Skillsoft Corp. (SKIL) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary reveals mixed signals: stable adjusted EBITDA and improved net loss, but negative free cash flow and declining revenue. The Q&A section highlights macroeconomic challenges, particularly in North America and the Middle East, but shows optimism in Europe and strategic investments. Despite uncertainties, the company maintains confidence in recovery. However, the lack of precise guidance and quantifiable metrics tempers optimism. Overall, the neutral rating reflects balanced positive and negative factors, suggesting a stable stock price in the short term.
Key Financial Performance
Revenue for Talent Development Solutions (TDS) $101.2 million in the second quarter, slightly down year-over-year. The decline was due to growth in TDS enterprise solutions being offset by declines in the learner product line, reflecting fundamental changes in the B2C market over time.
Global Knowledge revenue $27.6 million in the quarter, down approximately $2.9 million or 9.6% year-over-year. The decline was attributed to lower discretionary spending, particularly in North America, and geopolitical instability in the Middle East.
Total revenue $128.8 million in the second quarter, down $3.4 million or 2.6% year-over-year. The decline was driven by the factors affecting TDS and Global Knowledge revenue.
TDS LTM dollar retention rate (DRR) 99% in the second quarter, compared to 99% last quarter and 98.4% a year ago. Churn and erosion in the federal business reduced performance within the quarter by approximately 4 percentage points.
Cost of revenue $32.7 million in the second quarter or 25% of revenue, up 1.6% year-over-year. The increase was due to higher utilization of certain platform features by customers.
Content and software development expenses $13.2 million in the quarter or 10% of revenue, down approximately 5.9% year-over-year. The decline was attributed to productivity gains from leveraging AI and a sharper focus.
Selling and marketing expenses $38.5 million in the second quarter or 30% of revenue, down approximately 3% year-over-year. The reduction was due to cost optimization efforts.
General and administrative expenses $16.1 million in the second quarter or 12% of revenue, down approximately 10.5% year-over-year. The decline was due to cost reduction initiatives.
Total operating expenses $100.5 million in the second quarter or 78% of revenue, down $3.4 million or 3.2% year-over-year. The reduction was due to cost reduction initiatives executed in the back half of last year.
Adjusted EBITDA $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. The stability was due to consistent profitability despite a lower revenue base.
GAAP net loss $23.8 million in the second quarter, compared to a GAAP net loss of $39.6 million in the prior year period. The improvement was due to cost reduction initiatives and operational efficiencies.
Adjusted net income $7.9 million in the second quarter, compared to $7.1 million in the prior year. Adjusted net income per share was $0.92, compared to $0.87 in the prior year.
Free cash flow Negative $22.6 million in the quarter, compared to negative $16.1 million in the prior year period. The decline was attributed to normal seasonality and timing of collections and disbursements.
Year-to-date free cash flow Positive $3.5 million, compared to a cash usage of $5.7 million in the prior year. The improvement was due to better cash management and operational efficiencies.
Total gross debt $579 million at the end of Q2, down slightly from $581 million at the end of fiscal '25, reflecting normal amortization.
Total net debt $475 million, down from $477 million at the end of fiscal '25, reflecting normal amortization and cash management.
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Operating Highlights
AI innovation-based product roadmap: Focus on intelligent learning design, skills intelligence, and immersive learning experiences. New AI authoring experience to be launched, enabling faster, cost-effective, and scalable content creation.
CAISY advancements: Added full voice mode, 5-level proficiency scoring, improved feedback rubric, and new behavior traits for dynamic conversations. Benefits include faster competency, lower coaching costs, and improved compliance.
Skillsoft Percipio platform: Technology learners up 50% YoY, AI learners up 74%, and AI learning hours up 158%. Focus on closing skill gaps, faster competency, and improved KPIs.
Customer wins: Secured contracts over $1 million with a global athletic apparel brand, a semiconductor manufacturer, and a European digital services provider. Focus on leadership, AI-powered learning, and workforce transformation.
Global Knowledge revenue: Declined by 9.6% YoY due to lower discretionary spending in North America and geopolitical instability in the Middle East.
Expense reductions: Achieved $45 million in expense reductions, contributing to profitability and margin expansion.
Operational execution: Improved operational execution and resource allocation, stabilizing the core TDS enterprise segment.
Transformation plan: Implemented a dual business unit structure, shifted critical resources, and built a leadership team to drive strategy.
Market positioning: Evolving product strategy to focus on AI-native design, skills intelligence, and enterprise-grade flexibility.
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Risk or Challenges
Economic Uncertainty: Extended economic uncertainty has led to reduced customer discretionary training spending, particularly impacting live learning offers and global knowledge products.
Geopolitical Instability: Geopolitical challenges, especially in the Middle East, have contributed to slower demand and revenue declines in the Global Knowledge segment.
Federal Spending Softness: Persistent macroeconomic and geopolitical challenges have resulted in reduced public sector spending, negatively affecting the Global Knowledge segment.
Revenue Decline: Total revenue decreased by 2.6% year-over-year, with specific declines in the Global Knowledge segment and learner product line.
Churn and Erosion in Federal Business: Churn and erosion in the federal business reduced the TDS LTM dollar retention rate by approximately 4 percentage points.
Free Cash Flow Challenges: Free cash flow for the quarter was negative $22.6 million, reflecting seasonality and timing of collections and disbursements.
B2C Market Decline: Declines in the learner product line reflect fundamental changes in the B2C market over time, masking growth in TDS enterprise solutions.
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Guidance & Outlook
Revenue Guidance: The company has updated its full-year revenue guidance to $510 million to $530 million, reflecting anticipated continued softness in federal spending and macroeconomic challenges.
Adjusted EBITDA and Free Cash Flow: Despite lower revenue expectations, the company is maintaining its full-year expectations for adjusted EBITDA of $112 million to $118 million and positive free cash flow of $13 million to $18 million.
Market Trends and Product Strategy: The company is evolving its product strategy to focus on AI-native design, skills intelligence, and enterprise-grade flexibility. This includes launching a new AI authoring experience and advancing its CAISY platform with features like full voice mode and improved feedback rubric.
Operational Improvements: The company has achieved $45 million in expense reductions and continues to focus on cost optimization and operational execution to drive profitability and margin expansion.
Growth Expectations: The company expects its strategic investments in go-to-market and product portfolio to enable a return to market growth rates.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you provide additional color on which sectors experienced material softening in the live learning environment?
A:Ronald Hovsepian noted that the public sector in North America and the Middle East was significantly affected in the live learning environment. However, Europe showed good progress in bookings, giving confidence in the potential for growth in that region.
Q:Why are you confident that the softer live learning environment is due to macro dynamics rather than competitive issues?
A:Ronald Hovsepian explained that large public sector deals in Europe are progressing well, and the market data from competitors in the live learning sector showed similar trends, with most companies not experiencing growth. This supports the view that the challenges are macroeconomic rather than competitive.
Q:Does the $17 million revenue cut feel appropriately accounted for, and was further erosion embedded as a safeguard?
A:John Frederick stated that the first half revenue was down $7 million, and the back half was projected to be down $13 million to reach the low end of guidance. This adjustment considered the seasonality of the business and aimed to account for potential risks.
Q:Is the timeline for getting back to growth now dependent on macroeconomic factors, or are there elements within your control?
A:John Frederick and Ronald Hovsepian emphasized that while macroeconomic uncertainty has caused delays, the company has made strategic investments and seen positive signs in certain areas, such as the TDS enterprise product line. They believe they can recover some lost ground over the next 12-18 months.
Q:How is the TDS enterprise customer segment performing, and what is the dollar retention rate (DRR) for this business?
A:John Frederick reported a year-to-date DRR of around 99%, with a significant impact from the North American federal business. The enterprise customer segment is growing, while the smaller B2C segment is down double digits year-over-year.
Q:Would you characterize Q2 as a trough, or could it be Q3 depending on guidance?
A:John Frederick indicated that the guidance adjustment reflects a trough in the GK segment in the back half of the year, while the TDS business is expected to perform steadily. Ronald Hovsepian added that the company is balancing macro uncertainty and transformation efforts, which may also contribute to the trough.
Q:How should we think about maintaining EBITDA and positive cash flow despite revenue challenges?
A:John Frederick explained that the company is focused on efficiency and aligning the business model with current conditions. Most cost management efforts were related to fixed costs rather than variable costs tied to revenue.
Q:Review of Unclear Management Responses
A:Management avoided providing specific numbers for large public sector deals in Europe and did not share detailed data on the performance of competitors in the live learning sector. Additionally, while they expressed confidence in their strategic investments and transformation efforts, their responses lacked precise timelines and quantifiable metrics for recovery.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI content
AI design
AI experience
AI hour
AI learner
AI product
AI service
Act statement
America Middle
CAISY voice
Commission information
East factor
Enterprise Solution
Enterprises Skillsoft
Form document
HR
ability
capability
cloud
competency
core
custom
cybersecurity
demand
design skill
enterprise
expense reduction
headwind
language
learner AI
learning solution
page
proficiency
road map
scale
skill compliance
skill intelligence
team
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Skillsoft Corp. (SKIL) Q2 2026 Earnings Call Transcript
Unknown9-9
The earnings call summary reveals mixed signals: stable adjusted EBITDA and improved net loss, but negative free cash flow and declining revenue. The Q&A section highlights macroeconomic challenges, particularly in North America and the Middle East, but shows optimism in Europe and strategic investments. Despite uncertainties, the company maintains confidence in recovery. However, the lack of precise guidance and quantifiable metrics tempers optimism. Overall, the neutral rating reflects balanced positive and negative factors, suggesting a stable stock price in the short term.
SKIL Slides
SKIL Report
Frequently Asked Questions
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