Q4 2025 Skillsoft Corp Earnings Call
Speaker Change: After the speakers present, there will be a question and answer session. Please note that today's call is being recorded I would now like to hand, the conference over to your first speaker today, Steven Paul Investor lesions.
Speaker Change: 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 full fiscal year ended January 31 2025.
Speaker Change: Before we jump in I want to remind you that today's call will contain forward looking statements about the company's business outlook, and our expectations, including statements concerning financial and business trends, our expected future business and financial performance financial condition and market outlook. These forward looking statements and all statements that are not historical facts reflect management's current bill.
Speaker Change: Leafs and expectations as of today, and therefore are subject to risks and uncertainties that could cause actual results to differ materially.
Speaker Change: 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 filing with the Securities and Exchange Commission.
Speaker Change: 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 discussed will be non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures included in today's commentary to that.
Speaker Change: Directly comparable GAAP financial measures as well as how we define these metrics is included in our earnings press release, which has been furnished to the SEC and is also available on our website at www Dot Skillsoft dotcom.
Speaker Change: Following today's prepared remarks, Ron Hovsepian, Skillsoft executive Chair, and Chief Executive Officer, and Rich Walker Skillsoft, Chief Financial Officer will be available for Q&A.
Speaker Change: With that it's my pleasure to turn the call over to Ron.
Ron Hovsepian: Thanks, Steven Good afternoon, and thank you for joining us.
Ron Hovsepian: I'm happy to share that we delivered solid fourth quarter and fiscal year results.
Ron Hovsepian: With revenue exceeding the high end of our guidance range and adjusted EBITDA at the upper end of the range.
Ron Hovsepian: We continue to remain on track with the transformation plan, we've been articulating with our strong execution over the past six months positioning us well to return to growth in fiscal 2026.
Ron Hovsepian: We are closely monitoring the macro economic environment, including the potential impacts of evolving government policies, which may be material.
Ron Hovsepian: During our fiscal fourth quarter, we delivered dollar retention rate or.
Ron Hovsepian: Or D IRR of 105%.
Ron Hovsepian: Which drove our last 12 months D R, 200% meeting our expectations.
Ron Hovsepian: And our global knowledge business unit, where we deliver instructor led training, which can be physical or virtual we've begun moving our go to market resources to a more regionally focused model.
Ron Hovsepian: This approach is moving us in the redirection of stabilization of our GK business unit.
Ron Hovsepian: With the year over year decline in revenue improving from 20% in the first half to 11% in the second half.
Ron Hovsepian: Our fiscal 'twenty five.
Ron Hovsepian: And our talent development solutions business unit Tds.
Ron Hovsepian: Which serves the organization and individual learner.
Ron Hovsepian: We had strong execution in the quarter driven by solid bookings and Dr performance.
Ron Hovsepian: As a reminder, 45% to 50% of our annual bookings occur in the fourth quarter.
Ron Hovsepian: We expect this annual trend to continue and it is reflected in our revenue guidance for FY 'twenty six.
Ron Hovsepian: At our Investor day, our transformation strategy focused on two key objectives fix the basics and invest to grow.
Ron Hovsepian: Fix the basics focuses on improved operational execution to drive growth and improving productivity and margin expansion over time.
Ron Hovsepian: Investor grow focuses on a reallocation of our resources with the goal of returning to or above market growth rates.
In this first phase of our transformation, we are focusing our efforts on our go to market motions and product.
Ron Hovsepian: The areas, we believe can create the fastest business momentum.
Ron Hovsepian: As we enter FY 'twenty six we have targeted to.
Ron Hovsepian: To shift up to 20% of our go to market and product resources into the enterprise market segment, while driving more efficiency in other market segments.
Ron Hovsepian: We are investing more on acquiring and retaining large enterprise customers, while we invest in advanced product capabilities, where he did to these customer cohorts. We will cover some examples of this in a moment.
Ron Hovsepian: The market, we serve is large and growing.
Ron Hovsepian: Currently estimated at more than $400 billion.
Ron Hovsepian: We are targeting some of the fastest growing subset of this market and we believe we are well positioned to lead this market shift by focusing on the talent development lifecycle within the enterprise market segment.
Ron Hovsepian: Skillsoft offerings are differentiated.
Ron Hovsepian: We are the only company.
Ron Hovsepian: The owns and offers global skills development across multiple learning modalities at scale.
Ron Hovsepian: We deliver interactive learning experiences that enable the learner and organizations to leverage disruptive AI technologies did accelerate workforce transformation and empower talent development management.
Ron Hovsepian: Over time, our unique capabilities combined with the market opportunity, we see position us to return skillsoft to growing at market and eventually we believe above market growth rates.
Ron Hovsepian: Shifting gears.
Ron Hovsepian: I'd also like to remind you of the financial commitments, we made at our Investor day.
Ron Hovsepian: First we said we would drive at least $45 million in annualized expense reduction in fiscal 2025 on a run rate basis.
Ron Hovsepian: With 40% to 50% of these savings being invested back into the business.
Ron Hovsepian: I'm happy to report that we delivered on that.
Ron Hovsepian: And we are currently reinvesting in the business and we will continue to do so in fiscal 2026 with reinvestment happening predominantly in the first half of the year to provide the essential tools to grow in the back half of the year.
Ron Hovsepian: Secondly, we communicated our intention to return the company to top line growth with continued margin expansion in FY 'twenty six and.
Ron Hovsepian: And generating positive free cash flow for FY 'twenty six.
Ron Hovsepian: We remain committed to these targets and as you'll see when rich shares our guidance in a few minutes, we're on track to deliver.
Ron Hovsepian: Now, let me share with you more detail on our progress against our transformation commitments as it relates to our product and go to market strategy as well as our enhanced corporate capabilities.
Ron Hovsepian: As it relates to our product strategy.
Ron Hovsepian: In the last quarter, we continue to build out our enterprise features and integrations available in the precipitate platform.
Ron Hovsepian: Our award winning AI powered coach Skillsoft, Casey recently hit a major milestone with over 1 million launches.
Ron Hovsepian: Skillsoft has a rich library of readymade scenarios to support both tech and business markets with popular topics like agile development business planning managing stakeholders performance management and more.
Ron Hovsepian: We limited our preview program to 100 enterprise organizations, allowing them to participate as design partners, providing feedback while testing new functionality that enables our customers to offer their own AI stimulations with Skillsoft Casey tool.
Ron Hovsepian: This feedback was extremely useful and positive and this functionality will launch later this fiscal year.
Ron Hovsepian: Recipient now allows customers to create their own certification paths and manage their own certification programs.
Ron Hovsepian: To measure their reskilling, where learners can earn company credentials.
Ron Hovsepian: Fleet job training and enhance their internal career mobility.
Ron Hovsepian: Yeah.
Ron Hovsepian: Some of our most popular Principia enterprise features for Endo and certifications are now available within Codecademy, new certification hub for individual learners.
Ron Hovsepian: These high value offerings include interactive labs, and test prep, which are aimed at the reskilling audience.
Ron Hovsepian: We continue to optimize the experience with our coaching offering and recent easier experience enhancements have reduced the time to schedule. Your first coaching session by 50%.
Ron Hovsepian: From an average of 18 days to nine days.
Ron Hovsepian: This increases time to value for clients.
Ron Hovsepian: In terms of integrations that drive an open ecosystem for our customers.
Ron Hovsepian: Skillsoft released a new integration with SAP talent intelligence hub to help clients manage their skills strategy and apply skills data across their talent development lifecycle.
Ron Hovsepian: Skillsoft Principia also added plurals site in big zinc plus as new content integrations.
Ron Hovsepian: And at at Oracle in the Chamber as New learning management system integrations, continuing to expand one of the industry's broadest set of enterprise integrations.
Ron Hovsepian: Moving to our go to market strategy on the commercial sales front.
Ron Hovsepian: G case top 10 deals during the quarter represented nearly $6 million in total contract value.
Ron Hovsepian: These wins were primarily due to the expertise of our trainers their relationships with key partners like Microsoft and AWS.
Ron Hovsepian: And the use of net promoter score to monitor learner satisfaction.
Ron Hovsepian: Within our TTS segment.
Ron Hovsepian: Our top 10 deals represented $22 million in total contract value with many multiyear deals focused on skill building skilled measurement enterprise integrations and the ability to support our customers' need for choice.
Ron Hovsepian: Yeah.
Ron Hovsepian: I'd like to share two enterprise examples of talent development management wins that exemplify our strategy in action.
Ron Hovsepian: One is a current customer and one is a new customer.
Ron Hovsepian: First Honda is undergoing a major business transformation in both products and services with a strong focus on new electrified business segments.
Ron Hovsepian: This significant shift is being referred to as the Companys second founding.
Ron Hovsepian: As part of the transformation Honda is leveraging.
Ron Hovsepian: Skillsoft content.
Ron Hovsepian: Platform and services to deliver comprehensive digital capability enhancement programs across all of North America. This initiative is a key component of Hondas quest for a digitally enabled workforce equipping all staffed with essential digital skills to generate new insights reduce routine.
Ron Hovsepian: Work and create more capacity for work and new service areas.
Ron Hovsepian: Next Virgin Media, Oh, two limited or BMO too.
Ron Hovsepian: A U K based media and Telecommunications company recently partnered with Skillsoft to create a market, leading learning ecosystem and align their roles and skills taxonomy to enable skill building and skilled measurement.
Ron Hovsepian: This partnership will also ensure learning content is engaging interactive and relevant for all roles within the organization.
Speaker Change: This program has been made available to BMO twos 16000 employees and focuses on increasing learning adoption and engagement across the company's diverse archetypes, including retail knowledge workers field sales technicians engineers call centers digital pioneers and few.
Ron Hovsepian: Careers.
Ron Hovsepian: Skillsoft innovative technologies are leveraged to address upskilling and reskilling challenges fostering new opportunities for BMO to people and maintaining their market leading position.
Ron Hovsepian: While we still have more work to do we've made meaningful progress in the last six months to realign our organization and drive improved financial results.
Ron Hovsepian: Let me recap some of the key areas, where we've made progress which positions us well for the future.
Ron Hovsepian: First we shifted and focused our resources on the higher end of the market. This includes targeted investments and boosting our enterprise learning subject matter expertise and the continued buildout of our digital strategy.
Ron Hovsepian: Second we remain focused on driving product innovation, our transformation is allowing us to reallocate our resources to drive technical advancements, including the acceleration of our AI roadmap.
Ron Hovsepian: Looking ahead to fiscal 2026, we have three key priorities transforming our go to market approach pivots.
Ron Hovsepian: Pivoting the company to growth and generating free cash flow for the full year, we look forward to updating you on our progress through the year.
Ron Hovsepian: With that let me now hand, the call over to rich to cover our financial results in more detail rich.
Rich Walker: Thanks, Ron and welcome everyone and thanks for joining today.
Rich Walker: As Ron shared earlier it was another solid quarter for skill soft as we continue to execute against the transformation priorities. We laid out last July at Investor Day.
Rich Walker: While we are only part of the way through our multi quarter transformation journey I am pleased that we once again delivered revenue ahead of our expectations improved profitability.
Rich Walker: And drove positive free cash flow performance.
Rich Walker: Turning now to a detailed review of our financial results starting with revenue.
Rich Walker: Talent development solutions or Tds revenue was $102.8 million in the fourth quarter.
Rich Walker: 1% year over year, and $405 $5 million for the full year essentially flat to FY 'twenty four.
Rich Walker: We saw a slightly negative impact on revenue from FX in the quarter and the full year for the DDS segment.
Rich Walker: Our efforts to capitalize on the evolving market shift from traditional learning and skills development towards more comprehensive talent development solutions is aligning well with the needs and demands of our customers.
Rich Walker: Our LTM dollar retention rate or <unk> for the full year, while 25 returned to 100% as a result of our strong Q4 <unk> of 105%.
Rich Walker: This is a 200 basis point improvement from the 98% L. T. M. D. RR, we saw in both the second quarter in the third quarter and validates changes, we are making with the product and our customer success motions.
Rich Walker: Well, we are pleased with the progress we made in the quarter <unk> remains a companywide priority focus area for us as we move into FY 'twenty six.
Rich Walker: Global knowledge revenue of $39 million in the fourth quarter was down approximately $4 7 million or.
Rich Walker: Or 13% year over year.
Rich Walker: Revenue for the full year was $125 4 million.
Rich Walker: Down approximately $23 million or 15% year over year.
Rich Walker: We saw a more pronounced negative impact to revenue from FX in the fourth quarter in particular, given the higher mix of non U S dollar denominated revenue.
Ron Hovsepian: As Ron commented earlier, we remain encouraged by our progress and GK, particularly in stemming the revenue declines we saw in the first half of FY 'twenty five.
Ron Hovsepian: The sequential improvement in the second half of the year is a key step for this business unit on its transformation journey and continuing that progress will be an important component of returning the total company to growth.
Ron Hovsepian: Total revenue of $133 $8 million in the fourth quarter was down approximately $3 8 million or two 8% year over year for the full year total revenue of $531 million was down approximately $22 2 million or four.
Ron Hovsepian: Percent year over year.
Ron Hovsepian: Walking through expenses cost of revenue of $33 3 million in the fourth quarter or 25% of revenue was favorably down 12% year over year.
Ron Hovsepian: And $133 8 million for the year or 25% of revenue.
Ron Hovsepian: 12% year over year.
Ron Hovsepian: These decreases were driven primarily by lower variable costs and continued expense discipline on our fixed costs.
Ron Hovsepian: Content and software development expenses of $13 5 million in the fourth quarter or 10% of revenue, we're favorably down 12% year over year, and $55 5 million for the full year or 10% of revenue.
Ron Hovsepian: <unk>, 6% year over year.
Ron Hovsepian: These improvements were part of our planned productivity gains by leveraging AI, which we expect further investment in FY 'twenty.
Ron Hovsepian: Selling and marketing expenses of $39.8 million in the fourth quarter were 29% of revenue were flat year over year.
Ron Hovsepian: Full year expenses were $158 million or 30% of revenue down 5% year over year, primarily due to more targeted advertising spend enabling additional strategic go to market investment.
Ron Hovsepian: General and administrative expenses were $17 $3 million in the fourth quarter were 13% of revenue.
Ron Hovsepian: A 4% increase year over year.
Ron Hovsepian: $74 $6 million for the year or 14% of revenue, representing a 5% increase year over year while.
Ron Hovsepian: While we made continued progress on our resource reallocation plan and reducing expenses such as outside services and facilities.
Ron Hovsepian: These were offset by targeted investment in technology, and our short term incentive award accrual, which was not achieved in the prior year period.
Ron Hovsepian: As I shared with you at Investor Day, improving our management systems is a critical focus area for our leadership team. One of these improvements is aligning our pay for performance plans across the entire organization, which drove improvements in both top line and bought.
Ron Hovsepian: Some loan line results in the second half of the year and provided funding for our short term incentive compensation plans.
Ron Hovsepian: Total operating expenses were $103 $8 million in the fourth quarter or 78% of revenue and were favorably down $5 5 million or 5% year over year.
Ron Hovsepian: For the full year operating expenses were $421 9 million or 79% of revenue and were favorably down $26 3 million or 6% year over year.
Ron Hovsepian: Similar to last quarter, despite a lower revenue base compared to the prior year period, we delivered higher profitability adjusted EBITDA of $29 9 million in the fourth quarter were 22% of revenue was up $1 $6 million compared to 28.
Ron Hovsepian: $8 3 million or 21% of revenue one year ago.
Ron Hovsepian: Full year, adjusted EBITDA was $109 1 million or 21% of revenue up $4 million compared to $105 1 million or 19% of revenue one year ago.
Ron Hovsepian: Our resource reallocation efforts and continued expense discipline drove further margin improvement in the fourth quarter and full year, we saw a slightly positive impact from FX in the fourth quarter and the full year at the EBITDA line, because we are naturally hedged in our foreign markets.
Ron Hovsepian: GAAP net loss was $31 $1 million in the fourth quarter compared to a GAAP net loss of $245 3 million in the prior year.
Ron Hovsepian: GAAP net loss per share was $3 75.
Ron Hovsepian: Compared to $30.38 per share in the prior year.
Ron Hovsepian: For the full year GAAP net loss was $121 9 million compared to $349 3 million in the prior year.
Ron Hovsepian: GAAP net loss per share was $14.87 compared to $43 38 per share in the prior year.
Ron Hovsepian: Beginning this quarter, we modified our non-GAAP presentation of adjusted net income.
Ron Hovsepian: Specifically, we've excluded the noncash impact of amortization expense related to acquired intangible assets.
Ron Hovsepian: Please refer to our 8-K filing for the full reconciliation of GAAP to non-GAAP measures.
Ron Hovsepian: Adjusted net income of $17 million in the fourth quarter was flat compared to the prior year and $35 million for the year compared to an adjusted net income of $34 million in the prior year adjusted.
Ron Hovsepian: Adjusted net income per share of $2.11 in the fourth quarter was consistent with $2 nine in the prior year for the full year adjusted net income per share of $4 33 improved from $4 25 in the prior year.
Ron Hovsepian: Moving to cash flow and balance sheet highlights as we highlighted last quarter one of our key focus areas is improving our free cash flow profile and getting the company to generate consistent positive free cash flow.
Ron Hovsepian: As a reminder, we had a strong Q3 from a cash flow perspective, despite Q3, typically being a weaker cash flow quarter seasonally we followed that up with another strong cash flow quarter in Q4 supported by further improvement in working capital management and collections efficiency.
Ron Hovsepian: In Q4, we generated $17 $7 million in cash flow from operations and invested $4 $5 million in capital expenditures and capitalized internally developed software.
Ron Hovsepian: Resulting in free cash flow of $13 2 million compared to $5 $4 million in the prior year period, an improvement of $7 $8 million.
Ron Hovsepian: For the full year FY 'twenty, five we generated $29 $9 million in cash flow from operations and invested $18 3 million in capital expenditures and capitalized internally developed software, resulting in free cash flow of $11 6 million.
Ron Hovsepian: Compared to negative $15 million in the prior year period and.
Ron Hovsepian: An improvement of approximately $27 million.
Ron Hovsepian: We are pleased with this significant progress and how it positions us going into FY 'twenty six.
Ron Hovsepian: As we have been highlighting over the last couple of quarters, the nonrecurring costs associated with our transformation of the business have had a material impact on the free cash flow of the company, but were essential to aligning our cost structures integrating systems and operations and creating the <unk>.
Ron Hovsepian: Pasty to self fund our growth investment initiatives.
Ron Hovsepian: Those cost did decrease in Q4 versus Q3, but still had a meaningful impact on both the quarter and the fiscal year as we implemented our resource reallocation plans.
Ron Hovsepian: Accordingly, adjusting for the cash impact of restructuring charges of $21 $5 million for the year, we generated positive adjusted free cash flow of $33 million in FY 'twenty, five an improvement of $30 million compared to the prior year period.
Ron Hovsepian: Our adjusted EBITDA to adjusted free cash flow conversion was 30% for the year, we will continue to aggressively manage this metric.
Ron Hovsepian: As a result of these actions we closed the quarter, maintaining a healthy balance sheet and a strong cash and liquidity position.
Ron Hovsepian: Cash cash equivalents and restricted cash was $103 million.
Ron Hovsepian: Total gross debt, which includes borrowings on our term loan and accounts receivable facility was $581 million at the end of the fourth quarter down from approximately $591 million at the end of Q3.
Ron Hovsepian: In FY 'twenty five we've lowered our gross debt leverage profile from six times to five three times more specifically as we saw improved cash flow in the quarter, we've lowered borrowings on our accounts receivable facility to the minimum amount of $1 million.
Ron Hovsepian: Total net debt, which includes borrowings on our term loan and accounts receivable facility net of cash cash equivalents and restricted cash was approximately $477 million.
Ron Hovsepian: Down from approximately $489 million at the end of the fiscal third quarter.
Ron Hovsepian: Turning to our outlook for the full year FY 'twenty six we expect revenue of $530 million to $545 million and adjusted EBITDA of $112 million to $118 million.
Ron Hovsepian: Our guidance reflects our commitment to returning the company to growth in FY 'twenty six on an annual basis.
Ron Hovsepian: We will continue to monitor current market conditions and policy changes that may potentially materially impact the business.
Ron Hovsepian: Given the progress we made on working capital in FY 'twenty five we remain confident in our ability to again drive positive free cash flow in FY 'twenty six we expect free cash flow of $13 million to $18 million for the full year FY 'twenty six.
Ron Hovsepian: Excluding net debt servicing costs, we anticipate unlevered free cash flow of $71 million to $76 million.
Ron Hovsepian: With that operator, please open up the call to questions.
Speaker Change: Thank you we will now be conducting a Q&A session.
Speaker Change: I would like to ask a question.
Speaker Change: Please press star one on your telephone keypad.
Speaker Change: For me since I will indicate your line is in the question queue. You May Press Star two 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.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Yeah.
Speaker Change: Thank you. Our first question comes from the line of Ken Wong with Oppenheimer. Please proceed.
Speaker Change: Yes.
Speaker Change: Operator, we're not hearing Ken I don't know if he is on a nut or you still have that.
Yes, Ken your line is on mute it.
Speaker Change: We are unable to hear you.
Speaker Change: Yeah.
Speaker Change: Yes, we can you guys hear me Okay now.
Speaker Change: Alright, yes, sorry about that thanks.
Speaker Change: Okay.
Speaker Change: No problem.
Ron Hovsepian: Ron So you guys are my first earnings post the tariff news. So this is probably a little unfair to you guys but.
Speaker Change: Wed loved a sense of what your either directly or indirectly seeing hearing from your customer base any context in terms of verticals or regionally.
Speaker Change: You might be able to call out or help us with in terms of if you're seeing any impact on your business.
Kevin: Yes happy to answer that one Kevin.
Guess, it's likely to be first rate.
Speaker Change: I think as we look as we look at it as we look at it I think there's probably three things that I'd want to call your attention to.
Speaker Change: First and foremost we are actually a federal contractor as a company and as a federal contractor, we understand everything that is going on firsthand and we've been working with the federal government and the agencies that are affected so we've got to go through that experience.
Rich Walker: And then as rich said in his comments, we have not seen any real material impact at this point, given how well our team.
Rich Walker: Prepared and worked with the agencies.
Rich Walker: And to meet deregulate meet the executive orders that were sent out so we feel very good about that piece of it that's firsthand experience with it.
Rich Walker: We also then have another group right behind that of federal contractors.
Rich Walker: It actually service the U S government and they have to have all of their pieces in place.
Rich Walker: Actually like us and certify that internally that we have the right things in place as we service the U S government as part of that journey and that actually is due April 'twenty one for everybody.
Rich Walker: And then the third part of your question I think was my response to your question was Okay. Then what are we seeing across the different vertical industries and it really ranges so the geographies and vertical industries. We're hearing two different sets of request.
Rich Walker: Macro requests that I would highlight is we have a group of customers that actually want to continue to receive those materials that are non U S federal government.
Rich Walker: Contractors or liaise with the U S government in terms of transactions. So we've got the request over on that side of the equation I think we have to respond to.
Rich Walker: And that also has a geographic implication as well so we're.
Rich Walker: We're seeing it on both pieces both in some verticals as well as some geographies and some company specific.
We're seeing a lot of people take a more cautious view if I broke them into three buckets, you've got the group that's asking to continue to receive those materials, you've got a group that's saying we're going to comply with those regulations, even though they may not apply to US and then you've got a group in the middle of it saying we're just.
Rich Walker: Kind of wait and see as to how things unfold.
Rich Walker: The market. So those are kind of the three big buckets. The good news is our platform and our support services were all extremely well prepared for us to handle the complexity of handling those three groups of customers, we're very uniquely.
Rich Walker: Positioned because we can go right down and and.
Rich Walker: At the lowest level the atomic level take out a particular course for a customer and not allow permission ing or even for it to exist as an option and those are the things that we did with the with the federal agencies and were doing with the federal contractors. So we can manage it in a very unique way and I will tell you I'm really pleased with how the company.
Rich Walker: He has performed so far.
Rich Walker: In this area, but it is complex and at the end of the day no matter, how we do in this piece.
Rich Walker: We have to realize that this whole situation creates uncertainty.
Rich Walker: That uncertainty Unfortunately, I can't forecast what that means in.
Rich Walker: My hypothesis is rich and I look at the businesses each quarter. This goes along it's going to begin to impact how people make decisions. So right now as we put our thoughts together for you. This is how we approached it let's run the business as normal.
Rich Walker: And we will pay attention to it as close as everybody else as the uncertainty hopefully clears in the market.
Rich Walker: Yeah.
Ron Hovsepian: That helps a lot and way more detailed than I was expecting really appreciate that Ron.
Speaker Change: So I guess the flip side of the coin I guess it sounds like you guys are.
Speaker Change: <unk> protein business as usual so as I think about the.
Speaker Change: The growth in 'twenty six.
Speaker Change: Im assuming nothing baked in as far as any potential impact or please correct me if I'm wrong. If you guys have at least a thought.
Speaker Change: Thought through how that could cause some slippage or elongation or any potential headwinds.
Speaker Change: Yes, you said it accurately canon al.
Repeat it our outlook.
Speaker Change: Is reflective of the business, we're operating right now.
Speaker Change: We acknowledge that there is a fluid environment as things play through and develop it may have.
Speaker Change: Impact going forward.
Speaker Change: But the impact to this point.
Speaker Change: Has already been reflected in this outlook, what we don't know is the duration and the depth of this uncertainty that might develop in the future.
Speaker Change: Perfectly fair.
Speaker Change: And then.
Speaker Change: We think about the other half of guidance.
Speaker Change: EBITDA guidance look a nice step up dollar wise decent growth you guys clearly made progress through the year.
Speaker Change: When we mapped that out it looks like not we're not seeing any margin improvement no margin expansion.
Speaker Change: Just help us think through some of the moving pieces there in terms of why.
Speaker Change: Why not see some progress there.
Speaker Change: Yeah.
Speaker Change: So I would take the.
Speaker Change: Just for this discussion cannot take the midpoint of the guidance range and when I look at revenue in particular that is showing positive growth, which we emphasized in our commentary importantly, if you look at that against what we did in FY <unk>.
Speaker Change: 25%, where we were down 4%.
Speaker Change: We really focus on what we call this pivot to growth so going from four down to up one approaching.
Speaker Change: 500.
Speaker Change: Percentage points of growth five percentage points of growth pivot.
Speaker Change: And at the midpoint of our EBITDA, which is growing.
Speaker Change: At five just over 5% again based on the reported amount, we're getting nice leverage so the EBIT growth rate when you compare that to the revenue growth rate. So we're getting some nice earnings leverage there is some modest.
Speaker Change: Expansion in the margin profile, just under a 100 basis points.
Speaker Change: And then finally translating that into free cash flow again at the midpoint of our guidance growing almost 34% year over year, good leverage on incremental EBITDA is that converting into free cash flow as well.
Speaker Change: Got it okay perfect.
Speaker Change: Go ahead.
Speaker Change: Yeah.
Speaker Change: <unk>.
Speaker Change: Iran is reminding me.
We we we made the progress.
Important progress on our transformation efforts, which we announced in July at Investor Day, We've already begun reinvesting that in the second half of the year and and most of that reinvestment will happen in the first half of next year as well.
Speaker Change: We're not going to build the company, we want our shareholders want through expense actions, it's pivoting to investing for growth and we're doing that we're doing that on the on the timelines we laid out.
Speaker Change: Got it so.
Speaker Change: So it sounds like with that reinvestment happening.
Speaker Change: Second half first half again, not don't want to put words in your mouth and I realize we're not guiding two quarters, but it does sound like from a profitability perspective, the exit rate should be more attractive than what we what we see in the first half it would that would that be a fair characterization.
Speaker Change: Yes, I think couple of things come to mind and the contextualized <unk> of guidance, we still do we commented in the script, we still do 45% to 50% of the annual bookings in the fourth quarter of the year.
Speaker Change: That seasonal pattern will continue.
Speaker Change: Lot of the investment that we're putting in the business in the first half is to drive.
Speaker Change: Really good execution in the second half of the year.
Speaker Change: The other piece I would tell you remind you is the first quarter is always our smallest quarter Ken from.
Speaker Change: Quantum of revenue and a quantum of EBITDA, it's just the way the seasonal pattern works.
Speaker Change: So all of those things.
Speaker Change: Celebration early investment in the first half of the year expected return on that investment in the second half as we execute in our biggest bookings half of the year.
Speaker Change: And the Q1 seasonality as always in place we don't.
Speaker Change: Give you quarterly guidance.
Speaker Change: Try to give you some of these contextualism missions and reminders on what seasonality is still in the business and that's going to continue in FY 'twenty six as well.
Speaker Change: Got it.
Speaker Change: Ron I wanted to circle back to the go to market transformation are clear.
Speaker Change: Clearly it looks like Youre, making some progress here with the big deal activity.
Speaker Change: We'd love a sense of kind of where we are as far as any incremental sales force ramp as the head count where you want it to be.
Speaker Change: And then second.
Speaker Change: Again back to the larger deals any any color on what youre seeing the crusher enterprise skills champions.
Speaker Change: Is that activity is up is that effort progressing as planned.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: I'll start with your last 0.1st and then build from there.
Speaker Change: It was really rewarding to see the the 10 big deals in Tds, specifically drive $22 million of PCV.
Speaker Change: That really was a great great.
Speaker Change: Great indicator of those larger customers, who are going on that talent journey, we're seeing a great set of validation occur by our customers on that.
Speaker Change: As we share with them some of the product strategies and we also shared with you. We had 100 customers in the preview of our of our KC AI simulator that a lot of great feedback and a lot of momentum of what they want out of that product as we got the feedback on that particular piece of it.
Speaker Change: As well as over $1 million over 1 million downloads, we sit at today.
Speaker Change: As part of the over overall journey, so I'm seeing a good positive reaction to let's call it the product strategy.
Speaker Change: The go to market strategy around marketing and sales.
Speaker Change: We've gone out and tested the new.
Speaker Change: The value proposition and marketing packaging that will do that will start to kick in in the second quarter.
Speaker Change: And we're very excited about that that's got good positive market feedback for us and then on the sales side of it.
Speaker Change: What we are doing is working through and have done a number of shifts I wouldnt say youre going to see a big growth number in the head count, but where we've deployed them how we've deployed and the skills training that we've given our team Andy and the swapping out of skills.
Speaker Change: Skills to get new skills in the company has been part of it. There's two efforts specifically underway around an enterprise squad enhancement to get more subject matter experts from the learning industry as part of it and then ultimately.
Speaker Change: Moving more into our new acquisition, which we referenced as part of our growth. We saw good return to that number.
Speaker Change: This past year.
Speaker Change: Which again, we can grow that number more in our opinion.
Speaker Change: That's like an example, we won a Disney as an example earlier in the year those are the kind of big brand wins he wants.
Speaker Change: Perfect.
Speaker Change: Maybe kind of shifting gears a little.
Speaker Change: You talked about the 100 AC test customers there.
Speaker Change: What type of engagement are you seeing with that with that little cohort.
Speaker Change: Is.
Speaker Change: In terms of.
Speaker Change: Virtual versus or I guess, AI driven versus maybe your more kind of traditional use cases with your customers.
Speaker Change: What kind of balance are you seeing and then second as you looked at the engagement with this cohort.
Speaker Change: What confidence level do you have that this could be a truly monetize the bullet that whether its improving cross sell or upsell. How should we think about how that flows through based on what youre seeing in this current this is Curt group.
Speaker Change: Sure.
Speaker Change: I think the first and most important thing where we ask them. What's your use cases and it caught me a little off guard I'll admit the customers.
Speaker Change: Actually came at US, saying it was mostly what you and I would call customer facing revenue.
Speaker Change: And they are putting it to work their first which by the way is what we did we used our AI.
Hi, simulator with our own sales team to help train them, where the avatar would would actually interact with them and training them on how to sell the new way and with the new materials. So it's really quite fascinating.
Speaker Change: The second part it was interesting as they went through the different features in the platform et cetera, what is interesting.
Speaker Change: And it's not it's just a.
Speaker Change: Early early indicators like really early can but what I found interesting was as the customers came in to this and by the way. It's a limited time and we limited it to just 100, we had to close it off.
But what was fascinating is some of the customers on the way in hired our professional services group and then some of them. While they were in hired our professional services group about a third of them did which is pretty interesting to me that was probably really little QC nugget in there that I find fascinating that they were even though this early.
Speaker Change: Showed how engaged they were as part of our overall journey.
Speaker Change: Early on and again I don't want to get into projecting at this point, it's really way too early and we're doing a bunch of packaging and pricing work on all of this stuff now will have directionally there, but that's probably the best nugget of indication that I can give you of.
Speaker Change: Where the customers' minds are on this particular topic and what they liked the tool. We have now ended the preview period, because we're now in.
Speaker Change: Delivery construction and delivery in test mode with that with that with that version of the tool.
Speaker Change: When you say hiring of the Proserv group is that four four training is it for potential rollout of these capabilities across the organization more broadly how should we interpret what are the specific needs from the customers.
Speaker Change: At the broadest level of staff augmentation at the broadest level underneath underneath it breaks into a couple of buckets.
Speaker Change: You would normally expect some of it is the hands on piece that you just described around the technical part.
Speaker Change: A number of the myths around the content.
Speaker Change: What they want to do to create more simulators as part of it in our library is growing.
Speaker Change: Very yes, it's around 100 right now simulations that have been produced for our customers which is fantastic.
And these simulators that they're creating their own simulators, which is just what we want so we're very excited about that so thats, what theyre doing theyre literally creating their own for the sales team just like we did internally.
Speaker Change: Okay perfect.
Speaker Change: Rich.
Speaker Change: The big takeaway those big takeaways, they love, creating the capabilities and the content as part of it is part of it.
Speaker Change: This concept that we're bringing to them that's what's most exciting.
Speaker Change: Sorry, if it makes sense.
Rich Walker: No no problem at all rich.
Speaker Change: Back to the Big deal dynamics, you guys gave some pretty good color in terms of contribution from top 10 customers.
Speaker Change: Any way to provide some context as to how that might look year over year.
Speaker Change: It would just love a sense of.
Speaker Change: How dramatic the improvement might have bid as far as Europe.
Speaker Change: Okay. Your large deal large customer engagement.
Speaker Change: Yeah, I think I think.
Speaker Change: Sure.
Speaker Change: With that thorough kind of compare year over year.
Speaker Change: Winning big.
Speaker Change: Big customers are validating everyday can that our strategy is aligned with where theyre going.
Speaker Change: And you recall 40.
Speaker Change: 5% to 50% of our bookings get done in the fourth quarter.
Speaker Change: We executed well to finish the year.
Speaker Change: And we had some large enterprise customers.
Speaker Change: We gave you at TCP.
Speaker Change:
Speaker Change: We do have.
Speaker Change: A greater than one year. So we do do multi years those are some pretty chunky relationships.
Speaker Change: With customers that have been with us a long time.
Speaker Change: And continue to expand their relationship, but we'll follow up with I appreciate the question.
Speaker Change: And I want to give you a more thoughtful response on.
Speaker Change: Where we're winning maybe by industry or others.
Speaker Change: Okay, Okay understood.
Speaker Change: And then one thing we noticed is the global knowledge margin contribution margin declined year over year, just just wanted a little context, there how should we think about that margin profile trending forward as well.
Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: Two step.
Speaker Change: Get the business to perform better at the topline and second step is to improve the margin and profit profile.
Speaker Change: You would hear it's referred to are generally can is a is a mix issue.
Speaker Change: Our margin vary between which tech partner, we're training on our margins very when we use inside trainers versus third party contract trainers.
Speaker Change: Another significant push you heard Darren talk a lot about.
Speaker Change: Training on our own Skillsoft global knowledge and intellectual property.
Speaker Change: Made good progress in bringing to market our own courses those haven't impacted the financial profile, yet, but expect they will as we continue into FY 'twenty six.
Speaker Change: And then finally, a mix of resellers, where we're both selling and delivering the course versus simply acting as a reseller kind of have an impact on the margin so far.
Speaker Change: Focus for the second half of this of last year was in getting the top line stabilized getting the bookings and revenue progression stabilizing.
Speaker Change: We will continue to attack there are a number of initiatives Darren and the team have underway and I expect that will over the course of FY 'twenty six improved sequentially the margin profile.
Speaker Change: Really make an impact as we get through FY 'twenty six.
Speaker Change: <unk> 27.
Speaker Change: Understood.
Speaker Change: And that's the one that historically may be doing to you guys on the IRR number you guys made pretty drastic improvements there so definitely want to call that out.
Speaker Change: Durable is that or.
Speaker Change: Maybe just a <unk> dynamic where the team really executed as we look ahead is that a number that seems.
Speaker Change: So that we can stay within that ballpark.
Rich Walker: Yes, it's a great question Im jumping for a little color and then I'll hand, it back to rich.
Rich Walker: So first of all as you know Q4 is our big quarter. So that's.
Rich Walker: To your point that amplifies that signal even more so and then to these contracts we tend to be in the three year contract is where we tend to operate with one years, but most of these are three years. So that to me also bodes well for the well for the future of what we're doing in terms of your question around durability.
Rich Walker: That's how I, how I look at it. So in your question is this durability in the contracts and durability of the process. The process should continue to improve now what we are doing is we are as I shared at the beginning of your first question, Ken we're shifting some of their resources.
Rich Walker: From some of our different market segments up into the enterprise more so what we're seeing inside of that shift is we've done some planning knowing that we may have some shifts inside of that as we ship. The resources. There may be some breakage is along that journey.
Rich Walker: And so right now as rich gave them.
Rich Walker: And our overall guidance as to where we're going.
Rich Walker: It's built into that guidance that we shared with you.
Rich Walker: Yes, it was.
Rich Walker: We expected to execute better in the fourth quarter can we had previewed some of our efforts in prior calls that we were on.
Rich Walker: We're we support and service the smaller customer set where there is typically more volatility we were satisfied with that relationship we brought that in house and stood up our own capability.
Rich Walker: We have gotten.
Rich Walker: That cadence that motion further refine my comments talked about what we're doing in customer success across every segment is working and I think.
Rich Walker: It validated some of that progress the other piece, we spoke about in our most recent call with some enhancements to our compliance product.
Rich Walker: To make that more durable.
Speaker Change: More and more relevant and resonate better with customers and I think combination of everything we're doing.
Speaker Change: Did develop nicely in the quarter and it remains a companywide focus so I appreciate the call out.
Speaker Change: We're going to keep banging away.
Speaker Change: Anil comment would be certainly there are cohorts within our customer segmentation, where actually we're well over 100, 110% we need to focus on every cohort every segment.
Speaker Change: Make continued progress as we go on and our plan and our guidance reflects some continued progress.
Speaker Change: Modest continued progress nothing dramatic, but we'll keep plugging away at it.
Speaker Change: That's great really appreciate the color there and then the last question for me.
Speaker Change: I realize again, you guys don't give quarterly specifics it really appreciate all the color around the Q4 Q1.
Speaker Change: As we think about the seasonality of your business.
Speaker Change: Any reason to think that that has shifted much as we compare this year to last year, given the macro uncertainty the improvements in your go to market anything that we should be aware of as we kind of try to model going forward in 'twenty six and beyond for specifically <unk> 26.
Speaker Change: I think the big ones or worth repeating when you when you look at bookings, 45% to 50% of of the Tds bookings happened in the fourth quarter.
Speaker Change: Revenue is is obviously more ratable and recognized.
Speaker Change: Relatively ratable across each of the four periods, but Q1 is always our smallest quarter and not surprising coming off a big push to finish the year those areas of the business, where we recognize revenue.
Speaker Change: As the class has delivered or as the coaching session has delivered a Q1 tends to be our smallest quarter in both revenue and.
Speaker Change: And EBITDA that pattern that seasonality existed in FY 'twenty five and I think you can assume it will continue in FY 'twenty six.
Brian: Brian any thoughts alright, thank you.
Brian: Yes, the only thing I would add Ken with two would be just listen we built in the guidance our thinking as we were running the business today with the best knowledge that we have of today.
Brian: And decided to execute the way we've been executing and.
Brian: We can come back if we see that uncertainty grow or start to impact the business right.
Brian: We're watching it very closely three elongation of decision, making in particular is the thing we're staring at the most right now.
Brian: And yet a couple of transactions here and there I can see.
Brian: A little slowing down, but we're all watching it very very closely and like the rest of the world candidly, there's nothing new there, but that is something we are paying close attention to but we built in as we're operating in.
Brian: As as best we can but the data that we had and when were to stay the course until we get different information.
Brian: Got it okay.
Brian: One last question just based on based on that response.
Brian: Okay.
Brian: One obviously holds you guys to this but I'm sure a lot of folks are trying to figure out if there is some elongation. If there is some headwind.
Brian: Clearly you guys have made progress towards returning to growth would there be a priority to defend EBITDA cash flow or would.
Brian: Would the intention be to continue to lead and move forward on trying to maintain that 26 gross number.
Brian: Yes.
Brian: We.
Brian: <unk> spent a lot of time, ensuring we got to this point, where we could make.
Brian: Make sure we're investing for growth and an improving our management systems and our visibility.
Brian: We have the levers to make those trade offs.
Brian: I'll take either side of.
Brian: The example, Ken we're not going to grow.
Brian: At all costs, we're going to grow profitably and thoughtfully.
Brian: Alternatively, we are not under invest in areas of the business that we think show most promising long term growth.
Brian: And the the work we're doing with our customers are validating that I'm very comfortable we've got the balance sheet the liquidity position to continue to invest.
Brian: For those growth opportunities.
Brian: In the midst of some near term disruption or uncertainty.
Brian: We can manage the P&L to find the right balance since we've done.
Brian: So not grow.
Brian: At all costs, I think will grow smart and profitably.
Brian: And we will we will manage where we let the investment into the business given our strong balance sheet and liquidity position.
Brian: Okay.
Brian: I think that's about as as fair as we can approach. It appreciate you guys taking taken a stab at that question.
Brian: That's it on my end.
Speaker Change: Great operator, I know thank you very much operator, I know we're at the top of the hour so I'd like to wrap up the call here.
Brian: And I'll just put it into some closing remarks, if that's okay.
Brian: Of course.
Brian: And.
Rich Walker: In my in my review of things as rich and I looked at it our fiscal second half performance.
Rich Walker: It really was a very good indicator of the progress we've made in our transformation strategy, which allowed us to position ourselves for this growth pivot that rich just described here in the Q&A, which I think is a very important.
Rich Walker: Five point swing that you were talking about inside of the business at the midpoint that Richard pointed out we are paying attention as Ken just asked and we responded around the macro environment uncertainties, but we have to run the business and stay focused on running the business and we will adjust as we go along I will say my confidence.
Rich Walker: Continues to grow on the overall strategy that we have in place for 26, it will be a very critical year for the company in terms of our transformational journey.
Rich Walker: Equally as important.
Rich Walker: The team's confidence in my view of the team and our ability to execute with this has also increased as we've gone along and achieving our goals and it really ties back to that management system and operational dimensions, we have put in place so im feeling stronger about those particular pieces.
Rich Walker: <unk> that we put the right approach and priorities in place so with that I look forward to focusing on FY 'twenty six with the whole team and giving you updates as we go along the way on this journey and as Rick shared we're looking at it on an annual basis I'm going to stay focused on what we told you last year, we're going to keep that going this year.
Rich Walker: But feel very good about what happened in 25, great ended with that and we're very focused on 2006 here. Thank you.
Rich Walker: Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Rich Walker: Okay.
Rich Walker: [music].