Skillsoft Corp.

Greetings. Welcome to the Skillsoft Corp First Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note that this conference is being recorded. I will now turn the conference over to Eric Boyer, SVP of Investor Relations. Thank you, sir. You may begin.

Good afternoon and welcome to Skillsoft's first quarter fiscal 2023 earnings call. After the market closed, we issued our Q1 earnings press release and posted supplemental materials to the Skillsoft Investor Relations website. 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 outlook. These forward-looking statements and all statements that are not historical facts reflect management's beliefs and predictions as of today, and therefore are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For discussion of the material risks and other important factors that could affect our actual results, please refer to the risks described in the safe harbor discussion found in the company's SEC filings. During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. GAAP requires accounting periods before and after the merger and de-SPAC on June 11, 2021, to be separated into predecessor and successor periods to reflect the change in ownership and lack of comparability between periods to different ownership and investment bases. In addition, global knowledge activity is only reflected in the GAAP financial statements after June 11. References on this call to combined GAAP results reflect the combination of the predecessor period before June 11th that excludes global knowledge with the successor period after June 11th. For all non-GAAP measures in the supplemental materials and in today's commentary, the company is providing normalized results as if Skillsoft and global knowledge had been combined for all periods presented, which we believe is useful to investors to show the trends of the go-forward company. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures as well as how we define these metrics and other metrics is included in our earnings press release, which has been furnished to the SEC and is also available on our website. After a pair of remarks, Jeff Tarr, CEO, and Gary Pereira, CFO, will be available to take questions. With that, it's my pleasure to turn the call over to Jeff.

Thanks, Eric. Good afternoon, and thank you for joining us. I'm very pleased to report that in Q1, we grew bookings in our Skillsoft content segment by 22%. This is the fourth consecutive quarter of growth in this segment and the first quarter of double-digit growth under the leadership of our new management team, which stepped in with our return to public markets a year ago. It's particularly noteworthy that it follows seven straight years of declines. These results are due to new, organically developed and acquired capabilities, early success in our go-to-market strategy, and strong demand for the transformative learning experiences we offer organizations and their employees. The Skillsoft content segment, which includes the Percipio platform, is almost entirely subscription in nature and high margin, and we expect it to be the main driver of future value creation for the company. The strength of the content segment was offset in the quarter by a decline in our lower margin transactional instructor-led training business, and in sum total, due to a loss of a large customer for the company's payroll solution. On this call, I'll discuss the acquisition of Codecademy, which greatly enhances our tech and dev offering, and a number of important product enhancements made in the quarter. Finally, I'll talk to actions we are taking to improve our global knowledge instructor-led training business and our longer-term strategy to further transition the business to subscription revenue. Let's start with the Codecademy acquisition, which closed in April. This combination nearly doubles our reach, creating one of the world's largest communities of learners, totaling more than 90 million people across more than 160 countries. When combined with Skillsoft's existing tech and dev offerings, enterprise customer reach, and Percipio learning platform, we have created an industry leader in tech and dev and an important driver of future growth. We see a long runway for cross-selling Codecademy into our large enterprise customer base. We've already completed a light integration of the Codecademy platform into Percipio. We've also developed sales enablement programs and have begun working with more than 50 enterprise customers who have expressed interest in Codecademy, including some of the world's largest banks, healthcare companies, and professional services firms. Moving on to product enhancements in the quarter. As employees make new demands on their employers, labor and skills gaps have emerged as the number one threat to business, according to Fortune's recently released survey of Fortune 500 CEOs. This threat ranked higher than inflation, recession, geopolitics, and cybersecurity. Skillsoft is uniquely positioned to help organizations address this enormous challenge. While others approach learning from a primarily consumer perspective, we've long operated at the intersection of both the organization and its employees, propelling organizations and people to grow together through transformative learning experiences. experiences that are absorbing, trusted, connected, and that deliver exponential results to our 17,000 business customers and community of 90 million learners. Our recent product enhancements advance these objectives, contributing to increases in customers, learners, and usage. Let me share a few notable examples. As already mentioned, we recently completed the first phase of the technical integration of Codecademy into Percipio, our immersive AI-driven learning platform. This is an important enabler to cross-selling Codecademy to our enterprise customers and to helping them address critical skills gaps in programming and data science. As we advance our integration, we are blending Skillsoft microvideos, Codecademy hands-on learning, the coaching solution we acquired with Pluma, and instructor-led training from Global Knowledge to create more absorbing and immersive learning journeys. During the quarter, we also launched Skills Benchmarks, which use objective standards to efficiently profile learners' knowledge in particular areas and recommend personalized AI-curated learning journeys. By giving both the organization and the learner clear understanding of the point of departure from a skills perspective and a clear path forward, we deliver an exponential return on investment. We've already released 125 skills benchmarks and expect to launch 500 by year end. We've also made our transformative learning experiences more absorbing with gamification features, including our recently launched digital flashcards, that reinforce learning and recall on the go. We've made our learning experiences more connected with new social features, including the addition of shared playlists. And we've kept a sharp focus on enhancing customer ROI with the addition of goals and reminders, propelling organizations and their learners forward towards a set of shared learning objectives. These new features combined with a $120 million investment in new content over the last four years, content that's trusted and designed for the way people learn online, have contributed to the growth of our subscription business. Our migration to Percipio has also been a big driver of this transition to growth, lifting our content dollar retention rate above 101%, a 10 percentage point increase over last year. I'm proud that we're winning more new major accounts, including PayPal and Saks in Q1, and that we are seeing a number of encouraging metrics, including 31 percent growth in new business, a 13 percent increase in new logos, and a 16 percent increase in average deal size. In Q1, our strong subscription growth was offset by declines in global knowledge. Global knowledge is transactional in nature. and more sensitive to macroeconomic headwinds, including customer investment in new major IT projects, investment from our partners in training their customers, and our ability to maintain full staffing and entry-level inside sales. It's also lower margin and has lower impact on adjusted EBITDA. We are working on initiatives that we believe will help improve the performance of this segment in the back half of the year. For example, we've launched new products and initiatives with our technology partners to train their customers, supplemented hard-to-fill inside sales positions with outside resources, and implemented targeted increases in go-to-market spend. We're also taking important steps to shift this transactional revenue to our higher margin subscription offerings, consistent with our longer-term strategy. We're embedding instructor-led training into subscriptions, and cross-selling both Skillsoft and Codecademy to global knowledge customers. An exciting example is a recently launched subscription that offers comprehensive training on a wide range of Microsoft products, such as Azure and Dynamics, combined with important competencies such as Agile and DevOps. We've also been cross-training a subset of global knowledge salespeople to sell both Skillsoft and Codecademy subscriptions. We believe proactively increasing our percentage of subscription revenue is the right strategic decision that will accrete to growth and margin and create a more valuable company. Before I turn it over to Gary, I want to briefly speak about our engagement with two great causes that align with our deep commitment to opening doors to new possibilities through learning. We recently announced an initiative with I Am The Code, whose mission is to train 1 million young women and girls and marginalized communities to code by 2030. I Am The Code will be launching its digital learning platform, powered by Skillsoft's Precipio and some of Africa's largest refugee camps, where tens of thousands will have access to the curriculum. We're also partnering with our longstanding customer, ADECO, to help train Ukrainian refugees in much needed soft skills so that they can find new jobs as they rebuild their lives We're proud to be a partner with these great causes. In summary, we're pleased with the progress we've made putting our higher margin content subscription business on a solid growth trajectory. We're committed to improving the performance of global knowledge and will accelerate our transition towards even more subscription revenue for the long term. And with that, I'll now turn the call over to Gary.