Q4 2024 D2L Inc Earnings Call
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Thank you for your patience, everyone D D. <unk> L Inc, Q4 fiscal 'twenty 'twenty four financial resorts call will begin shortly.
This presentation you will have the opportunity to ask question press the star followed by one on your telephone keypad.
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None: Good morning, ladies and gentlemen, thank you for standing by welcome Judy teach U L Inc.
None: Fiscal of 'twenty 'twenty, four fourth quarter results conference call.
None: At this time all participants are in listen only mode. Following the presentation. We will conduct a question and answer session and instructions will be provided for you at the time for the questions.
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None: Zero for operator assistance at any time listeners are reminded that portions of today's discussion will include statements that contain forward looking for imation any such statements are subject to risks and uncertainties that could cause actual results to differ materially from.
None: A conclusion forecast or projection in forward looking information.
None: Certain material factors or assumptions were applied in drawing a conclusion or making a forecast.
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None: Certainty factors and assumptions as well as further information concerning forward looking statements. Please refer to the risk identified in the company's annual and in touring management's discussion and analysis or most recently field annual information form in each case as Phil.
None: Under the company's profile on SEDAR, plus X www Dot SEDAR plus dot Com. In addition, during this call reference will be made to various none ifr Rs financial measures, including close then to currency of revenue adjusted EBITDA.
None: Adjusted gross profit adjusted gross margin and free cash flow there's none.
None: <unk>.
None: Financial measures do not have any standardized meaning prescribed by ISR.
None: And may not be comparable to similar measures presented by other public company.
None: Please refer to the company's M D N. A for the year ended January 31, 2024 for more information about these and certain other non ISR as financial measures, including where applicable Ah reconciliation of history.
None: F. R X financial measures do did most recently comparable <unk> financial measures from our financial statements. This morning call is being recorded on April four 2024 at 830, a M. Eastern time I would now like to turn the call over to Mr. <unk>.
None: John Baker, Chief Executive Officer of <unk>. Please go ahead, Sir Thank you operator, and thank you everyone for joining us on our Q4 and year end earnings call.
John Baker: We released financial results after the market closed yesterday, which you'll find on the Investor Relations section of our website at <unk> Dot com.
John Baker: Please note. The results we are discussing today are in U S dollars.
John Baker: I'm joined this morning by Stephen <unk>, our President and Josh.
John Baker: CFO I'm.
Stephen: I am pleased to report it was a strong fourth quarter to close out a year in which we made significant progress on our plan to balance continued topline growth with meaningfully improve operating leverage our results were at the high end or.
Stephen: Or above our guidance for the year.
Stephen: Revenue for Q4 was up 11% to $47 6 million, including 12% growth in our subscription and support revenue.
Stephen: Annual recurring revenue was up 12% year over year or $20 million.
Stephen: Growing to $188 1 million.
Stephen: Our gross margins increased by 330 basis point.
Stephen: 67% driven by significantly higher subscription merchants.
Stephen: And adjusted EBITDA increased to $3 5 million in Q4 from $4 million in Q4 of last year.
Stephen: Simply put.
Stephen: The team is executing well on the major transition and the financial profile of the business.
We accomplished this while strengthening our fundamentals.
Stephen: We are winning great customers across all markets as you will hear from Stephen.
We've added 2 million more users since the start of last year, bringing us to 18 million users on the bright space.
Stephen: And our largest and most competitive market.
Stephen: And number two in total enrollment and market share in North America higher education up from number four at this time last year.
Stephen: And our win rate is getting stronger as it rose to over 50% and it's important market last year.
Stephen: We're enhancing our core products.
Stephen: Our portfolio of products partners and services, including making investments in artificial intelligence.
Stephen: And lastly, our gross revenue retention rate was 94% last year. This is a new metric we're reporting on the results last year are a testament to our relentless focus on being an active and very strategic partner for clients all around the world.
Stephen: I want to thank our team for their effort and commitment to achieving a balanced growth plan, while staying focused on our vision and mission.
Stephen: Our team is working hard to make investments in our products and services to strengthen our leadership in the market.
Stephen: I also want to recognize the efforts of <unk> that are working so hard to deliver on those exceptional customer experience is what keeps our clients happy and engaged.
Stephen: And as we look ahead I am confident in our roadmap and our strategy and it's well positioned to align with our customers' needs.
Stephen: On a recent trip to New York, where we hosted 47 different universities and colleges another institution.
Stephen: Including Sydney, CUNY, NYU, and the New York City Department of Education I.
Stephen: I participated in the highly engaging conversation around the future of work and learning in these conversations revealed two main insight.
Stephen: It's very clear that the work that we're doing around artificial intelligence addresses what customers are looking for both in the short and longer term.
Stephen: Clients are viewing us as a critical partner as they embrace AI and we are working hard to seize that opportunity.
Stephen: And second these meetings reinforced the power of the community we are building.
Stephen: Which is uniquely strengthened by our ability to bring together constituents from across education, and corporate markets to address multiple use cases and modalities of learning.
Stephen: These capabilities make us the right partner to tackle important challenges, whether its students' engagement enrollment continuing education or upskilling.
Stephen: And with that another turn over the call to Steven to provide more color on our go to market and investments in innovation David over to you.
Steven: Thanks, John and good morning, apologies to everyone for my voice this morning, but I'm happy to be here.
David: Our fiscal 'twenty four our results demonstrate that we are building, a stronger and more profitable business, while making meaningful headway on key growth strategies.
Steven: During this past year, we continued to grow our customer base and build scale across our markets as we are more and more organizations reshape the future of education and work.
Steven: Bright space is now serving more than 1300 customers.
Steven: 18 million users in over 40 countries.
Steven: In our largest market higher education, we had another good year.
Steven: In North America more than half of new learning platform adoptions, where bright space and as John highlighted we move to number two in market share by enrollment a great milestone for the team.
Steven: In the fourth quarter. These new clients included Philadelphia University Premier University in Pennsylvania, which selected <unk> space versus roughly 10.
Steven: Replacing a legacy competitor.
Steven: They selected our platform to in their words allow for further innovative teaching and learning in the decades ahead and to expand their capabilities and their graduate space.
Steven: We also welcomed Aurora University.
Steven: But teaching centered institution in Illinois that is transitioning from an open source platform.
Steven: They said the price base LMS offers new opportunities for transformative teaching and learning.
Steven: This is across disciplines and all modalities.
Steven: We enter fiscal 2025 with momentum in higher Ed, which is translating to healthy pipeline activity.
Steven: International expansion, an important growth driver and in fiscal 'twenty four we continued to expand <unk> footprint in key markets.
Steven: With institutions that are increasingly demanding much more from the lending platform.
Steven: Recently, we on boarded Madera University private higher institutions has been stable in Mexico.
Steven: And we replaced a legacy competitor at the independent Institute of Education, the largest private institution in South Africa.
Steven: Building a good growing community of institutions in South Africa, and we see good opportunity to increase our presence in this market.
Steven: These are just a few examples of the sales activity that drove an 18% increase in our revenue.
Steven: Outside North America last year.
Steven: Looking at the international opportunity remains sizable for <unk> with legacy platforms, holding 70% to 80% market share in many regions.
Steven: And our corporate market, we continue to build the <unk> brand and customer base in the fourth quarter, we had an important win with the Canadian Red Cross part of the largest humanitarian network in the world.
Steven: We'll use our learning platform to reach nearly 1 million learners with training that can be lifesaving.
Steven: This is another example of our success with organizations that care deeply about the best learning experiences.
Steven: This instance, our ability to support multiple use cases, and our course merchant technology were key factors in their decision to replace a competitor with REIT space.
Concurrent with Q4 earnings we announced the spinning out of <unk> into a new independent Standalone company called skills.
Steven: Wave is an early stage of scaling technology created businesses prepare for the future of work by tackling the skills and talent gap.
Steven: Ah represents a very small percentage of our total revenue in fiscal 'twenty four and is separate from our corporate learning core business.
Steven: <unk> serves more than 500 corporate customers today with a vast majority of the corporate coming from.
Steven: Subscriptions and related services.
Steven: We continue to have high conviction in corporate learning and this remains a key growth area of our business.
The spin off transaction makes strategic sense for both entities and it reflects the reality that way is at an earlier stage of development in our core business and has a different business model and investment requirements.
Steven: It is gaining traction in an area with long term potential and we believe it will be better positioned to advance this business plan as a separate entity.
Steven: And with a 30% ownership position detail, we'll continue to have a venture interest in the future of skills wave.
For <unk> this transaction enables us to focus entirely on the continued expansion and growth.
The core learning platform and services business.
Steven: It ties our objective to generate increasing levels of profitability as you see in our outlook.
Steven: The transaction is expected to close mid year and the skills wave team will be working closely with our <unk> clients are education partners and internal team.
Steven: Smooth transition.
Steven: Another key growth strategy is expanding our platform there was a highly productive year for our team as we delivered on a long roadmap of enhancements to existing offerings, while broadening our portfolio.
Steven: <unk> partners and services.
Steven: I will highlight some key developments.
Steven: Our continued investment in user experience is having a real impact on our commercial success.
Steven: Our platform's ease of use was favorably reviewed and assessment document published by the University of Southern California.
And we are getting similar feedback from other new customers and prospects.
Steven: In terms of new products, we continued to deliver on AI focused functionality to support students and faculty build higher quality learning experiences and less time, resulting in better student outcomes.
Steven: We recently released our generative beta program to help educators and content creators easily and quickly generate practice questions and quiz questions using existing course content.
Steven: There are millions of chris' questions generate each week embrace space leveraging the fact that we have a common platform. We are identifying other ways to use AI across the platform.
Steven: Including the ability to generate practice questions in creative bus.
Steven: In addition to our internal capabilities, we have a rich ecosystem of partners, who are delivering AI enabled projects throughout our ecosystem.
Steven: During the year, we continue to build best in class team.
Steven: Lee Lee biotech was promoted to the role of Chief revenue Officer to lead <unk> Global go to market strategy.
With over a decade at the company most recently as senior Vice President sales and customer success Li brings a wealth of experience from within the organization.
We also welcomed Amy Clarke as Chief people Officer to lead our award winning people and culture Department.
Steven: It means reasons experiences include leadership positions at two larger public companies Colliers and annualize and we look forward you're at work in continuing to build our company culture, which talent thrives.
Steven: In closing, we're appreciative of the work of all of the <unk> and delivering a strong 2024, which sets us up well for further success in 'twenty five and beyond.
Steven: I will now turn the call over to Josh for an expanded discussion on our financials.
Josh: Thanks, Steven and good morning, our full financials were posted last night, So I will focus on the highlights for the fourth quarter and full year.
Josh: As John mentioned these results demonstrate our progress in transitioning the business towards the balance of solid topline growth with significantly improved profitability and cash flow.
Josh: Total revenue for Q4 was $47 6 million, an 11% increase over the same period last year.
And full year revenue grew 8% to $182 4 million ahead of our guidance range.
Josh: Growth was led by subscription and support revenue, which was up 12% in Q4 to $42 2 million.
The full year subscription results were also ahead of our most recent guided range, reaching $162 2 million up 11%.
Josh: Annual recurring revenue at year end increased by 12% from $168 million to $188 1 million, we added $20 million and new IRR during fiscal 2024, while holding opex essentially flat over the prior year.
Josh: Professional services and other revenue increased 10% in Q4 to $5 4 million. However for the full year services revenue decreased 10% based on a large engagement at wrapped up at the end of the prior year as we have highlighted on recent earnings calls our.
Josh: Our gross profit and gross margin were highlights and fiscal 2020 for Q4 gross profit increased by 17% to $32 million.
Josh: Most margin for Q4 came in at 67, 6% up from 64, 3% and we saw a 300 basis point margin improvement for the full year to 67%.
Josh: We are especially encouraged by the growth in our subscription gross profit. This was up 19% in Q4 and 17% for the full year.
Josh: And subscription and support gross margin rose to 73% in Q4 up 430 basis points year over year.
Josh: These increases reflect our team's great progress with cost optimization, and our cloud technology and service delivery.
Josh: The combination of revenue growth stronger gross profit margins and operating leverage drove a substantial year over year improvement in adjusted EBITDA we.
Josh: We reported adjusted EBITDA of $3 5 million in Q4 up from <unk> 4 million last year and full year. Adjusted EBITDA was $7 9 million at the top end of our guidance range and an increase of almost $11 million from the prior year.
Josh: In our business model cash flow typically outpaces adjusted EBITDA, we reported cash flow from operating activities of $15 7 million for the year, an increase of $11 9 million from the prior year.
This added to the company's strong financial position at year end, we had no debt and $117 million in cash providing us the financial flexibility to make disciplined growth investments, both organic and inorganic as we move forward.
None: Turning to our outlook.
None: With the Q4 results, we presented fiscal 2025 guidance, specifically, we are targeting subscription and support revenue in the range of $177 million to a $180 million implying growth of 10% at the midpoint over fiscal 2024.
None: Total revenue in the range of $197 million to $201 million, implying growth of 9% at the midpoint over our fiscal 2024 and.
None: And adjusted EBITDA in the range of 21 million to $23 million, implying adjusted EBITDA margin of 11% at the midpoint over fiscal 2024.
None: We also indicated that we expect revenue and adjusted EBITDA to increase as the year progresses, enabling us to exit the year with low to mid teen EBITDA margins.
None: These targets include the expected impact of the <unk> spin out transaction based upon a targeted mid year close date, which will be a contributor to this increased profitability in the second half of the year.
None: The midpoint of this fiscal 2025 guidance represents a 700 basis point improvement to our adjusted EBIT margin relative to fiscal 2024 and builds on the 600 basis point improvement to adjusted EBITDA margin that we delivered comparing fiscal 2024 to fiscal 2023.
None: As we think about managing the business over the medium term our broad objective is to balance top line growth and margin expansion as we continued to make progress on the path to rule of 40.
None: Over the medium term as we look beyond fiscal 2025, we are targeting low double digit to mid teens growth in annual revenue and we expect adjusted EBITDA and adjusted EBITDA margin to increase annually based on further operating leverage and continued improvements in gross margin.
None: We are pleased with our progress balancing growth and profitability in the past year and look forward to further progress in fiscal 2025 and beyond with that we'd be happy to take your questions operator.
None: Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
None: Your line. Please press star followed by <unk>.
None: Ask your question. Please ensure your devices that muted locally.
Our first question comes from Doug Taylor from Canaccord Genuity.
Doug Taylor: Okay. Thank you and good morning.
Doug Taylor: And congratulations on the progress on delivering operating leverage this year and the outlook for more.
Doug Taylor: First question likely for Josh <unk> growth at 12% is.
Doug Taylor: Pretty steady youre guiding to growth in subscription and support revenue.
Doug Taylor: A little shy of that at the midpoint. So perhaps I'll ask if you can maybe paint a picture of what other factors, we should be taking into account here is this just the <unk>.
Doug Taylor: We've revenue dropping off.
Doug Taylor: This year, because there is a right or is there a degree of conservatism built in there.
None: Yeah. Good question. Thanks, Doug.
None: As you mentioned, we're certainly pleased with the progress we have made growing the business, noting that 12% <unk> growth.
None: In FY 'twenty four as we look forward to 'twenty five we considered the timing of flow through to Rev. Rec as.
None: As well as just being aware of general market activity levels, we still see that elongated sales cycle.
None: Persisting and ultimately providing a set of numbers here that that we stand behind with conviction.
None: And I guess, just as we Pan out again, we're really pleased with the progress we have made in establishing that durable growth as we look forward and during a period, which we significantly expanded profitability.
None: More specifically, we added net $20 million to IRR.
In F 'twenty four while expanding our profitability margins considerably F. 'twenty three 'twenty four and then as we look forward to 25%. So overall, we're certainly pleased with our balancing of that topline growth with our profitability progress as well.
None: Okay, and while I've got you there Josh.
Josh: Mr. You can the guidance speaks to another potentially a slight contraction or at least flat year over year performance for the services.
Josh: Side of the business any commentary you'd like to add on that dynamic.
Josh: Yeah with the services, maybe just a reminder, that it tends to be about 50% implementation and 50%.
Insulting and advisory.
Josh: And a big chunk of that being in the vein of creative content services and new content creation.
Josh: And so that latter part tends to have a little bit less predictability and so again, providing a services outlook that that we stand behind with conviction.
Josh: Okay.
None: And then maybe a question for John or Steve.
None: If your voice can handle it here due to the <unk> wave Spinout was.
None: A logical move.
None: However, it was one point of differentiation that you highlighted in your efforts to date to penetrate.
John Baker: The enterprise market. So maybe it's just a good time for you to maybe get you to speak to.
John Baker: Your investment in the enterprise segment, and what initiatives you're focused on to help capture share within that market.
None: Yes, sure we remain laser focused on the corporate market and the enterprise learning and associations and training organizations.
None: Invested through M&A and things and of course merchant that help accelerate our growth in that market and a good portion of our roadmap is also tailored to that market as well.
For the reasons, we've shared we think creating two great companies makes sense and we're excited about it it's been a we're equally excited about <unk> ability to service, our 500 enterprise customers and remain very focused on that.
None: Thank you I'll pass the line.
None: Okay.
None: Our next question comes from Chris <unk> from <unk>.
None: Capital.
Chris: Hi, good morning, and thanks for taking my questions.
Chris: I'll follow on with the question on the corporate market and your strategy there as well.
Chris: To the extent quantitatively or qualitatively could you compare the pace of growth you'd expect from the corporate market going forward as compared to your core academic markets.
None: Yeah, I'll I'll take that question because it's good to speak with you again this morning.
None: What we're trying to focus on as a business is really extending all of these markets.
None: Higher education is doing really well.
None: See corporate outpacing still just given the size of the market and our early entry into that space.
None: Stephen pointed out we've got 500, great clients. There, we expect that to continue to scale much faster than the rest of our business as we continue to lean into that new market.
None: We have a highly competitive product in that space as.
None: Stephen pointed out of course merchant acquisition really did play a big role in winning a number of deals in the last quarter. We hope to continue to see that kind of trend as we look out into the future.
None: <unk> leaned into the differentiation that they have the space in terms of building a better learning experiences for these companies I cant think of a time when I talked to more Ceos were learning is top of mind as one of the key challenges are tackling as they have a hybrid workforce or theyre trying to engage their employees.
None: Become more important than ever to support these with a real world class operating platform and that's what we've got.
None: Perfect.
None: I'll ask a second question here.
None: The elongated sales cycles, which are quickly called out.
Moments ago peers are referencing the same no longer sales cycles today, it's been a phenomenon for quarters years now my.
None: My question would be if you can provide color maybe around what that means what stalls the process.
None: And then the signs you booked for maybe in North America at least.
None: To show that.
None: Ryan activities Docker to pre pandemic levels, if you'd Colorado slower.
None: Probably not as robust as it was maybe two or three years ago.
None: Yes, again, great question I want to underscore what Josh said, while we're still facing that headwind of elongated sales cycles and the big macro conditions that everybody in the market frankly facing we're still seeing it slowly rebounding. So theres really no change from the last time, we provided an update in terms of our overall market outlook.
None: We still see the market coming back we still see the RFP volume.
Creeping back up.
None: People are still taking a while to make these decisions. There's no real difference there from the last time, we thought other than the slow continued progress back to where we were pre pandemic.
None: We just can't bank on things coming back faster. This year, we haven't seen insights to that but we are still seeing it continually trend in a good direction.
None: Yeah.
None: Thanks for the color, John and particularly my questions I'll pass the line.
None: Yes Youre welcome.
None: Our next question comes from Daniel Chan from TD Cohen.
Daniel Chan: Hi, good morning.
Daniel Chan: Another question on the market share you've been taking market share from legacy players like blackboard, but when I look at one of your main competitors in the higher North American hired space. They are calling for a 5% organic growth next year.
Daniel Chan: So your 10% suggest youre going to be taking market share from them as well have you been seeing a lot more of that where you guys are winning deals against them or maybe even displacing them.
None: Great question. Daniel we are we were actually very pleased with the progress the North American higher education team and also global higher education team has been doing over the course of the last two years.
None: We've gone from 10% to 20% win rates a few years ago to 40 plus percent win rate too.
None: Two years ago to now over 50% last year.
None: See a good trend as we look out into the future. We are now not only taking away business from legacy players like moodle blackboard and others.
None: But we are head to head against our main competitor, we are winning more and.
None: And we are taking away some of their business today.
None: That's helpful. Thanks, and then.
None: Just digging into the blackboard and moodle displacements.
None: Steve mentioned that they've got 70% to 80% presence in international markets. Do you think you can apply the same successful north American strategy to those international markets to win market share there or do you need to make product and sales strategy changes to address those.
None: No absolutely I think.
None: In North America legacy players representing around 40% of the market.
None: Today internationally, it's around 80% and and I think we can move even faster in some of these markets globally.
None: As I've mentioned on previous calls in some markets. We're actually now taking over as number one in market share, it's about like Singapore the Netherlands.
None: And in emerging markets as we mentioned.
None: <unk> like Oh.
None: I E in South Africa are Great example of how we can enter new markets.
None: <unk> presence and really make sure. These clients love the product love the experience and use that to expand rapidly.
None: So I think international will still outpace North America in terms of organic growth.
None: So no issue there and then it's about making sure that we are doing it efficiently.
None: Josh really.
None: Zero in on making sure that we not only enter a market where we go deep in that market as quickly as we can.
None: And focus our energies versus just trying to do with sort of a peanut butter approach around the world and so far that strategy has been playing out really nicely last couple of years.
None: That's helpful. Maybe one final question just on the data always spin out sounds like EBITDA margin will expand post spin out how should we think about the EBITDA margin pre and post transaction and your full year target.
None: Yeah for sure Thanks, Dan.
None: As mentioned.
None: In our opening remarks and disclosures last night.
None: There is a mid year close date expectations that youll see in Q3 and Q4.
None: You'll see some of the impact.
None: The spin off transaction.
None: The other thing I'll highlight as we talked about the second half profitability scaling upwards and to note that also included just the operating scale of the company and so as we increase our revenue as the year progresses.
None: And this relative sort of opex flat or managed environment.
None: Actively that additional growth drops through to the bottom line and so that is also a contributor towards that second half profitability moving towards the.
None: Mid teen levels that we disclosed.
None: Thank you.
None: Our next question comes from Paul <unk> from RBC capital markets.
Paul: Thank you very much and good morning.
Paul: A question on the long term structural growth rather than market.
Paul: And just looking at your medium term growth outlook calls for faster growth than your 'twenty guidance and it looks like 25, I've seen some headwinds mainly from elongated sales cycle, but the question is around the longer term what gives you confidence in the long term growth rates and the fundamental opportunity here.
None: Oh, I think I think it was a great question, Paul and by the way nice to meet you.
None: In our case, we see tremendous opportunity to support better learning experiences globally education is largely on digitized that I know that sounds strange given though we just went through a pandemic but.
None: K 12 is still largely on digitized higher education.
None: Basically re platforming to move to cloud move to mobile move to a better experience for their learners. As you think about that that adoption is once they go digital then they can actually get into a transformational phase where they can adopt new models of delivering education moving away from traditional models to support things like competency based education or master based models so really.
None: Exciting things ahead for for education.
None: And the long term trend for higher education enrollment growth is substantial growth globally.
None: Today.
None: The number of students enrolling in higher education is going to be a small fraction of what it will be in the future.
None: As.
None: <unk> opportunities for education open up for students all around the world. So the big macro picture is certainly growth in education.
None: And then incorporate we're really just scratching the surface companies largely today have adopted old approaches look management type of approaches to learning, where it's everyone does the same thing in watches the same video it's been the same amount of time on every activity and a modern learning approach again competency based mastery based models is going to really drive a real transferred.
None: <unk> in and real ROI for these businesses and if you talk to literally any CEO of alerting. They will highlight how this is a major problem for the organizations, indicating that they have not figured out how to fix this problem, but if you look at the cutting edge clients for example, big companies like Accenture or others that have adopted.
Our platform they've seen incredible impact and are aligned with the technology being rolled out for their onboarding of new people for the leadership development and other types of use cases.
None: Seen play out.
None: So I think there will be an opportunity for us to grow tremendously into corporate which is why youre seeing our growth rate starting to accelerate even as we're balancing this growth and profitability story as we build our company.
None: Unlike our competition, we believe in this balance of growth and profitability and making sure that we're investing to win in the market for the long term and that's that.
None: The key balance, but we're trying to kind of drive.
None: That's really helpful. Thank you.
None: You mentioned that Digitization of education, do you see or how.
None: <unk> is generally.
None: Hi.
None: As part of that trend.
None: And do you see generative AI as a tool to further improve productivity.
For your users and then to what degree have you shifted your product road map to address.
None: Generally I got a couple of a couple of new features but.
None: Can you speak to what what Hasnt been announced can agree that youre shifting towards generative AI.
None: Yes, great Great question again, Paul we see tremendous opportunity to leverage degenerative AI with our technology to really support productivity gains for all stakeholders using our platform, whether it's students or instructors leadership.
None: We see this as being a tremendous.
None: Opportunity for us as we look at it ahead.
None: Just to give you a little background <unk> long been a leader in our market. So adopting technologies that can predict student grades by week, 3% to 87% accuracy to automatically creating adaptive learning pathways based upon how students are demonstrating mastery towards spickard outcomes or closed captioning videos.
None: Languages, all automatically to save tremendously unacceptability and compliance costs for these clients.
None: And then when we look at dinner.
None: Our first use case that we've rolled out has the ability to create questions within the system using generative AI and keep in mind.
None: To build millions of questions that our system every month and so if you can imagine building out a generative AI solution that enables them to do that more efficiently and really importantly, creating great detractors leveraging and good pedagogical design ring fencing. The data. So that it's it's building question is based upon the actual content of the courses.
None: This is actually going to improve the quality of assessment.
None: With with our clients and I think the.
None: The value goes actually beyond just simply the productivity lift it will actually improve the educational quality.
None: Experience for the students.
None: We have also announced the work that we're doing in terms of our beta environment around virtual tutors using generative ability.
None: Ability to build courses and many many other different use cases so.
None: You're going to see a big road roadmap for us in terms of new technologies and applications rolling out around artificial intelligence and we're in tend to be the leader in our space on the adoption of these technologies to drive real impact for students for faculty for for the clients that we're serving all around the world.
None: Alright, great. Thanks for taking my questions.
Speaker Change: Our next question is from Sutent to see Kumar from stifle.
Speaker Change: Good morning, Gents and congrats on a strong finish to the year.
Speaker Change:
Speaker Change: First question I had was really more of a follow up on the spending environment hearing obviously net sales cycles remain extended.
Sutent Kumar: Your perspective.
What may have changed in the.
Sutent Kumar: The change in terms of buy requirements and the potential scope of deals versus maybe a year ago.
Sutent Kumar: Oh.
None: That's a great question and actually although we really reinforces why our win rate continues to tick up.
None: Buyers are becoming more sophisticated they're looking for more support.
None: Or an expanded set of use cases, which plays incredibly well into the strengths of D 12 bright space.
None: When you think about learning within like Ticketing example, universities not only are they supporting traditional undergraduate education, but they also have use cases around faculty development or professional development for their people. They have use cases for workforce development are upscaling or to support.
None: Noncredit continuing education use cases, so there is quite a diverse set of different environments that these institutions are trying to like pull together and if they can do that with one platform that is an exciting opportunity and a point of difference from aw.
None: Several years ago. The other big one is the modalities of ordering in the past when we were competing we are largely competing against platforms that we're supporting a face to face environment and appear a face to face environment for many of these institutions.
None: But now we're doing face to face online hybrid everything in between and.
None: And again that plays to <unk> strengths and again another indicator of why our lead rates continue to tick up.
None: So great question, I think learning and putting in place the better running system has never been more importantly, these institutions both in higher Ed.
None: K 12 and corporate.
None: Okay, great. Thank you thanks for your color.
None: Uh huh.
None: The next question I had was.
None: We are partners.
None: Could you provide a quick update on your partner strategy. How are you guys thinking about the role of partners to extend the <unk> platform here.
None: Yeah, Great question, we have a very vibrant partnership network.
None: We invest very deliberately in and are seeing really good results on behalf of our customers with that ecosystem.
None: Is to expand and leverage our R&D across the larger ecosystem that allows us to accelerate this learning transformation that John spoke up so we have a dedicated team that's doing some fantastic work. We continued to grow our partner network every quarter and are deeply committed to it and really pleased with the impact that it's having on behalf of our customers.
None: And I think one of the other key thing is that I would point out is we have an event that's being held this July and Toronto, It's a great opportunity to engage with a number of our partners if you're if you're inclined to come.
None: It's really get to see the impact that we can have together with our clients.
None: <unk> fusion.
None: Toronto is July eight to 10.
None: Okay great.
None: And I.
None: I guess, maybe the last question from me is just for you on capital allocation.
None: Cash balance is quite healthy and.
None: And you guys are now consistently profitable and cash flow.
None: Generative, how does M&A fit as part of your total growth strategy.
None: And what would be your priorities there on that front.
Yeah.
None: Yeah for sure.
None: Question, Yes, as you mentioned, we're certainly pleased.
None: And our position with a strong balance sheet over $100 million of cash no debt and generating meaningful cash flow.
None: We do have the CIB that continues to be in motion, we announced in December.
None: But as you mentioned, it's really about looking at how can we grow the business for the long term and that includes organically and that also includes looking at inorganic opportunities and I think connected shopping.
None: The transaction that was closed in fiscal 'twenty, four and you heard it sort of spoken to a bit here looking for those type of opportunities that can really deliver value to our customers and also have an accretive impact on the business from a financial perspective, So certainly Suzanne as you mentioned as we.
We move into this phase of having more meaningful cash flow generation that is something that we're looking at with heightened focus.
Suzanne: Okay, Okay great.
None: Have you guys and congrats again I'll pass along.
None: Our next question comes from Steve and Mike Mckee.
None: The.
Steve McKee: Capital markets.
Steve McKee: Hey, guys. Thanks for taking my question I just wanted to follow on Paul's thread about generative art have you seen any increased propensity from customers.
Steve McKee: To pay for this kind of product and like how do you think about that as you work on the next generation. The next generation of generative vapor Io products in your platform.
None: Yeah, No I absolutely great question Steven.
None: So I think there is a good support across the base to pay for it under the AI features that are coming out into the platform.
None: There's a bit of a mix, we want to rollout a base level generally with AI and other AI technologies like we have in the past as part of our core offering.
None: To drive interest to drive adoption.
None: No I think everyone understands the cost implications of these types of technologies rolling out for students faculty and other stakeholders.
None: So we do anticipate there will be a generative AI package or enhancing the packages that we have already out in the market like trader plus or performance plus the new one that we're launching around achievement plus.
None: These new technologies are going to be greatly enhanced with this type of technology.
None: And then big.
None: Sure.
None: I sit on an AI task force with the state of New York through the SUNY system.
None: I'm certainly chatting with.
None: Dozens and dozens of clients for the last few months.
None: And it's very clear that all of them.
None: See this as a tremendous opportunity not just for technology adoption.
None: I also think this is a tremendous opportunity for us to help them with courseware development and other services to help them transform their own offerings, because again remember its not just about adopting the technologies that are helping to educate the world on how do we embrace these types of technologies and so for institutions that means redoing their content reading their curriculum idea.
None: Putting that online and then offering it not just to the current students, but also to support like a workforce development upskilling of industries around the world.
None: And so we see this as a great opportunity for us to help our clients grow their overall enrollments as well and not just simply a technology sale.
None: Okay, that's good to hear.
None: Yeah.
None: I have a question around subscription revenue growth next so for the full year. It grew around 11%, but customer growth was only around our net customer growth was only around 6% I'm wondering if you could give us some color on the spread between the two is it just signing larger deals are there is there more adoption of expansion pack.
None: As our price increases are just hoping for a little color on that.
None: Yes, yes for sure.
None: I think the short of it is that the average size of our ads relative to the average size of the losses. The average size of our ads was bigger and I think another helpful. Data point is the gross revenue retention, which we provided this quarter as well for you to sort of see.
None: The magnitude and sort of our ability to retain and grow our customers.
None: So yes. It is largely just an average deal size explanation there Steven.
Steven: Okay, and as we look into fiscal 'twenty five guidance.
Steven: Guidance count on net adds accelerating or do you continue to see fewer ads, but much larger deals and I was wondering if you could give a bit of color on whether you expect more growth to come from.
Steven: Corporate versus higher ads versus international.
Steven: Yes, our growth outlook is really a combination of new customer adds as well as expanding with existing customers.
Steven: We see a similar sort of mix and dynamic playing out into the future and really healthy opportunities.
Steven: And in both regards both adding new logos as well as expanding with our existing customers. So it's a mix.
None: Alright, thanks for that I will pass the line.
None: Our next question is from Brian Peterson from Raymond James.
None: Hi, Good morning. This is Jessica on for Brian I'll just.
So I'll start off with you had some notable wins internationally this quarter are there any.
Jessica: Market Youll say that Youre really focusing on for 2025 person is what you expect in 'twenty before.
Jessica: Yeah.
None: Question International remains.
None: Our market is outpacing North America in terms of growth, but we're not we're not losing our focus on winning in the U S and Canada for clarity, where our win rates are now up over 50%.
None: But international is growing at 18% in the last year.
None: As we look at those key markets, we want to go deeper in the markets, where we're winning and.
None: And we want to start to open up new markets, where we see tremendous opportunity. So we're going.
None: Just stay laser focused on our strategy that we've been executing in the last couple of years and continue to drive that adoption. So whether that's in Singapore, the Netherlands, or India, or South Africa or.
None: Mexico, or Colombia, or many of these other different markets that we're in we're seeing a lot of opportunity right. Now we want to just continue to go deeper in each of these markets.
None: Got it thanks, and also I just wanted to like click on with detail.
None: The <unk> spin off.
None: Transaction to affect any of your investment.
None: Planning for things like sales and marketing or R&D and <unk>.
None: We continue at the same level of investment in sales focus and the core <unk> business. We think we've got the right balance of investment profitability and growth and we remain focused on the plan that we've shared with you and are very excited by our progress and are staying the course.
None: Yeah.
None: Got it. Thank you I guess, one last one from me.
None: So with the <unk> stepped up pretty nicely this quarter, how much visibility do you have on pipeline trends in fiscal year 'twenty fives like.
None: Like I think you mentioned before that you're still seeing strength across your segments, but they.
None: We really want to call out as a particular marker strength.
Well I think I think our Q4 is a good indicator that we have seen good progress.
None: Our health consistent with prior prior periods, where.
None: We're seeing about a 12% growth.
None: There is still the big macro of elongated sales cycles. There is still the slow rebound of the rfps.
None: But generally activity is coming coming back.
None: The pipeline continues to expand and grow.
None: But I think the thing that's most important is the stuff that we can control, which is we've got incredibly good our CRO.
None: We are adding up new talent in underneath our CRO to drive pipeline.
None: Better operational efficiency within the organization.
None: To make it easier for our sales reps to go out there and build great relationships with our clients.
None: We're building up capacity and our marketing teams to do similar and so I feel as we continue to make those.
None: Those investments in our go to market motion and then.
None: No.
None: Was that a revenue kickoff earlier this year and I can tell you I've never been more excited as I, probably said this a few times in the past, but I've never been more excited about our roadmap than what was presented at a revenue kickoff and I think that product excitement.
None: The efficacy studies that we are seeing that on some of these new technologies that are rolling out all of that combined with a stronger go to market motion I think leads to some pretty exciting opportunities that now we've got to demonstrate execution on that in the quarters ahead, but.
None: When Josh says he has high covenants I also have high confidence in the team's ability to go off and execute and that's key.
None: Got it thank you so much.
None: Youre welcome.
None: We currently have no further questions I will hand back to John Baker to conclude.
John Baker: Well I just want to say, thank you very much for the ongoing interest in each well and for joining us on today's call. It was as you can tell a very strong end to the 2024 year for the company. We're building a great team and we're looking forward to updating you with our Q1 results and in the future. So thank you and in the meantime.
John Baker: And if there's any questions. Please reach out that anytime you have a good day everybody.
John Baker: Okay.
None: This concludes today's call. Thank you for joining you may now disconnect your lines.
None: [music].