack a consistent way to understand the skills they have, the skills they need, and whether their workforce is ready. Skillsoft brings content and an AI-native technology platform together around skills management to address that gap. We have added new content creation capabilities. Our trusted learning content helps organizations build the leadership, technology, compliance, and the AI capabilities strategies require, while our platform helps them identify gaps, focus development, and assess readiness.

Customers can begin their skills management journey by integrating our differentiated, interoperable platform with their own data and current point solutions. We believe that this combination uniquely positions us to help customers translate AI disruption into workforce capability in a secure, measurable, and scalable way. We are now seeing customers respond to our broader value proposition. New platform activity continued to expand during the quarter. Retention remained healthy, with dollar retention of 95%, and our pipeline reflecting growing interest from organizations working to identify and quickly close skills gaps.

We continue to see our customers validate the incremental value created by new AI capabilities in the platform. We remain on track to hit our goal of $5 million in platform bookings by the end of this fiscal year. Two recent developments show how AI is creating greater value across our platform. We're helping customers create company-specific content faster and expand access to personalized, hands-on development. First, our next-generation AI-based LX Design Studio platform capability reached general availability. LX Design Studio enables customers to turn their own expertise into custom courses, assessments, and interactive practice experiences within the Skillsoft platform.

In early adopter testing conducted from February through June 2026, the LX Design Studio capability reduced production time of comparable interactive courses from a typical 2 to 3 weeks to 3 to 5 days. In addition, 80% of the participating customers designed and published a custom CAISY Conversation experience in just 15 minutes.

A global IT and business consulting firm shows how customers are putting this capability to work. The customer used LX Design Studio to create and publish more than 70 interactive courses and assessments by combining its internal expertise with Skillsoft's unique instructional design expertise and trusted content library. And more than half of these employees leverage CAISY simulations to practice high-stakes conversations and receive feedback on their performance.

Second, we are expanding access to personalized, hands-on development. In July, we launched early access for AI Coach. AI Coach brings personalized coaching into the Skillsoft platform, expanding access to a service historically reserved for a limited employee population. It helps employees reflect, set development goals, and act on what they have learned. This creates a more continuous and personalized development experience. More than 30 customers were identified for early access. Early customer traction continues to build with 7 organizations already piloting the solution, including top-tier global technology, telecommunications, and financial services companies.

Customers consistently cite AI Coach's ability to scale expertise across complex organizations as a key driver of interest, while its alignment to the International Coaching Federation standards continues to resonate as a differentiator. AI Coach builds on the momentum we are already seeing for AI-powered practice through CAISY, our conversation simulator.

CAISY enables employees to practice role-specific scenarios in a safe environment and receive immediate, actionable feedback before applying those skills on the job. By the end of Q2, the number of CAISY learners increased 23% year-over-year, while the number of organizations using CAISY grew 9%, the growing demand for AI-enabled practice in skills development.

Our work with a global professional services firm shows the enterprise value behind that growth. The customer used CAISY to scale its cybersecurity expertise through personalized hands-on practice that prepares consultants for client conversations. This work was recognized last month with a silver award for the best use of AI for learning in the 2026 Brandon Hall Group HCM Excellence Award. Our enterprise-first strategy is paying off in demand and competitive displacement. We're winning against competitors while we stay disciplined in our focus on the enterprise. Most recently, a global reinsurance company became a new customer, selecting Skillsoft over a content-focused competitor through a 3-year agreement.

The customer is working to become a skills-based organization with technical capability and AI fluency at the center of its strategy. The decision to choose Skillsoft followed a 6-month evaluation that extended beyond content to include skills, AI-enabled learning, enterprise integration, and the requirements of a highly regulated organization. This win illustrates where our strategy is resonating. Customers continue to need high-quality content, but they increasingly want that content connected to a broader skills strategy. Our combination of trusted content, custom content creation through LX Design Studio, and enterprise platform capabilities differentiate Skillsoft from providers primarily focused on content access.

Trusted content remains a key driver in our growth strategy. In June, Skillsoft received 6 Telly Awards, including 3 gold awards for scenario-based training developed as part of our compliance solution. This recognition reinforces the quality of our content and the expertise we bring to critical workforce needs. Looking ahead, we believe the opportunity to connect content and development more directly to how organizations plan and execute their work. That is why we developed the skills supply chain, a framework that begins with a business outcome and connects it to the human and AI work, skills, and workforce readiness required to deliver it.

Skills intelligence will be an important next step in bringing that framework to life. New capabilities coming to our platform will turn learning and assessment activity into skills evidence, giving customers a more current view of workforce proficiency and readiness. This will help leaders embedded in the business identify skills gaps earlier, prioritize development investments, and make better-informed execution decisions. We expect to share more soon. What differentiates Skillsoft is our ability to not only identify skills gaps, but also help customers close them. By connecting skills intelligence with trusted content, AI-powered content creation, and the learning experiences required to build capability, we help organizations move from understanding workforce needs to preparing the workforce to meet them.

With strong customer momentum, we are seeing early acceptance of our new AI platform capabilities, combined with improvement in our go-to-market motions and pipeline expansion opportunities with large existing customer base, gives us confidence that we are approaching growth in our enterprise business. That brings me to our up-and-coming debt maturities, which remain management's top financial priority. The completion of the Global Knowledge divestiture is an important milestone that further simplifies the company and enhances the stability, predictability, and visibility of our cash flow profile. It allows us to engage with our lenders from a position that more clearly reflects the business we are today and the business we are building.

We have put the appropriate governance and advisory framework in place to support this effort, including the formation of a special committee of our board and the engagement of experienced advisors. We are ready to approach this process with discipline. While we're not going to speculate on the timing or potential outcomes today, our objective is clear: to establish a capital structure that better supports Skillsoft's long-term strategy, strengthens financial flexibility, and provides the foundation to continue investing in the growth of our skills management platform.

Before I turn it over to Ron, I want to give a quick update on our guidance. As a result of the accelerating dynamics in our consumer business, we are reducing our fiscal 2027 revenue guidance to a range of $380 million to $390 million. Most importantly, we are maintaining our full fiscal year adjusted EBITDA and free cash flow from continuing operations guidance, reflecting the continued focus on profitability and disciplined management of the business. Ron will provide additional detail on our updated outlook in a moment.

To close, there is still work ahead, but the direction is clear. We're building a simpler, stronger Skillsoft for the platform increasingly relevant to the enterprise needs created by AI disruption. We are addressing our capital structure with discipline, and we believe product innovation, improved retention, early strong customer indications of platform adoption, and better go-to-market execution position the business for a more durable growth trajectory. We believe that position helps us create value for our customers, employees, lenders, and shareholders over time.

With that, let me turn the call over to Ron Kisling to cover our financial results in more detail. Ron?

Thank you, Ron, and good afternoon, everyone. Before I move into the financials, as a reminder, and as noted at the beginning of the call, consistent with prior quarters, our discussion will focus on non-GAAP financial measures, unless otherwise stated. But as we pointed out last quarter, the former Global Knowledge business is classified as discontinued operations. As a result, except for consolidated free cash flow and unless otherwise stated, the financials discussed today relate to our continuing operations, which are comprised of our Talent Development Solutions business, which is more simply referred to as Skillsoft.

Now turning to the results for the second quarter. Total revenue was $98.2 million, down 2.9% compared to Q2 '26, while our dollar retention rate, or DRR, improved to 95% from 94% in the prior year quarter. LTM DRR was 98% compared to 99% in the prior year period. The decline in our GAAP revenue was largely attributable to our consumer business and, excluding consumer revenue, our core enterprise business was roughly flat year-over-year with a decline of approximately 1%. With respect to expenses, we continue to see year-over-year improvements. The cost of revenue was $15.1 million in the second quarter, or 15.4% of revenue, compared to $15.8 million or 15.6% of revenue in the prior year period.

Cost of revenue is largely variable and generally moves with revenue, volume, and product mix, as different offerings get a very different margin profile. The year-over-year decline primarily reflected lower revenue, partially offset by a greater mix of lower-margin labor-based offerings. Overall, adjusted total operating expenses of $64.8 million in the second quarter, or 60% of revenue, were down $5.1 million, or 7% year-over-year. Looking at operating expenses by functional area, content and software development expenses were $11.5 million in the quarter, down approximately 8% year-over-year at 11.7% of revenue.

Our selling and marketing expenses were $25.4 million in the second quarter, down approximately 12% year-over-year, or 25.9% of revenue, reflecting the benefit of lower spending due to a redesign of our go-to-market. General and administrative expenses were $12.8 million in the second quarter, flat year-over-year at 13.1% of revenue. Our adjusted EBITDA from continuing operations was $33.4 million, up 7% compared to $31.2 million in the prior year's comparable quarter, with adjusted EBITDA margin as a percentage of revenue for the quarter improving to 34% from 31% in the prior fiscal year period.

Our GAAP net loss from continuing operations was $15 million in the second quarter compared to a GAAP net loss from continuing operations of $18 million in the prior year period. GAAP net loss per share from continuing operations was $1.67 compared to a $2.10 net loss per share in the prior period. Our adjusted net income was $10.5 million, or $1.17 per share in the second quarter, compared to an adjusted net income of $13.6 million, or $1.59 per share in the prior year fiscal period.

I will now discuss our cash flow and balance sheet highlights. Cash equivalents and restricted cash were $93.1 million at the end of Q2, and our consolidated free cash flow for the second quarter was negative $20.5 million compared to negative $22.6 million in the prior year period. As a reminder, due to the seasonality in our cash collections, we typically consume cash in our fiscal second and third quarters and generate positive cash flow in our first and fourth quarters. Total gross debt on a GAAP basis, which includes borrowings on our term loan and accounts receivable facility, was $575 million at the end of Q2, down from approximately $579 million at the end of the prior year period.

Total net debt, which includes borrowing on our term loan and the accounts receivable facility, net of cash, cash equivalents, and restricted cash, was approximately $481 million up from approximately $475 million at the end of the prior year period. And lastly, as Ron mentioned, we've seen an acceleration of negative impacts in the consumer market, as well as an increasing impact from AI on our consumer business, which is primarily focused on coding. As a result, we are revising our full year fiscal 2027 revenue guidance to a range of $380 million to $390 million from our previous range of $388 million to $406 million.

We continue to be very focused on running our business with a strong operating discipline. As a result, we are maintaining our adjusted EBITDA and free cash flow for continuing operations guidance. With adjusted EBITDA from continuing operations expected to be between $108 million and $116 million or approximately 28% of revenue. And we expect free cash flow from continuing business operations to be in the range of $14 million to $22 million. As we discussed in prior quarters, we expect to generate free cash flow from continuing operations in the fourth quarter of the year, all of which is reflected in the guidance range we have provided.

As a reminder, when we originally issued our free cash flow guidance for fiscal year 2027, it was for the go-forward Skillsoft business since, at that time, we were unable to estimate when and if Global Knowledge would be sold. Completion of our sale of Global Knowledge during Q2, we are now able to estimate the impact of Global Knowledge on our cash flow and liquidity. For our fiscal year '27 free cash flow, we estimate the impact of Global Knowledge disposal will consume about $15 million of cash attributable to cash burned from operations, transaction-related costs, and stranded costs, $12 million of which was incurred through July 31, 2026.

Our Q3 cash from investing activities will also include approximately $4 million of cash used for third-party advisors attributable to the sales process. Outside of cash flow, the structure of the Global Knowledge transaction included approximately $13 million of deferred proceeds subject to customary closing adjustments, including $4 million due this fiscal year, $6 million due in fiscal year 2028, and the remainder due in fiscal year 2029. We received the payment during Q3 and continue to work closely with the buyer to ensure all remaining payments are collected in accordance with the sale agreement.

That concludes our prepared remarks. Operator, please open the line for questions.

We will now be conducting a question and answer session. [Operator Instructions] Your first question comes from Ken Wong with Oppenheimer & Co. Please proceed with your question.

Ron, I wanted to dive into the consumer segment first. Acknowledge that that business remains weak. It looks like it de-celled from the Q1 softness. Can you maybe just kind of elaborate again in terms of what's happening there? Do you see a potential, potential, you know, stabilization in sight? Do we just need a burn off specific kind of, you know, product lines? What, you know, kind of what's the, what's the path to hopefully get that business back on track?

Yes, this is Ron Kisling. I think what we've started to see is, you know, what we've, which we just described on the call as kind of an acceleration in the decline. What we're seeing is an impact in the consumer segment overall. We're also seeing an accelerated impact of AI on the consumer business. Our consumer business was focused around code development, which is an area that's been transitioned a lot of that work to AI and AI agents to create that. You know, our strategy on that business from the beginning of the year is to really run that business with a focus on profitability. You know, we continue to do that. But the acceleration has accelerated. We do think that acceleration is going to continue.

But we do expect that business to continue to be unlike the Global Knowledge business, you know, a profitable business to continue to contribute to the bottom line. And so while we see dislocation in the top line of the consumer business, you know, the profitability remains intact and allows us to maintain our, you know, total company outlooks on profitability, adjusted EBITDA, and cash.

Understood. Appreciate the color there. And then perhaps on the enterprise side, you know, while that did improve slightly from as far as the decrease year-over-year, you know, again, business still downtick year-over-year. I guess what are some of the puts and takes there? I mean, do you feel that that business is in a good, sorry, good place from a stabilization perspective? I recall last quarter you guys touched on how at least bookings were a source of strength, so something that might not be obvious in the revenue. Can you comment on Q2 whether or not we're seeing maybe a similar dynamic as far as leading indicators of the enterprise side?

Yes, I mean, I think there's a couple of dynamics. I think, you know, first and foremost, I think we are seeing, you know, a real stabilization in the enterprise business. You know, it was down, you know, a little less than it was before, less than 1% actually. And a lot of the impact we were seeing, even through Q2, we talked about on the Q1 '26 call, stems, we have an annual business from our contracts, from some bookings impact we saw in the first half of 2026, due to some federal cost cutting, and you're seeing that sort of play out.

So that's still impacting Q2. That pretty much goes away as we exit this. So we're starting to see that stability and the impact of that kind of go away, and that's, that sort of headwind should be behind us as we move into Q3.

Yes, this is Ron. I'll add one thing on top of that. We are seeing a good early acceptance of our, of our AI products that we brought to market on the platform side. We're in the early acceptance phase, as I mentioned in my prepared remarks. So that, that to me is where my, where myself and Ron are focused. So we're seeing those pieces bridge together with the content and telling a much stronger story in those examples we gave you.

Got it. Maybe diving into that piece of it, seeing some initial adoption. You know, when we think about where we are today, early acceptance phase to what I'm sure a lot of investors are hoping to see down the line, which is improved monetization, hopefully better attach, better customer wallet. Any rough sense for when we might start to see some of that trickle through?

I think part of us sharing with you that we set a target as we deliver these products for the $5 million of that AI-native platform. That is all new stuff built on the foundational models. So that's all new technology. And as we deliver that to the market, we wanted to set a target so you could see that separate recognition of value in the platform, separate from everything else we're doing. And we thought we'd give that as a startup, a starter that we're able to get value in the market for what we're doing. And we thought that was just a good spot to start.

As we roll out these things, then obviously as we get predictability behind that, we can then layer that in there. We'll give you the right update as we head into next year on what we see that being, and we'll try to be, you know, as forward-leaning as we can on sharing those growth vectors with you. We're not ready to share any of those pieces just now, but I thought it was important that you understood we are getting value. We're getting value for new AI-based products incrementally is the key takeaway. And we set that target and we have a good pipeline behind it as I mentioned. So I have good confidence we're going to be able to be able to deliver that number.

Okay, perfect. And then, I think we all can see the pressures of AI on the consumer business. At least from the outside, it looks like it hasn't had as much of an impact on enterprise. Although in the software ecosystem, we have heard of some peers where customer sales cycles have lengthened, whether it's customers trying to figure out what their AI strategy is, whether or not that roadmap makes sense. Have you guys encountered any impact to sales cycles or any changes in customer conversations on the enterprise side of the business when thinking through some of these AI initiatives?

Yes, we've seen it a significant impact, actually, and that's why I'm excited about what I see. And that's why I put in the comments around the pipeline expansion that we're seeing in that, in the enterprise side. Those are very good indicators of what that is. Now, we have to convert those, but you got to have the pipe first before you can convert them and just taking it one step at a time.

The conversations absolutely changed, Ken, to your point. For us, we're seeing ourselves elevated in those conversations to have a discussion along the skills supply chain that we mapped out last September as we introduced that, that approach to the market around skills, intelligence, and what we're doing inside of that space.

We really thought that has allowed us to have a bigger conversation and the bigger conversation is really tied around how content and how the management system operates within HR, its skills across the company. And that's what's exciting. That's what's changing our role in the market.

So these customers that we're doing these things with, as we've shared with you, these are the ones that are now taking us into a different level. And I'll share one of them with you, again, this is now going into the pipeline, but just recently over in India, as an example, a very large company, they explained what their strategy was right from the very top of the company, is all I'll say, the very top of the company. Very large, very large global player. I can't go in the industry because you'll guess it quickly.

The conversation, when we put up what we were doing with our skills supply chain. Person's like, just looked at us and said, you're a mind reader. That's exactly what I need across my company. That's the kind of messaging that we're seeing and reaction we're getting.

Now, we have to take that through and communicate that much more loudly as we get it validated further and further these next 6 months and really get those references and then bring them back into the market as proof points and really crank up the selling engine right behind that. We're selling hard, but right now you're in that very initial phase.

Everyone's trying to figure out what does AI really mean? How does it play a role? And we explain how we see it unfolding in learning, because learning is in our core DNA as a company, tying together the workflows of how skills run across everything, is going to be the big key in the market from our perspective. And we've taken that very measured approach. We began on it some 18 months ago and we're really focused on it. Now you've seen the products get delivered and now with customers acknowledging it, a little bit of revenue on the bookings. Now we're seeing that piece of it. So I like what I see so far.

Early at the moment, but I like where we are. And then maybe following up on that, and look, I don't know the answer to this, and maybe you guys have a perspective, but is there a certain sequencing of events that must happen before it gets down to kind of refreshing or adding on to the skills platform? Do you need to see customers maybe refresh, reimagine their HCM systems and their LMS systems?

Like we hear that in broader enterprise where people are sorting out either, you know, moving to cloud or getting their data ready and then maybe upgrading their, you know, an ERP system first before maybe getting on to some of the other application layers. And anything that we should be thinking about as far as, you know, bottlenecks before customers get to kind of refreshing their Skillsoft?

Yes, it's a really great question and it's a loaded question, so I'm going to pick my words very carefully here on a recorded call. First and foremost, most importantly, those conversations are happening, as you highlighted. To your point is, what systems actually have to be sunset or moved before we can go through a replacement cycle.

This is one of the big call-outs we've made with the skills supply chain. The skills supply chain represents a missing management system. So those pieces aren't all glued together in most companies. That means there isn't a classic platform replacement.

We've identified 3 points of entry at the customer where we can come through any one of these 3 doors, so to speak, where the customer could have a problem in this area, this area, or this area. And we've taken those and we've matched those to our selling and that's what we're building as products right now into the market. Those are the things that I'm referring to that we're very satisfied with what we're seeing in the reaction from the customers. And they're telling us what's missing and what else we gotta improve, but we feel really good about it. So I don't see a massive weight to your question having to do that.

Now, different players are going to try to come at it from different angles, and they're going to try to tell a story there around that. And one of our key things is going to be making sure that we maintain our historical view of interoperability and operation and integration of those point solutions coming together are going to play a role.

And why I think that wind is with us, and this is the awkward part of the conversation, I as a CEO, in a learning company, in somebody, in a place that really cares about employees, really cares about their growth. One of the challenges you always have as a CEO or on any board is you put your money behind your go-to-market and your products.

So when I'm doing my capital allocation, certain functions, I won't pick on HR, I'll pick on finance or other functions, IT, may not get as much money, right? I put, yeah, yeah. I put more of my money behind those other pieces. That bodes well for the need to buy a good valued system that lets me go on an incremental journey on that building out that supply chain. I don't have to do it all at once. It's not a big bang theory, which was at the essence of your question. Do I have to replace someone else or is it? Or is it something we can do incrementally? We can do it incrementally for our customers.

And it's an open format. Super helpful, Ron. And Ron Kisling, maybe kind of diving into one of your top priorities which is sorting out the debt, any additional roadblocks that you guys need to clear before you guys can make serious progress there? I know Global Knowledge was the first big roadblock. But are you guys pretty much in the clear, or you guys still have to sort through some other dynamics that we on the outside might not be aware of?

Yes, no, that's a good question. And I think what I'd say is, you know, we've had a plan in place, you know, as you mentioned, Global Knowledge was one step in that plan. You know, as Ron mentioned on the call, you know, we have set up, you know, the advisors, you know, the board committee in preparation for that. You know, we expect that where we'll be engaging very soon. We don't have a public timeline, but we expect to engage very soon. I'd say from sort of that corporate debt piece, the precedents are behind us with the close of Global Knowledge, and we're prepared to engage very soon.

Okay, perfect. And then on the expense side, again, another really good quarter as far as managing that spend. Looks like at least on the GAAP OpEx side, you guys trimmed another $8 million. I feel like I ask this every quarter, but, you know, do you still feel there's capacity to trim there? Like typically the easiest path to margin expansion obviously is to kind of get the revenue to kind of flow through and let that trickle to the bottom line. You guys are doing it from a slightly disadvantaged position but doing it very well. But yes, any thoughts on kind of whether or not there's still fat remaining should revenue continue to trend in this direction.

You know, I think, you know, from my perspective, you know, being fairly new and really focusing on it from an operational perspective, I do think there are, you know, meaningful opportunities, particularly around, you know, the operations in the company, if you want to think about some of the core processes, to leverage AI, streamline some of our processes and leverage other systems that would drive meaningful efficiencies, you know, economies and allow us to, you know, scale and drive growth without having to add, but actually seeing some economies there. And I think that's probably one of the bigger areas that's left to opportunities.

I think the other thing that I would say that's going to allow us to move forward very quickly on that is, you know, Global Knowledge, while, you know, a smaller piece of the business was enormously complex, both from an operational perspective, and a geographic footprint. So we now have a substantially less complex business, much more straightforward business focused around enterprise product that's really going to enable us to deploy these systems, AI, and process simplifications.

Yes, and I think, Ken, the only part I'd add here is, listen, you know, we're, as Ron said in his comments, we've got good financial stability occurring in the company now. That stabilization is here. And as you pointed out, he pointed out, we're right on the edge of that inflection for growth at a point off, less than a point. So we're right at the right spot here. Having the capital the way Ron described it appropriately to be able to put back in the business through those AI catalytic moments is allowing us to do those things now. And I'm right with him.

I think Ron's close around simplification of the company, simplification of the business models. Those are going to be big. Things that will have a continued impact on simplifying the company, allowing us to run this place much more efficiently from my perspective. So I think there's still room to go there. I wouldn't say there's any fat at this point. That's pretty true. But what I would say is there's huge opportunities for us to be more effective and efficient through that simplification process that Ron had highlighted.

Got it. And not to put you on the spot, Ron, and look, you are new, so I guess you could say we're early in the process. But yes, where are we on that process to try to be more efficient, be more effective with the existing resources?

I would say on the operations side. That I was speaking to, I'd say it's very, very early days. I'd say, you know, Global Knowledge was a bit of an unlock in terms of simplifying the business. You know, it didn't make sense to build a lot of processes around that business, given that it was held for sale. And so I would say we're very early in the process of, you know, identifying exactly what processes deploying AI and systems to drive that efficiency across operations. But I would say that those are one of the highest internal priorities that I have. And we have engaged cross-functionally across the organization, and specifically identified a number of initiatives that are underway that cross the product organization, go-to-market, back office. I mean, a lot of these operational processes are very cross-functional, and we've already identified those processes, engaged where those processes intersect with other operational teams and have those teams engaged in these initiatives.

And a good example would be a SKU rationalization as an example. We've begun all that work. We've done a ton of work around that. Now that we're rolling out the new capabilities on the platform, we can take that a step further. And literally we're looking at like, you know, a 95% SKU reduction/simplification of that in the business as we enter into next year when we really get going. Well, now imagine the systems implications, the contractual implications, all these pieces tied together, Ken. And that's what we say simplification, the business. I wanted you to get a little feel for what's underneath that and the investors to understand that that's why we see the headroom that we see in front of us by just simplifying the place further.

Understood. Super helpful. That's it for me on my questions. I'll pass the mic.

This now concludes our question and answer session. I would like to turn the floor back over to Ron Hovsepian for closing comments.

Thank you, operator. I greatly appreciate it. Thank you for the continued support to all of our shareholders and other stakeholders. We are seeing strong momentum in that enterprise platform space as well as the overall enterprise business space on that value proposition that we had highlighted to you. We're focusing on the core operations of the company.

Continued platform innovation is going to be where we are focused and that AI-driven and transformation we just wrapped up on is giving us much more confidence in the road ahead as we think about our ability to deliver that long-term value, as we look at that pipeline and what we can drive for our shareholders, as well as our customers, most importantly. So with that, thank you all for attending and we'll talk soon.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.

Thank you. Thank you for standing by and welcome to Skillsoft's first quarter fiscal 2027 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 12 months. now like to hand the conference over to your first speaker today, Nick Thieves, Investor Relations.

Thank you, operator. Good day and thank you for joining us to discuss our results. 26th, 2026. 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 use of the company. the U.S. Private Securities Litigation Reform Act of 1995, including statements concerning financial and business trends, our expected future business and financial performance, conditions, 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, the Form 10-Q filed today, and other documents that we file 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 other than revenue 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 Thank you. Thank you, Mr. Chairman. The 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 are included on Form 8K and is available at www.sec.gov. It is also available on our website at www.skillsoft.com. Note that we do not provide reconciliations for forward-looking, non-GAAP financial measures, as we are unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. In addition, as of April 30th, 2026, Skillsoft's GK segment was classified as discontinued operations, making the TDF segment the only remaining segment. Prior period results have been recast to conform to the current presentation.

Just to leave a doubt from continuing operations is our current segment measure of profit. Reconciliation of this measure to net income loss from continuing operations is included in our earnings press release. The fiscal quarter ended April 30th, 2026, as described above, as well as note 13 to the unaudited condensed consolidated financial statements included in Skillsoft's most recent form 10Q. Following today's prepared remarks, Ron Hosepian, Skillsoft's Executive Chair and Chief Executive Officer, and Ron Kisling, Skillsoft's Chief Financial Officer, will be available for Q&A.

With that, it's my pleasure to turn the call over to Ron Hosepio. Thanks, Nick, and good afternoon. Thank you to everyone for joining us today. I want to welcome Ron Kissling to Skillsoft as our new Chief Financial Officer. Ron brings more than 40 years of finance experience, including 15 years as CFO at high growth technology companies. His work at Fastly and Fitbit gives him a strong foundation for what we are building here. I am confident his discipline and and judgment will be valuable as we enter the next phase of the company's transformation. I also want to thank John Frederick for his contributions and partnership as we advanced our transformation over the past year.

For our first quarter results, revenue declined approximately 5% on a year-over-year basis. Two expected factors drove this. Booking softness in our government business in the first half of last year and anticipated declines in our consumer business. We expected a portion of these declines to be offset by labor-based offerings with more immediate revenue recognition, such as professional services and coaching. However, those opportunities shifted to periods later in this fiscal year. The underlying business is performing in line with our plan, and the strategic progress is visible in the numbers. New platform customer agreements grew 67% quarter over quarter from 15 to 25. And our dollar retention in the first quarter reached 105%.

These results reflect early returns from our redesigned go-to-market model and platform innovation strategy. In Q1, we saw higher year-over-year bookings, strong top-of-funnel engagement, expanding pipeline, and increasing average deal size. Today, I want to focus my remarks on four themes. First, the expected closing of the announced agreement for the divestiture of global knowledge will sharpen our focus and further simplify the company. Second, our transformation efforts to accelerate our path to enterprise growth through product innovation and go-to-market improvements. Third, AI is increasing the urgency and strategic value of what we deliver. Fourth, once the GK transaction closes, refinancing our debt will be a top management priority.

We believe that combined, these themes reflect a more focused company with clearer operating model and a more direct path to durable growth. Let me start with global knowledge. As we announced in May, We entered into a definitive agreement to sell the GK business to an affiliate of Enduring Ventures with an expected fiscal Q2 closing. With that expected close of the transaction, we are simplifying how we refer to our remaining business. What had been reported as the TDS segment will simply be referred to as Skillsoft. We believe this is the right direction for Skillsoft. GK served an important purpose, but post-close, we will concentrate fully on our AI-native skills management platform, where we see the greatest opportunity to help organizations build workforce readiness and prove the impact of skills on business outcomes.

This is where we have the biggest opportunity to accelerate growth with the strongest right to win. Upon successful completion of the transaction, we believe overall the financial impact will be near neutral while maintaining a strategic partnership for our customers. We expect the transaction to be accretive to growth rates and earnings. It strengthens our recurring revenue profile, improves free cash flow visibility, and puts us in a better position to address our capital structure once the deal closes. That brings me to the second theme. Over the past several quarters, we have significantly redesigned our go-to-market model, aligned sales resources more tightly to enterprise opportunities, and continued to refine our product experience in ways that matter to our customers. Our Skillsoft platform is increasing differentiation by bringing together content, skills intelligence, assessment, and AI-enabled experiences in one system.

As organizations look for partners who can connect learning activity to workforce capability and business outcomes, we We believe that approach is resonating more clearly. As we closely watch the markets evolve, we see customers who are transforming their organizations and preparing to lead in an AI world. A Fortune 500 global energy company left a competing vendor and returned to Skillsoft. They made our platform their enterprise-wide learning and development front door to their HRIS system. They are using Skillsoft to address their three CEO level workforce priorities. closing critical engineering succession gaps, executing a company-wide AI upskilling program, and building the next generation of leadership pipelines. This is not a content vendor relationship. This is a strategic partnership at the highest level of business decision making.

A leading US government contractor with over 8,000 professionals whose technical certifications directly determine billing rates replace their existing vendor with Skillsoft. The result was a 7x return on investment, $2.7 million in business value, and 82% of learners improving skill proficiency across 426 benchmarks. They credit Skillsoft with transforming their learning function from a compliance cost to a driver of revenue and retention. By eliminating the drag from GK on continuing operations, the underlying progress we have made becomes easier to see. We have more work to do, but we are realistic about the pace. But improvements in retention, growth of platform adoption, and strong customer engagement support our view that the business is moving forward toward a more sustainable growth trajectory. Now let me turn to AI, why we believe it is increasing the urgency and strategic value of what we do.

AI is widening the skills gap faster than most organizations can close it. That is driving demand for solutions that can translate AI into execution and measurable outcomes. Tomorrow, we are releasing our Skillsoft Workforce Readiness Report, which found that only one in four employees feel AI ready. Their report surveyed 2,000 employees, managers, and executives globally. It uncovered a 53-point gap between how leaders and employees feel AI-ready. employees rate AI readiness and found that only 11% of their employees are assessed using formal skills benchmarks. These findings represent more than learning gaps. They are business execution risks, and they underscore why platforms that can measure skills, validate readiness, connect learning to outcomes are becoming more important.

This quarter, we released the AI-powered Skills Visibility Dashboard that gives managers real-time intelligence and design skills. to team capabilities, skilling progress and readiness gaps. That is a direct response to what the enterprise buyers are telling us they need. Better visibility into whether their workforce is actually ready. We have spent the last 20 years delivering curated learning to enterprise workforces across many industries. That work has taught us which skills matter for which roles, how skills build on each other, and how to use them to improve our lives. how skill development connects to business performance. We have codified all of that into our Skillsoft platform. We call this our skills ontology and it's not something that can be built quickly.

It is the foundation that makes our platform accurate, trusted, and governed in ways that matter to enterprise buyers. Offerings like KC and LX Design Studio build on that foundation, helping customers move beyond passive consumption of learning content toward practice, simulation, and custom content creation at scale. Customers are looking for trusted partners who can help them securely and responsibly apply AI in ways that drive measurable business outcomes. combination of curated and blended learning journeys, skills intelligence, assessments, AI-powered simulation, and the ability to prove impact is designed to do exactly that. Once the GK divestiture is complete, addressing our upcoming debt maturities will be management's top financial priority. We recognize this is important to all of our stakeholders. We will evaluate all alternatives with discipline and urgency. The actions we are taking to simplify the company, improve leverage, and strengthen free cash flow visibility are all designed to give us maximum flexibility as we approach that work.

To summarize, we have made meaningful strategic and operational progress. We have a simpler portfolio, a more focused operating model, and a platform that enterprise customers are using to transform their businesses. The customers I described today are treating Skillsoft as a strategic partner, and that reflects the market is moving in our direction. Demand for platforms that can deliver these skills visibility, validate capability, and business aligned outcomes is growing. We believe Skillsoft is increasingly well positioned to translate that into durable value creation over time. There is still work ahead and we remain realistic about the environment and the tasks in front of us, but the direction is clear. We are building a stronger company with a clearer strategy and a more compelling long-term profile.

With that, let me turn the call over to Ron Kisling to cover our financial results in more detail.

Thank you, Ron, and good afternoon, everyone. Before I move into the financials, I want to start by saying how excited I am to be joining Skillsoft at such an important time for the company. I was drawn to the clarity of the mission, the strength of the leadership team, and the opportunity to help advance a business that enables organizations to build the workforce they need to compete in an AI-driven world. I'm looking forward to partnering with Ron and the Skillsoft team to build on the progress already underway. As a reminder, and as noted at the beginning of the call, consistent with prior quarters, our discussion will focus on non-GAAP measures unless otherwise stated. Additionally, as noted in today's earnings release, and as Ron discussed earlier on our call, our global knowledge business is now classified as discontinued operation. AS A RESULT, UNLESS STATED OTHERWISE, THE FINANCIALS DISCUSSED TODAY RELATE TO OUR CONTINUING OPERATIONS, WHICH ARE COMPRISED OF OUR TALENT DEVELOPMENT SOLUTIONS BUSINESS, WHICH IS as Ron discussed earlier, will simply be referred to as Skillsoft.

Now turning to the results for the first quarter. Total revenue was $94.5 million, down 4.7% over Q1-26, and our DRR was 105% in the first quarter, up significantly from 91% in Q1-26. Our LTM dollar retention rate, or DRR, as of the first quarter was 98% compared to 99% in the prior year quarter. OVERALL, REVENUE AND LTMDRR WERE IMPACTED BY SOFTNESS IN GOVERNMENT BOOKINGS IN THE FIRST HALF OF FISCAL YEAR 26. was also impacted by anticipated decline in our consumer business. I'll now turn to our expenses, which continue to see year-over-year improvements. Cost of revenue was $15.7 million in the first quarter, or 16.7% of revenue, down 3.3% year over year, largely reflecting the variable nature of our delivery model and lower revenue volume in the quarter, partially offset by sales mix and increased technology. related investments. Overall, adjusted total operating expenses were $67.9 million in the Turning to the functional areas, content and software development expenses were $12.7 million in the quarter, up approximately 4.8% year-over-year at 13.4% of revenue.

Our selling and marketing expenses were $26.3 million in the first quarter, down approximately 8.4% year-over-year, or 27.8% of revenue, reflecting the benefit of lower spending due to the go-to-market redesign. And general and administrative expenses were $13.2 million in the first quarter, down approximately 13.7% year over year 13.9% of revenue. Our adjusted EBITDA from continuing operations of $26.6 million was essentially flat compared to $26.8 million in the prior year's comparable quarter, with adjusted EBITDA margin as a percentage of revenue for the quarter improving to 28.2% from 27.1%. in the prior year. Our gap net loss from continuing operations was $18.7 million in the first quarter compared to a gap net loss from continuing operations of $29.6 million in the prior year period. This is a graph of the gap net loss GAAP net loss per share from continuing operations was $2.12, compared to a $3.56 loss per share in the prior period. Our adjusted net income was $10.2 million, or $1.16 per share in the first quarter, compared to an adjusted net income of $9.5 million, or $1.15 per share in the prior year. Now moving to cash flow and balance sheet highlights.

Gap cash, cash equivalents, and restricted cash were $118.4 million a quarter end, and our consolidated free cash flow for the first quarter was $25.4 million compared to $26.2 million in the prior year period. Total gross debt on a GAAP basis, which includes borrowings on our term loan and accounts receivable facility was $576 million at the end of Q1, down slightly from approximately $580 million at the end of the prior year period. Total net debt, which includes borrowings on our term loan and accounts receivable facility, netted cash, cash equivalents, and restricted cash was approximately $457 million, down from approximately $481 million at the end of the prior year period. And lastly, our full year fiscal 2027 guidance remains unchanged. We expect revenue of between $388 million and $406 million and adjusted EBITDA from continuing operations of between $108 and $116 million, or approximately 28% of revenue. We expect free cash flow for our continuing business operations in the range of $14 million to $22 million. While we are encouraged by the strong cash collections in the first quarter, similar to last year, and in line with normal seasonality, we expect to consume cash in our continuing operations in the second and third quarters.

We did expect to generate free cash flow in the fourth quarter of the year, all of which is reflected in the guidance range we have provided. While I'm still only a few weeks into my role at Skillsoft, I'm very excited that we are in the final stages of the process to complete the sale of global knowledge. We believe this transaction has tremendous strategic value for our shareholders and customers, allowing us to focus on our key mission and capabilities. The global knowledge business has been in decline for many years. Our transformation efforts, and specifically our repositioning towards large strategic accounts, is having an impact and starting to show in our results with a revenue decline that slowed to 2% in the most recent quarter. We continue to be excited to work with Global Knowledge in the future as a key strategic partner that will allow both companies to grow and meet the evolving needs of our customers. As a reminder, in recent quarters, we have not provided guidance for the global knowledge business, and our free cash flow guidance provided last quarter for fiscal year 27 also excluded the impact of global knowledge.

While there are still uncertainties with respect to the timing and ultimate close of the planned sale, as well as the level of post-closing support that will be required under the transition services agreement, we want to make sure that the transition services agreement is in place to share the estimated impact of the global knowledge, business, and transaction on our free cash flow and liquidity. Consistent with recent experience, we expect global knowledge to continue to incur adjusted EBITDA losses of between $10 and $15 million on an annualized basis, which closely mirrors global knowledge's free cash flow. Assuming the global knowledge transaction closes in the second quarter as expected, once the divestiture of global knowledge and the related transitions are complete, we anticipate this negative impact on our profitability and cash flow will be eliminated and will have a favorable impact beginning in fiscal year 28. From a total company liquidity standpoint, as previously disclosed, we expect proceeds net of cash divested and excluding anticipated transaction costs of between $5 million and $8 million over a period of two years following the closing of the global knowledge transaction. Currently, we expect transaction-related costs to be approximately $8 million to $10 million, and as a result, we expect the overall transaction impact on long-term liquidity to be neutral to slightly below neutral. Due to the deferred nature of the payments we anticipate receiving under the sale, the impact of global knowledge on total liquidity differs in upcoming periods when considering the combined impact of free cash flow, transaction-related costs, and transaction proceeds. Thank you. FOR THE 26th, ASSUMING THE SALE CLOSES, WE EXPECT A REDUCTION IN LIQUIDITY OF AS MUCH AS 25 MILLION ATTRIBUTABLE TO GLOBAL KNOWLEDGE AND THE RELATED SALE DRIVEN BY A REQUIREMENT TO LEAVE A MINIMUM OF 8 MILLION OF CASH WITH THE BUSINESS UPON SALE. payment of approximately $8 million to $10 million in one-time transaction-related expenses and ongoing operating losses.

FOR THE FISCAL YEAR INTO JANUARY 31, 2027, WHICH INCLUDES THE FIRST PAYMENT DUE FROM THE BUYER, WE EXPECT A TOTAL REDUCTION IN LIQUIDITY OF BETWEEN $15 MILLION AND $20 MILLION ATTRIBUTABLE TO GLOBAL KNOWLEDGE. UNDER THE TERMS OF THE AGREEMENT, WE EXPECT TO RECEIVE AN ADDITIONAL $4 MILLION IN PROCEEDS IN EACH OF FISCAL YEAR'S 2027. and 2029, which is reflected in our estimate of net proceeds from the transaction. Before I turn the call back over for questions, I'd like to remind stockholders that our annual meeting of stockholders will be held on June 25th. Stockholders of record are encouraged to vote their shares in a timely manner in accordance with our annual meeting procedures.

Operator, please open the line for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

As a reminder, it is star one to ask a question. Thank you. Thank you. Our first question comes from the line of Nancy Liu with Oppenheimer.

Great. Thanks for taking my questions and apologies for any background noise here. Just on the GK scale post the divestiture, can you talk about where you plan to focus the extra bandwidth and if you could provide any additional color on the partnership dynamics.

or the financial impact with the separation, that would be great. Yes, I mean, so are you? Thank you for the question. If I heard you correctly, it was where do we expect to put the extra management bandwidth and to a little more information on where the partnership is and where that's going, I think is what I heard correct. Is that correct, Nancy? Yes, that's correct. Great. On your first part of the question, it's going to go into two pieces. One, the continued transformation and acceleration around growth is where we'll deploy more management focus. That's already begun as part of it.

And as we reflected in our comments, We were able to see some of that growth in the bookings in the first quarter that we referenced in solid pipeline. The second area we'll go to from a financial perspective is really focusing on the debt refinancing. Those are the two key priorities of where I would deploy the management energy and focus for the companies, what Ron and I have discussed and prioritized. In terms of the partnership, we've had a very good working relationship with the global knowledge team. And as I look at the pipeline and what we shared with the investors on the call, we did one thing very importantly. We focused on strategic accounts and winning a number of big deals. Those big deals happened. We've landed a very nice pipeline of some 60 plus million as part of that journey.

What's very exciting there is more coming through the pipeline and that had a positive impact on their revenue, slowing their decline a lot. It just didn't fit our time horizon. So what's exciting about the relationship right now is I know of three deals right now that I've been associated with in the team that are tied to that partnership agreement, which is where we're combining a blended learning experience and bringing that blended learning experience to life at home. at the customer. And there's several bids out there that add up to roughly eight to $10 million. And I know that we're looking at just on those three alone that we're focused on. So I'm very excited about what that could bring for revenue jointly. And then we're going to continue to talk about the partnership in other ways.

There's content from our side that they can use as well that we've begun to migrate and give them access to quote unquote license. And that's turned into new products for global knowledge coming off of our base. So we see the relationship continuing and I'm excited to continue to be a good distribution partner to them and for them to utilize. use and leverage our content because that's what the customers want. They do want that piece of it. It just didn't fit our time horizon and business model.

Got it. That makes sense. And were there any strategic actions for the remaining Corps that required the completion of the GK sale to kind of.

move forward on? Not that I can think of. There's nothing here that's hitting me on your question, Nancy. We're just going to stay very focused on getting that transaction closed and then moving right towards the debt refinancing. I think strategically, everything's in place around that execution effort. And And from the company perspective, us continuing to push on two dimensions, So, we're going to Q1 where we're going with the product and all the AI work we've done to date and what we've delivered. We delivered in Q1 the first version of the LX Studio, the content creation part of the platform. We also are delivering the skills intelligence piece of it. of the platform that are built on foundational labs type componentry off of that same model are well underway as we work on it.

So I think our other strategic initiatives that relate to the company are really well focused and underway as part of it. significant at this point that Ron or I would call out to all of you to pay attention to. It's now just staying more focused on what we're doing and continuing to see what we saw in the backlog and the pipeline that I referenced in my comments.

Understood. Appreciate that. And then on the quarter, were there any particular dynamics to pull out from one to around the CDS decline? How much of that was consumer softness and the earlier government booking softness offsetting the better pipeline and geoscience dynamics called out, or maybe perhaps was there any distraction from the GT sale across the broader.

Yes, that's a good question. I think when you look at the decline, you know, it was really driven by, you know, the softness we saw in government contracts in the first half of last year, as well as, you know, the continued decline in our consumer business, which was down 21% year over year. that drove that impact, particularly in the quarter. The other dynamics that Ron spoke about, and I mentioned is that the leading indicators that we are seeing in the quarter the convert into revenue in future quarters looked very healthy and strong. We saw DRR of 105% in the quarter, you know, and higher bookings on a year-over-year basis that I think reflect the strengthening business. And I think it's fair to say we, you know, did not see any distraction in the TDS business. from the activities that were taking place on the GK transaction.

Yes, Nancy and I, I would just add a little smidge to that on what Ron said, this additional color. When Ron referred to the declines that happened last year in the bookings on the lost contracts, as you know, it's a 12-month to 15-month cycle as we go through it. So we're just – feeling that first half impact from the government contract losses and a little bit of the consumer, as Ron said. We had expected to make some of that back up with our labor-based businesses, as Ron mentioned in his prepared comments, and I did in mine as well, I believe. Those pieces just got deferred on the calendar a little bit. So we still see those pieces coming as part of it. And that's why Ron was so as he went through some of those numbers here.

So other than that, I feel very comfortable where we are. We're right in the range that we said we would be with just that one piece that we overcome. The good news is those bookings that Ron referred to, so obviously we get the benefit of that happening throughout the financial year. full year. So again, maintaining our guidance is the right way to look at the business at this early stage.

Got it. Appreciate that. And then, as you mentioned, it's nice to see the 105% in the DRR this quarter. And I know you mentioned there's a little bit of that lag effect. I was wondering how should we think about the timeline towards the upwards trajectory after some of those headwinds impacting the first half of 2016?.

Nancy, are you talking about the revenue trajectory? The DRR trajectory? Yes, the DRR trajectory. Which is like two. Yes. I think when we look at DRR, we want it to be 100% or even better than that when we start to see a return. Over time, we'd like to see consistent DRR, you know, 105, 107%. So I think from a trajectory point of view, perspective, we're seeing progress toward where we ultimately want to be. And the focus is going to be on, you know, maintaining and growing that DRR over time. You know, on the quarterly DRR, you know, you're going to see some fluctuation from quarter to quarter, where the ultimate trend should be, you know, flat from cohort and song to quarter.

want. Yes, and the programmatic pieces that build on what Ron's saying is we put in place a couple of big changes. We redefined our model in Q3 last year and rolled that out. That has brought a very clear go-to-market model for us with our customers. Behind that, the programs that we put in place are around improving churn rate while improving the overall growth trajectory. Those are things that are in place in play right now. And we saw some good performance come out of that in the quarter, which is great, right, as part of the overall journey. Um, so if we can keep that kind of, uh, work going throughout the full year, that'll put us in line with the plan that we had laid out.

And you mentioned some of those churn initiatives. Just on the side, could you talk a little bit more about some of those business dynamics you're baking in kind of at the low end, at the top end, and what the progression through the year could look like? And just kind of gives you that confidence to maintain outlook with the one food you sell.

Yes, so I think we talked a little bit about the dynamics in Q1, particularly some of the leading indicators, which gave us confidence that the guidance outlook on the revenue 388 to 406 that the company had set at the end of February on the Q4 call is the right way to call it. I think a couple of comments I'd make, you know, relative to that guidance is, that guide does take into account some reflection of, you know, some level of variability and risk in the macro economy. I don't know if you want to call that conservatism or basically just looking at what the environment is. So it does reflect, you know, that in the business. And so that's really kind of the thing that went into maintaining it. I think we're still focused on the AI leverage both on the revenue and the cost side, but from a, given the leading indicators that we see, we feel that we're.

We're very on track to the plans that we had at the beginning of the year. Understood. And then shifting to the new Percipio platform, could you speak more about the pace of adoption relative to your internal expectations and how the upgrade rates are trending across the expanded group, the 67%?.

Thank you. Yes, happy to. We set an internal target for the year, and we're running ahead of that target for the year. I've actually increased the target. So obviously, we're excited about that. And as I shared with you on this call, we're now up to. 25 new platform contracts that have been signed with current customers primarily, which is great because we want to make sure we protect that base of business. And that's helping drive that DRR in a nice way. So the reaction in the market has been very positive to the skills management story or the skills supply chain story. And we're fine tuning how we deliver that distinct need and what that means to the market as it relates to business outcomes for the market. customer and as it relates to the technology they need to do that. So we're very pleased with what we're getting for feedback from our customers on the products as well as what we're seeing in the market and the reaction to it.

So I would tell you the numbers and the reaction has been really really good and we'll keep you posted on that as the year unfolds here.

Great, super helpful. And then with the CFO transition, congrats, John, on the upcoming retirement and welcome, Ron. I'm wondering what the transition brings in terms of any potential changes to focus priority.

or investment philosophy in the upcoming year? Yes, I'll let Ron speak to if he sees anything at this early stage and fairness to him, but everything he and I have spoken about, today aligns with the plans that we had mapped out. We're going to maintain our focus to go get that debt refinance upon closure of this and really focus the business on growth. And I'm appreciative of what John did to help us get to this stage. It was a natural break here as part of it. towards his retirement and then moving forward really on that core plan that we had laid out here as really pieces of it. I'm sure Ron will make his adjustments as we get into the game further. he sees things. But this next big lift is around the debt refinancing and really helping the company get to the next level of operationalization in this industry. simplified model, if I could say it that way. There's a lot of work to be done there that hasn't been identified, or I should say it that way.

It has been identified, but the plans aren't all in place for all of it, the work we have to do. And we spent time as a leadership team just last week on that as a group. Yes. And the only other add, we talked extensively through.

ahead of time and I think from the priorities, I think we're very much aligned completing the GK transaction sets us up, I think for a lot of opportunities to simplify the business and wanna really focus and take advantage of that simplification, both in terms of the focus in our business, the focus that we're able to drive across go-to-market and our product organization, but also across the efficiencies we can make with a more simplified business and using that to leverage the transformation that we're doing as we're driving toward improving the revenue growth and very much focused on adjusted EBITDA and cash flow. Yes.

Ron talked about that last week at the offsite. Also, the other thing that struck both of us was the importance of that in the refinancing as well. Putting that part of the work that's being done there to highlight that as part of it, Nancy, to your question. So, but at the very end, top of the waves. Steady she goes. I shouldn't say steady, faster. Faster, faster, faster is my constant request from the teams. And Ron's up for that challenge and excited.

And I'm really excited to have him here with all the background and experience that he brings to the company, to the team. in each one of these areas, because he's very engaged, and we all saw that last week with the leadership team. Yes, I understand. I think it's a very well thought out.

transition or timing of completing GK sets us up for the conversations in terms of getting the debt. And I think with those two things addressed really allows the focus on the transformation, dealing with the simplified business to really drive business outcomes. That's it.

Awesome, appreciate the colour and the thoughtful responses here that's given from you. Thanks.

Thank you, Nancy. Thank you, Nancy. Thank you. There are no further questions at this time. I'd like to pass the call back over to management for any closing remarks.

Yes, this is Ron Hovsepian. Again, a very nice welcome to Ron for being here with us. Excited about what he'll bring in his leadership and what he can do there. As I look at the quarter and the business overall, I would tell you that I am pleased with the leading indicators and what they were pointing to. I would have liked to have made up that expected revenue that slid a little bit on the labor-based parts of our business, the professional services and the coaching aspect of it, but it didn't slide out of the plan. And where the pipeline is, also as I spoke to that was very different than how it's been here in years past in terms of the coverage and where we are. So those pieces to me give me a lot of enthusiasm for where we're going. And then getting the GK transaction signed was a gigantic step forward. forward in the simplification of business and starting to really position us well for the next step of getting the debt refinancing done and then really letting that growth start to shine through here as part of our overall journey.

So stay tuned. I look forward to our next update. And thank you.

for all the help and talk to everybody soon. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

[Call has ended.]

Thank you for standing by, and welcome to Skillsoft's Fourth Quarter Fiscal 2026 Results Conference Call. [Operator Instructions] 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 12 months.

I would now like to hand the conference over to your first speaker today, Nick Teves, Investor Relations. Thank you. Please go ahead.

Thank you, operator. Good day, and thank you for joining us to discuss our results for the fourth quarter and January 31, 2026. 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 on 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 which speak as of their respective dates. During the call, unless otherwise noted, all financial metrics we discuss other than revenue 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. 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-K 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 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, Nick, and good afternoon. Thank you to everyone for joining us today. Over the past 18 months, we have worked through two important and related efforts at Skillsoft. First, we undertook a strategic transformation to reposition the company for where the market is going. Second, during FY 2026, we made meaningful operational progress against that strategy while navigating a very challenging external environment. Let me start with the strategic transformation.

We began with a comprehensive assessment of the market where the customer demand was heading and where Skillsoft could differentiate in a durable way. that were confirmed 3 foundational assets in the business, our content, our platform and our data. Those assets give us incredible foundation to evolve from a traditional learning company into an AI-native skills platform built for the enterprise needs. From there, we put in place a clear transformation plan and applied sharper prioritization with greater discipline to capital allocation. Using that same discipline, we reduced gross costs by approximately $45 million and reinvested roughly half of that into areas that we believe would matter most for long-term value creation primarily go-to-market capabilities and AI-driven product innovation.

FY 2026 was about turning that strategy into execution. And I want to be clear on the context. We made progress while operating against a backdrop of significant macro and geopolitical uncertainty. Earlier in this year, bookings were affected by executive orders dose-related actions and broader disruption in parts of the government market. As the year progressed, that uncertainty was compounded by additional global geopolitical in stability and a more cautious enterprise spending environment. Despite that, we made substantial operational progress. We advanced our product road map, including the release of an upgraded version of CAISY, our AI simulation offering, we announced our new AI-native platform in September and we brought it to general availability in February.

Since launch, we have secured 15 paying customers, and we are also using the platform internally in our own operations which is helping us refine the experience and accelerate learning from the market while becoming more efficient as a company. At the same time, we continue to simplify and focus on the business. We further streamlined the cost structure, improved efficiency and maintained prioritization and disciplined capital allocation with the outcome of generating positive free cash flow. Just as important, FY 2026 demonstrated the financial durability of the business as we operated with discipline and continue to fund our transformation in a highly uncertain environment. That same discipline also led us to initiate a strategic review of global knowledge, which remains underway.

As we continue to focus capital and management attention on the areas of the portfolio with the strongest growth margin and cash flow characteristics, particularly TDS. As we sit here today, I think there are 3 things that matter most. First, the strategic transformation was necessary with the AI disruption. And that transformation is well underway as we repositioned the company around AI-native and AI-enabled skills platform model. And that positioning is increasingly resonating with customers.

Second, FY 2026, we represented substantial operational progress. we improve focus, advance the platform, made the cost base leaner and more directed, strengthened execution discipline and delivered positive free cash flow. All while continuing to manage through a meaningful market disruption.

Third, we're beginning to see evidence that this work is gaining traction. Our platform is winning customers. Our AI capabilities are seeing strong engagement, and we believe our TDS Enterprise business has reached a revenue inflection point. When we look at the market, many companies are talking about skills and many of them are talking about AI, what we believe differentiates Skillsoft to our ability to bring together content, platform, data and AI in a way that is usable, governed and scalable for the enterprise.

Our differentiation comes down to 3 things: First, our skills intelligence. We have a deep and structured body of enterprise learning data mapped to roles, domains in job relevant use cases, which gives us a meaningful foundation for a skills-based development. Second, the integration of content, platform and data. We are not offering a narrow point solution. We are delivering an integrated system that can help customers move from learning activity to workforce capability and measurable outcomes.

Third, our ability to operationalize AI in the enterprise environments, customers are not looking for AI as a feature by itself. They are looking for trusted partners that can help them apply AI securely responsibly and in ways that improve workforce readiness in a measurable way. All of this is delivered through our AI-native Skillsoft Percipio Platform, which brings together learning content, skills data and measurement into a unified system. It can serve as the front end of a learner relationship or is the back end of the skills management process, giving customers flexibility in how they deploy it in their enterprise environments. That is exactly how we are seeing it in the market.

One concern we sometimes hear is whether AI could reduce the relevance of categories like ours. What we are seeing suggests the opposite. AI is increasing the urgency of workforce readiness. It is widening the skills gap faster than many organizations can close it and driving demand for solutions that can translate into AI true rule-based execution. This is not just conceptual. It is showing up in customer behavior, in platform usage and in buying decisions. For example, one of Singapore's largest telecommunications providers selected Skillsoft through a competitive RFP process to support an AI-led workforce transformation mandate, not simply to extend a content relationship across the organization's entire user base Skillsoft is helping support role redesign, develop AI capabilities and embed learning into the flow of work.

Early activation includes persona-based learning for an internal AI Academy and pilots around AI-augmented job redesign. We saw something similar with a large global health care organization, which entered into a multiyear partnership with Skillsoft to help operationalize an AI-first operating model. They are using Skillsoft to translate AI advancements into role-specific capabilities and move from fragmented learning approaches toward a more centralized and business-aligned skills model. We're also seeing strong signals in our own engagement data.

AI's skilled benchmark completions increased 994% year-over-year. AI content completions increased 261% year-over-year. AI journey completions increased 222% year-over-year. CAISY learners increased 146% year-over-year and CAISY launches or engagement increased by 341% year-over-year. To us, that matters because it reflects active scaled behavior tied directly to workforce transformation. It suggests that AI is not displacing the need for skills development it is increasing it. And as enterprise move faster on AI, they're also becoming more aware of the risks of moving without verified workforce capability AI without demonstrable skills can create a real business risk, including poor decision-making, compliance exposure and lower productivity. That is the one reason buyers are becoming more focused on ROI, measurable outcomes and trusted platforms that can support enterprise execution at scale.

So when I step back, I would frame FY '26 this way. It was a year of significant strategic and operational progress in a highly uncertain environment. We continued transforming the company. We advanced our AI-native platform and broader AI capabilities. We sharpened the operating model, demonstrated financial durability, we improved execution discipline, and we began to see clear evidence of the traction in the market. There's still work ahead, but the direction is increasingly clear. We are building a more focused company, a more differentiated AI native platform in a market where the need for skills-based workforce transformation is growing, and that demand continues to build. We believe Skillsoft is increasingly well positioned to translate that market shift into durable growth.

With that, let me turn the call over to John to cover our financial results in more detail. John?

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. During mid-fiscal '25, we presented our strategic and financial road map to the Street. For fiscal '25 through fiscal '26, our stated financial objectives were: first, $45 million of annualized expense reduction in fiscal '25. This was achieved. Second, margin expansion in fiscal '25 and '26. This was also achieved. Third, return to top line growth in fiscal '26. This was achieved for TDS enterprise, but not for learner or for GK, which informed decisions around the latter 2 businesses. And finally, fourth, positive free cash flow generation in fiscal '26. This was achieved for fiscal '25 and for fiscal '26.

While macroeconomic disruption and minor operational time delays impacted bookings and revenue during fiscal '26, the company delivered on its structural objectives of cost reduction, margin expansion and cash generation, validating that this transformation strategy presented at Investor Day is indeed on track.

Now turning to the results. Revenue for TDS was $102.6 million for the fourth quarter, nearly flat year-over-year with growth in Growth Enterprise Solutions business setting a continued drag from our B2C learner product. Global Knowledge revenue of $28 million in the quarter was down approximately $2.9 million or 9.4% year-over-year. The trends we've seen earlier in the year for demand and instructor-led training have continued. Total revenue of $130.7 million in the fourth quarter was down $3.1 million or 2.3% year-over-year.

Our TDS LTM dollar retention rate, or DRR as of the fourth quarter was 98% compared to 105% in the prior year quarter. Customer retention improved year-over-year, while customer upgrade rates declined more, reflecting a challenging year-over-year comparable period. Going forward, we believe that the release of the new platform should enable us to move back to historical upgrade rates and beyond.

Now I'll walk you through our expense measures, which taken as a whole, continue to see year-over-year improvements. Cost of revenue was $34.2 million in the fourth quarter or 26% of revenue up 2.5% year-over-year, reflecting higher labs and certification spending, resulting from higher customer utilization. We have changed the way we structure some of these agreements to avoid these overruns in the future. Content and software development expenses of $12.8 million in the quarter or 10% of revenue were down approximately 5% year-over-year. These improvements largely reflected productivity gains from leveraging AI and sharper focus.

Selling and marketing expenses of $37.5 million in the fourth quarter or 29% of revenue were down approximately 5.6% year-over-year, resulting largely from lower program spending, reflecting our drive for capital allocation discipline.

General and administrative expenses, $15 million in the fourth quarter or 11% of revenue, down approximately 13% year-over-year, reflecting lower head count and vendor spending continuing our drive for a leaner, more efficient cost structure. Once we complete the GK strategic assessment process, we believe we can streamline the cost structure further.

Total operating expenses were $99.5 million in the fourth quarter or 76% of revenue and were down $4.3 million or 4.2% year-over-year. Adjusted EBITDA of $31.2 million was up approximately 4% compared to $29.9 million last year with adjusted EBITDA margin as a percentage of revenue for the quarter at 23.9%, and compared to 22.4% last year.

We estimate that TDS contributed approximately $33 million to EBITDA, driving most of the improvement in both EBITDA dollars and EBITDA margin. Debt net loss was $36.7 million in the fourth quarter compared to a GAAP net loss of $31.1 million in the prior year period. The increase in GAAP net loss resulted primarily from an intangible impairment charge and higher restructuring expenses, offset somewhat by lower expenses. GAAP net loss per share was $4.19 compared to $3.75 loss per share in the prior year period.

Adjusted net income of $11 million in the fourth quarter compared to adjusted net income of $17.5 million in the prior year. Adjusted net income per share of $1.26 in the fourth quarter compared to adjusted net income per share of $2.11 in the prior year.

Now moving to cash flow and the balance sheet highlights. Free cash flow for the quarter was $26.5 million compared to $13.2 million in the prior year period. As a reminder, last quarter, we highlighted delayed collections in the third quarter would be recaptured in the fourth quarter which in fact happened driving a portion of the improvement. GAAP cash, cash equivalents and restricted cash was $104.5 million at quarter end.

Total gross debt on a GAAP basis, which includes borrowings under our term loan and accounts receivable facility was $578 million at the end of Q4 down slightly from approximately $501 million at the end of fiscal '25, reflecting normal amortization.

Total net debt, which includes borrowings under our term loan and accounts receivable facility, net of cash, cash equivalents and restricted cash was approximately $474 million down from approximately $477 million at the end of fiscal '25, reflecting our positive free cash flow for the year, which came in just above the high end of our expectations at $6.5 million. We continue to make progress on our strategic assessment of GK that we announced in our Q3 earnings call. We are in active discussions with multiple bodies having completed a recent bid date. However, the conflict in the Middle East has had a meaningful impact on our process given GK's direct exposure to the Middle East, fears of global economic issues and some potential buyers being physically located in the market. We will keep our stakeholders updated on this, and we are working quickly with speed and certainty as key guardrails in our assessment.

That said, there can be no absolute assurance of a successful transaction. Looking to fiscal '27 guidance. For TDS, we expect revenue for the full fiscal '27 year of between $388 million and $406 million and adjusted EBITDA between $108 million and $116 million or around 28% of revenue. Putting aside GK, we expect free cash flow in the range of $14 million to $22 million for TDS.

With that, operator, please open the call up to questions.

And with that, we will now be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Ken Wong with Oppenheimer & Company.

Fantastic. Great to see a solid close to the year, guys. Ron, maybe starting with you, when I look at the TDS guidance does show a slight decline, and you talked through some of the business dynamics that you're seeing maybe how that progression could look through the year? And then John, to the extent that you can maybe comment on the levels of conservatism or some of the assumptions that are baked into that guidance. So we have a sense of kind of the -- how qualified that number could eventually settle out at.

Thanks, Ken. Great to hear your voice. The key business dynamics that you're asking about that are influencing are some historical pieces, and I'm looking at my teammate, John, and he'll walk you through them, so he can bridge them as part of it. So we've got some historical pieces with the normal things you're seeing. I just remind everybody when we came into the year, we were driving our strategic transformation in that operational turnaround. We've made really good progress against that as part of it. So now we're shifting to the phase here where we're going to start to focus on the growth that will show up actually first in bookings before it shows up inside of the revenue number.

And the revenue had some headwinds and other dimensions that John -- I'm looking at John to cover with you so we can bridge those numbers to you to make it clearer on where we're going. But the market is definitely slowed and focused on it right now, customers are thinking. That plays right to our core strategy of that learning unified platform, the Skillsoft Precipio Platform unify all their skills management needs. That's definitely been the conversation. As we said, we've now signed up 15 customers on to that strategy and that journey with us, all paying customers, which is great.

So I'll flip it over to John to fill in the rest of that guidance dimension for you and then we'll come back to more Ken.

Ken, thanks for asking the question. So -- if you break down TDS, we have 2 components of it. We have a consumer business. We have an enterprise business or an enterprise solution, if you will. When you think about the relative size of those 2 components, consumer is about 9% of the total and enterprise is the rest. So just to contextualize it. When you look at the midpoint of our guidance, we're down about $7 million year-over-year at the midpoint. Nearly all of that is as a result of our consumer business. The enterprise business has actually been performing reasonably well. It hit the inflection point, talked about that. So we're pretty happy with that.

Some of the headwinds that we saw earlier in the year, namely some of the churn and some of our government federal clients put a bit of a bookings headwind going into fiscal '27 as Ron was commenting on the fact that you really have to get the growth out of bookings first before you get it in revenue. we had a bit of a headwind from that. We think that we can overcome most of all of that and perhaps grow from on a revenue basis in enterprise but we'll continue to have -- we're planning for a continued decline in the Consumer business.

Got it. Okay. That's fantastic. Appreciate that. And I guess maybe just continuing down that thread like you guys highlighted some macro geopolitical uncertainty. Obviously, you've got a new platform out there that probably takes a little time on to ramp. Should we assume that you have an elevated level of conservatism in that guide relative to how you guys typically approach it? What's the right framing of the setup on numbers here?

Yes. I think the range that we put out, I think, is pretty reflective of what we're seeing in the market right now, which is really a couple of components. At the low end of the range, we're thinking about things like pressure from the Middle East, most notably at the low end of guidance. At the high end of guidance, we're assuming that we can temper the decline in the consumer business and that we have a well-performing Middle East business. So just to kind of think about the two ends of the spec that kind of informs where we could end up and it actually gives you a way to track how we're doing through the year.

Got it. Okay. Fantastic. And Ron, you touched earlier on some of the customer engagement on the AI side and it's north of 200% on a few of your key APIs there. Any thoughts on how the time line might look when you move from activity to workforce transformation and then hopefully, workforce transformation leads to monetization. What's the what's the path forward on that particular time line?

Yes. It's a multidimensional time line. So to your first part of the time line, we're already collecting from those customers and those numbers I just gave you, right? So we're already getting some of that revenue as part of that journey. Two, the way we structured it was we wanted the customers to really begin to use it so we were more open about the usage of how they were approaching it versus trying to hit them with all user fees we were driving adoption as part of it at these early customers that we had as part of our journey. So as I think about that part of the road map, we structured our pricing and packaging to make sure that we've got the customers adopting and going. So we're in the early days of that.

Those pieces associated with it after these early parts of what we're talking about, they get into the full migration where the customer can then sell, and I'm jumping all the way to the end of the journey which for a customer could really range from anywhere from 6 months to 2 years as a large customer who's going on one of those large migrations. But the correlation would be they move from multiple hundreds of thousand dollar type customers through multiple millions of size customers as we go on our journey.

And as you know, each leg, each leg of the adoption gathers more impact and more holding power for us with the customer. And what I'm more excited about in some of the numbers as we go forward when we start doing some of those, will be around how they adopt our strategy around our custom content, their content and building that. That's still the early days on that piece. Everything else is really driving engagement on the products that we got out last year. And then we'll continue to report back to you these pieces and put it together in a more broader mosaic. But the ultimate life cycle that I look forward to packaging up here once we get more data will be that life cycle journey, where do I have the customers at this stage then going to the next stage to the next stage to the next stage.

And we think of those stages in 4 big chunks, and we can walk you through what those are after on that one, Ken. But happy to. I do see -- I'm focused on the enterprise and large enterprises, I see those turning into multimillion dollar contracts per year with our customers. In terms of upside which I think is where you're saying, hey, Ron, how fast can you get there? And then how much is it worth at the end?

Understood. Perfect. I appreciate the context there, Ron. I think one piece of the guidance that I thought was particularly attractive because you're still projecting for increased EBITDA, free cash flow despite a slight downtick in TDS. I guess as we think about the spend numbers there, do you feel there is sufficient investment to provide growth? And you -- I think John, you mentioned that once you guys potentially clear GK off the deck, there's maybe room for further improvement. Maybe dive into those 2 pieces, if you could.

Sure. Happy to. So one of the interesting things that isn't completely visible in the numbers is we have been fairly successful in reducing costs on a year-over-year basis. We have that grow under year-over-year where costs are -- you get the rest of the cost that you reduced in the prior year. So we have a little bit of a tailwind from that. We're taking those benefits, and we're investing in growth. We're investing in things like marketing programs. We're investing in the platform. So where everything that we're doing at this point is reorienting our spend towards the areas of the business that we think will grow the fastest.

When you think about what's possible on the other side of a GK, there's really 2 big components. One is the trap costs that are in the business, we believe that -- by the end of the fourth quarter, we could get those out of our run rate, assuming we can get to a satisfactory transaction between now and then. And then as you simplify the business, it gives us the ability to refine the rest of the cost structure over time because it's just a simple business to run.

Got it. Okay. Very helpful. And then I realize we're not focused as much on GK anymore with you guys looking to exit that business. But it while it declined, it does appear that maybe we found some footing at the $28 million revenue run rate level. I guess is that a fair assumption? And again, just to the extent that you guys can talk on how GA tracked relative to expectations? Would just love to get a sense of whether or not that business has stabilized.

So I think, as you know, we're giving guidance on TDS -- with respect to the historicals, I think we would have liked to have seen a little bit more progress in the fourth quarter. One of the challenges for that business, though, is the process itself. And that process along with 20% of our business being in the Middle East, the combination of those two things put some pretty intense pressure on the business. Now having said that, I think the team did a good job of absorbing those fundamental challenges. So thanks for the observation for sure. I think they'll appreciate that. I think that the business has the ability to grow. I think if we had more time and we -- this was on the same pace of performance as TDS.

We'd have a demonstrable reason to keep the company or keep the business in the company because we do like that learning modality but I think we've also concluded that from [indiscernible] perspective, we partner and get that piece and including GK being a partner on the other side of what happens. If I drill down into the individual pieces of GK, the EMEA business is really starting to look like a good performer. We're very excited about that. in the Middle East, notwithstanding what's going on in the world, we're seeing some solid progress there. In North America, that's the place where we have a bit of work to do to repair the business.

Got it. Okay. Perfect. And then shifting back to the core TDS side. You touched on the DRR slight downtick sequentially, down year-over-year, not an area where you guys expect to live forever, and there's a path upwards Ron, do you feel you guys have the appropriate product set the appropriate go-to-market that we can see DRR return to that 105 level, again, maybe not this year but down the line? And then for you, John, I guess, how should we think about that trajectory again not a specific quantification of what that number could be. But should we assume that the path forward will be -- will hopefully be at least a little bit of an upward trajectory?

Yes. As John pointed out in his prepared remarks, there was a headwind from the prior year comparison that was there. And then there was some of the headwinds that happened as part of the year that we had pointed out as part of that overall journey. When I look forward, when you combine that and I look forward to where we can go, absolutely, I do see us have the ability to recover to those historical patterns that we were operating in as I look ahead. So to me, having as we layer more of the bricks down in this big foundation that we poured last year, those pieces will just continue to build our story, and that should directly tie to DRR from my perspective with these customers, especially as we've shared with you, we've got a good group of customers that are very loyal.

We've got a good group of customers that are very engaged and in those 15 customers that are signed up for the -- paying customers have signed up for the new platform journey in the very early days here is a real good testament to that opportunity to improve that DRR as we go on that journey as the first green shoot, let's call it, Ken.

So maybe I would just say, John, do you want to add to that?

Yes. Let me come in over the top on that on a couple of things. So as you drill into so you look at the fiscal '25 period, the fourth quarter of fiscal '25, we had an outstanding quarter from a DRR perspective, and that was on the strength of some very large upgrade deals that we had at the end of that quarter whereas we proceeded through the year, we have the challenges from some of our federal customers and just some of our larger customers really screwing down on expenses because of economic uncertainty. That drove much of what we saw in our upgrade performance. So interestingly, and the thing that I liked about the fourth quarter of this year was we actually saw some spinning our retention rates, our customer retention rates. So that part with lower churn was very exciting for us. The much lower upgrade rates.

I think as we get past, we lapped the federal business -- as we go into the year, it will be a little bit easier for us to kind of get back to those levels get back to the 100% and above as we proceed, but we really needed 2 elements. One is for the new product to be in market and showing well, I think we're seeing that with 15 customers who are paying for the platform. We needed really the marketing to wrap around that. So people we had a new product, and it was demonstrably different in the marketplace. I think the combination of those 2 things, along with lapping some of the churn that we had in fiscal '26 should really help our DRR in the upcoming year.

Got it. And then last one for me. Just -- when you look out at the competition, both old and new, how would you say you guys are stacking up. I guess, any concern that again, some of the prior softness that hopefully we're going to lap. Like any confidence -- what's the confidence that, that is not driven by competition. It's more a dynamic of macro?

Yes. So from my perspective, as I look at the market in total, customers are going to make some big shifts these next 5 years. and some of them are going to come sooner than later. When I look at the competition from that perspective, AI will be that catalyst and it will come in both the agentic workflow where people consume content and learning experiences that will all tie together. At the end of the day, skills management for the companies is going to be the new high water for what customers have to get done, that requires a unified platform system that allows the customer to manage that full life cycle.

And at the learning level, right, not at the system of record down at the HRIS level, they can complement each other. But it's really how do I take my company on that learning journey. What I see in the market today is a series of point solutions in the market. And I see some people after our announcement last September scrambling to try to fill in some of the cracks around that. on their platform stories because their platforms are narrow, they're point solutions. I'm an LMS. Now I want to be a talent management system. So what I'm seeing right now is the normal repackaging of the marketing and the materials around it. In general, I'm actually more comfortable that's more point solutions that the customers will want to learn to, over time, migrate into a full skills life cycle management, which our skills management positioning will be excellent as we progress on that journey as I look at it.

So I remain very optimistic that this piece of it is going to be very, very moved with great velocity for us. And let's just get these early wins as part of the overall journey. So to me, it's a logical aggregation opportunity for us for the customer, excuse me, to then make that migration from point solutions. My life experience has been point solutions to suites to platforms as part of the journey. And again, I'm in the learning space. I'm not taking on anything with HRIS or anything like that. But in that learning space, you have to train humans and AI now -- you have to manage humans and AI now. You have to bring all those pieces together, we've got a skills ontology of 20 years around content and learning we've got the skills ontology of how to do roles assessment. That's a winning these deals. That's our data and that's why I made the comment around our platform, the data that we have, along with the platform, along with the content is actually the winning hand, right? Much like the media market, right? Oh, it's all content. It's all content. No, no, no, it's all platform. No, no, it's actually both. We have streaming, right? Putting all 3 together to me is going to be the key in this market, and that's what we have.

Got it. We appreciate the thoughtful response there. That's it on my end.

All right, thanks ken. Thank you, everyone.

Thank you. And with that, there are no further questions at this time. I'd like to turn the call back over to Ron Hovsepian for any closing remarks.

Thank you. As I look back at 18 months ago when we started journey from our overall reporting perspective at Investor Day, we've made a ton of progress on the strategic transformation. Still more work to be done. But as I look forward, where we positioned ourselves with AI and how we think about AI as part of the customer's journey, as I just said, the journey for the AI human part of it and the agent part of it is going to play a key role for us in a key role with the customer. We're as well positioned as anybody with what we're doing with our skills intelligence, what we're doing with our content, what we're doing with our platform and ultimately bringing all that together with the data that we have here over many, many years. .

So as I look at '27, it's area of growth. We're going to try to prove ourselves growth and the revenue. And then as we hit the end of the year, we'll start to really begin to look at what that backlog growth looks like. because we're seasonally loaded to the back end, it will show up in that backlog number as we look into the end of the year. So with that, I say thank you. Stay tuned. I look forward to reporting more about our growth and where we're going as we move forward.

Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.

Thank you for standing by, and welcome to Skillsoft's Third Quarter Fiscal 2026 Results Conference Call. [Operator Instructions] 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 12 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 third quarter ended October 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, which speak as of their respective dates.

During the call, unless otherwise noted, all financial metrics we discuss other than revenue 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-K and 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. We began our transformation in August 2024 with focused goals: reach revenue inflection, return to growth, and grow at or above the market while maintaining strong profitability and cash flow. We centered our strategy on the talent development market because it influences performance across almost every business function. This focus is delivering early results with increasing DRR for enterprise customers, strengthening account health and strong early interest in our platform.

AI is accelerating change across industries and workforce readiness has become a top priority for Boards and executive teams. Many organizations face delays in business transformation due to skills gaps that limit execution speed. This is why more than 70% of the CHROs cited skills visibility as a top 3 investment priority in a recent customer study. They need clear insight into skills and future requirements, along with faster paths to close gaps, supported by strong governance. Learners also expect personalized development and real-time support in the flow of work.

Our next-generation Skillsoft Percipio platform directly addresses these needs by unifying content, blended learning, hands-on practice and skills intelligence into one platform. This integrated approach helps customers act faster, reduce skills gaps and accelerate transformation efforts.

Our enterprise scale, product innovation, services expertise and learning DNA gives Skillsoft a clear advantage as organizations adopt skills supply chain models. This strategy positions Skillsoft for sustained growth and stronger customer value as the market shifts towards AI-driven skills management. In anticipation of this shift to AI-powered skills solutions, we spent FY '26 reshaping our go-to-market approach to ensure we can fully capture the opportunity ahead. We anchored this work in financial discipline with a leaner, more directed cost structure and capital allocation focused on return on invested capital.

On marketing, we rebuilt the team with capabilities needed to support the platform transformation. While the hiring took longer than planned, the team is now in place, and we will introduce our exciting updated branding in the first quarter of FY '27.

On sales, we invested in skills subject matter experts so customers can connect our differentiated capabilities, particularly in AI simulations and enterprise skills management to their workforce needs. Their engagement is already correlated to strong performance with deals involving these specialists delivering a 105% dollar retention rate in the third quarter. We also recently realigned the sales coverage to focus on large customer enterprises who are deeper adopters of our advanced features and have demonstrated approximately 115% dollar retention rate in Q3.

On product, we released the early version of our platform in September, signed 4 large enterprise customers and expect general availability in the first quarter of FY '27. Initial customer response has been strong, and we remain confident in delivering our TDS commitments and positioning FY '27 and beyond for growth.

In our annual planning process, we also saw meaningful momentum in our AI efforts with customers adopting AI-driven simulations at scale and our teams using AI for more than 50% of the design, curation and production of content, contributing to headcount and vendor reductions reflected in the year-over-year operating expense improvement.

Turning to our GK segment. Our early priorities were to stabilize the business and expand our public sector presence. While we have secured meaningful new wins, including a European public sector award in France worth up to $25 million over 4 years, the financial trajectory of GK remains negative. In Q3, GK accounted for 73% of our revenue decline while representing only 22% of total revenue. Given these dynamics and in an effort to remain aligned with our company growth time line and customer needs for multimodal learning, we have undertaken a full strategic review of the GK segment and concluded that a partnership-driven model is more appropriate than continued ownership. Therefore, we began pursuing a range of alternatives with the GK asset in Q3. Ideally, we want to maintain a 2-way partnership where GK will continue to provide instructor-led training services to our customers, while Skillsoft provides content and platform capabilities in return.

AI is not replacing learning platforms. It is increasing their strategic relevance. The World Economic Forum estimates 85 million roles will be displaced and 97 million new roles will emerge, underscoring that this shift is not only disruptive, but a generational reskilling opportunity. Organizations now need trusted systems that curate knowledge, validate accuracy, measure outcomes and integrate directly with their talent and skills frameworks.

Over the past 18 months, we have rebuilt our go-to-market model, strengthened our product road map, advanced our AI capabilities, reduced our operating expenses and realigned our portfolio, including the action on GK to match how the market now prefers to consume learning and ILT. By applying AI to elevate content creation, deliver personalized and multimodal learning experiences and enable safe, high-impact simulations, we are confident that Skillsoft is well positioned to help enterprises navigate workforce transformation and accelerate their move towards true governed skills management in the years ahead.

With that, let me now turn the call over to John to cover our financial results in more detail. John?

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.

At a high level, for the largest components of our business, the summary for the quarter is that the enterprise portion of Talent Development Solutions, or TDS, which represents around 91% of TDS was down slightly from a revenue perspective, reflecting customer churn from earlier in the year, but is largely on track. GK has struggled this year and in the quarter, particularly as the market shifted to blended learning. GK had considerable negative impact on revenue, earnings and cash flow this year. And while we made progress in some of the key initiatives around this business, we concluded in our annual planning cycle that it is better to partner with an ILT provider than to own that learning modality. Accordingly, we began a strategic review on that business.

I'll talk in more detail about the implications of our decision to pursue options related to the GK business in just a few moments. Related to guidance, we're on track for TDS's component of the anticipated performance, but off on a consolidated company basis due to GK.

Now turning to the results. Revenue for TDS was $100.8 million for the third quarter, down 2.1% year-over-year. Around 70% of the decline came from our B2C learner product, which represents around 9% of TDS revenue. The learner business utilizes a digital customer acquisition motion, which continues to struggle to adapt to changes in organic search algorithms, hampering lead generation and customer acquisition. The larger portion of our business, Enterprise Solutions, was down approximately 1%, reflecting customer churn occurring earlier in the year.

Global Knowledge revenue of $28.2 million in the quarter was down approximately $6 million or 17.6% year-over-year. Like the first half of the year, we continue to see softening demand, reflecting a fundamental shift in the way that customers want to purchase instructor-led training. Customers are increasingly looking for end-to-end solutions, which combine services with the delivery of ILT. The business was also impacted by spending reductions from the U.S. government shutdown. Total revenue of $129 million in the third quarter was down $8.2 million or 6% year-over-year. Our TDS LTM dollar retention rate, or DRR, as of the third quarter was 99% and improved year-over-year from 98%, reflecting higher customer upgrades.

Now I'll walk you through our expense measures, which taken as a whole, continue to see year-over-year improvements. Cost of revenue was $35.1 million in the third quarter or 27% of revenue, up 3.1% year-over-year, reflecting higher labs and certification spending and cloud-related costs resulting from higher customer utilization. We have changed the way we structure some of these third-party agreements to avoid these sorts of overruns in the future.

Content and software development expenses of $13.7 million in the quarter or 11% of revenue were down approximately 2.4% year-over-year. These improvements largely reflected productivity gains from leveraging AI and sharper focus.

Selling and marketing expenses of $35.2 million for the third quarter or 27% of revenue were down approximately 7.1% year-over-year, resulting from lower headcount, demonstrating improved productivity as a result of our transformation efforts.

General and administrative expenses were $17.1 million in the third quarter or 13% of revenue, down approximately 11.9% year-over-year, reflecting lower headcount and vendor spending, again, demonstrating improved productivity.

Total operating expenses were $101 million in the third quarter or 78% of revenue and were down $4.3 million or 4.1% year-over-year. Adjusted EBITDA of $28 million was down about 12% compared to $31.9 million last year, with adjusted EBITDA margin as a percentage of revenue for the quarter at 21.7% compared to 23.3% last year. We estimate that GK contributed negative $3.3 million to EBITDA, driving most of the reduction.

GAAP net loss was $41.3 million in the third quarter compared to a GAAP net loss of $23.6 million in the prior year period. The increase in GAAP net loss resulted primarily from a noncash goodwill impairment loss of $20.8 million related to GK to reflect declines in the business. GAAP net loss per share was $4.74 compared to $2.86 loss per share in the prior year period.

Adjusted net income of $14.3 million in the third quarter compared to adjusted net income of $11.3 million in the prior year. Adjusted net income per share of $1.65 for the third quarter compared to adjusted net income per share of $1.37 in the prior year.

Moving to cash flow and balance sheet highlights. Free cash flow for the quarter was negative $23.6 million compared to a positive $4.1 million in the prior year period. About 3/4 of the cash utilization represented timing and reverses in Q4 with the remaining balance related to GK performance, which is permanent to the year. Drilling down on the timing portion of cash flow variance further, roughly half of that variance reflected timing of vendor payments, which will normalize in Q4. Within customer collections, we absorbed about $6 million of delayed cash receipts from the federal government shutdown with those receivables being collected in Q4.

Looking at the full year outlook, you may recall that we originally expected free cash flow for the year to be in a range of $13 million to $18 million. While we've already seen delayed government-related receipts coming in during Q4, weakness in GK, combined with costs associated with the evaluation of the strategic alternatives for that business will result in lower free cash flow for the fiscal year, lower than originally anticipated.

Based on current levels of working capital and our forecast of cash payments and disbursements in the fourth quarter, we expect positive free cash flow of between $0 million and $5 million for fiscal '26. Absent GK, our free cash flow guidance would have been unchanged from our previous guidance for the full year.

GAAP cash, cash equivalents and restricted cash was $77.5 million at quarter end, traditionally our seasonal low point. Total gross debt on a GAAP basis, which includes our borrowings on our term loan and accounts receivables facility was $578 million at the end of Q3, down slightly from approximately $581 million at the end of fiscal '25, reflecting normal amortization. Total net debt, which includes borrowings on our term loan and accounts receivable facility, net of cash, cash equivalents and restricted cash was approximately $500 million, up from approximately $477 million at the end of fiscal '25, reflecting Q3 being our seasonal cash balance low point. Naturally, we expect cash to build during Q4 given normal seasonality.

As mentioned earlier, we initiated a strategic review process for our Global Knowledge segment. In order to help you understand the details, we've broken out the segment level adjusted EBITDA for you this quarter. This analysis shows that GK represented most of the year-over-year decline in adjusted EBITDA. The process of removing this top and bottom line drag will be accretive to growth, margins and improved free cash flow and leverage as well. In connection with the decision to explore strategic alternatives for GK, we're unable to provide revenue and adjusted EBITDA guidance for GK for the remainder of the year, but we'll do so for the TDS business. Accordingly, we're withdrawing previous consolidated revenue and adjusted EBITDA guidance given it included GK.

For TDS, we expect revenue for the full fiscal '26 year to be between $400 million and $410 million and adjusted EBITDA of between $112 million and $116 million or about 28% of revenue. Interestingly, the guidance for TDS compares closely to our previous consolidated guidance of $112 million to $118 million.

With that, operator, please open up the call to questions.

[Operator Instructions] Our first question comes from the line of Ken Wong with Oppenheimer.

Really appreciate all the detail, guys. Maybe first, Ron, on the strategic review. Can you help us kind of think through what that -- the time line could be for getting some sort of a transaction done there? And as you think about the prioritization in terms of speedy exit from the business versus trying to optimize for price, how should we think about the -- kind of which direction you're tilting there?

Happy to, Ken. Thank you for the question. In terms of your first part of your question, the time frame, as we indicated, we're in a process right now, so it would be inappropriate to speculate on the exact timing. To your point as to what are we optimizing to, I think what John shared with you on the call around the amount of impact that we've had on the cash flow as he walked you through that piece of it. I think the urgency associated with making that better for the company overall, the RemainCo is top priority for the company. That's as far as I want to comment on that particular piece. John, I don't know if you want to add anything to that.

I think the only thing I would add is we have been thinking about this and working on this for a while now. And consequently, we're into the process pretty heavily.

Perfect. That's actually super helpful. Really appreciate the context that you could provide. And then on the breakouts between the 2 businesses, when I look at the margin profile of core TDS, very strong at 28% EBITDA margins. As you guys were thinking about expanding margins over the coming years, how much of that was influenced by, GK is underperforming and you move those margins up and that pulls up the overall business? Or is there still headroom for the content business as well?

So thanks for the question, Ken. So we see that -- see the profitability in TDS as being really the flagship, both growth as well as profitability in the consolidated group currently. When we originally modeled out the business when we were going through our original strategic process, and I'm really now going back to August of 2024, we really thought about the GK business as being more of a breakeven business that would grow and contribute to cash flow, maybe not at the same rate as you would expect TDS.

I think from a growth perspective for TDS, sitting today at 28% EBITDA, attractive EBITDA, the most important part now is going to be to maintain profitability, that's an attractive financial profile, but investing in a way to get to growth because we do think that $1 invested in TDS right now is really the right place to put any of our bets at this juncture, obviously, given the process that we're going.

So I think what you'll see as we go into next year, we're going to be focused on getting the investment mix correct to drive growth. But we're very comfortable with the profitability profile of the business, both near term and long term.

Just to add to that, Ken. When you think of the transformation in the core of your question, it really is that is going to be the cash-generative part of the company. And as John indicated, that has the capability. So what we started our journey on was really around the transformation. So as you said, you referenced the content business. What I want to highlight is in '26, specifically, we have done a number of things to prepare to address that talent management market, which we both know is a growing market. And as part of that story, what we're really picking on was that dimension around skills that we announced in September. Again, these are middle of September type announcements. So this is all unfolding now in front of everybody.

The shift from content to content and a platform. Now why is that important? A lot of people speculate what AI is going to do to content, what it's going to do to every industry. We agree it's going to redefine it. However, if you study parallel markets like the media market, what's happened in entertainment, the entertainment market went through 3 stages. Everybody race to content was king, then it became platform is king. And as we all know, it's now settled down into where it is today, which is streaming platforms with content. And the Warner acquisition is a good example of it happening again. We believe that same hypothesis and we -- parallel, I should say, and we believe we're perfectly positioned for that because we do have a content business. We now have announced the platform part of the business and that AI native nature of that. And that really positions us well for the growth next year.

So as we come into the year, we've set the table with what we're doing with product, what we're doing with our brand marketing, repositioning the value proposition, all that will begin to get rolled out in earnest as we enter into next year. That's what's been going on behind the scenes, and we're starting to let those pieces come out. The 4 customers that John referenced, those are people that now have signed agreements and paid us money to be part of that journey in the very early stage. So it's all set up for growth for next year.

Got it. And I guess on that comment, just making sure we kind of clarify and parse through the pieces, set up for growth next year. I assume that this isn't necessarily signaling that you guys will see growth next year, but again, perhaps stabilizing the platform, kind of putting the pieces in place and maybe optimistically, we could see growth? Or I just want to make sure we understand kind of how you're thinking about next year given that we've kind of -- you've talked around some comments here.

Yes. Absolutely setting the table for growth is a quotable piece of what we're doing here. And we'll give you details around that as we end the year. And John was just kind to remind me that we actually had another one of those -- another customer deals signed last night on that journey on the platform side, which was fantastic. And that one is actually a competitive win back. So it's really nice to see it. So -- but the answer to your core question of growth is we'll give you guidance at the right time there, but we are setting the table for growth.

And we really do believe that we have a very attractive growth -- very attractive profitability profile in the business that really gives us the credibility and the wherewithal to invest properly as we go into next year to set the table for growth.

Understood. And then perhaps if we could dive into just public sector. It sounds like the dynamic there has stabilized now that the shutdown is over, but would love to just get your feedback. Any context you can provide? Are we fully out of the woods? Are we still kind of one foot out? Any thoughts on how that piece of the business is shaping up?

Yes, it's a great question. So I'm going to set aside GK for a moment because that -- the government shutdown during the quarter had a material impact on its open enrollment segment of its business. But if I look at TDS and I look at the DRR related to our federal business and to our public sector business more generally, that DRR has kind of been a 103, 104 sort of level. So we're seeing some actual evidence of coming back after having a really tough first half of the year. So we feel pretty good about that. We had some really nice wins in Q3 around the federal business. So that business is pretty healthy. We see it continuing hopefully into Q4, and that's really reflected in the guidance that we have for the full year for TDS.

Okay. Perfect. And then on Q4, again, it feels like maybe a slight softness in 3Q still, but stabilizing. What -- based on what you're seeing in kind of the early parts of Q4, how would you characterize sales cycles, deal momentum, conversion? Any color you can provide that gives us a little more confidence in that reiterated TDS outlook there?

Sure. Two things. One, for TDS Q3, we actually rolled out our new sales coverage model while delivering the forecast at the same time and made some notable changes in our approach there. So I share that with you in the spirit of we really are trying to prepare for what's around the corner and align ourselves for that growth -- growth story.

In terms of what I see right now, everything is within the normal boundary conditions of what we've learned about the business, some of the discipline we've put around it from a forecasting perspective. And obviously, all that's included in John's guidance for the quarter. So -- and most of the comments that we're talking about, it goes back a little bit to the repositioning, Ken. We said we're going to reposition ourselves around what we're doing inside the enterprise because we have the most value there. That's why I shared that 115% DRR number with you in those large, larger customers, we're seeing the goodness that we want as part of it. And some of those customers are part of the group that signed up for the platform, which is great, right? That's a good thing for us.

So again, we put a lot of discipline. We'll package that up as we come into next year and deliver that story holistically so you can put all the pieces together. But in terms of what I'm seeing right now, where we're targeting, I'm seeing the growth. That's why I gave you that 105% and 115% number in my prepared remarks and want to really see us push ourselves and get everything in place as we come into the year. We're not rolling stuff out, but we're a little bit ahead of the curve as much as we can be. GA of the product is actually in Q1. So again, the platform product, excuse me. So the pieces are shaping up.

And for the rollout of the platform, we're focusing our attention primarily on our existing customers that we have these relationships. We have more than 800 large enterprise customers that are in our base. And right now, we're targeting a subset of those, say, roughly 1/4 of them specifically as folks that would be -- they're very attractive candidates for the platform. Obviously, our win rates tend to be much higher with our existing customers. On a relative comparative, it's 3 or 4x higher selling a platform to an existing customer than trying to win that new.

Got it. Okay. Perfect. And then I realize that Global Knowledge might not be something we have to consider too much longer. But as we think about our numbers for the rest of the year and for our model, at least initially for next year, what's the right way to think about how that played out? I know you're not providing guide because it's just a little uncertain, but is it fair to assume a slight downtick from expectations in 3Q, just given the way you've kind of framed the quarter and that carries over into Q4 as far as how we should be kind of tweaking and refining our thinking there?

Yes. So certainly, we want to be helpful to try to help people think about this within the context of their models. We pulled guidance and we ultimately decided to not guide on GK just because of the uncertainty that's created by the process itself. But I think just in terms of making the math work in your model, a downtick from Q3 is about as a good way to approach it as any.

Okay. Understood. And then lastly for me, just lots of chatter on AI. It seems like you guys have put in many of the pieces necessary to be successful there. Love hearing about the platform. As you think about kind of the customer interest, the conversations you've had, I mean, should we think of these AI capabilities as table stakes that aid in retention? Or do you credibly believe based on what you've heard from customers that you can actually capture incremental wallet with these capabilities?

I'll answer it in 2 dimensions, the customer and the market. So in terms of the market, we know that the customer is going through a transition and a redefinition of what content is and what a platform is to run their skills or talent management life cycles. So inside of there, we believe we can get -- we can migrate our base and grow from there and get new customers. And then two, when I look at the new accounts, this gives us an opportunity to now have a new conversation with the customer where we can go in with just the generic platform.

So I can have a conversation with you about content. I can have a conversation about content and the platform, and then I can have a conversation with you just about the platform. And we've got customers that are in all 3 of those buckets from the market research we're doing around pricing and packaging. Again, that will also be rolled out in next year, and we've done that review and research and really understand what's happening out there in the market. So that will open it up in 2 dimensions there. It will open up in the existing base of customers and will allow us to go into the other -- into new customers as we go on the journey.

But there's 2 parts to the story again, right? And I want us to wake up like a Netflix where I've got a platform and content, right? That's exactly where I'm going. I'm not implying that we're going to be Netflix at all not this week. But I see that -- I see the historical pattern, and that's what we set everything out on candidly, a year plus ago now in our planning was that's what we thought would happen in this market, and I still believe that should be true.

That uniqueness of having that experience, that uniqueness of already migrating our capabilities and our own practices, 50-plus percent of the content in the platform now was AI-driven as part of it. That's as good as you can get in such a short window. And I think that's a very important point. What it also does is it adds to the tools that we announced in September because those are the same tools that our customers are going to use, we're using. So we can walk in with incredible credibility for our customer because I can talk to them about their own content. I can talk to them about our content. I can talk to them about how it will flow into AI personalized experiences. Those are the things that the customer wants from us on managing their skills life cycle and the organizational skills. And I think we're really well positioned to do that.

Now we're going to go out and tell the story, and all of that is all queued up to start happening in Q1. The brand, the sales already is all underway, the pricing, the packaging, the sales skills, upgrades. All those pieces are all underway right now as we start to head into it along with a very detailed product plan.

And all of this is getting integrated across the company. So the integration piece is getting -- it's actually fairly important for us to have commonality of message across the entire company, both with respect to the customer and within the company.

Very true.

Perfect. Perfect. And I actually have one more question. Just on how should we think about your approach to the investment cadence on a go-forward basis? I mean we went through a restructuring and then you probably had a bit of optimization on the GK side, while perhaps partially investing on the TDS side, again, hard to see through the optics of kind of the blended business. So now that you've got just what you guys feel is core to your operating model, what's the approach? Like what's your mindset right now, Ron, John?

Yes. So really first ordinal point for us was to try and make sure that we create a track record in hitting our TDS EBITDA. As you've seen in the past several quarters, we've been able to reduce our cost structure year-over-year pretty consistently. And we saw some interesting nuggets as we've been going through the year. Ron talked about one of them, which was the adoption of AI within our 4 walls in terms of content creation. So we're looking every quarter, every month for interesting ways to drive productivity. That will continue for the foreseeable future. And then as we prove our model, then we'll shift some of that economic goodness into investing in growth.

There are no further questions at this time. I'd like to pass the call back over to Ron for any closing remarks.

Thank you. Thank you to all of our -- everybody who joined the call. Just to summarize, as we worked our way through the quarter, as we shared with you just now, there are a bunch of significant things that have occurred now in the transformation. Obviously, the announcement around GK. But more importantly, what we just -- what I was just summarizing back to Ken's last question, which is we focused on a large and growing market. We've refocused ourselves through the enterprise reach, companies making the migration to adding a platform to our content history and capabilities to migrate that revenue and introduce new revenue streams. All those pieces are now queuing up and setting the table for FY '27. Those pieces, as I said, branding from our team is well underway. The sales model has already shifted and was implemented in Q3.

When I think about how we've embraced AI as a native construct inside the platform, that's been critical for what we've done as we've gone on the journey. And all the pieces are now coming together to align towards that while we deliver on what John just highlighted for the commitment for Q4.

So I thank you all and may you all have a good night. Look forward to chatting with our investors shortly. Thank you.

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

Thank you for standing by, and welcome to Skillsoft's Second Quarter Fiscal 2026 Results Conference Call. [Operator Instructions] 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 12 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, 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. 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-K and 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, which reflects 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 1 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 road map 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 helped 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 to the second quarter. Broad macro and geopolitical headwinds weighed heavily on GK during the first quarter and continued into the second quarter, with the largest impact coming from slower demand in North America and in the Middle East. These were driven by external factors. As a result, we are updating the revenue guidance. John will provide the specifics.

Our teams continue to deliver on our strategic priorities. First, we have focused on leveraging the existing scale of our platform and our relationship management teams that already serve nearly 3,000 customers. I'd like to share 3 examples of customer wins from Q2, all more than $1 million of total contract value, which validate our strength in providing value to enterprise organizations.

A global athletic apparel brand partnered with us to enhance leadership capabilities and drive cultural transformation. Our unified learning solution integrated risk-based compliance, inclusive leadership development and innovation training. Our personalized learning pathways and analytical tools help the organization to track progress and elevate engagement while streamlining global compliance. A global semiconductor manufacturer engaged our team to enhance their learning ecosystem for 43,000 employees with a focused AI-powered content and personalized learning paths.

The program includes certifications in cloud, cybersecurity and agile methodologies. Our ability to deliver high-impact learning at scale is helping the customer meet aggressive innovation time lines and improve cross-functional collaboration. A leading European provider of digital services partnered with us to launch a large-scale workforce transformation initiative. We were selected for our ability to deliver strategic learning at scale, which we accomplished with them.

In just 18 months, the company's global workforce earned over 20,000 certifications in cybersecurity, cloud, data and AI and service management. These wins reflect the growing demand for scalable, high-impact learning solutions as organizations adapt to rapid shifts in workforce and AI technology. To meet this need, we are evolving our product strategy to focus on AI native design, skills intelligence and enterprise-grade flexibility. This shift is not limited to an enterprise HR team. It is increasingly relevant to the executives across the organization who are focused on building workforce capabilities that directly link to measurable outcomes.

Later this month, we will share details about a new AI authoring experience designed to change the way organizations create and deliver learning. This innovation is part of a broader road map focused on personalized skills development, scalable certification and advanced analytics. These capabilities will enable enterprises to produce high-quality content faster at a lower cost, localize and govern it at scale, shorten time to competency and quantify the ROI through deeper skills and compliance insights.

As part of our road map, we advanced CAISY by adding full voice mode, 5-level proficiency scoring and improved feedback rubric and a new behavior trait for more dynamic conversations. For enterprises, this scales realistic role play, delivers consistent and audible proficiency signals, speeds time to competency, lowers coaching costs and links skills progress to faster sales ramp, higher customer satisfaction and stronger compliance.

We expanded global learner support with unified language experience in over 50 languages. We launched an intuitive page builder for custom enterprise landing pages and broadened HR and technology certifications with comparative dashboards by department, geography, each having custom attributes as desired.

For enterprises, this delivers faster global rollouts, higher adoption and completion, consistent governance and clearer ROI from skills and compliance gains. Skillsoft Percipio platform momentum continues with technology learners up 50% year-over-year, AI learners up 74% and AI learning hours up 158%. Enterprises are scaling with Skillsoft to close the skill gaps, reach competency faster, adopt AI more broadly, cut training and onboarding costs and improve their KPIs.

Bringing it all together, we're confident in our core business' durability and in the strategic investments in our go-to-market and product portfolio, all of which will enable us to return to market growth rates. With that, now let me hand the call over to John to cover our financial results in more detail. John?

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. The investments made in Q2 will need time in 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 for 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 $27.6 million in the quarter was down approximately $2.9 million or 9.6% year-over-year. We continue to see softening demand, reflecting lower discretionary spending, particularly in North America and from geopolitical instability in the Middle East, which impacted GK during the quarter. These market conditions are central to our view on full year guidance, which we'll cover shortly. Total revenue of $128.8 million in the second quarter was down $3.4 million or 2.6% year-over-year.

Our TDS LTM dollar retention rate, or DRR, as of the second quarter was 99%. This compares to 99% last quarter and 98.4% 1 year ago. Churn and erosion in our federal business had a material effect on DRR in the quarter, reducing our performance within the quarter by approximately 4 percentage points, putting the materiality of this in the proper context.

Now I'll walk through expense measures, which again saw a year-over-year improvement as a result of the cost reduction initiatives we executed in the back half of last year. Cost of revenue of $32.7 million in the second quarter or 25% of revenue was up 1.6% year-over-year, reflecting higher utilization of certain platform features by our customers. Content and software development expenses of $13.2 million in the quarter or 10% of revenue were down approximately 5.9% year-over-year. These improvements largely reflected productivity gains from leveraging AI and a sharper focus.

Selling and marketing expenses of $38.5 million in the second quarter or 30% of revenue were down approximately 3% year-over-year. General and administrative expenses were $16.1 million in the second quarter or 12% of revenue, down approximately 10.5% year-over-year. Total operating expenses were $100.5 million in the second quarter or 78% of revenue, down $3.4 million or 3.2% year-over-year.

Despite the lower revenue base compared to the prior year period, we once again delivered strong profitability with adjusted EBITDA of $28.3 million, flat compared to last year. Adjusted EBITDA margin as a percentage of revenue for the quarter was 22% compared to 21.4% last year. GAAP net loss was $23.8 million in the second quarter compared to a GAAP net loss of $39.6 million in the prior year period. GAAP net loss per share was $2.78 compared to $4.84 per share in the prior year period.

Adjusted net income of $7.9 million in the second quarter compared to adjusted net income of $7.1 million in the prior year. Adjusted net income per share of $0.92 in the second quarter compared to adjusted net income per share of $0.87 in the prior year.

Moving to cash flow and balance sheet highlights. Free cash flow for the quarter was negative $22.6 million compared to negative $16.1 million in the prior year period. As we anticipated and as we alluded to in the last quarter's call, most of the positive free cash flow we generated in the first quarter reversed in Q2. However, year-to-date free cash flow remains positive and was approximately $3.5 million as compared to a cash usage in the prior year of $5.7 million. Again, this was driven largely by normal seasonality as Q2 is typically our weakest cash flow quarter as well as timing of collections and certain disbursements in the quarter.

Looking to the balance of the year, improving free cash flow and generating consistent positive free cash flow continues to be a top priority. And accordingly, we're reiterating our expectation of $13 million to $18 million for the full year. GAAP cash, cash equivalents and restricted cash was $103.4 million at quarter end. Total gross debt on a GAAP basis, which includes borrowings on our term loan and accounts receivables facility was $579 million at the end of Q2, down slightly from approximately $581 million at the end of fiscal '25, reflecting normal amortization.

Total net debt, which includes borrowings on our term loan and accounts receivable facility, net of cash, cash equivalents and restricted cash was approximately $475 million, down from approximately $477 million at the end of fiscal '25.

Turning to the outlook for the full year. As Ron already mentioned, we are adjusting our previously communicated revenue range outlook for fiscal '26 to account for the now anticipated continued softness in federal spending. We now expect revenue of $510 million to $530 million for the full year. However, because of continued operational execution and cost optimization, we're reiterating our expectations for adjusted EBITDA of $112 million to $118 million. We also remain confident in our ability to drive positive free cash flow in fiscal '26 and are reiterating our expectation of $13 million to $18 million for the full year.

We're continuing to monitor external market conditions and impacts to our business and are diligently focused on continuing to accelerate our transformation and optimizing our performance, including examining all areas of the business for profitability improvements. With that, operator, please open the call up to questions.

Thank you. [Operator Instructions] And our first question comes from Ken Wong with Oppenheimer.

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

Yes. No, thank you, Ken. The answer is, yes, it's kind of an interesting story. It's a tale of 2 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 there, and 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 in the expense guide.

Got it. And any -- I'm sure the natural question from some investors might be kind of 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?

Yes. When I look down into the bookings and what I'm seeing happen specifically in Europe, which is probably 6 to 9 months ahead of its recovery compared to like the U.S. 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, I know 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 2 pieces of it, it's the people who deliver it are also seeing, I looked at about 6 companies that delivered portions of it. And I saw a range of negatives from those companies reporting in that one specific live learning bucket is what I'm referring to. So I saw 4 out of the 6 not have growth. One of them have growth at 1%. So I didn't feel like we were out of -- way out of line with what's the market -- occurring across the market, again, in that narrow sector. There's another 4 or 5 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.

Yes. And I think -- 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 1 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 transformation activities that 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 3-point cut to revenue, that feels appropriately fenced off. I mean, would 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?

Yes. 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. So we took that into consideration when we set the low end of our guidance range. So 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 I guess this could go for either you, Ron or John. But with you guys were projecting to a little bit of growth previously. Now the new guide, a bit of a decline from fiscal '24. And I know the aim with all the moving pieces, the first part of the year was to get back to growth, Ron. Do you think that, that time line is now hugely dependent on macro? Or do you feel there's still elements that are within your control to 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 we haven't had quite enough time in market to see with how those investments were really going to pay off. We certainly expect that they will.

And when you kind of play this out, I'd say that we've tried to do our very best to -- I actually really want to shift to a different topic here, but to give you a little bit more context. But I think what we really want to 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 4 quarters. And that gives us a lot of confidence.

And given that, that's 90% of the TDS segment, when you kind of break the 2 pieces out, we derisked 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, target was the enterprise customer. That segment of the customer is growing. We've derisked the GK side. So I think we're feeling pretty good about what the outlook is.

Yes. 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 3 to 6 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.

I feel very comfortable over the next 12 months to 18 months, we can make up at least 1/4 of that. So I'm not -- I'm going to 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 6 months right now, and I believe we can easily make up one of those quarters over the next 12 to 18 months, right? I don't want to 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 maybe shifting to, again, a more positive note. It does sound like TDS, especially the enterprise customers, was tracking to 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?

Yes. 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 4 percentage point impact negative in the quarter. So 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, it's 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.

Keep going.

Yes, I was going to 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, embedding 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 would be more -- I guess, it could be maybe 3Q 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?

Yes. 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 2 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 -- the seasonality is relatively modest in that business. It's basically a 50-50 business. We 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. So I think the way to think about it is kind of the tale of 2 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 wouldn't be having the conversation about reducing guidance.

And I think on the guidance, Ken, I think John answered that perfectly, so I don't want to have anything to add there. But just -- 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 in the middle of that transformation as well, right? As I indicated in my comments, you'll see a product set of announcements shortly, very shortly. You will -- 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 see the transformation also happening. That will add to a little bit of the trough here that we're in. And so there's a financial part you were asking and then there's the transformational part. And I think we just got to remember, we're doing both at once, which adds a little 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 in 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 the comments, Ron. And then maybe the last question for me. Just, while 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 kind of sustain the kind of profitability that you guys have been pushing for since the start of the year?

Yes. So Ken, we're certainly always cognizant of how we can become more efficient during the course of the year. So 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.

Understood. And I guess maybe a follow-up to that. I guess, how much of the cost management, incremental productivity is just simply like there's a variable component to your cost structure if -- 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 what might have been more deliberately cut, whether it's on G&A or product to, again, align with kind of the current conditions?

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

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 on the call today. Talk soon.

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