Skillsoft (SKIL) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for the fourth quarter was $133.8 million, down approximately 2.8% year-over-year, while total revenue for the full year was$ 531 million, down approximately 4% year-over-year [35][51] - Adjusted EBITDA for the fourth quarter was $29.9 million, representing 22% of revenue, up from$ 28.3 million or 21% of revenue in the prior year [41] - The company reported a gap net loss of $31.1 million in the fourth quarter, compared to a gap net loss of$ 245.3 million in the prior year [42] Business Line Data and Key Metrics Changes - Talent Development Solutions (TDS) revenue was $102.8 million in the fourth quarter, up 1% year-over-year, and$ 405.5 million for the full year, essentially flat to FY24 [31] - Global Knowledge revenue was $30.9 million in the fourth quarter, down approximately 13% year-over-year, with full-year revenue of$ 125.4 million, down approximately 15% year-over-year [34] Market Data and Key Metrics Changes - The company reported a dollar retention rate (DRR) of 105% for the fourth quarter, leading to a full-year DRR of 100%, a 200 basis point improvement from the previous quarters [8][33] - The market served by the company is estimated to be over $400 billion, with a focus on the talent development lifecycle within the enterprise market segment [12][13] Company Strategy and Development Direction - The transformation strategy focuses on two key objectives: fixing the basics and investing to grow, with a targeted shift of up to 20% of resources into the enterprise market segment [10][11] - The company aims to return to growth in FY26 while generating positive free cash flow, with a commitment to drive at least$ 45 million in annualized expense reduction [15][16] Management's Comments on Operating Environment and Future Outlook - Management is closely monitoring the macroeconomic environment and potential impacts of evolving government policies, but has not seen any material impact on business so far [7][62] - The company expects revenue for FY26 to be between $530 million and$ 545 million, with adjusted EBITDA of $112 million to$ 118 million [51][52] Other Important Information - The company generated $17.7 million in cash flow from operations in Q4, resulting in free cash flow of$ 13.2 million, compared to $5.4 million in the prior year [46] - Total gross debt was$ 581 million at the end of Q4, down from approximately $591 million at the end of Q3, with a reduction in gross debt leverage from six times to 5.3 times [50] Q&A Session Summary Question: Impact of recent tariff news on customer base - Management noted that as a federal contractor, they have not seen any material impact due to their preparedness and collaboration with federal agencies [62][63] Question: Guidance for growth in FY26 - The outlook reflects current business operations, acknowledging a fluid environment that may impact future performance [71][72] Question: Margin improvement in EBITDA guidance - Management indicated that while revenue is expected to grow, margin expansion may not be significant in the near term due to various factors affecting profitability [74][75] Question: Dynamics of large deal activity - The company reported strong performance in securing large deals, with significant contributions from top customers [88][109] Question: Global Knowledge margin contribution decline - Management attributed the decline to a mix issue and indicated plans to improve the margin profile in FY26 [110][112] Question: Durability of dollar retention rate improvements - Management expressed confidence in the durability of the DRR improvements, supported by long-term contracts and ongoing resource shifts [116][121] Question: Seasonality of the business - Management confirmed that Q1 is typically the smallest quarter, and this seasonality is expected to continue in FY26 [124][125]