Executive Summary / Key Takeaways

• Strategic Transformation Bearing Fruit: Skillsoft is executing a multi-quarter transformation, shifting resources to enterprise and AI-driven solutions, which has yielded $45 million in annualized cost savings and stabilized its core Talent Development Solutions (TDS) enterprise segment.
• AI as a Core Differentiator: The company's significant investments in AI, particularly its Percipio platform and CAISY AI-powered coach, are driving learner engagement and providing quantifiable benefits like reduced coaching plan completion times and enhanced certification pathways, establishing a strong competitive moat.
• Resilient Profitability and Cash Flow: Despite macroeconomic uncertainty and revenue adjustments, Skillsoft has maintained its fiscal year 2026 adjusted EBITDA guidance of $112 million to $118 million and reiterated positive free cash flow expectations of $13 million to $18 million, demonstrating strong operational execution and cost optimization.
• Dual Segment Performance: The TDS enterprise segment shows consistent growth, validating the strategic focus, while the Global Knowledge (GK) segment faces headwinds from discretionary spending and public sector softness, though regional strategies are showing early signs of stabilization.
• Outlook Hinges on Macro Stability and Investment Payoff: Skillsoft's return to top-line growth in fiscal year 2026, with revenue guidance of $510 million to $530 million, is contingent on the macro environment stabilizing and the successful realization of benefits from its first-half fiscal year 2026 investments in go-to-market and product innovation.

Skillsoft's AI-Powered Evolution: Unlocking Enterprise Value Amidst Macro Headwinds

Skillsoft Corp. (NYSE:SKIL), incorporated in 2019 and listed on the NYSE since June 2021, is a prominent player in the vast and evolving corporate digital learning market, estimated to be over $400 billion. The company empowers organizations and learners through personalized, interactive learning experiences and enterprise-ready solutions. Skillsoft's foundational strategy, initiated in fiscal year 2025, centers on "fix the basics" and "invest to grow," aiming to enhance operational execution, expand margins, and achieve above-market growth rates. This strategic pivot, alongside significant investments in artificial intelligence (AI), positions Skillsoft as a differentiated provider in a competitive landscape.

The company's offerings are structured across two operating segments: Talent Development Solutions (TDS) and Global Knowledge (GK). TDS provides cloud-based Software as a Service (SaaS) learning content and individualized coaching, primarily through its AI-driven Percipio platform. GK focuses on instructor-led training, delivered both virtually and in-person, catering to IT professionals seeking certifications. Skillsoft's unique capabilities, including global skills development across multiple learning modalities at scale, are designed to accelerate workforce transformation and empower talent development management.

Technological Differentiation and Innovation: The AI Advantage

Skillsoft's core competitive advantage is increasingly rooted in its AI-native technology, which underpins its Percipio platform and CAISY AI-powered coach. Percipio is described as the industry's first AI-native skills intelligence platform, built for the "human + AI era," providing an all-in-one solution for managing workforce capabilities, closing skill gaps, and directly linking skill development to business outcomes. This platform offers AI-led, interactive, and multi-modal experiences, alongside enterprise-grade security and integrations.

The tangible benefits of Skillsoft's AI technology are becoming evident through specific performance metrics. The CAISY AI-powered coach, for instance, has surpassed 1 million launches and offers a rich library of ready-made scenarios for both technology and business markets. Recent advancements to CAISY include full voice mode, five-level proficiency scoring, an improved feedback rubric, and new behavior traits for more dynamic conversations. These enhancements allow enterprises to scale realistic role-play, deliver consistent proficiency signals, accelerate time to competency, reduce coaching costs, and link skill progress to improved sales, customer satisfaction, and compliance. The AI Coaching Assistant has already demonstrated a 77% reduction in the average time to complete a coaching plan, decreasing from 13 days to just three days.

Skillsoft is also actively investing in R&D for new AI technologies. The company plans to introduce a new AI authoring experience designed to transform how organizations create and deliver learning content, enabling faster, lower-cost content production, scalable localization and governance, and quantifiable ROI through deeper skills and compliance insights. This innovation is part of a broader roadmap focused on personalized skills development, scalable certification, and advanced analytics. Percipio platform momentum is strong, with technology learners up 50% year-over-year, AI learners up 74%, and AI learning hours increasing by 158%. These figures underscore the growing enterprise adoption of Skillsoft's technology skilling solutions.

For investors, Skillsoft's technological differentiation creates a significant competitive moat. The ability to offer AI-powered personalization, comprehensive certification paths, and seamless integrations with platforms like SAP (SAP) Talent Intelligence Hub, Pluralsight (PS), Big Think+, Oracle (ORCL), and Docebo (DCBO), enhances its value proposition to large enterprise customers. This technological leadership contributes to higher engagement, improved customer retention, and potentially stronger pricing power, driving long-term growth and market positioning.

Competitive Landscape and Strategic Positioning

Skillsoft operates in a dynamic market alongside both direct and indirect competitors. Direct rivals include Coursera (COUR), Udemy (UDMY), Chegg (CHGG), and Microsoft (MSFT) through its LinkedIn Learning segment. Skillsoft differentiates itself by emphasizing comprehensive, enterprise-focused solutions with integrated platforms for custom content and tracking, positioning it as a full-service partner for organizational training.

Compared to Coursera, Skillsoft's offerings provide more specialized tools for administrator control and reporting, enabling tailored, in-depth employee development. While Coursera boasts a vast content library from academic partners, Skillsoft's focus on measurable business outcomes and behavior-change solutions could lead to stronger customer loyalty in enterprise settings. Skillsoft's gross profit margin (TTM) of 80.63% is indicative of its ability to maintain strong margins on its core offerings.

Against Udemy, Skillsoft's structured, enterprise-oriented platforms offer greater integration for large organizations compared to Udemy's more flexible, user-generated content marketplace. Skillsoft's strategy of addressing critical skill gaps positions it as a strategic business partner, potentially leading to stronger retention, although Udemy may excel in content accessibility and speed of delivery.

Chegg, primarily focused on individual student and professional development, offers less direct competition in the enterprise space where Skillsoft excels. Skillsoft's robust suite of tools for corporate environments, including talent management software and flexible assignments, delivers superior performance in tracking employee progress and outcomes.

Microsoft's LinkedIn Learning, while offering professional development courses, is part of a broader ecosystem. Skillsoft's specialized learning solutions emphasize customizability, which may offer greater focus than Microsoft's broader approach. However, Microsoft's technological advantages, particularly in AI integration and global scale, could drive faster innovation. Skillsoft's dedication to overcoming skill gaps in enterprises fosters customer loyalty, but its smaller scale compared to Microsoft presents a challenge in market share capture.

Skillsoft's competitive advantages, or "moats," include its strong brand in enterprise learning, proprietary technology for platforms, and unique distribution through partnerships. Its focus on behavior-change solutions and customized platforms enhances pricing power and operational efficiency. However, vulnerabilities exist due to its smaller scale compared to tech giants, potentially leading to higher customer acquisition costs and lower margins. Technological gaps, particularly in the rapid pace of AI integration, could also expose Skillsoft to threats from more advanced competitors, impacting innovation speed and revenue growth.

Financial Performance and Operational Details

Skillsoft's financial performance in recent periods reflects its ongoing transformation and the impact of macroeconomic conditions. For the six months ended July 31, 2025 (H1 FY2026), total revenues were $253.02 million, a slight decrease from $260.02 million in the prior year period. The company reported a GAAP net loss of $61.84 million for H1 FY2026, an improvement from a net loss of $67.20 million in H1 FY2025.

The TDS segment demonstrated resilience, with revenues of $101.18 million in Q2 FY2026, nearly flat year-over-year. This stability was driven by a fourth consecutive quarter of revenue growth in its enterprise solution, which constitutes over 90% of the segment. However, this growth was partially offset by declines in the smaller B2C learner product line, which was down double digits year-over-year. The LTM dollar retention rate (DRR) for TDS was 99% as of Q2 FY2026, impacted by churn in the North American federal business.

The GK segment faced more significant headwinds, with revenues of $27.64 million in Q2 FY2026, down 9.6% year-over-year. This decline was primarily attributed to broad macro and geopolitical uncertainties, leading to lower discretionary spending, particularly in North America and the Middle East. Despite these challenges, GK showed sequential progress in stemming revenue declines in Q3 FY2025, with a 10% year-over-year drop compared to 20% in previous quarters. Management noted "green shoots" in Europe for GK bookings, suggesting regional stabilization. The GK segment's business unit contribution margin was 36.1% in Q2 FY2026, down from 43.2% in Q2 FY2025, reflecting a "mix issue" related to various factors including tech partners and trainer types.

Operational efficiency improvements are evident in the cost structure. Content and software development expenses decreased due to productivity gains from leveraging AI and a sharper focus. Selling and marketing expenses also declined, benefiting from the Comprehensive Resource Reallocation Plan (CRRP) and proactive reductions in branding and paid media. General and administrative expenses saw reductions from the CRRP and facilities consolidation, though partially offset by increased consulting for targeted marketing and digital strategy.

Liquidity and Capital Resources

Skillsoft maintains a healthy balance sheet and strong liquidity. As of July 31, 2025, the company held $100.51 million in unrestricted cash and cash equivalents. Management projects sufficient internal and external liquidity to fund operations, working capital, capital expenditures, and debt obligations for at least the next twelve months and the foreseeable future.

Cash flows from operating activities increased to $13.45 million for the six months ended July 31, 2025, primarily due to enhanced working capital efficiency. While Q2 FY2026 free cash flow was negative $22.6 million, year-to-date free cash flow remained positive at approximately $3.5 million, an improvement from a cash usage of $5.7 million in the prior year. This reflects the seasonal nature of the business, with Q1 typically being the strongest cash flow quarter.

The company's total gross debt stood at $579 million at the end of Q2 FY2026, down slightly from $581 million at the end of FY2025, reflecting normal amortization.

Skillsoft successfully renegotiated its $75 million Accounts Receivable (AR) facility in November 2024, extending its maturity to November 2029, reducing the fixed interest component, and enhancing administrative flexibility. As of July 31, 2025, $1 million was drawn under the AR Agreement, with approximately $35 million additional available.

Outlook and Guidance

Skillsoft has updated its fiscal year 2026 revenue guidance to a range of $510 million to $530 million, reflecting anticipated continued softness in federal spending, particularly impacting the GK segment. Despite this adjustment, the company reiterated its adjusted EBITDA expectation for fiscal year 2026 at $112 million to $118 million. This confidence stems from continued operational execution and cost optimization efforts, which have enabled consistent profitability even with a lower revenue base.

The company also reaffirmed its expectation for positive free cash flow of $13 million to $18 million for the full fiscal year 2026. Management's outlook assumes a stabilization of the macro market and a continued strong performance from the TDS enterprise business. The guidance incorporates a programmed reduction on the GK side in the back half of the year, acknowledging the persistent headwinds. Skillsoft's strategic investments in go-to-market and product, predominantly in the first half of FY2026, are expected to drive growth in the latter half of the year.

Risks and Challenges

Skillsoft faces several risks, primarily stemming from macroeconomic uncertainty and evolving government policies. The "macro uncertainty" has impacted the timing of the company's plans by approximately three to six months. Lower customer discretionary training spending, particularly in North America and the Middle East, has weighed on live learning revenues. The potential impacts of evolving government policies, such as workforce reductions, are also being closely monitored, as they could materially affect the business.

While Skillsoft, as a federal contractor, has demonstrated its ability to comply with executive orders and manage content at a granular level for various customer groups, the overall uncertainty could lead to elongated decision-making by customers. The company's reliance on its transformation plan to return to growth means that any delays in the payoff from strategic investments or a prolonged period of market softness could impact its ability to meet long-term targets. However, management emphasizes a commitment to "grow smart and profitably," balancing investment for growth with prudent financial management.

Conclusion

Skillsoft is undergoing a significant transformation, strategically leveraging its AI-powered platforms and enterprise focus to drive long-term value. Despite recent macroeconomic headwinds that have necessitated a downward adjustment in fiscal year 2026 revenue guidance, particularly for its Global Knowledge segment, the company has demonstrated remarkable resilience in maintaining its adjusted EBITDA and free cash flow targets. This is a testament to its disciplined operational execution, successful cost optimization, and strategic reallocation of resources towards high-growth areas like AI innovation and enterprise customer acquisition.

The core investment thesis for Skillsoft hinges on its ability to capitalize on the growing demand for AI-driven talent development solutions and its differentiated position as a comprehensive enterprise learning partner. The continued growth of its TDS enterprise segment, coupled with the quantifiable benefits derived from its AI technology, such as the CAISY coach and enhanced certification pathways, underscore its competitive strength. While challenges remain, particularly in the live learning market and navigating broader economic uncertainties, Skillsoft's proactive strategic responses and commitment to profitable growth, supported by a strong balance sheet, position it to unlock significant value as its transformation fully matures and its technological leadership continues to evolve.