Executive Summary / Key Takeaways

• Skillsoft ($SKIL) is executing a multi-quarter transformation focused on operational efficiency ("fix the basics") and strategic investment ("invest to grow") to pivot towards profitable growth in the large and evolving talent development market.
• The company's dual business unit structure (TDS and GK) and reallocation of resources, particularly towards the enterprise segment and AI-driven product innovation, are showing early signs of improved operational execution and customer validation.
• Recent financial results demonstrate progress, with Q1 FY26 showing continued revenue growth in the core TDS segment (+1.1% YoY), significant reduction in operating expenses (-6.1% YoY), and improved adjusted EBITDA (+16.9% YoY) and margin expansion (17.8% vs 14.8%).
• Skillsoft is committed to generating positive free cash flow for the full fiscal year 2026, building on the positive free cash flow achieved in FY25, driven by enhanced working capital management and collections efficiency.
• While macroeconomic uncertainty and specific market softness (e.g., GK live learning, public sector discretionary spend) pose near-term challenges, management is reiterating its FY26 guidance for top-line growth and continued margin expansion, anticipating benefits from strategic investments to materialize in the back half of the year.

Setting the Scene: Skillsoft's Pivot in the Evolving Talent Landscape

Skillsoft Corp. ($SKIL) operates at the intersection of corporate learning and talent development, a market estimated to be worth over $400 billion and undergoing significant shifts. The company's core mission is to empower organizations and learners through personalized, interactive learning experiences, leveraging technology and strategic partnerships to address critical challenges like skill gaps, talent retention, and digital transformation. Since its public listing in mid-2021, Skillsoft's journey has involved strategic acquisitions, divestitures, and a focused effort to streamline operations and sharpen its market focus.

This historical context, marked by the integration of assets like Codecademy and the divestiture of others like SumTotal, has culminated in a clear transformation strategy articulated as "fix the basics" and "invest to grow." The company has transitioned to a dual business unit structure – Talent Development Solutions (TDS) and Global Knowledge (GK) – designed to bring decision-making closer to the customer and enhance accountability. This structural realignment is foundational to Skillsoft's ambition to become a leading talent development partner, moving beyond traditional learning to offer comprehensive solutions that drive measurable business impact.

Technological Foundation and AI-Driven Differentiation

At the heart of Skillsoft's strategic pivot is its technological foundation, particularly the Percipio platform and its expanding suite of AI-powered capabilities. The company positions its offerings as differentiated, emphasizing its ability to provide global skills development across multiple learning modalities at scale, powered by artificial intelligence.

The Percipio platform serves as the primary delivery vehicle for the TDS segment, offering an immersive, AI-driven learning experience. A key technological differentiator is Skillsoft CAISY, an AI-powered coach and simulator. This tool is designed to provide interactive learning experiences, with features like ready-made scenarios for various business and technical topics. The company has seen significant engagement with CAISY, reporting over 1 million launches by Q4 FY25. Furthermore, Skillsoft is actively developing capabilities for customers to author their own AI simulations using the CAISY tool, with this functionality expected to launch later in FY26. The AI capabilities extend to personalized learning assistants within both Percipio (for content curation) and Codecademy (for coding help), enhancing the learner experience.

Beyond CAISY, Skillsoft has introduced a new compliance suite, leveraging technology to simplify management and improve the user experience, which has reportedly resulted in a 48% increase in Net Promoter Score among migrated customers. The platform also supports end-to-end certification paths, guiding learners towards globally recognized certifications from partners like AWS (AMZN) and Microsoft (MSFT), covering 90 different programs. The Skillsoft coaching platform offers tools for organizations to administer both internal and external coaching programs, including selection, scheduling, and dashboards, demonstrating a focus on integrated talent management.

For investors, the "so what" of this technological focus is the potential to build a stronger competitive moat through enhanced product stickiness, improved learner engagement, and the ability to address complex enterprise needs like skills-based transformation and workforce planning. The integration of AI aims to deliver more effective and personalized learning outcomes, which can justify premium pricing and improve customer retention. While specific, quantifiable performance metrics comparing Skillsoft's AI directly against competitors in terms of efficiency or cost savings are not extensively detailed, the reported increase in NPS for compliance and the reduction in coaching plan completion time (from 13 days to 3 days, a 77% reduction) suggest tangible benefits from these technological investments. The company's R&D efforts, including the AI Accelerator program with Microsoft, signal a strategic intent to remain relevant in the rapidly evolving landscape of AI in the workplace.

Competitive Landscape and Strategic Positioning

The corporate digital learning market is dynamic and includes a range of players, from broad online learning platforms to specialized LMS providers. Skillsoft competes directly with companies like Coursera (COUR), Udemy (UDMY), and Docebo (DCBO), each with distinct strengths and market approaches.

Coursera, with an estimated 15-20% share of the online corporate learning market, leverages university and company partnerships for a vast content library and is rapidly innovating in AI. While Coursera has shown strong recent revenue growth (15% YoY in Q1 2024) and improving profitability (58% gross margin), Skillsoft's enterprise subscriptions, though potentially 15% more expensive, offer deeper compliance features and integrated LMS capabilities that can provide 20-30% greater efficiency in content delivery for large organizations. Skillsoft's focus on behavior-change outcomes gives it a unique value proposition, particularly in regulated industries, countering Coursera's strength in scalable, AI-personalized learning paths which may process data 25% faster but lack Skillsoft's compliance depth.

Udemy, with an estimated 10-15% market share, operates a marketplace model known for affordability and content variety. Its content can be 30% cheaper upfront, appealing to cost-sensitive clients. However, Skillsoft's comprehensive solutions offer potentially 15-20% lower operating costs per user through scalable LMS integration and differentiate with proprietary analytics for behavior change, reportedly leading to 25% higher engagement rates in corporate settings. While Udemy leads in content variety and speed (new courses 40% faster), Skillsoft emphasizes enterprise reliability and structured, expert-led content.

Docebo, holding an estimated 5-10% share in the LMS market, specializes in AI-driven platforms and has demonstrated strong recent revenue growth (24% YoY in Q1 2024) and profitability (78% gross margin, 5% net margin). Skillsoft's platform aims for 10-15% more efficiency in reporting and integration, while Docebo's AI tools may offer 20% faster personalization. Skillsoft leads in content volume and enterprise adoption, particularly in compliance (reportedly 30% better risk management tools), while Docebo excels in AI speed.

Overall, Skillsoft holds an estimated 10-15% aggregate market share in corporate digital learning. While its recent growth trajectory (TDS +1.1% in Q1 FY26, total revenue -2.8%) lags behind some faster-growing peers like Docebo (24%) and Coursera (15%), Skillsoft demonstrates superior profitability and cash flow generation. Its TTM Gross Profit Margin of 74.60% is competitive, and its focus on recurring revenue supports positive free cash flow generation ($26.2 million in Q1 FY26). Skillsoft's competitive advantages lie in its proprietary content ecosystem, deep enterprise relationships (serving ~70% of the Fortune 1000), and scalable technology platform with integrated compliance and talent management features. However, it faces vulnerabilities related to the pace of innovation compared to more tech-focused players and potentially higher operational costs per unit compared to marketplace models. Skillsoft strategically positions itself by emphasizing its comprehensive, integrated solutions for the entire talent development lifecycle, leveraging its blended learning capabilities (TDS + GK) and deep content library to differentiate from more fragmented or purely tech-platform competitors.

Financial Performance and Operational Execution

Skillsoft's financial performance in the most recent period, the three months ended April 30, 2025 (Q1 FY26), reflects the ongoing transformation efforts. Total revenue for the quarter was $124.2 million, a decrease of 2.8% compared to $127.8 million in the prior year period. This decline was primarily driven by the Global Knowledge (GK) segment, which saw revenue decrease by 15.7% year-over-year to $25.1 million, impacted by macroeconomic uncertainty, lower discretionary spending (especially in the U.S. public sector live learning), and a higher mix of lower-revenue reseller business.

In contrast, the Talent Development Solutions (TDS) segment continued its growth trajectory, with revenue increasing by 1.1% year-over-year to $99.1 million. This marks the third consecutive quarter of growth for TDS, which management attributes to capitalizing on the market shift towards comprehensive talent development solutions. The LTM Dollar Retention Rate for TDS stood at 99% as of April 30, 2025, stable compared to a year ago, though slightly down from 100% in the prior quarter, reflecting some impact from market conditions and specific product areas like coaching and compliance which are being addressed.

Despite the slight revenue decline, Skillsoft demonstrated significant improvement in profitability due to cost reduction initiatives implemented in the latter half of FY25. Total operating expenses decreased by 6.1% year-over-year to $142.4 million in Q1 FY26. This was driven by reductions across cost of revenues (-6.5%), content and software development (-9.1%), selling and marketing (-6.3%), and general and administrative (-9.3%). These savings resulted from lower variable costs in GK, productivity gains from AI and the CRRP, reduced discretionary spending, facility consolidation, and lower stock-based compensation. Adjusted EBITDA saw a substantial increase, rising by 16.9% year-over-year to $22.1 million in Q1 FY26, with the adjusted EBITDA margin expanding to 17.8% from 14.8% in the prior year period.

Liquidity and cash flow generation showed notable strength in Q1 FY26. The company ended the quarter with $127.8 million in cash and cash equivalents. Net cash provided by operating activities was a robust $31.3 million, a significant increase from $14.9 million in Q1 FY25. This improvement was primarily attributed to enhanced working capital efficiency and improved collections management. Cash flows used in investing activities were $5.1 million, mainly for capitalized internally developed software. Net cash used in financing activities was $2.0 million, a decrease from $4.3 million used in the prior year, partly due to lower payments on the accounts receivable facility. The company's total gross debt was approximately $580 million at the end of Q1 FY26. The accounts receivable facility provides access to up to $75 million, with only $1 million drawn as of April 30, 2025, offering significant available liquidity.

Operational execution highlights include the ongoing implementation of the CRRP, which delivered annualized cost savings, and strategic investments in go-to-market and product development. The GK segment, despite the Q1 decline, is undergoing a transformation with a focus on regional go-to-market and large global public sector deals, showing sequential improvement trends in prior quarters. Leadership changes, including the appointment of a new CFO and CMO, are aimed at bringing renewed focus and execution strength to the transformation.

Outlook, Guidance, and Risks

Skillsoft is looking ahead to fiscal year 2026 with a clear set of objectives: returning to top-line growth, delivering continued margin expansion, and generating positive free cash flow for the full year. Despite the macroeconomic headwinds experienced in Q1 FY26, management reiterated its previously communicated guidance ranges for the full fiscal year.

The guidance for FY26 anticipates revenue in the range of $530 million to $545 million and adjusted EBITDA in the range of $112 million to $118 million. This outlook implies a pivot to positive revenue growth for the full year, following a 4% decline in FY25 ($531 million). The expected growth in adjusted EBITDA (midpoint of $115 million vs $109.1 million in FY25) suggests continued margin expansion, with EBITDA growth outpacing revenue growth, reflecting the benefits of cost discipline and operational leverage.

A key assumption underpinning this outlook is the expectation that the macroeconomic environment will stabilize, allowing for improved performance, particularly within the GK segment and discretionary spending areas. Management noted that investments are predominantly weighted towards the first half of FY26, with the benefits and resulting growth expected to be more pronounced in the back half of the year.

For free cash flow, the company reiterated its expectation of generating positive free cash flow in the range of $13 million to $18 million for the full fiscal year 2026. This builds on the positive free cash flow of $11.6 million achieved in FY25 and is expected despite anticipated cash usage in Q2 FY26 reversing some Q1 timing benefits. This positive free cash flow generation is a critical financial commitment, supported by improved working capital management and collections efficiency.

However, the path forward is not without risks. The primary challenge remains the macroeconomic uncertainty, which can continue to impact customer discretionary spending and lead to elongated decision-making cycles, particularly affecting the live learning and coaching segments. Evolving government policies, including potential workforce reductions, are also being closely monitored for their potential material impact, although the full extent is yet to be determined. Execution risk associated with the ongoing transformation plan, including the successful reallocation of resources and integration of new initiatives, could also affect the timing and magnitude of expected benefits. Challenges in specific product areas, like the historical softness in coaching and compliance that impacted DRR, require continued focus to ensure sustained improvement.

Management acknowledges these risks and emphasizes strategic focus on key growth areas, leveraging the platform's capabilities to adapt to changing customer needs (e.g., handling government policy requirements), and maintaining operational discipline. They have stated their ability to manage trade-offs between investing for growth and maintaining profitability, aiming to grow "smart and profitably" while leveraging the balance sheet strength to fund investments.

Conclusion

Skillsoft is undergoing a significant transformation, strategically repositioning itself within the dynamic talent development market. The company's dual business unit structure, coupled with a focused reallocation of resources towards enterprise customers and AI-driven innovation, forms the core of its strategy to pivot towards profitable growth. Recent financial results, particularly the strong profitability and cash flow generation in Q1 FY26 driven by cost discipline and operational efficiency, provide tangible evidence that the "fix the basics" phase is yielding results.

While macroeconomic uncertainty and specific segment softness present near-term headwinds, management's reiteration of the full-year FY26 guidance signals confidence in the strategic plan's ability to drive top-line growth and continued margin expansion, with benefits expected to accelerate in the latter half of the year. The commitment to generating positive free cash flow underscores improving financial health. Skillsoft's competitive positioning, leveraging its comprehensive content, integrated platform, and AI capabilities, provides a foundation, but successful execution of the "invest to grow" initiatives and navigating the uncertain market environment will be critical. Investors should monitor the company's progress against its stated guidance, the stabilization and performance of the GK segment, the impact of strategic investments on growth acceleration, and the continued effectiveness of its cost management and cash flow generation initiatives as the transformation unfolds.