Skillsoft SKIL Q3 2026 Earnings Call Transcript

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Date

Wednesday, December 10, 2025 at 5 p.m. ET

Call participants

• Executive Chair and Chief Executive Officer — Ronald W. Hovsepian
• Chief Financial Officer — John Frederick
• Chief Administrative Officer — Stephen Poe
• Chief Revenue Officer — Rich Walker

Takeaways

• Total Revenue -- $129 million, representing a $8.2 million, or 6% decline year over year, with Global Knowledge (GK) accounting for 73% of the decrease and comprising only 22% of total revenue.
• Talent Development Solutions (TDS) Revenue -- $100.8 million, down 2.1% year over year, with 70% of the decline attributed to B2C learner products, which represent 9% of TDS revenue.
• Enterprise Solutions Revenue -- Down approximately 1% within TDS, due to earlier-year customer churn.
• Global Knowledge (GK) Revenue -- $28.2 million, a decrease of $6 million or 17.6% year over year, reflecting continued softening demand and changes in customer purchasing for instructor-led training (ILT).
• TDS LTM Dollar Retention Rate (DRR) -- 99%, up from 98%, driven by increased customer upgrades.
• Enterprise Deals with Subject Matter Experts -- Achieved 105% dollar retention rate, indicating higher engagement linked to value-added sales support.
• Large Enterprise Realigned Sales Coverage -- Delivered a 115% dollar retention rate, outpacing company average.
• AI-Driven Content Creation -- "Our teams [are] using AI for more than 50% of the design, curation, and production of content," contributing to operating expense reductions.
• Cost of Revenue -- $35.1 million, or 27% of revenue, up 3.1% year over year due to increased labs, certification spending, and cloud-related costs from higher utilization.
• Content & Software Development Expense -- $13.7 million, or 11% of revenue, down 2.4% year over year, reflecting productivity gains via AI.
• Selling & Marketing Expense -- $35.2 million, 27% of revenue, down 7.1% year over year due to lower headcount.
• G&A Expense -- $17.1 million, 13% of revenue, down 11.9% year over year, reflecting vendor and personnel efficiencies.
• Total Operating Expenses -- $101 million, 78% of revenue, down $4.3 million or 4.1% year over year.
• Adjusted EBITDA -- $28 million, down 12% from $31.9 million, with margin at 21.7% compared to 23.3% last year; GK attributed $3.3 million negative EBITDA, driving most of the decline.
• GAAP Net Loss -- $41.3 million, increased from $23.6 million prior year, primarily due to a $20.8 million non-cash goodwill impairment loss for GK.
• GAAP Net Loss Per Share -- $4.74, compared to $2.86 per share last year.
• Adjusted Net Income -- $14.3 million, up from $11.3 million prior year; adjusted net income per share was $1.65, up from $1.37.
• Free Cash Flow -- Negative $23.6 million versus positive $4.1 million prior year; three-quarters of the cash usage from timing issues, with the remainder from permanent GK impacts.
• Federal Government Shutdown Impact -- $6 million of delayed federal receivables were collected in Q4.
• Cash and Debt Position -- Quarter-end cash, cash equivalents, and restricted cash were $77.5 million; gross debt at $578 million, net debt at $500 million due to seasonal cash low point.
• Strategic Actions for GK -- Company launched a full strategic review and began seeking partnership-driven alternatives for GK, with the aim to remove both top- and bottom-line drag.
• Withdrawal of Consolidated Guidance -- Due to GK uncertainty, the company withdrew consolidated revenue and EBITDA guidance, maintaining guidance solely for TDS.
• TDS Full-Year Guidance -- Revenue expected at $410 million and adjusted EBITDA of $112 million to $116 million (approximately 28% margin); excludes GK segment.
• Platform Rollout Milestones -- Early version of Precipio platform released in September; four large enterprise contracts signed, general availability expected in 2027.
• Public Sector Business in TDS -- Federal/public sector TDS DRR remained at "103, 104 sort of level," suggesting recent wins and stabilizing trend post-shutdown.

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Risks

• GK segment produced a $3.3 million negative contribution to EBITDA, substantially driving the company's earnings decline.
• Year-over-year free cash flow swung to negative $23.6 million from positive $4.1 million, with the non-TDS component (GK) identified as a permanent drag.
• John Frederick stated, "weakness in GK combined with costs associated with the evaluation of the strategic alternatives for that business will result in lower free cash flow for the fiscal year lower than originally anticipated."
• GAAP net loss increased to $41.3 million primarily due to a $20.8 million non-cash goodwill impairment for GK, confirming asset deterioration.

Summary

Skillsoft (NYSE:SKIL) reported a 6% year-over-year revenue decline, largely due to severe underperformance in the Global Knowledge (GK) segment, which is now under strategic review for divestiture or partnership alternatives. The company withdrew consolidated guidance citing uncertainty around GK but reaffirmed its full-year outlook for Talent Development Solutions (TDS), targeting $410 million in revenue and 28% EBITDA margins. Increased adoption of AI internally drove notable productivity gains, evidenced by operating expense reductions and more than 50% of content workflows now AI-powered. The Precipio platform was introduced to select enterprise clients, setting the foundation for new revenue streams and signaling a strategic pivot toward platform-centric offerings slated for full rollout in 2027. While federal-related TDS bookings showed improvement post-shutdown, and large enterprise customers contributed to DRR outperformance, the company’s net loss widened significantly due to GK impairment and negative operating leverage.

• The sales model and marketing organization were overhauled, with specialist sales and expert support correlating to higher customer retention and upsell outcomes.
• Refocused capital allocation and streamlined operations produced annual reductions in G&A and selling expenses, pointing to continued cost discipline.
• GK’s revenue comprised only 22% of company turnover but represented 73% of the revenue decline, making a separation of this business a material driver for future margin improvement.
• Cash flow guidance for fiscal 2026 was revised to positive free cash flow of between $0 and $5 million, with higher results possible once GK is excluded, reflecting renewed financial discipline in the core business.

Industry glossary

• DRR (Dollar Retention Rate): The percentage of recurring revenue retained from existing customers over a period, accounting for upsells, downgrades, and churn.
• ILT (Instructor-Led Training): Training delivered in real-time by a human instructor, either physically or virtually, as opposed to fully digital or asynchronous formats.
• TDS (Talent Development Solutions): Skillsoft’s primary business segment encompassing enterprise-focused digital learning and development platforms and content.
• Precipio: Skillsoft’s new integrated digital platform that unifies content, learning modalities, and AI-driven skills management.
• GK (Global Knowledge): The company’s segment specializing in instructor-led IT training and services, now subject to strategic review for divestiture or partnership.

Full Conference Call Transcript

Stephen Poe: Thank you, operator. Good day, and thank you for joining us to discuss our results for the third quarter ended October 31, 2025. 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 that constitute forward-looking statements within the meaning of The U.S. Private Securities Litigation Reform of 1995, 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 reflect management's current beliefs, expectations, and assumptions and therefore are subject to risks and uncertainties that could cause results to differ materially from the conclusions, forecasts, estimates, or projections in the forward-looking statements made today. 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-Ks and other documents that we file with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements or information as of their respective dates.

During the call, unless otherwise noted, all financial metrics we discuss other than revenue will be non-GAAP financial measures, which are not prepared in accordance with Generally Accepted Accounting Principles. For example, listeners should be cautioned that references to phrases such as adjusted EBITDA and free cash flow denote non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation or as a substitute for GAAP financial measures.

A presentation of the most directly comparable financial measures determined in accordance with GAAP as well as the definitions, uses, and reconciliations of non-GAAP financial measures included in today's commentary to the most directly comparable GAAP financial measures is included in our earnings press release which has been furnished to the SEC on Form 8-K and is available at www.sec.gov and is also available on our website at www.skillsoft.com. Following today's prepared remarks, Ronald W. Hovsepian, Skillsoft's Executive Chair and Chief Executive Officer, and John Frederick, Skillsoft's Chief Financial Officer, will be available for Q&A. With that, it's my pleasure to turn the call over to Ron. Thanks, Stephen. Good afternoon and thank you for joining us.

Ronald W. Hovsepian: We began our transformation in August 2024 with focused goals: reach revenue inflection, return to growth, and grow at or above the market while maintaining strong profitability and cash flow. We centered our strategy on the talent development market because it influences performance across almost every business function. This focus is delivering early results, with increasing DRR for enterprise customers, strengthening account health, and strong early interest in our platform. AI is accelerating change across industries and workforce readiness has become a top priority for boards and executive teams. Many organizations face delays in business transformation due to skills gaps that limit execution speed.

This is why more than 70% of the CHROs cited skills visibility as a top three investment priority in a recent customer study. They need clear insight into skills and future requirements along with faster paths to close gaps supported by strong governance. Learners also expect personalized development and real-time support in the flow of work. Our next-generation Skillsoft Precipio platform directly addresses these needs by unifying content, blended learning, hands-on practice, and skills intelligence into one platform. This integrated approach helps customers act faster, reduce skills gaps, and accelerate transformation efforts. Our enterprise scale, product innovation, services expertise, and learning DNA give Skillsoft a clear advantage as organizations adopt skills supply chain models.

This strategy positions Skillsoft for sustained growth and stronger customer value as the market shifts towards AI-driven skills management. In anticipation of this shift to AI-powered skill solutions, we spent FY '26 reshaping our go-to-market approach to ensure we can fully capture the opportunity ahead. We anchored this work in financial discipline with a leaner, more directed cost structure and capital allocation focused on return on invested capital. On marketing, we rebuilt the team with capabilities needed to support the platform transformation. While the hiring took longer than planned, the team is now in place, and we will introduce our exciting updated branding in '27.

On sales, we invested in skilled subject matter experts so customers can connect our differentiated capabilities, particularly in AI simulations and enterprise skills management, to their workforce needs. Their engagement is already correlated to strong performance, with deals involving these specialists delivering a 105% dollar retention rate in the third quarter. We also recently realigned the sales coverage to focus on large customer enterprises who are deeper adopters of our advanced features and have demonstrated approximately 115% dollar retention rate in Q3. On product, we released the early version of our platform in September, signed four large enterprise customers, and expect general availability in '27.

Initial customer response has been strong, and we remain confident in delivering our TDS commitments and positioning FY '27 and beyond for growth. In our annual planning process, we also saw meaningful momentum in our AI efforts, with customers adopting AI-driven simulations at scale, and our teams using AI for more than 50% of the design, curation, and production of content, contributing to headcount and vendor reductions reflected in the year-over-year operating expense improvement. Turning to our GK segment, our early priorities were to stabilize the business and expand our public sector presence.

While we have secured meaningful new wins, including a European public sector award in France worth up to $25 million over four years, the financial performance of GK remains negative. In Q3, GK accounted for 73% of our revenue decline while representing only 22% of total revenue. Given these dynamics and in an effort to remain aligned with our company growth timeline and customer needs for multimodal learning, we have undertaken a full strategic review of the GK segment and concluded that a partnership-driven model is more appropriate than continued ownership. Therefore, we began pursuing a range of alternatives with the GK asset in Q3.

Ideally, we want to maintain a two-way partnership where GK will continue to provide led training services to our customers, while Skillsoft provides content and platform capabilities in return. AI is not replacing learning platforms; it is increasing their strategic relevance. The World Economic Forum estimates 85 million roles will be displaced and 97 million new roles will emerge, underscoring that this shift is not only disruptive but a generational reskilling opportunity. Organizations now need trusted systems that curate knowledge, validate accuracy, measure outcomes, and integrate directly with their talent and skills frameworks.

Over the past eighteen months, we have rebuilt our go-to-market model, strengthened our product roadmap, advanced our AI capabilities, reduced our operating expenses, and realigned our portfolio, including the action on GK, to match how the market now prefers to consume learning and ILT. By applying AI to elevate content creation, deliver personalized and multimodal learning experiences, and enable safe high-impact simulations, we are confident that Skillsoft is well-positioned to help enterprises navigate workforce transformation and accelerate their move towards true governed skills management in the years ahead. With that, let me now turn the call over to John to cover our financial results in more detail. John?

John Frederick: Thank you, Ron, and good afternoon, everyone. As a reminder and as noted at the opening of the call, consistent with prior quarters, this section covers non-GAAP measures unless otherwise stated. At a high level, for the largest components of our business, the summary for the quarter is that the enterprise portion of Talent Development Solutions or TDS, which represents around 91% of TDS, was down slightly from a revenue perspective, reflecting customer churn from earlier in the year, but is largely on track. GK has struggled this year and in the quarter particularly as the market shifted to blended learning. GK had a considerable negative impact on revenue, earnings, and cash flow this year.

While we made progress in some of the key initiatives around this business, we concluded in our annual planning cycle that it is better to partner with an IoT provider than to own that learning modality. Accordingly, we began a strategic review on that business. I'll talk in more detail about the implications of our decision to pursue options related to the GK business in just a few moments. Related to guidance, we're on track for TDS' component of the anticipated performance, but all on a consolidated company basis due to GK. Now turning to the results. Revenue per TDS was $100.8 million for the third quarter, down 2.1% year over year.

Around 70% of the decline came from our B2C learner product, which represents around 9% of TDS revenue. The learner business utilizes a digital customer acquisition motion which continues to struggle to adapt to changes in organic search algorithms, hampering lead generation and customer acquisition. The larger portion of our business, enterprise solutions, was down approximately 1%, reflecting customer churn occurring earlier in the year. Global Knowledge revenue of $28.2 million in the quarter was down approximately $6 million or 17.6% year over year. Like the first half of the year, we continued to see softening demand reflecting a fundamental shift in the way the customers want to purchase instructor-led training.

Customers are increasingly looking for end-to-end solutions which combine services with the delivery of IoT. The business was also impacted by spending reductions from the U.S. Government shutdown. Total revenue of $129 million in the third quarter was down $8.2 million or 6% year over year. Our TDS LTM dollar retention rate or DRR, as of the third quarter, was 99% and improved year over year from 98%, reflecting higher customer upgrades. Now I'll walk you through our expense measures, which taken as a whole, continue to see year-over-year improvements.

Cost of revenue was $35.1 million in the third quarter or 27% of revenue, up 3.1% year over year, reflecting higher labs and certification spending and cloud-related costs resulting from higher customer utilization. We have changed the way we structure some of these third-party agreements to avoid these sorts of overruns in the future. Content and software development expenses of $13.7 million in the quarter or 11% of revenue were down approximately 2.4% year over year. These improvements largely reflected productivity gains from leveraging AI and sharper focus.

Selling and marketing expenses of $35.2 million for the third quarter or 27% of revenue were down approximately 7.1% year over year, resulting from lower headcount demonstrating improved productivity as a result of our transformation efforts. General and administrative expenses were $17.1 million in the third quarter or 13% of revenue, down approximately 11.9% year over year, reflecting lower headcount and vendor spending, again, demonstrating improved productivity. Total operating expenses were $101 million in the third quarter, or 78% of revenue, and were down $4.3 million or 4.1% year over year.

Adjusted EBITDA of $28 million was down about 12% compared to $31.9 million last year, with adjusted EBITDA margin as a percentage of revenue for the quarter at 21.7% compared to 23.3% last year.

Operator: We estimate that GK contributed negative $3.3 million to EBITDA, driving most of the reduction.

John Frederick: GAAP net loss was $41.3 million in the third quarter compared to a GAAP net loss of $23.6 million in the prior year period. The increase in GAAP net loss resulted primarily from a non-cash goodwill impairment loss of $20.8 million related to GK to reflect declines in the business. GAAP net loss per share was $4.74 compared to $2.86 loss per share in the prior year period. Adjusted net income of $14.3 million in the third quarter compared to adjusted net income of $11.3 million in the prior year. Adjusted net income per share of $1.65 for the third quarter compared to adjusted net income per share of $1.37 in the prior year.

Moving to cash flow and balance sheet highlights. Free cash flow for the quarter was negative $23.6 million compared to a positive $4.1 million in the prior year period. About three-quarters of the cash utilization represented timing and reverses in Q4, with the remaining balance related to GK performance, which is permanent to the year. Drilling down on the timing portion of cash flow variance further, roughly half of that variance reflected timing of vendor payments, which will normalize in Q4. Within customer collections, we absorbed about $6 million of delayed cash receipts from the federal government shutdown, with those receivables being collected in Q4.

Looking at the full-year outlook, you may recall that we originally expected free cash flow for the year to be in a range of $13 million to $18 million. While we've already seen delayed government-related receipts coming in during Q4, weakness in GK combined with costs associated with the evaluation of the strategic alternatives for that business will result in lower free cash flow for the fiscal year lower than originally anticipated.

Operator: Based on current levels of working capital and

John Frederick: our forecast of cash payments and disbursements in the fourth quarter, we expect positive free cash flow of between 0 and $5 million fiscal '26. Absent GK, our free cash flow guidance would have been unchanged from our previous guidance for the full year. GAAP cash, cash equivalents, and restricted cash were $77.5 million at quarter-end, traditionally our seasonal low point. Total gross debt on a GAAP basis, which includes our borrowing on our term loan and accounts receivables facility, was $578 million at the end of Q3, down slightly from approximately $581 million at the end of fiscal 2025, reflecting normal amortization.

Total net debt, which includes borrowings on our term loan and accounts receivable facility, net of cash, cash equivalents, and restricted cash, was approximately $500 million, up from approximately $477 million at the end of fiscal '25, reflecting Q3 being our seasonal cash balance low point. Naturally, we expect cash to build during Q4 given normal seasonality. As mentioned earlier, we initiated a strategic review process for our Global Knowledge segment. In order to help you understand the details, we've broken out the segment level adjusted EBITDA for you this quarter. This analysis shows that GK represented most of the year-over-year decline in adjusted EBITDA.

The process of removing this top and bottom line drag will be accretive to growth margins and improved free cash flow and leverage as well. In connection with the decision to explore strategic alternatives for GK, we're unable to provide revenue and adjusted EBITDA guidance for GK for the remainder of the year but will do so for the TDS business. Accordingly, we're withdrawing previous consolidated revenue and adjusted EBITDA guidance given it included GK. For TDS, we expect revenue for the full fiscal '26 year to be between $410 million and adjusted EBITDA of between $112 million and $116 million or about 28% of revenue.

Interestingly, the guidance for TDS compares closely to our previous consolidated guidance of $112 million to $118 million. With that, operator, please open up the call to questions.

Operator: Thank you. We will now be conducting a question and answer session. Before pressing the star key. Our first question comes from the line of Ken Wong with Oppenheimer. Please proceed.

Ken Wong: Fantastic. Thanks for taking my question. Really appreciate all the detail, guys. Maybe first one on the strategic review. Can you help us kind of think through what timeline could be for, you know, getting some sort of a transaction done there? And you know, as you think about, you know, the prioritization in terms of

Operator: yes,

Ken Wong: the speedy exit from the business versus trying to optimize for price. Like, how should we think about the kind of which direction you're tilting there?

Ronald W. Hovsepian: Happy to, Ken. Thank you for the question. In terms of your first part of your question, the time frame, as we indicated, in a process right now, so it'd be inappropriate to, you know, speculate on the exact timing. To your point as to what are we optimizing to, I think what John shared with you on the call around the amount of impact that we've had on the cash flow as he walked you through that piece of it. I think the urgency associated with making that better for the company overall or the RemainCo is top priority for the company. That's as far as I want to comment on that particular piece, John.

Don't know if you want to add anything to that part. I think the only thing I would add is we have been

John Frederick: thinking about this and working on this for a while now. And

Rich Walker: consequently, we're into the process pretty heavily.

Ken Wong: Perfect. That's actually super helpful. Really appreciate, you know, the context that you could provide. And then on the breakouts between the two businesses, you know, when I look at the margin profile of Core TDS, you know, very strong at, you know, 28% EBITDA margins. As you guys were thinking about expanding margins, over the coming years, how much of that was influenced by GK is underperforming and you move those margins up in that pulls up the overall business? Or is there still headroom for, you know, the content business as well?

Rich Walker: So, thanks for the question, Ken. So we see the profitability in TDS as being really the flagship both growth as well as profitability. The consolidated group. Currently. When we originally modeled out the business when we're going through our original strategic process, and I'm really now going back to August 2024. We really thought about the GK business as being more of a breakeven business that would grow and as and contribute to cash flow, maybe not at the same rate as you would expect TDS?

I think from a growth perspective for TDS, sitting today at 28% EBITDA, attractive EBITDA, The most important part now is gonna be to maintain profitability that's an attractive financial profile but investing in a way to get to growth. Because we do think that a dollar vested in TDS right now is really the right place to put any of our bets at this juncture. Obviously, given the process that we're going So I think what you'll see as we go into next year, we're gonna be focused on getting the investment mix correct to drive growth. But we're very comfortable with the profitability profile of the business, both near term and long term.

Ronald W. Hovsepian: Just to add to that, Ken. When you think of the transformation in the core of your question, it really is that is gonna be the cash generative part of the company. And as John indicated, that has the capability. So what we started our journey on was really around the transformation. So as you said, you know, you referenced the content business. You know, what I want to highlight is in '26, specifically, we have done a number of things to prepare to address that talent management market, which we both know is a growing market. And as part of that story, what we were really picking on was that dimension around skills that we announced in September.

Again, these were, you know, September type announcements. So this is all unfolding now in front of everybody. The shift from content to content and a platform. Now why is that important? A lot of people speculate what AI is gonna do to content, what it's gonna do to every industry. We agree it's gonna redefine it. However, if you study parallel markets, like the media market, what's happened in entertainment, the entertainment market went through three stages. Everybody raced to content was king. It became platform as king. And as we all know, it's now settled down into where it is today, which is streaming platforms with content.

And the Warner acquisition is a good example of it happening again. We believe that same hypothesis, and we parallel, I should say. And we believe we're perfectly positioned for that because we do have a content business, now have announced platform part of the business, and that AI native nature of that. And that really positions us well, so for the growth next year. So as we come into the year, we've set the table with what we're doing with product, what we're doing with our brand repositioning the value proposition, all that will begin to get rolled out in earnest as we enter into next year.

That's what's been going on behind the scenes, and we're starting to let those pieces come out. The four customers that John referenced, those are people that now have signed agreements and paid us money to be part of that journey in the very early stage. So it's all set up for growth for next year.

Ken Wong: Got it. Got it. And I guess on that comment, just making sure we clarify and parse through the pieces. Yep. You know, set up for growth next year. I assume the you know, this isn't necessarily signaling that you guys will see growth next year, but again, perhaps stabilizing the platform, kind of putting the piece in place and maybe optimistically, we could see growth? Or just want to make sure we understand kind of how you're thinking about next year given that we've kind of thought you talked around some comments here?

Ronald W. Hovsepian: Yeah. Absolutely setting the table for growth is a quotable piece of what we're doing here. And we'll give you details around that as we end the year. And John was just kind to remind me that we actually had another one of those another customer deal signed last night on that journey on the platform side. Which was fantastic. And that one's actually a competitive win back. So it's really nice to see it. So but the answer to your core question of growth is we'll give you guidance at the right time there. But we are setting the table for growth. And we really do believe that we have

Rich Walker: a very attractive growth or a very attractive profitability profile in the business that really gives us the credibility and the wherewithal to invest properly as we go into next year to set the table for growth.

Ken Wong: Understood. And then perhaps if we could dive into the public sector, it sounds like the dynamic there has stabilized now that the shutdown is over. But would love to just get your feedback. Any context you can provide. Are we fully out of the wood, or are we still, you know, kind of one foot out? Any thoughts on how that piece of the business is shaping up?

Rich Walker: Yeah. It's a great question. So, I'm gonna set aside GK for a moment because the government shutdown during the quarter had a material impact on its open enrollment segment of its business. But if I look at TDS, I look at the DRR related to our federal business, and to our public sector business more generally, that DRR is, you know, kind of been a 103, 104 sort of level. So we're seeing some actual evidence of coming back after having a really tough first half of the year. So we feel pretty good about that. We had some really nice wins in Q3 around the federal business. So that business is pretty healthy.

We see it continuing, hopefully, into Q4. And that's really reflected in the guidance that we have for the full year for TDS.

Ken Wong: Okay. Perfect. And then again, it feels like excuse me, and then on Q4, maybe a slight softness in 3Q still, but you know, stabilizing. You know, what based on what you're how would you characterize sales cycles, seeing in kind of the early parts of Q4, you know, deal momentum, conversion? Any color you can provide that gives us a little more confidence in that reiterated TDS outlook there?

Ronald W. Hovsepian: Sure. Two things. One, for TDS, Q3, we actually rolled out our new sales coverage model while delivering the forecast at the same time. And made some notable changes in our approach there. So I share that with you in the spirit of we really are trying to prepare for what's around the corner and align ourselves for that growth story. In terms of what I see right now, everything's within the normal boundary conditions of what we've learned about the business, some of the discipline we've put around it. From a forecasting perspective. And it all obviously, all that's included in John's guidance. For the quarter.

So and most of the comments that were talking about, it goes back a little bit to the repositioning. Ken, we said we're gonna reposition ourselves around what we're doing inside the enterprise because we have the most value there. That's why I shared that a 115% DRR number with you. In those large, larger customers we're seeing the goodness that we want. As part of it. Some of those customers are part of the group that signed up, for the platform, which is great. Right? That's a good thing for us. So again, we put a lot of discipline. We'll package that up as we come into next year.

And deliver that story holistically so you can put all the pieces together. But in terms of what I'm seeing right now, we're targeting, I'm seeing the growth. That's why I gave you that 105 and 115 number in my prepared remarks. And want to really see us push ourselves and get everything in place as we come into the year. We're not rolling stuff out, but we're a little bit ahead of the curve as much as we can be. So, you know, again, the platform product. Excuse me. GA of the product is actually in Q1. So the pieces are shaping up.

Rich Walker: And for the rollout of the platform, we're focusing our attention primarily on our existing customers. That we have these relationships. We have more than 800 large enterprise customers that are in our base. And right now, we're targeting a subset of those, say, roughly a quarter of them specifically as folks that would be very they're very attractive candidates for the platform. Obviously, where our win rates tend to be much higher with our existing customers. I'm gonna Yeah. For on a relative comparative, it's three or four times higher selling a platform to an existing than trying to win that new.

Ken Wong: Got it. Okay. Perfect. And then I realized that you know, global knowledge, you know, might not be something we have to consider too much longer. But as we think about our numbers for the rest of the year and you know, for our model, at least initially for next year, like, what's the right way to think about how that played out? I know you're not providing guidance because it's just a little uncertain, but it fair to assume a slight downtick from expectations in 3Q just given the way you kind of framed the quarter and that carries over into Q4 as far as how we should be kind of tweaking and refining our thinking there.

Rich Walker: Yeah. So, certainly, we want to be helpful to try to help think about this within the context of their models. We pulled guidance, and we ultimately decided to not guide on GK just because of the uncertainty that created by the process itself. But I think just in terms of making the math work in your model, yep, a downtick from Q3 is about as good of a way to approach it as any.

Ken Wong: Okay. Understood. And then lastly for me, just lots of lots of chatter on AI. It seems like you guys have put in many of the pieces necessary to be successful there. Love hearing about the platform. You know, as you think about the customer interest, the conversations you've had, should we think of these AI capabilities as table stakes that aid in retention, or do you credibly believe based on what you've heard from customers that you can actually capture incremental wallet with these capabilities?

Ronald W. Hovsepian: I'll answer it in two dimensions, the customer and the market. So in terms of the market, we know that the customer is going through a transition and a redefinition of what content is and what a platform is to run their skills or talent management life cycles. So inside of there, we believe we can migrate our base and grow from there and get new customers. And then two, when I look at the new accounts, this gives us an opportunity to now have a new conversation. With the customer where we can go in with just the generic platform. I can have a conversation with you about content.

I can have a conversation about content and the platform, and then I can have a conversation with you just about the platform. And we've got customers that are in all three of those buckets from the market research we're doing around pricing and packaging. Again, that will also be rolled out in next year, and we've done that review and research and really understand what's happening out there in the market. So that will open it up in two dimensions here. It will open up in the existing base, of customers, and it will allow us to go into the other into new customers we go on the journey. But there's two parts to the story again. Right?

And I want us to wake up like a Netflix where I've got a platform and content. Right? That's exactly where I'm going. I'm not implying that we're gonna be Netflix. At all, not this week. Mhmm. But I see the historical pattern. And that's what we set everything out on candidly a year plus ago now. And our planning was that's what we thought would happen in this market. And I still believe that to be true. That uniqueness of having that experience, that uniqueness of already migrating our capabilities and our own practices 50 plus percent of the content in the platform now was AI-driven as part of it.

That's as good as you can get in such a short window. And I think that's a very important point. What it also does is it adds to the tools that we announced in September because those are the same tools that our customers are gonna use, we're using. So we can walk in with incredible credibility for our customer because I can talk to about their own content, I can talk to about our content. I can talk to about how it will flow into AI personalized experiences. Those are the things that the customer wants from us on managing their skills life cycle and the organizational skills. And I think we're really well positioned to do that.

Now we gotta go out and tell the story. All of that is all queued up to start happening in Q1. A brand, the sales, Hardee's is under all underway, the pricing, the packaging, the sales skills update upgrades. All those pieces are all underway right now as we start to head into it along with a very detailed product plan.

Rich Walker: And all of this is getting integrated across the company. So the piece is getting it's actually fairly important for us to have commonality of message across the entire company, both with respect to the customer and within the company.

John Frederick: Very true.

Ken Wong: Perfect. Perfect. And I said that I actually have one more question. Sure. Just on you know, how should we think about your approach to the investment cadence on a go-forward basis? I mean, we went through a restructuring, and then you probably had a bit of optimization on the GK side. Well, perhaps

Stephen Poe: know,

Ken Wong: you may partially investing on the TDS side. Again, hard to see through the optics of kind of the blended

John Frederick: business.

Ken Wong: Know? So now that you've got you know, just what you guys feel is core to your operating model, what's the approach? Like, what's your mindset right now, Ron, John?

Rich Walker: Yeah. So really, first ordinal point for us was to try to make sure that we create a track record hitting our TDS EBITDA. As you've seen in the past several quarters, we've been able to reduce our cost structure year over year pretty consistently. And we saw some interesting nuggets as we've been going through the year. Ron talked about one of them, which was the adoption of AI within our four walls in terms of content creation. So we're looking every quarter. Every month, for interesting ways to drive productivity. That will continue for the foreseeable future. And then as we prove our model, then we'll shift some of that economic goodness into investing in growth. Okay.

Ken Wong: That makes a lot of sense. Really appreciate all the color guys. And yep, best of luck going forward, and, yeah, we'll circle up later on.

Ronald W. Hovsepian: Sounds good. Thanks, Ken.

Operator: Thank you. There are no further questions at this time. I'd like to pass the call back over to Ron for any closing remarks.

Ronald W. Hovsepian: Thank you. Thank you to all of our everybody who joined the call. Just to summarize, we worked our way through the quarter, as we shared with you just now, there are a bunch of significant things that have occurred now in the transformation. Obviously, the announcement around GK. But more importantly, what we just what I was just summarizing back to Ken's last question, which is focused on a large and growing market. We've refocused ourselves through the enterprise reach. Companies making the migration to adding a platform to our content history and capabilities to migrate that revenue and introduce new revenue streams. All those pieces are now queuing up and setting the table for FY '27.

Those pieces, as I said, branding from our team is well underway. The sales model has already shifted and was implemented in Q3. When I think about how we've embraced AI as a native construct inside the platform. That's been critical for what we've done as we've gone on the journey. And all the pieces are now coming together to align towards that while we deliver on what John just highlighted for the commitment for Q4. So I thank you all, and may you all have a good night. Look forward to chatting with our investors shortly. Thank you.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Rich Walker: It's a tricky

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