SkillSoft (NASDAQ:SKIL) develops online education, specializing in business and information technology topics. The company is also learning that its market is getting tougher and tougher.
A clear sign: In yesterday's third-quarter earnings announcement, SkillSoft said it is restructuring its content development organization, which is based in Dublin, Ireland, and Nashua, N.H. The goal is cost reduction.
SkillSoft's model is to outsource much of its content. With the reorganization, the company will outsource all content. This means reducing the workforce by 133 people and a charge of as much as $15 million.
Cost savings are essential because SkillSoft's top line is treading water. For the quarter, SkillSoft posted revenues of $52.5 million, compared with $50 million in the same period a year ago.
No doubt, online learning is an inherently profitable business. SkillSoft had gross profit margins of 89% last quarter, although this slipped from last year's 91%.
Net profits last quarter were $4.1 million, compared with last year's $21.9 million loss. The explanation for the loss was a settlement for a class action shareholder lawsuit.
On the conference call, the CEO of SkillSoft used the ominous word "challenging" various times. The company lowered its earnings per-share outlook for the fourth quarter to $0.03 to $0.07 from a previous forecast of $0.11 to $0.13. Sales are expected to be $56 million to $61 million, compared with the previous estimate of $64 million to $67 million.
The CEO highlighted some of the problems. There is competitive pricing for larger contracts, and there are delays in, or even nonrenewals of, orders. The company's channel partners are also having the same problems. Also, its new SmartCertify IT product is posting sales below expectations.
In a piece I wrote for the Fool in June, I mentioned that SkillSoft could be buyout bait for biggies such as Career Education (NASDAQ:CECO), Corinthian Colleges (NASDAQ:COCO), Strayer Education (NASDAQ:STRA), Laureate Education (NASDAQ:LAUR), and University of Phoenix Online (NASDAQ:UOPX). After the latest earnings report, this option may be even more likely.
Fool contributor Tom Taulli does not own shares mentioned in this article.
