EPS of $-2.78 increased by 42.6% from previous year
Gross margin of 74.5%
Net income of -23.79M
""Economic uncertainty extended Q1 headwinds into Q2 and weighed on revenue primarily through lower customer discretionary training spending."" - Ron Hovsepian
Skillsoft Corp (SKIL) QQ2 2026 Results – AI-Driven Transformation Presses Forward Amid Macro Headwinds in Education & Training Services
Executive Summary
Skillsoft reported a second quarter (quarter ended July 31, 2025) that reflected a continuation of macro-driven headwinds in discretionary spend, particularly impacting the Global Knowledge (GK) live-learning variant. Revenue declined 2.6% year over year to $128.8 million, driven by softer GK demand and a drag from the consumer/B2C segment within TDS, even as the enterprise portion of TDS continued to show resilience with four straight quarters of revenue growth and a high-dollar retention rate. Notably, Skillsoft delivered profitability and margin expansion through aggressive cost reductions and productivity gains, with adjusted EBITDA of $28.3 million and a 22% adjusted EBITDA margin, despite the revenue base dip. Management anchored long-term confidence in the transformation program (dual business units, resource realignment, leadership additions) and highlighted the AI-native design, skills intelligence, and immersive learning roadmap as the core driver of future value. The company reaffirmed or updated full-year guidance, guiding to revenue of $510–$530 million, adjusted EBITDA of $112–$118 million, and positive free cash flow of $13–$18 million for fiscal 2026, while acknowledging GK softness and ongoing macro uncertainty. The quarter also featured notable customer wins demonstrating scale and impact (e.g., 43,000 employees under a large global semiconductor learning ecosystem) and momentum in Skillsoft Precipio with strong AI adoption metrics. While near-term operating performance remains pressured by GK and macro factors, the TDS enterprise franchise is the primary growth engine with a favorable 99% LTM DRR and meaningful margin contribution, underpinning an attractive longer-term AI-enabled, enterprise-grade learning platform strategy.
Key Performance Indicators
Revenue
128.82M
QoQ: 3.72% | YoY:-2.57%
Gross Profit
95.93M
74.47% margin
QoQ: 4.33% | YoY:-3.83%
Operating Income
-11.83M
QoQ: 34.95% | YoY:38.79%
Net Income
-23.79M
QoQ: 37.48% | YoY:39.88%
EPS
-2.78
QoQ: 39.17% | YoY:42.56%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $128.8 million in Q2 2026, down 2.6% YoY; GK revenue $276.0 million in the quarter, down ~9.6% YoY; TDS revenue per talent development solution (TDS) was $101.2 million in Q2, a slight YoY decline.
Gross margin: 74.47% (gross profit $95.93 million on revenue $128.82 million).
Operating performance: Operating loss of $11.83 million; adjusted EBITDA of $28.3 million with an adjusted EBITDA margin of 22.0%.
Net income and earnings: GAAP net loss of $23.78 million; GAAP loss per share of $2.78; adjusted net income of $7.9 million and adjusted EPS of $0.92.
DRR and customer retention: LTM TDS dollar retention rate (DRR) of 99% as of Q2; 4 percentage point drag to DRR from federal business churn/erosion in the quarter.
Financial Highlights
- Revenue: $128.8 million in Q2 2026, down 2.6% YoY; GK revenue $276.0 million in the quarter, down ~9.6% YoY; TDS revenue per talent development solution (TDS) was $101.2 million in Q2, a slight YoY decline.
- Gross margin: 74.47% (gross profit $95.93 million on revenue $128.82 million).
- Operating performance: Operating loss of $11.83 million; adjusted EBITDA of $28.3 million with an adjusted EBITDA margin of 22.0%.
- Net income and earnings: GAAP net loss of $23.78 million; GAAP loss per share of $2.78; adjusted net income of $7.9 million and adjusted EPS of $0.92.
- DRR and customer retention: LTM TDS dollar retention rate (DRR) of 99% as of Q2; 4 percentage point drag to DRR from federal business churn/erosion in the quarter.
- Free cash flow and liquidity: quarterly free cash flow of -$22.6 million; year-to-date FCF approx. +$3.5 million; cash balance $103.4 million; total debt $579 million; net debt about $475 million.
- Full-year guidance (fiscal 2026): Revenue guidance narrowed to $510–$530 million; adjusted EBITDA guidance reiterated at $112–$118 million; free cash flow guidance reaffirmed at $13–$18 million.
- Transformation and product roadmap: ~$45 million of expense reductions realized; ongoing launch of AI-native authoring, Casey enhancements, 50+ language support, and AI-driven learning analytics to accelerate time-to-competency and ROI measurement.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
128.82M
-2.57%
3.72%
Gross Profit
95.93M
-3.83%
4.33%
Operating Income
-11.83M
38.79%
34.95%
Net Income
-23.79M
39.88%
37.48%
EPS
-2.78
42.56%
39.17%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Macro headwinds and revenue guidance: Ronald Hovsepian states, "Economic uncertainty extended Q1 headwinds into Q2 and weighed on revenue primarily through lower customer discretionary training spending," and that this prompted updating full-year revenue guidance. He emphasizes the transformation actions as a source of durability and margin expansion.
- TDS enterprise strength and AI roadmap: Ron highlights, "Most notably, a fourth consecutive quarter of revenue growth in our TDS enterprise solution, which represents more than 90% of the TDS segment" and outlines AI-native design, skills intelligence, and immersive learning experiences as core strategic pillars. He also notes progress on AI authoring and Casey enhancements to accelerate content creation and deployment.
- GK softness and regional dynamics: John Frederick notes GK revenue softness (down ~9.6% YoY) driven by lower discretionary spending in North America and geopolitical tensions in The Middle East, with Europe showing earlier signs of inflection and bookings improvement. "We did see some green shoots in Europe with respect to GK" and that GK adjustments largely drive full-year guidance changes.
- Retention and profitability: John states DRR of 99% for TDS LTM; a four-percentage-point hit due to federal churn in the quarter, underscoring the sensitivity of DRR to government-related spend. He underlines that cost reductions and go-to-market investments kept adjusted EBITDA margin elevated at 22% and that the company continues to target positive free cash flow for the year.
- Outlook and execution: Ron reiterates confidence in achieving a rebound in growth driven by transformation, with upcoming product announcements and a global expansion of multi-language capabilities to enable faster rollouts and clearer ROI for customers.
"Economic uncertainty extended Q1 headwinds into Q2 and weighed on revenue primarily through lower customer discretionary training spending."
— Ron Hovsepian
"Revenue per talent development solutions, or TDS, was $101.2 million in the second quarter, slightly down year over year."
— John Frederick
Forward Guidance
- Revenue trajectory: Management now guides fiscal 2026 revenue to $510–$530 million, acknowledging continued softness in GK and public-sector/ federal spending, but expects stabilization and some improvement in TDS enterprise activity. The implied back-half weighting (roughly 65% of annual revenue) suggests a modest improvement in H2 if GK stabilization occurs and enterprise deals convert.
- Profitability and cash flow: Adjusted EBITDA guidance remains robust at $112–$118 million, supported by ongoing cost-optimization (approximately $45 million in prior-year expense reductions) and productivity gains from AI-driven tooling. Free cash flow is guided to $13–$18 million for the year, with year-to-date FCF positive, albeit Q2 negative due to seasonality.
- Key catalysts and risks: Near-term catalysts include AI-native authoring and Casey enhancements, expanded multi-language support, and enterprise deals in Europe that show early inflection. Risks include macro/geopolitical volatility, continued GK softness, potential further reductions in federal/public-sector spend, and execution risk associated with the transformation/timing of GTM investments. Investors should monitor GK bookings in Europe, the pace of enterprise TDS growth, DRR stability absent federal headwinds, and the cadence of AI-enabled product announcements.
- Overall assessment: The revenue mix shift toward TDS enterprise and the high DRR are positives for sustainability and margins, but near-term revenue volatility persists due to GK and macro headwinds. If GK stabilizes and enterprise wins scale as expected, Skillsoft could re-accelerate toward market-growth rates in 2027, aided by the AI roadmap and global deployment capabilities.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
SKIL Focus
74.47%
N/A
N/A
N/A
PRDO
83.50%
27.60%
4.27%
8.87%
APEI
46.70%
1.45%
0.13%
207.27%
IH
70.50%
8.75%
2.71%
1.39%
ATGE
61.00%
23.20%
5.27%
11.21%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Skillsoft is navigating a meaningful macro backdrop while executing a strategic transformation that should, over time, shift the revenue mix toward the higher-margin TDS enterprise segment and bolster long-run profitability. The Q2 results underscore near-term headwinds in GK and B2C demand, but management has demonstrated discipline in cost control (cited at roughly $45 million in expense reductions) and has an actionable AI-enabled product roadmap that could unlock higher per-customer value, faster time-to-competency, and improved retention. The company reaffirmed a fiscal 2026 revenue target of $510–$530 million and adjusted EBITDA of $112–$118 million, alongside positive free cash flow of $13–$18 million, signaling a path toward deleveraging if GK headwinds stabilize. The most compelling bullish lever is the TDS enterprise expansion: a 99% DRR foundation with ongoing enterprise deals and a growing ecosystem (e.g., 43,000 employees in a semiconductor learning program and the migration toward AI-native design). If GK bookings turn favorable (particularly in Europe) and enterprise deployments scale as anticipated, Skillsoft could re-accelerate toward mid- to high-single-digit revenue growth in 2027 with stronger cash flow generation. Key factors investors should monitor include GK regional inflection, the pace and profitability of the AI-enabled product rollout, retention in the federal/public sector, and the company’s ability to convert pipeline into contracted ARR while maintaining or expanding DRR.
Key Investment Factors
Growth Potential
High potential from the TDS enterprise core, driven by AI-native design, skills intelligence, and immersive learning experiences. Strong DRR (~99%) provides revenue durability; AI-enabled products (AI authoring, Casey enhancements) can improve content creation speed, scalability, and ROI analytics, supporting higher ARR in enterprise accounts and deeper penetration across geographies (50+ languages).
Profitability Risk
Near-term revenue volatility from GK/macro headwinds and continued federal/public-sector spending declines; execution risk associated with large-scale transformation (dual business units, leadership realignment); reliance on enterprise deals for growth given B2C softness in GK and the broader macro environment; leverage and debt load (~$579M gross debt, ~$475M net debt) heighten sensitivity to FCF ramp and interest coverage if revenue recovery slows.
Financial Position
Leverage remains elevated with net debt ~ $475M and a cash balance around $103M. Balance sheet shows negative retained earnings (~$1.505B) and sizable intangible/goodwill assets (~$691.7M). However, the company reports positive year-to-date free cash flow and a disciplined cost structure (adjusted EBITDA margin ~22%). The ongoing transformation and capital-light AI roadmap could improve unit economics over time if GK and B2C headwinds abate, supporting deleveraging and stronger cash conversion in 2027.
SWOT Analysis
Strengths
High TDS enterprise contribution with four straight quarters of revenue growth in the TDS enterprise solution; TDS DRR at 99% (healthy retention)
Strong gross margin (~74.5%) and robust adjusted EBITDA margin (~22%) in a lower-revenue quarter
Global scale with nearly 3,000 customers over $1M ARR and multi-language support (50+ languages)
AI roadmap and product momentum (AI authoring, Casey enhancements, Precipio platform momentum) providing a path to faster time-to-competency and ROI
Transformation progress (dual business units, cost reductions of ~$45M) improving profitability and ops efficiency
Weaknesses
Near-term revenue headwinds driven by GK softness and macro uncertainty; GAAP net loss and negative free cash flow in Q2
High leverage (gross debt ~$579M, net debt ~$475M) and negative retained earnings implying elevated balance-sheet risk
Dependence on GK segment for near-term revenue, with geopolitical and public-sector spending uncertainty
Subsidiary and product mix exposure to consumer discretionary spending and B2C weakness within TDS
Opportunities
AI-native design and skills intelligence offerings to expand enterprise penetration
Expansion of GK in Europe with potential public-sector wins; improving bookings could unlock GK recovery
Localization and analytics capabilities enabling faster scale and clearer ROI; potential cross-sell into existing customer base
AI-powered content creation for lower-cost, faster content deployment that improves time-to-value for customers
Threats
Macro/geopolitical instability affecting public-sector/government spending (e.g., Middle East, North America)
Competitive dynamics in enterprise learning and potential pricing pressure in GK
Delays or underachievement in transformation milestones impacting growth trajectory
Regulatory/compliance risks in enterprise platforms and data privacy across multiple jurisdictions
Skillsoft Corp (SKIL) QQ2 2025 Earnings Analysis: Dual-Business Unit Transformation, Margin Expansion, and AI-Enabled Growth in Education & Training S...