Yahoo Finance Skillsoft Corp. (NYSE:SKIL) Q1 2025 Earnings Call Transcript
Skillsoft Corp. (NYSE:SKIL) Q1 2025 Earnings Call Transcript June 10, 2024
Skillsoft Corp. beats earnings expectations. Reported EPS is $-3.42, expectations were $-4.
Operator: Thank you for standing by, and welcome to Skillsoft's First Quarter Fiscal 2025 Results Conference Call. At this time, all participants are in listen-only mode. After the speakers present there will be a question-and-answer session. Please note that today's call is being recorded. I will now hand the call over to your first speaker, Chad Lyne, Head of Investor Relations. Thank you, Chad. Please go ahead.
Chad Lyne: Thank you, operator. Good day, and thank you for joining us to discuss our results for the first quarter ended April 30th, 2024. 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 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 beliefs and expectations as of today, and therefore are subject to risks and uncertainties that could cause actual results to differ materially. 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.
We assume no obligation to update any forward-looking statements or information, which speak as of the 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. A reconciliation of the non-GAAP financial measures included in today's commentary to the most 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 available on our website at www.skillsoft.com. Following today's prepared remarks, Ron Hovsepian, Skillsoft's Executive Chairman, and Rich Walker, Skillsoft's Chief Financial Officer, will be available for Q&A.
With that, it's my pleasure to turn the call over to Ron.
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Ron Hovsepian: Thanks, Chad, and welcome everyone to today's call. It's great to be with you. For those of you who I haven't had an opportunity to meet, I recently joined Skillsoft in a full-time capacity as Executive Chairman, following six years of Board involvement with Skillsoft and its pre IPO predecessor company. On our last earnings call, we discussed some of the market dynamics and execution gaps that resulted in a performance that was below our expectations. Those issues continued to weigh on our progress in the first quarter, with results that were not up to the standards that I expect from the organization. In the eight weeks I have been in the role, I have been deeply focused on examining our strategic market opportunity and our organizational structure and operating model within the market.
The challenges and opportunities for Skillsoft are clear to me. We are moving quickly to evolve our strategy, strengthen our operational foundation, and improve our execution to ensure success in both the near and long term. Let me turn to our strategy and market opportunity. I've had the opportunity to spend a lot of time over the past two months with our various stakeholders. The perspective and input from our customers, partners, employees, and investors has been invaluable. These conversations have given me greater confidence in Skillsoft's market opportunity and the growth potential we have in it, as well as where we need to adapt to better serve the market. Strategically, the market opportunity for Skillsoft's overall business is significant, and we believe there are long-term structural tailwinds in all areas in which we operate.
The core enterprise learning market is a large, dynamic, and growing area that is served primarily by our content and platform segment. And the breadth of our solutions position us well here. But we will continue to refine our strategy and approach to accelerate our momentum in this market. The individual learner or consumer market continues to have expansion opportunities ahead of it, and we have unique digital capabilities and interactive learning experiences that we believe can better leverage to win this market. And finally, the instructor-led training sector is growing on a global basis, particularly for the cohort-based virtual and blended learning modalities. And we are more urgently focused on turning around our performance in this important part of our business.
This leads me to the second area I've been focused on, which is our organizational structure and operating model. The speed of decision-making is a critical success factor to serve the dynamic content market. It is clear to me that we need to move more quickly and lower the center of gravity to support more focused decisions at the right levels of the organization to meet the fast pace of the content market. To do so, we've fully rolled out and are quickly operationalizing a dual business unit structure run by two general managers with full P&L responsibility and accountability for the respective business units' operational performance, including product development, go-to-market, customer delivery, and success. Given the impact the instructor-led training segment has had on Skillsoft's performance, addressing its challenges has been one of my top priorities.
We move swiftly to recruit and onboard Darren Bance as the new General Manager of this business unit. Darren is a proven executive and an accomplished operator in this space. And I'm confident in the positive impact his leadership and deep domain expertise will have as we re-energize this important part of the organization. And we build the foundation for innovation and a return to growth for the instructor-led training. As part of this dual business unit structure, we've consolidated and more deeply integrated our Codecademy consumer teams and operations under the leadership of Apratim Purakayastha, General Manager of our content and platform segment. Under AP's leadership, we expect to more broadly leverage Codecademy's brand halo, innovation engine, digital capabilities, and interactive learning competencies across the rest of the organization.
And in our go-to-market organization, we've realigned and flattened the sales and marketing teams to directly support our two business units and their respective customer acquisition, growth, and retention motions. We've upgraded several key leadership roles in the recent quarters and will continue to focus on upleveling talent across the company to win in the enterprise and grow closer to our customers. Let me now turn to what I've been hearing and learning from our customers. The executives I've been meeting with share the view that the shift to a skill-centric economy is accelerating. The world of work is being reshaped and disrupted underpinned by the rapid technological advancements like generative AI. They echo research from Boston Consulting Group, which published the survey of more than 1,400 C-suite executives who indicated that nearly half of all workers will need to be re-skilled for GenAI in the next three years.
In this context, these business leaders continue to stress the importance of investing to build a future fit workforce that is skilled, agile, and adaptable for a more dynamic and rapidly changing market. We believe this creates a global catalyst for upskilling and reskilling that Skillsoft is well positioned to serve. At the same time, organizations are facing greater financial pressures. Budgets have grown tighter, expenses are being reallocated or reduced, and investment plans are facing greater scrutiny. In some instances, we've seen these factors have an impact on the demand environment, renewal rates, and sales cycles in our industry more broadly. But in other instances, we've seen organizations use this as an opportunity to pursue operational efficiencies and improve learner outcomes by consolidating with fewer of the best-of-breed partners like Skillsoft.
In an industry that remains highly fragmented with many niche providers, we believe Skillsoft is strongly positioned. We offer the market an end-to-end interactive learning solution, a full continuum of immersive and experiential modalities and competencies spanning the most in demand soft skills and power skills. Taken together, this holistic capability enables our customers to drive workforce transformation and realize tangible business outcomes at an enterprise-wide scale. We've had some very exciting customer wins and expansions in the first quarter that validate our approach and the unique value proposition. In one of the examples, we successfully expanded an existing relationship with one of the world's largest staffing and workforce solution providers, displacing an incumbent provider by deploying Skillsoft's Percipio, custom-aspired journeys, capabilities, and skill benchmarks.
Following enterprise-wide rollout supporting more than 100,000 learners, the customer will experience stronger ROI with Skillsoft through an improved skills progression and internal talent mobility across the organization. And another example, we're supporting a European-based multinational financial services company in their transformation to becoming a digital banking leader. Central to their transformation is a focus on providing technical reskilling and enhanced leadership skills to more than 40,000 employees. The breadth of our capabilities across these domains allowed the organization to consolidate providers while we secured a five-year renewal and expansion worth more than $2 million of total contract value. And on the new customer front, we're pleased to win a three-year, seven-figure agreement to support the talent development strategy for a global leader in freight rail technology industry.
Our unified solution offered the company the ability to streamline its investments across multiple compliance, health and safety, leadership and development, and technical skilling providers, while centralizing and enhancing the learner experience with Skillsoft for approximately 30,000 employees. Examples like these and the feedback I'm hearing from the executives at the customers and the partners, give me confidence that there is a clear and compelling opportunity for Skillsoft to enhance and grow its leadership position. As with any business in which I've been involved with, growth and value creation hinge on a clear strategic direction and priorities, a bias for action and streamlined decision-making and effective and aligned execution across the organization.
This is where you will see me and the entire Skillsoft team focus for our journey ahead. You can expect to hear much more about our strategy, priorities, and plan for value creation at our upcoming Virtual Investor Day on July 11th. With that, let me now hand the call over to Rich to cover our financial results. Rich?
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Richard Walker: Thank you, Ron. And thank you everyone for joining today's call. As Ron shared in his opening remarks, we are disappointed in our first quarter financial results. While the broader macro environment has exacerbated budget pressures at many organizations and was a contributing factor to our performance, we did not execute to our internal expectations. We are moving swiftly to address the issues that affected our performance, and we expect our progress to be evident in coming quarters. The long-term market opportunity for Skillsoft remains compelling and exciting, and we are committed to ensuring the company is positioned to realize its full growth and value potential. Turning now to a review of our financial results.
Content and platform revenue of $98 million was roughly flat year-over-year, primarily due to the impact of tighter budgets on some of our larger in-quarter renewals and upgrades and softer consumer subscription performance. Our LTM dollar retention rate was approximately 99% in the quarter compared to approximately 101% in Q1 of last year. Instructor-led training revenue of $30 million was down 20% year-over-year, which includes an approximately 2% impact from the exit of our apprenticeship business in the United Kingdom in the second half of last year. Revenue was impacted by lower sales linearity during the quarter, as well as weaker demand trends that we've discussed on previous calls. Total revenue of $128 million was down 6% year-over-year.
Walking through expenses, cost of revenue of $34 million or 27% of revenue was favorably down 9% year-over-year, primarily due to lower instructor and courseware costs related to lower revenue in the instructor-led training segment. Content and software development expenses of $14 million or 11% of revenue were favorably down 2% year-over-year, primarily due to facility savings and our ongoing focus to leverage lower-cost geographies. Selling and marketing expenses of $41 million or 32% of revenue were favorably down 7% year-over-year, primarily due to proactive reductions in paid media spend and lower headcount and personnel related expenses. General and administrative expenses of $20 million, or 16% of revenue, were up 10% year-over-year, primarily due to a benefit in the prior year period related to transition services for the sum total divestiture and payroll tax credits.
Total operating expenses were $109 million, or 85% of revenue, and were favorably down $5 million, or 4% year-over-year. Adjusted EBITDA was $19 million or 15% of revenue compared to $22 million and 16% of revenue in the prior year period. GAAP net loss was $28 million and GAAP net loss per share was $3.42 compared to a GAAP net loss of $44 million or $5.42 per share in the prior year period. Adjusted net loss was $27 million and adjusted net loss per share was $3.37, compared to an adjusted net loss of $30 million, or $3.68 per share in the prior year period. Moving to cash flow and balance sheet highlights, cash flow from operations was $15 million in the quarter. Working capital was a source of cash with solid cash collections against prior periods accounts receivables.
We invested $5 million in capitalized internally developed software and capital expenditures, resulting in positive free cash flow of $10 million in the quarter. We ended Q1 again, maintaining a solid balance sheet and a strong liquidity profile. Cash and cash equivalents and restricted cash was $150 million, up from approximately $147 million in the fourth quarter. Total net debt, which includes borrowings on our term loan and accounts receivable facility, net of cash, cash equivalents, and restricted cash was approximately $476 million, down from approximately $482 million in the fourth quarter. Turning to our outlook, although our first quarter financial results paced below our internal objectives and we expect some ongoing impact into our second quarter, we believe the actions we are taking in the business will allow us to deliver on our full-year expectations.
We are reaffirming the ranges we provided on April 15th, which called for full-year revenue of $530 million to $550 million and adjusted EBITDA of $105 million to $110 million. Prior to opening the call for questions, I wanted to conclude by sharing our conviction in the growth potential for Skillsoft and our opportunity to build a more valuable business in the near term and long term. Throughout the company, we are moving thoughtfully but swiftly to make changes that we believe will strengthen our execution and enhance our financial results. We are excited by the infusion of new leadership and energy into Skillsoft global knowledge, and we look forward to the positive impact and change in trajectory that we believe Darren will have in that business.
More broadly, our team is committed to ensuring Skillsoft is positioned to win in the market, deliver profitable and efficient growth, and generate value for our stakeholders. We appreciate your ongoing support and look forward to updating you on our progress in the coming quarters. With that, operator, please open the call for questions and then Ron will be back for some closing comments.
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