Financial Data and Key Metrics Changes - Total revenue for the third quarter was $129 million, down $8.2 million or 6% year-over-year [13] - Adjusted EBITDA was $28 million, down about 12% compared to $31.9 million last year, with an adjusted EBITDA margin of 21.7% compared to 23.3% last year [15] - GAAP net loss was $41.3 million, compared to a GAAP net loss of $23.6 million in the prior year period, primarily due to a non-cash goodwill impairment loss of $20.8 million related to the GK segment [16] - Free cash flow for the quarter was -$23.6 million, compared to a positive $4.1 million in the prior year period [17] Business Line Data and Key Metrics Changes - Revenue for Talent Development Solutions (TDS) was $100.8 million, down 2.1% year-over-year, with around 70% of the decline coming from the B2C learner product [12] - Global Knowledge (GK) revenue was $28.2 million, down approximately $6 million or 17.6% year-over-year, impacted by a shift in customer purchasing preferences and spending reductions from the U.S. government shutdown [13][14] - TDS dollar retention rate (DRR) improved to 99% from 98% year-over-year, while GK accounted for 73% of the revenue decline despite representing only 22% of total revenue [14][9] Market Data and Key Metrics Changes - The public sector business showed signs of recovery post-government shutdown, with DRR related to federal business around 103-104, indicating stabilization [34] - The company is focusing on large enterprise customers who have shown deeper adoption of advanced features, achieving a 115% dollar retention rate in Q3 [7][36] Company Strategy and Development Direction - The company is transforming its strategy to focus on the talent development market, aiming for revenue inflection and growth while maintaining strong profitability and cash flow [5] - A strategic review of the GK segment is underway, with a shift towards a partnership-driven model rather than continued ownership [9][20] - The company is investing in AI capabilities to enhance its platform, aiming to capture opportunities in the evolving skills management market [6][45] Management's Comments on Operating Environment and Future Outlook - Management highlighted the urgency of improving cash flow and the importance of aligning with customer needs for multimodal learning [23][24] - The company is optimistic about future growth, with plans to roll out new branding and a revamped sales model in FY 2027 [29][55] - Management emphasized the importance of AI in redefining content and platform offerings, positioning the company well for future growth [45][46] Other Important Information - The company expects positive free cash flow of between $0 and $5 million for fiscal 2026, with guidance for TDS revenue for the full fiscal year projected between $400 million and $410 million [21][18] - Total gross debt was $578 million at the end of Q3, down slightly from the previous year, while total net debt increased to approximately $500 million [19][20] Q&A Session Summary Question: Timeline for strategic review of GK segment - Management indicated that it is inappropriate to speculate on the exact timing but emphasized the urgency of improving cash flow [23] Question: Margin profile of core TDS and growth potential - Management noted that TDS has strong profitability and will focus on maintaining profitability while investing for growth [25][27] Question: Stability of public sector business post-shutdown - Management reported positive signs of recovery in the public sector business, with healthy performance expected to continue into Q4 [34] Question: Sales cycles and deal momentum in Q4 - Management stated that sales cycles are within normal boundaries and highlighted the positive performance of larger customers [35][36] Question: Approach to investment cadence moving forward - Management plans to continue driving productivity improvements and will shift focus to growth investments as the TDS model proves successful [50]

Core Insights - Skillsoft Corp. (SKIL) shares have declined 52.6% in the past six months, underperforming its industry which grew by 22.9% and the Zacks S&P 500 Composite which rose by 19.4% [1] - Over the past year, SKIL has also underperformed compared to competitors Parsons and Peraso, with a decline of 30.2% against Parsons' 13.8% drop and Peraso's 26.4% rise [4] AI-Driven Strategy - SKIL's future growth is heavily reliant on AI-led innovation, focusing on intelligent learning design and skills intelligence, with over 20,000 certifications earned by its global workforce in relevant fields [5][6] - The demand for scalable learning solutions is increasing as companies adapt to workforce changes and AI technology, which SKIL aims to meet through its product strategy [6] Financial Performance - In the second quarter of fiscal 2026, SKIL reported a 5.9% year-over-year decline in content and software development expenses, attributed to productivity gains from AI [9] - The company achieved $45 million in expense reductions since implementing transformation actions, resulting in an adjusted EBITDA margin increase to 22% from 21.4% year-over-year [10][11] - SKIL's year-to-date free cash flow (FCF) stands at $3.5 million, with management projecting adjusted EBITDA of $112-$118 million and FCF of $13-$18 million for the year [13] Capital Management and Valuation - By the end of the second quarter of fiscal 2026, SKIL's return on equity (ROE) was 16.03%, surpassing the industry's 15.89%, indicating effective capital management [14] - SKIL is currently priced at 2.12 times forward 12-month price-to-earnings, significantly below the industry average of 25.19 times, and its trailing 12-month EV-to-EBITDA ratio is 3.05, well below the industry average of 15.87 [15] Investment Recommendation - The company's focus on AI-led innovation and cost-cutting initiatives is expected to improve margins and free cash flow, making it an attractive investment opportunity [19] - SKIL is currently undervalued and offers strong capital returns, making it a recommended addition for long-term investors [20]