Q1 2025 D2L Inc Earnings Call

Carla: Hello, and welcome to the D2L Inc. Q1 fiscal 2025 financial results conference call. My name is Carla, and I will be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad, and if you change your mind, please press star followed by two. I will now hand the call over to Craig Armitage to begin. Craig, please go ahead.

Hello, and welcome to day, two hour, Inc. Q1 fiscal 2025 financial results Conference call. My name is Carla and I will be coordinating your call today. During the presentation. You can watch the ask a question by pressing star followed by one on your telephone keypad any fee change.

Craig: Please press star followed by Chi I will now hand, the call over to Craig Army touch to begin Craig. Please go ahead. Good morning, welcome to <unk>, Inc. Fiscal 2025 first quarter results conference call.

Craig Armitage: Good morning. Welcome to D2L Inc.'s Fiscal 2025 First Quarter Results Conference Call. Listeners are reminded that portions of today's discussion will include statements that contain forward-looking information. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from a conclusion, forecast, or projection in such forward-looking information. In addition, certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection, as reflected in the forward-looking information.

Speaker Change: Listeners are reminded that portion of today's discussion will include statements that contain forward looking information.

Craig: Such statements are subject to risks and uncertainties that could cause actual results to differ materially from a conclusion forecast or projection in the forward looking information.

Craig: Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information.

Craig Armitage: For identification and discussion of such risks, uncertainties, factors, and assumptions, as well as further information concerning forward-looking statements, please refer to the risks identified in the company's annual and interim management discussion and analysis or the most recently filed annual information form. In each case, it's filed under the company's profile on CDARplus at www.cdarplus.com. In addition, during this call, reference will be made to various non-IFRS financial measures, including constant currency revenue, adjusted EBITDA, adjusted gross profit, adjusted gross margin, and free cash flow. These non-IFRS financial measures do not have any standardized meanings prescribed by IFRS and may not be comparable to similar measures presented by other public companies.

Craig: For identification and discussion of such risks and uncertainties factors and assumptions as well as further information concerning forward looking statements. Please refer to the risks identified in the company's annual and interim management discussion and analysis or the most recently filed annual information form in each case as filed under the company's profile on SEDAR plus.

Speaker Change: Www Dot SEDAR plus dot com.

Speaker Change: In addition, during this call references will be made to various non <unk> financial measures, including constant currency revenue adjusted EBITDA adjusted gross profit adjusted gross margin and free cash flow.

Speaker Change: These non <unk> financial measures do not have any standardized meaning prescribed by our progress in may.

Speaker Change: Not be comparable to similar measures presented by other public companies.

Craig Armitage: Please refer to the company's MD&A for the three months ended April 30, 2024, for more information about these and certain other non-IFRS financial measures, including, where applicable, a reconciliation of historical non-IFRS financial measures to the most directly comparable IFRS financial measures from our financial statements. This morning's call is being recorded on June 5th, 2024, at 8.30 a.m. Eastern Time. Now I'd like to turn the call over to John Baker, Chief Executive Officer, D2L. Please go ahead, John.

Speaker Change: Please refer to the company's MD&A for the three months ended April 32024 for more information about these and certain other non <unk> financial measures, including where applicable a reconciliation of historical non <unk> financial measures to the most directly comparable <unk> financial measures from our financial statements. This mornings call is being recorded on <unk>.

Speaker Change: June five 2024 at 830, a M. Eastern time I'd now like to turn the call over to John Baker, Chief Executive Officer Detour. Please go ahead John.

John Baker: Thank you, Craig, and thank you, everyone, for joining us for our Q1 earnings call. We released financial results after markets closed yesterday, which you can find on the investor relations section of our website at d12.com. Please note that the results we're discussing today are in U.S. dollars. I'm joined this morning by Stephen Laster, our president, and Josh Huff, our CFO.

Speaker Change: Thank you Greg and thank you everyone for joining us for our Q1 earnings call. We released financial results. After markets closed yesterday, which you can find on the Investor Relations section of our website at <unk> com.

Speaker Change: Please note that the results. We're discussing today are in U S dollars.

Speaker Change: I'm joined this morning by Steve <unk>, our President and Josh <unk> our CFO.

Speaker Change: On the back of delivering a strong 2024 I'm pleased to report it was a solid start to fiscal 2025.

John Baker: On the back of delivering a strong 2024, I'm pleased to report it was a solid start to fiscal 2025, highlighted by strong growth in our subscription and support revenue, annual recurring revenue, and operating profitability. Total revenue is up 10% to $48.5 million, including 10% growth in our staff. Annual recurring revenue was up 11% year-over-year to $190.3 million and increased by 12% on a constant currency-based basis.

Speaker Change: Is it by strong growth in our subscription and support revenue.

Speaker Change: Annual recurring revenue and operating profitability.

Speaker Change: Total revenue was up 10% to $48 5 million, including 10% growth in our SaaS revenue.

Speaker Change: Annual recurring revenue was up 11% year over year to $190 3 million, an increase by 12% on a constant currency basis in.

John Baker: And adjusted EBITDA increased to $4 million, up from $2.8 million in Q1 of last year. Simply put, we have a clear path to achieve our full-year growth outlook, which includes exiting the year with low to mid-teens adjusted even in March. I'm very impressed with what the team has done to make sure that we're delivering on our balance of growth and profitability. During the first quarter, D2L celebrated its 25th anniversary, an incredible milestone for our team.

Speaker Change: And adjusted EBITDA increased to $4 million up from $2 8 million in Q1 last year.

Speaker Change: Simply put we have a clear path to achieve our full year growth outlook, which includes exiting the year with low to mid teens adjusted EBITDA margin.

Speaker Change: Very impressed with what the team has done to make sure that we're delivering on our balance of growth and profitability.

Speaker Change: During the first quarter <unk> celebrated its 25th anniversary an incredible milestone for our team when I started the company in my third year of University.

John Baker: When I started the company in my third year of university, my goal was to have a transformational impact on the way the world learns because learning has this wonderful ripple effect across our campuses, companies, communities, and countries. Building more engaging and inspiring learning experiences was my inspiration at the beginning, and we are as dedicated as ever to this mission. We've clearly come a long way since those early founding days, and each quarter, we continue to strengthen our fundamentals.

Speaker Change: Have a transformational impact on the way the world learn.

Speaker Change: <unk> had this wonderful ripple effect across our campuses companies communities and country.

Speaker Change: Building more engaging and inspiring learning experiences.

Speaker Change: The inspiration of the beginning and we are as dedicated as ever to this vision.

Speaker Change: We've clearly come a long way since those early founding days in each quarter, we continue to strengthen our fundamentals.

John Baker: We now have a global team supporting well over 18.5 million people using our learning platform in countries all around the world. Through a great effort, in the care of our team, for our clients, D2L has become the number one learning platform in many countries around the world. For example, I just got back from Singapore, where we are now number one with over 70% mark. And in our most competitive market, North American higher education, we're now the fastest growing learning management system, and we win more than 50% of the time.

Speaker Change: We now have a global team supporting well over $18 5 million people using our learning platform in countries all around the world.

Speaker Change: Through a great effort.

Speaker Change: And the care of our team for our clients. The 12 has become the number one learning platform in many countries around the World. For example, I just got back from Singapore, where we now are number one with over 70% market share and in our most competitive market North American higher education. We're now the fastest growing learning management system, and we're winning more than <unk>.

Speaker Change: 50% of the time.

John Baker: Our work with corporate clients to deliver better upscaling experiences is also growing quickly, and from a financial perspective, we have a strong balance sheet with no debt and are balancing top-line growth with increasing profitability, giving us the ability to invest for the future. At the same time, as we've increased efficiencies and margins, we're making substantial investments in product innovation, doubling down on the voice of the customer, and our focus on the learning moment.

Speaker Change: Our work with corporate clients to deliver better Upskilling experiences is also growing quickly and from a financial perspective, we have a strong balance sheet with no debt and a balancing topline growth with increasing profitability, giving us the ability to invest for the future.

John Baker: Stephen is going to touch on a few exciting product milestones that we have ahead. In this past quarter, we also won several important awards that validate the hard work of our team. We won two Cody Awards, one for the best learning management system across education and the second award for the best customer education LMS in the corporate world. And D2L Brightspace was also named the easiest to use learning platform by G2 for both the corporate and education world. As we like to say, it was not easy to become the easiest to use learning platform.

Speaker Change: At the same time, as we've increased efficiencies and margin.

EVEN: Making substantial investments in product innovation doubling down on the voice of customer and are focused on the learning moment, even is going to touch on a few exciting product milestones that we have ahead.

EVEN: In this past quarter. We also won several important awards that validate the hard work of our team.

Speaker Change: We won two Codie awards, one for the best learning management system across the education and the second award for the best customer education, all of that in the corporate market.

And detailed bright space was also named the easiest to use learning platform by <unk> for both the corporate and education markets.

Speaker Change: As we like to say it was not easy to become the easiest to use learning platform.

John Baker: It has been a tremendous effort and investment over many years to achieve this milestone. Our team has had many thousands of design sessions with users and is really focused on building moments of delight and ease of use into the workflows that are truly transforming learning. These awards are recognition of the incredible work of many D2Lers who live our mission and obsess over customer experiences day in and day out. Thank you. It's helped us to pull ahead of our competition as we prepare to welcome over 1000 of our customers to our annual fusion conference next month.

Speaker Change: Was a tremendous effort and investment over many years to achieve this milestone.

Speaker Change: Our team and many thousands of design sessions with users.

Speaker Change: Really focused on building moments of delight and ease of use into the workflows that are truly transforming learning.

Speaker Change: These awards are a recognition of the incredible work of many retailers, who live our mission and obsess over customer experiences day in and day out. Thank you. It has helped us to pull ahead of our competition.

Speaker Change: As we prepare to welcome over 1000 of our customers that are annual fusion conference next month.

John Baker: It's also a very exciting time; we are hard at work, engaging learners because it's never mattered more, and we've never been more encouraged by the outlook and opportunity for the company. Now, with that, I'll turn the call over to Stephen.

Speaker Change: Also a very exciting time for each well.

Speaker Change: We're hard at work engaging learners.

Speaker Change: <unk> matter more.

Speaker Change: We've never been more encouraged by the outlook and opportunity for the company.

Steve: Now with that I'll turn the call over to Steve over to you.

Steve: Thanks, John and good morning, I'll briefly comment on our go to market activities and investments in innovation.

Stephen Laster: Thanks, John, and good morning. I'll briefly comment on our go-to-market activities and investments in innovation. It was a productive start to fiscal 25 on both fronts. During the first quarter, we continued to add noteworthy new customers to the D2L platform. In our largest market, higher education, the University of Hawaii selected Brightspace for its 50,000 students. In the words of their leadership, moving to the Brightspace platform marks a pivotal moment in their commitment to providing a cutting-edge educational experience for students, faculty, and staff. We also welcomed Madison Area Technical College, a well-regarded technical college in Wisconsin serving more than 20,000 students.

Steve: As a productive start to fiscal 'twenty five on both fronts.

Steve: During the first quarter, we continued to add noteworthy new customers to the <unk> platform.

Steve: In our largest market higher education, the University of Hawaii selected bright space for its 50000 students.

Steve: Where does their leadership move into the bright space platform marks a pivotal moment in their commitment to providing a cutting edge educational experience for students faculty and staff.

Steve: We also welcomed Madison area Technical College.

Steve: Regarding technical college in Wisconsin, serving more than 20000 students.

Stephen Laster: They're replacing a legacy system with ours beginning this fall to meet the evolving needs of faculty and students in the future of education, internationally. Upwards of 70 to 80 percent of higher education remains on a legacy learning platform. We're diligently building market leadership in focus countries that act as regional hubs. In Europe, a great example is the Netherlands.

Speaker Change: They're replacing a legacy system with ours, beginning this fall to meet the evolving needs of faculty and students and the future of education.

Speaker Change: Internationally upwards of 70%, 80% of higher education remains on legacy learning platforms.

Speaker Change: We are diligently building market leadership and focus countries that act as regional hubs.

Speaker Change: Europe a great example is in the Netherlands.

Stephen Laster: We first entered the market in 2016 and have methodically established market leadership to the point where we are now at 60% share. During the first quarter, we strengthened this position with two new additions. We added leading Applied Sciences University, Hogg School Leiden, where Brightspace will support the highly personalized approach to learning for their 12,000 plus students. And we also welcome Utrecht University, one of the oldest universities in the Netherlands, serving more than 35,000 students.

Speaker Change: We first entered the market in 2016 and have methodically established market leadership to the point, where we are now at 60% share.

Speaker Change: During the first quarter, we strengthen this position with two new additions.

Speaker Change: We added leading applied Sciences University High school lighten, our bright space will support a highly personalized approach to learning for their 12000 plus students.

Speaker Change: And we also welcomed you attract university one of the oldest universities in the Netherlands, serving more than 35000 students.

Stephen Laster: In selecting Brightspace over multiple competitors, they highlighted the superior scores on usability and responsible design, including our vision for the use of artificial intelligence. To John's earlier comment on ease of use, our investments in this area are translating to commercial success; we're replicating the strategy for other markets. For example, we continue to see the D2L brand and presence build in India.

Speaker Change: In selecting bright space over multiple competitors, they highlighted the superior scores and usability and responsible design <unk>.

Speaker Change: Including our vision on the use of artificial intelligence to.

John Baker: To John's earlier comment on ease of use our investments in this area are translating to commercial success.

John Baker: We're replicating this strategy for other markets for example.

Speaker Change: Ample we continue to see the detail of our brand and presence build in India.

Stephen Laster: In the past two years, we have doubled our customer count through our market leadership and online learning in the region. Over time, we believe D2L will be the market leader globally, following the path we have taken in North America and replicating our success in targeted regions to date. In K-12, we continue to partner with larger school systems through their digital transformation. In Q1, we welcome the Broome-Tioga Board of Cooperative Educational Services, which serves 15 school districts in New York State and comprises nearly 35,000 students.

Speaker Change: In the past two years, we have doubled our customer count.

Speaker Change: Our market leadership in online learning and region.

Speaker Change: Over time, we believe <unk> will be the market leader globally. Following the path, we've taken in North America, and replicating our success in targeted regions to date.

Speaker Change: Okay 12, we continue to partner with larger school systems due to their digital transformation.

Speaker Change: Q1, we welcome to <unk> Board of cooperative educational services.

Speaker Change: <unk> 15 school districts in New York State comprising nearly 35000 students.

Stephen Laster: In corporate, our team is doing a great job building the D2L footprint in employee learning and training organizations. We recently onboarded the Royal Institute of British Architects, a global professional membership body driving excellence in architecture for more than 25,000 learners. And D2L is being acknowledged as a leader in corporate learning, recently earning recognition as one of the top 10 learning systems by the Craig Weiss Group. This award, along with others from Forrester and Aragon, reflects the impact we're having with clients, as they embrace our technology to make sure their employees are ready for the work of the future.

Speaker Change: In corporate our team is doing a great job building, the <unk> footprint and employee learning and training organizations.

Speaker Change: We recently on boarded.

Speaker Change: <unk> instituted a British architects, our global professional membership body driving excellence in architecture for more than 25000 learners.

Speaker Change: And detail is being acknowledged as a leader in corporate learning recently, earning recognition as one of the top 10 learning systems by that.

Speaker Change: Craig Weiss group.

Speaker Change: This award and others from Forrester Aragon reflects the impact we're having with clients.

Speaker Change: As they embrace our technology to make sure their employees are ready for work of the future.

Stephen Laster: In Q1, we continue to strengthen our go-to-market capabilities with the addition of our new Chief Marketing Officer, Brian Finnerty. Brian is a respected and accomplished marketing leader with comprehensive experience leading brands through high growth and global expansion.

Speaker Change: In Q1, we continued to strengthen our go to market capabilities with the addition of our new Chief Marketing Officer, Brian Infinity.

Speaker Change: Brian is a respected and accomplished marketing leader with comprehensive experience, leading brands through high growth and global expansion.

Stephen Laster: We're excited to have him on the team to enhance D2L's brand as a leader in the global digital learning market. It was also a productive quarter on the innovation side as we enhanced existing offerings and broadened our portfolio of products. I'll be brief on this topic to avoid previewing too much of what we are excited to share at our Fusion Conference this summer. In terms of important new functionality and products on the AI front, we continue to get great feedback on the generative AI beta program for practice questions and quiz questions.

Speaker Change: We're excited to have him on the team to enhance <unk> brand as a leader in the global digital learning market.

Speaker Change: There was also a productive quarter on the innovation side, as we enhance existing offerings and broaden our portfolio of products.

Speaker Change: I'll be brief on this topic to avoid previewing too much of what we are excited to share at our fusion conference. This summer.

Speaker Change: In terms of an important new functionality and products on the AI front, we continue to get great feedback on the generative AI beta program for practice questions Engquist questions cusp.

Stephen Laster: Customers using it like the full integration into workflows, clarity on what is AI generated, and, of course, a human in the loop at all times. We're also getting valuable customer input to advance the Achievement Beta Program, which is providing impactful new capabilities around outcomes analytics and learning success. We continue to see high customer interest in Creator+, leading to a growing attachment rate for this product. Our sales efforts are now supported by compelling efficacy data from customers like South University, which leveraged CreatorPlus to transform text-heavy content into dynamic, learner-centric modules.

Speaker Change: Customers using it like a full integration into workflows clarity on what is AD generated and of course human in the loop at all times.

Speaker Change: We're also getting valuable customer input to advance the achievement Beta program, which is providing impactful new capabilities around outcomes analytics I'm learning success.

Speaker Change: We continue to see high customer interest and creator plus leading to a growing attachment rate for this product are.

Speaker Change: Our sales efforts are now supported by compelling efficacy data from customers like South University, which leveraged creator plus to transform text heavy content into dynamic learner centric modules.

Stephen Laster: They've seen a 30% reduction in course development time and a much higher percentage of learners achieving A's and B's with content designed using Creator Plus versus their old model. Lastly, we have enhanced the ability for bulk horse importation, allowing new customers to more efficiently migrate from other LMSs to Brightspace. I'm going to stop here as I hope to see you at Fusion and look forward to updating you on these topics along with Q2 results in a few months. I will now turn the call over to Josh.

Speaker Change: They've seen a 30% reduction in course development time, and a much higher percentage of learners, achieving a's and b's with content designed using creator plus versus their old model.

Lastly, we have enhanced the ability for bulk horse importing, allowing new customers to more efficiently migrate from other LMS.

Alright space.

I'm going to stop here as I hope to see a fusion and look forward to updating you on these topics along with Q2 results in a few months.

Josh: I'll now turn the call over to Josh for an expanded discussion on our financials gosh.

Josh Huff: Thanks, Stephen, and good morning. Our full financials were posted last night, so I will be brief. As John highlighted, our Q1 results demonstrate continued progress executing a balance of solid top-line growth with significantly improved profitability. Total revenue for Q1 was $48.5 million, a 10% increase over the same period last year. Growth was led by subscription and support revenue, which was up 10% in Q1 to $43 million. Professional services and other revenue also returned to growth, increasing by 10% to $5.5 million.

Josh: Thanks, Steven and good morning, our full financials were posted last night. So I'll be brief as John highlighted our Q1 results demonstrate continued progress executing our balance of solid topline growth with significantly improved profitability.

Speaker Change: Total revenue for Q1 was $48 5, million% to 10% increase over the same period last year.

Speaker Change: Growth was led by subscription and support revenue, which was up 10% in Q1 to $43 million.

Speaker Change: Our professional services and other revenue returned to growth increasing by 10% to $5 5 million.

Josh Huff: Annual recurring revenue at quarter end increased by 11% from $170.9 million to $190.3 million. Foreign exchange had a bigger impact this quarter, and therefore I will highlight that constant currency ARR rose by 12% to $191.4 million. Net of FX, the net ARR ads for the quarter were approximately 4 million.

Speaker Change: Annual recurring revenue at quarter end increased by 11% from $179 million to $193 million.

Speaker Change: Foreign exchange had a bigger impact this quarter and therefore, I will highlight that constant currency <unk> rose by 12% to $191 4 million.

Speaker Change: Net of FX and that <unk>.

Speaker Change: Adds for the quarter were approximately $4 million. A reminder, that Q1 is typically a seasonally lower quarter for bookings based upon the buying season for educational and corporate institutions.

Josh Huff: A reminder that Q1 is typically a seasonally lower quarter for bookings based upon the buying season for educational and corporate institutions. However, Q1 gross profit increased by 9% to $32.7 million. Gross margin for Q1 came in at 67.4%, down slightly from 67.6% in Q1 of last year due to one-time partner fees, but would have otherwise increased roughly 100 basis points year over year. The growth in our subscription gross profit was a highlight again this quarter, up 11% in Q1.

Speaker Change: Looking at gross profit and gross margin Q1 gross profit increased by 9% to $32 7 million gross margin for Q1 came in at 67, 4% down slightly from 67, 6% in Q1 of last year due to one time partner fees and would've otherwise increase.

Speaker Change: A 100 basis points year over year.

Speaker Change: Growth in our subscription gross profit was a highlight again this quarter up 11% in Q1 and subscription and support gross margin rose to 72% in Q1, an increase from 71% in the prior year.

Josh Huff: And subscription and support gross margin rose to 72% in Q1, an increase from 71% in the prior year. We expect gross margin expansion over the course of this fiscal year, building on the significant progress made in the past two years. A few quick comments on operating expenses. As we articulated with our Q4 results, we expect to hold OPEX essentially flat for the full year, leading to additional operating leverage. Operating expenses for the quarter were $33.3 million, impacted by roughly $1.5 million in one-time expenses unrelated to the continuing operations of the business. Excluding these expenses, Q1 OPEX increased 7% over the prior year.

Speaker Change: We expect gross margin expansion over the course of this fiscal year building on the significant progress the past two years.

Speaker Change: A few quick comments on operating expenses as we articulated with our Q4 results, we expect to hold Opex essentially flat for the full year, leading to additional operating leverage.

Speaker Change: Operating expenses for the quarter were $33 3 million impacted by roughly $1 5 million and one time expenses unrelated to the continuing operations of the business.

Speaker Change: Excluding these expenses Q1, opex increased 7% over the prior year.

Josh Huff: As we look ahead to Q2, I would also highlight seasonality in our sales and marketing span, specifically that we will see an increase in our expenses for Q2 to account for our annual fusion conference consistent with prior years. In terms of operating profitability and cash flow, we reported adjusted EBITDA of $4 million, or 8.3% margin, up from $2.8 million last year or 6.4% margin. This represents a 190 basis point increase in margin year over year.

Speaker Change: As we look ahead to Q2 I would also highlight seasonality in our sales and marketing spend specifically that we will see an increase in our expenses for Q2 to account for our annual fusion conference consistent with prior years.

Speaker Change: In terms of operating profitability and cash flow, we reported adjusted EBITDA of $4 million or eight 3% margin up from $2 8 million last year or six 4% margin business.

Speaker Change: This represents a 190 basis point increase in margin year over year.

Josh Huff: Just to quickly reflect on the profitability transition we've been undergoing, our guidance for fiscal 2025 at the midpoint represents a 700 basis point improvement to our adjusted EBITDA 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. And we are pleased with our progress in Q1. Over the first three months of the year, we generated roughly 50% of the adjusted EVA that we generated over the full 12 months in fiscal 2024.

Speaker Change: So just to quickly reflect on the profitability transition we've been undergoing.

Speaker Change: Our guidance for fiscal 2025 at the midpoint represents a 700 basis point improvement to our adjusted EBITDA 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.

Speaker Change: And we are pleased with our progress in Q1 over the first three months of the year, we have generated roughly 50% of the adjusted EBITDA, we generated over the full 12 months in fiscal 2024.

Speaker Change: We're excited to build on this during the year as John highlighted our outlook calls for a meaningful lift in the back half of this year with an exit rate of low to mid teen adjusted EBITDA margin.

Josh Huff: We're excited to build on this during the year. As John highlighted, our outlook calls for a meaningful lift in the back half of this year, with an exit rate of low to mid-teen adjusted even in March. This would effectively have us exiting the year at a Rule of 25 profile on the Rule of 40 benchmark.

Speaker Change: Effectively exiting the year at a rule of 25 profile on the rule of 40 benchmark.

We reported free cash flow of negative $14 9 million in Q1, an improvement of $3 7 million from the same period in the prior year a.

Josh Huff: We reported free cash flow of negative $14.9 million in Q1, an improvement of $3.7 million from the same period in the prior year. As a reminder, cash flows from operations historically have a seasonal low in the first quarter each year and a seasonal high in the second quarter each year due to the contractual timing of annual invoicing with our end customers, many of which have a fiscal year end in the second quarter.

Speaker Change: As a reminder, cash flows from operations historically have a seasonal low in the first quarter each year and a seasonal high in the second quarter each year due to the contractual timing of annual invoicing with their end customers many of which have a fiscal year end in the second quarter.

Josh Huff: Based on this seasonality, our progress on free cash flow growth is better illuminated when you look at trailing 12 month data. For the trailing 12-month period at Q1 of this year, we generated free cash flow of $13.7 million, an increase of $16.1 million from negative $2.4 million for the equivalent trailing 12-month period at Q1 of last year. The growth in free cash flow this year will allow us to build on a strong financial position.

Speaker Change: Just on this seasonality our progress on free cash flow growth is better illuminated when you look at trailing 12 month data for.

Speaker Change: For the trailing 12 months Q1 of this year, we generated free cash flow of $13 7 million, an increase of $16 1 million from negative $2 4 million for the equivalent trailing 12 month period as of Q1 of last year.

Speaker Change: The growth in free cash flow this year will allow us to build on our strong financial position.

Josh Huff: At quarter end, we had no debt and $99 million in cash, providing us with the financial flexibility to make disciplined growth investments both organic and inorganic as we move forward. Additionally, we continue to be active with the NCID Buy Back Program whenever possible, given our current share price. During the quarter, we repurchased and canceled 131,380 subordinate voting shares under this program. Lastly, with the Q1 results, we reiterated our previously issued fiscal 2025 guidance, and we would like to thank the team for the strong performance in Q1. With that, we'd be happy to take your questions, Operator.

Speaker Change: At quarter end, we had no debt and $99 million in cash providing us the financial flexibility to make disciplined growth investments, both organic and inorganic as we move forward.

Speaker Change: Additionally, we continue to be active with the NCIC buyback program whenever possible given our current share price during the quarter, we repurchased and canceled 131380 subordinate voting shares under this program.

Speaker Change: Lastly, with the Q1 results we reiterated our previously issued fiscal 2025 guidance and we would like to thank the team for the strong performance in Q1.

Speaker Change: With that we'd be happy to take your questions operator.

Speaker Change: Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If you change your mind. Please press star followed by the branch ask your.

Operator: Thank you. If you'd like to ask a question, please press star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2.

Operator: When preparing to ask your question, please ensure your device is unmuted locally. And our first question comes from Doug Taylor from Tannaquart, Genoa. Your line is now open, Doug.

Speaker Change: <unk>. Please ensure your devices Amit it locally.

Speaker Change: And our first question comes from Doug Taylor from Canaccord Genuity. Your line is now open Doug.

Douglas Taylor: Yes, Thank you and good morning.

Douglas Taylor: Yeah, thank you. And good morning. I'll start with a question, sort of a bigger picture question for John or for Stephen. There's been some more activity from private equity in and around the EduTech market of late. I know PowerSchool isn't necessarily a competitor, but it's, you know, comparable anyway. But a good reminder that most of the players you do see are right, you know, regularly are PE controlled or back. So I wanted to just refresh the discussion on the overall competitive landscape, and what you see is a competitive response to D2L continuing to take share away from legacy players in both North American and increasingly international markets.

Douglas Taylor: I'll start with a question sort of a bigger picture question for John or for Steven.

Douglas Taylor: There has been some more activity from private equity and in around the <unk>.

Speaker Change: <unk> market of late I know power school isn't necessarily a competitor, but it's a comparable anyways right. Good reminder, that most of the players you do see a reg irregularly or RPE controlled or back. So I wanted to just refresh the discussion on the overall competitive landscape and what you see as a competitive response to <unk>.

Speaker Change: While continuing to take share away from legacy players in both North America, and an increasingly international markets.

Speaker Change: Good morning, Doug.

John Baker: Morning, Doug. Great question. You know, we're obviously monitoring the activity that's happening in the market, but at the core, it doesn't change what we're focused on. We're going to continue to focus on our execution of the plan that we put out. It's leading to these high win rates that we're seeing, to your point, taking market share across the board globally. And we're competing well; we're winning. We're going to continue to invest in product to differentiate the market and use this as a moment in time to really win more market share and continue to grow and build those stronger relationships with clients.

Speaker Change: Great question, we're obviously monitoring the activity that's happening in the market.

And I think <unk>.

Speaker Change: It doesn't change what we're focused on we're going to continue to focus on our execution on the plan that we put out.

Speaker Change: It's leading to these high win rates that we're seeing to your point taking market share.

Speaker Change: Across the board globally, and we're competing well, we're winning we're going to continue to invest in product to differentiate in the market and use this as a moment in time to really win more market share and continue to grow.

John Baker: So that focus, making those substantial investments in product innovation, doubling down on the voice of the customer, making sure that we're building the best learning moments we can with our clients, I think puts us in a very highly differentiated space in our markets globally. And so I see this as an opportunity for us to continue to grow at a faster pace in the future.

Speaker Change: And build a stronger relationships with clients, so that focus making those substantial investments in product innovation doubling down on the voice of the customer making sure that we're building the best learning moments, we can with our clients I think puts us in a very highly differentiated space in our markets globally, and so I see this as an opportunity.

Speaker Change: For us to continue to grow at a faster pace in the future.

Speaker Change: Alright, thanks for that color.

Douglas Taylor: Alright, thanks for that color. Could you, just in case I might have missed it, can you update us a little bit on the spin-out transaction timetable, if you've got any more specificity there, and what's remaining to be done to affect that transaction?

Could you.

Just in case I might've missed it can you update us a little bit on the spin out transaction timetable if you've got any more specificity there.

Speaker Change: What's remaining to be done to to affect that transaction.

John Baker: Another good question, Doug. So, still targeting the end of June for the spinet to close. Transition's going well, where things are progressing as planned. It's steady as she goes.

Douglas Taylor: That's a good question, Doug So still targeting end of June for the spin to close transition is going well.

Douglas Taylor: Things are progressing as planned.

Douglas Taylor: It's steady as she goes.

Speaker Change: Okay, and then one more from me maybe for Josh just to clarify what you said about the gross margin profile here I think you said 100 basis points.

Douglas Taylor: Okay, and then one more from me, maybe for Josh, just to clarify what you said about the gross margin profile here. I think you said 100 basis points of one-time, you know, partner-related fees in the quarter. Is it fair for us to then, you know, as we look to Q2 and beyond, then, you know, add 100 basis points to just the subscription and support portion of the margin profile and then gradually expand from there? Is that what you're trying to communicate with that statement?

Speaker Change: One time.

Speaker Change: Partner related fees in the quarter is it fair for US to then as we look to Q2 and beyond.

Speaker Change: Add 100 basis points to just the <unk>.

Josh: Subscription and support portion of the margin profile and then continue to gradually expand from there is that what youre trying to communicate with that.

Speaker Change: <unk>.

Speaker Change: Yes.

Josh Huff: Yeah, that's fair. I mean, as we said in the opening remarks, we're talking about 100 basis points in a quarter, so a relatively small dollar amount. But as you said, as we look forward to the rest of the year, we do expect gross margin to continue to improve. It's an area, as you know, we've been making significant investments in both from a cloud engineering perspective, as well as from a support perspective. And so yeah, as you look at the rest of the year, it's sort of step function improvements, as you'll recall, in quarters past, but we do expect continued expansion in the back half of the year.

Speaker Change: Yeah, that's fair I mean, as we said in the opening remarks, we're talking about 100 basis points in the quarter, so relatively small dollar amount.

Speaker Change: But as you said as we look forward to the rest of the year.

Speaker Change: We do expect gross margin to continue to improve.

Speaker Change: It's an area as you know we've been making significant investment in both from.

Speaker Change: Our cloud engineering perspective, as well as from a support perspective.

And so yes, if you look at the rest of the year, it's sort of step function improvements as youll recall.

Speaker Change: In quarters past, but we do expect continued expansion in the back half of the year.

Speaker Change: Okay steady quarter, how I'll pass the line.

Douglas Taylor: Okay. Steady quarter. I'll pass the line.

Speaker Change: Okay.

Speaker Change: And our next question comes from Dan Chan from TD Cowen. Your line is now open.

Operator: And our next question comes from Dan Chan from TD Cowen. Your line is now open.

Justin: Hi, there this is Justin on for Dan Thanks for taking my question.

Operator: Hi there, this is Justin on behalf of Dan. Thanks for taking my question. So for the past few quarters in a row, we've seen about 12% ARR growth in constant currency. How should we bridge the growth we're seeing in ARR with current subscription growth guidance at about 10% for the full year? When should we really expect some of these ARR ads to start converting to revenue?

Speaker Change: For the past few quarters in a row, we've seen about 12% <unk> growth in constant currency, how should we bridge the.

Speaker Change: The growth, we're seeing in <unk> with current subscription growth guidance at about 10% for the full year when should we really expect some of these are adds to start converting to revenue.

Speaker Change: Yes. Good question. Thank you Justin.

Justin: Yeah, a good question. Thank you, Justin. Yeah, as we've discussed in the past, there certainly is sort of a timing element as new customers get implemented and onboarded, and that revenue starts to kick in. But we're also very much aware of the environment and the macro setting. And so we're just being mindful, whether it be in regards to the sales cycle timing we've talked about in the past, or whether it be in regards to foreign exchange. We're being mindful of that as we provide our guidance for the remainder of the year.

Speaker Change: As we've discussed in the past Theres, certainly as sort of a timing element as new customers get implemented and on boarded and that revenue starts to kick in.

Speaker Change: We're also very much aware of the environment and the macro setting and so we're just being mindful whether it would be in regards to the sales cycle timing, we've talked about in the past or whether it would be in regards to foreign exchange, we're being mindful of that as we provide our guidance for the remainder of the year.

Speaker Change: That's helpful. Thanks and.

Justin: That's helpful. Thanks. And just want to comment, there was a public report out against one of your peers recently, which called for constrained growth due to the ESSER funding winding down. Can you maybe talk about the government funding dynamics as it relates to software spend and maybe may or may not affect D2L's growth in the near term?

Speaker Change: I just wanted to comment there was a report out against one of your peers recently, which called for constrained growth due to the extra funding winding down can you maybe talk to the government funding dynamics as it relates to software spend and maybe may or may not affect <unk> growth in the near term.

Speaker Change: Yeah.

Speaker Change: Yes, I think we said on other calls in the past that we really didn't chase that money.

John Baker: Yeah, I think we've said on other calls in the past that we really did chase that money. We had a number of clients that benefited from it, you know, and certainly saw some pullback in previous years as they spiked up in terms of utilization in K-12 and came back down. Most of our K-12 clients are higher than they were during the pandemic, but certainly weren't where they were during the peak. So for us, we've largely digested those changes in our client base.

Speaker Change: We had a number of clients have benefited from it.

Speaker Change: And certainly saw some pullback in previous years.

Speaker Change: Spiked up in terms of utilization in K 12, and came back down most of our K 12 clients. There are higher than they were during the pandemic, but certainly where they were during the peak.

Speaker Change: For us we've largely digested those changes in our client base.

John Baker: I can't think of any other issues that we've got to deal with there. You know, we're certainly seeing opportunities within the K-12 market with our competitors' client base. They go through a similar dynamic playing out in the year to two years ahead. But, you know, we, if you recall, primarily focused on higher education and corporate as our growth levers for the last few years. And that's helped us avoid the dynamic that's playing out in K-12 today.

Speaker Change: I can't think of any other issues that we've got to deal with there.

Speaker Change: We're certainly seeing opportunity.

Speaker Change: Within the K 12 market with our competitors client base as they go through a similar dynamic playing out in the year to two years ahead.

Speaker Change: But we if you recall primarily focused in the higher education and corporate.

Speaker Change: Our growth levers for the last few years.

Speaker Change: It's helped us.

Speaker Change: Boyd the dynamic that's playing out in K 12 today.

Speaker Change: Yes.

Speaker Change: That's helpful. That's all from me I'll pass the line. Thanks.

Justin: That's helpful. That's all for me. I'll pass the line. Thanks.

Speaker Change: Our next question comes from Christian <unk> from eight capital. Your line is now open.

Operator: Our next question comes from Christian Sgro from E-Capitol. Your line is now open.

Christian Sgro: Hi, good morning. For my first question, I want to follow up on Justin's first question earlier, back to ARR and that bridge to the revenue profile. Would you encourage us to think of the quarterly ARR as a measure of, call it, six-month or 12-month subscription revenue growth? How much would you encourage us to look at the ARR metric in the near term? You know, especially given we have pointed guidance for the full year that helps to guide the financial picture.

Christian Sgro: Good morning.

Speaker Change: Sir My first question I wanted to ask a follow on to Justin's first question earlier.

Speaker Change: Back to <unk> in that bridge to the revenue profile.

Christian Sgro: Would you encourage us to think of the quarterly <unk> as a measure of.

Christian Sgro: Call it six months or 12 months subscription revenue growth how much would you encourage us or no not encourage us to look at the IRR metric in the near term.

Speaker Change: Especially given me a points of guidance for the full year that helps to guide some of the financial picture.

Speaker Change: Yeah, no absolutely like <unk> continues to be as we've mentioned in the past are really strong leading indicator for future revenue.

Josh Huff: Yeah, no, absolutely. Like ARR continues to be, as we've mentioned in the past, a really strong leading indicator for future revenue. And you're right, there is about a six-month, it can be up to 12-month, depending on the size of the new customer, sort of implementation, onboarding, and then flow through to revenue recognition. So certainly, I continue to encourage you to look at ARR as a leading indicator for top line. And I'd also encourage you just to look at historical flow through timing when you look at ARR ads relative to future subscription revenue growth.

Speaker Change: And Youre right. There is about a six month that can be up to 12 months, depending on the size of the new customer sort of implementation.

Speaker Change: <unk> Onboarding and then flow through to revenue recognition. So certainly continue to encourage you to look at <unk> as a leading indicator for top line.

Speaker Change: And I would also encourage you just to look at historical flow through timing when you look at.

<unk> adds relative to future subscription revenue growth.

Speaker Change: Okay. That's helpful, Josh and the second one I'll poke at the inorganic strategy.

Christian Sgro: That's helpful, Josh. In the second one, I'll poke at the inorganic strategy, your opportunities to consolidate the market. Is there any change to what you're looking out for there in terms of product or reach? And just what you're seeing, maybe from a valuation perspective, or if that might depend on the asset, just any color that would be helpful.

Speaker Change: Turning to consolidate the market or is there any change to what youre looking for there in terms of product or reach.

Speaker Change: And just what Youre seeing maybe from a valuation perspective.

Speaker Change: It might depend on the asset just any color there would be helpful.

Speaker Change: Yes, so we continue to be laser focused on the strategy. We previously spoke about.

John Baker: Yeah, so we continue to be laser-focused on the strategy we previously spoke about. We're looking at assets that really have a positive impact on our customer base and in our mission of transforming learning. We're looking at assets that fit nicely into our open platform ecosystem, and we're actively out in the market looking at opportunities. The valuation, to your point, will depend on the asset and the particular requirements. But we are actively out there looking and will continue to do so.

Speaker Change: Looking at assets that really have a positive impact on our customer base and then our mission of transforming learning, we're looking at assets that fit nicely into our open platform ecosystem.

Speaker Change: We're actively out in the market looking at opportunities.

Speaker Change: Valuation to your point will depend on the asset and that particular requirement.

But we are actively out there, okay, and we will continue to do so.

Speaker Change: Great. Thanks for taking my questions and I'll pass the line.

Christian Sgro: Great. Thanks for taking my questions, and I'll pass the line.

Speaker Change: Our next question comes from Brian Peterson from Raymond James Your line is now open.

Operator: Our next question comes from Brian Peterson from Raymond James. Your line is now open.

Brian Peterson: Thanks, and congrats on the quarter, guys. So I just wanted to touch on the pipeline of opportunities in North America. I know that's been up for debate.

Brian Peterson: Thanks, and congrats on the quarter guys. So I just wanted to hit on the pipeline of opportunities in North America I know that's been up for debate would love to understand although again in the first quarter is that a big one for bookings, but what are you seeing from a pipeline overall in North America.

John Baker: You know, we'd love to understand— I know, again, the first quarter's not a big one for bookings, but what are you seeing from the pipeline overall in North America, and what do you expect?

What are you expecting this year.

John Baker: Good to speak to you again, Brian. We're actually seeing healthy pipeline generation in Q1. And, you know, as we've mentioned on previous calls, we're seeing the market slowly starting to rebound from where it was impacted by the pandemic. And so that slow, steady rebound globally is good. I think the macro conditions are still what they are.

Brian: Good to speak to again, Brian we're actually seeing healthy pipeline generation in Q1.

Brian Peterson: <unk>.

Speaker Change: As we've mentioned on previous calls.

Speaker Change: We're seeing the market is slowly starting to rebound from where it was impacted by the pandemic and so thats slow steady rebound globally is good.

Speaker Change: The macro conditions are still what they are I think thats a pretty global.

John Baker: I think that's a pretty global condition for all software companies right now. But in our space, we seem to be seeing a bounce back. You know, it's not bouncing back as fast as we would hope at this stage, but it's still bouncing back.

Speaker Change: Condition for all software companies right now, but in our space, we seem to be seeing a bounce back.

Speaker Change: It's not bouncing back as fastest.

Speaker Change: We would we would hope at this stage, but it's still bouncing back.

Speaker Change: I think that gives us very good confidence in the next 12 months as we continue to execute well on the plans that we've got and I think Brian the other the other big thing is our ability to differentiate in the market now is substantial we've got great product, we've got great products in the pipeline.

John Baker: And I think that gives us very good confidence for the next 12 months as we continue to execute well on the plans that we've got. And I think, Brian, the other big thing is our ability to differentiate in the market now is substantial. We've got great products. We've got great products in the pipeline. We're even seeing some of the work that we did around sustainability reports now showing up as key requirements that are weighted in these RFPs. So our competitive differentiation and ability to win these RFPs, as we see more and more of them quarter over quarter, puts us in a very good spot to execute this year.

Speaker Change: Even seeing some of the work that we've done around sustainability reports now showing up as key requirements that are weighted in these in these rfps, so our competitive differentiation and ability to win these rfps as we see more and more of them quarter over quarter.

Speaker Change: Puts us in a very good spot to execute on the year.

John Baker: That's great. And obviously, it's great to see Hawaii win.

Speaker Change: No that's great and obviously, it's great to see the Hawaii win but it also thinking in the Netherlands.

Speaker Change: In some large win activity overseas.

Speaker Change: Are there certain markets, where youre, making a more calculated bets how do we think about that balance of going to attack those markets, but also understanding that you guys are focusing on margin expansion.

Speaker Change: Do we think about that models. Thanks, guys.

John Baker: But it also, you know, thinking in the Netherlands, and some large win activity overseas, like, are there certain markets where you're making more calculated bets? And how do we think about that balance of going to attack those markets, but also understanding that you guys are focusing on margin expansion? How do we think about that balance?

Speaker Change: It's not.

Speaker Change: I'll try to do every market everywhere in the world. We're very focused on key markets that we look at it the gateways into the broader regions and going as deep as we can in those markets.

John Baker: It's not, we're not trying to do every market everywhere in the world. We're very focused on key markets that we look at as gateways into the broader region and going as deep as we can in those markets. You know, for example, just in Singapore, where we're now over 70% market share, and we're trying to go with some more. You know, we're obviously waiting for more opportunities in the Netherlands, in Colombia, and just recently in Mexico, helping the team to expand in that region as we've opened up for entities.

Speaker Change: For example, just in Singapore, where we are now over 70% market share and we're trying to do more.

Speaker Change: We're obviously waiting more opportunities in the Netherlands in Colombia, just recently in Mexico, helping the team to expand in that region as we've opened up our entity.

John Baker: And the U.S. is still our most competitive market. If you look at the market itself, we still see tremendous opportunity in North America, still 40% plus legacy technology that's being used. We see that as an opportunity for replacement. And then globally, it's around 80%. And so there is a long runway of opportunities to pursue globally, and our approach now is really zeroing in on the key markets that we think will be critical for us to win in the broader regions. And that approach seems to be working well.

Speaker Change: In the U S is still our most competitive market. If you look at the <unk>.

Speaker Change: Market itself, we still see tremendous opportunity in North America, It's still 40% plus legacy technology, that's being used we see that as an opportunity for replacement I think globally, it's around 80% and so long runway of opportunities to pursue globally.

Speaker Change: And our approach now is really zeroing in on the key markets that we think will be critical for us to winning the broader regions and that approach seems to be working well.

Speaker Change: Alright, Thanks John.

Speaker Change: Yeah.

Operator: Our next question comes from... Our next question comes from Tanos Moscapolos from BMO Capital Markets. Your line is now open.

Speaker Change: Question comes from.

Speaker Change: Our next question comes from Kenneth Moelis Coppola from BMO capital markets.

Speaker Change: Your line is now open.

Tanos Moscapolos: Hi, good morning. You kind of touched on AI in your prepared remarks. I'm sure we're going to hear more about it in your recent talk developments at the upcoming user conference, but in general, can you talk about the role that AI is starting to play in RFPs and your competitive positioning in that regard against your largest competitors?

Speaker Change: Hi, good morning.

Speaker Change: You talked touched on AI in your prepared remarks, I'm sure we're going to hear more about it.

Speaker Change: And the recent developments at the upcoming user conference but.

Speaker Change: In General can you talk about the role that AI is starting to play in.

Speaker Change: Rfps and <unk>.

Speaker Change: Your competitive positioning in that regard against your large competitors.

Speaker Change: Yes.

John Baker: We're definitely seeing AI come up in the conversations with our clients globally. For example, my trip to the fall and spring into the New York area highlighted that very strongly for me when almost 100% of the questions that came from the audience were AI related in education.

Speaker Change: We're definitely seeing AI come up in conversations with our clients globally.

Speaker Change: Yeah.

Speaker Change: Well my trip in the fall and spring.

Speaker Change: And to the New York area highlighted that very strongly for me when almost 100% of the questions that came from the audience, where AI related and education. So.

John Baker: So, you know, we see a tremendous opportunity here. And as you recall, Thanos, we've been working on AI and our core technology for over a decade, doing everything from closed captioning videos to predicting student grades with 87% accuracy by week three, to being able to create adaptive learning pathways, and now beta testing with the hope of launching technology around generative AI being incorporated into the platform to do things like question generation, content generation, assignment generation, and many, many other workflows.

Speaker Change: We see tremendous opportunity here.

Speaker Change: As you recall at the analyst we've been working on AI and our core technology for over a decade.

Speaker Change: Everything from close captioning videos predicting student grades with 87% accuracy by week three.

Speaker Change: To being able to create adaptive learning pathways and now beta testing with the hope of launching technology around generative AI being incorporated into the platform to do things like question generation content generation Simon generation.

Speaker Change: And many many other workflows. So we see this as a tremendous productivity tool to really help our clients and we see this as an opportunity for us to grow as we continue to expand our product portfolio in this space.

John Baker: So, we see this as a tremendous productivity tool to really help our clients, and we see this as an opportunity for us to grow as we continue to expand our product portfolio in this space. And I think this will be yet another competitive differentiator for us in our markets as we continue to pursue opportunities globally. So, it's not showing up in all RFPs at this stage for clarification, but we're starting to see more and more requests around artificial intelligence in our process.

Speaker Change: And I think this will be yet another competitive differentiator for us in our markets as we continue to pursue.

Speaker Change: Opportunities globally, so it's not showing up in all rfps at this stage for clarity.

Speaker Change: We're starting to see more and more asks around artificial intelligence and a process.

Speaker Change: Great.

John Baker: Great. Going back to your comments on the macro and how it's looking better for you guys, does that apply to both higher ed and corporate? Just, I mean, given some of the recent data points in the corporate market, some of the companies are having challenges, obviously, but are you also seeing a bit of a bounce back in corporate as well?

Speaker Change: Going back to your comments on the macro and how.

Speaker Change: Now, it's looking better for you guys does that apply to both higher Ed and corporate I mean, given some of the recent data points in the corporate markets and other companies are having challenges, obviously, but you're also seeing a bit of a bounce back in corporate as well.

John Baker: And for clarity, like, we understand the macro conditions that are going on in the broader software space. That said, we are still seeing our conditions slowly improving quarter over quarter, year over year, and that we do see in corporate and in higher education, but I wouldn't say we're seeing it more pronounced in one or the other. You know, I think the TAM is much, much larger in corporate, and we're taking a very focused approach in terms of how we're winning training organizations or employee organizations that really want to do the best job they can with the best opportunities.

Speaker Change: And for clarity like.

Speaker Change: We understand the macro conditions that are going on in the broader software space that said, we are still seeing our hour of conditions slowly improving quarter over quarter year over year.

Speaker Change: And we do see in corporate and in higher education, but I wouldn't say, we're seeing it more pronounced in one or the other.

Speaker Change: I think.

I think the Tam is much much larger in corporate and we're taking a very focused approach in terms of how we are winning training organizations or employee organizations that really want to do the best job. They can with the best opportunity. It still does still take longer to close than it would have pre pandemic.

John Baker: You know, it still does take longer to close than it would have pre-pandemic, but the team's doing a good job executing on deals. I'm quite impressed with their execution on not only deals but also pipeline generation today.

Speaker Change: But the team is doing a good job executing on deals and quite impressed with their execution not only deals, but also pipeline generation today.

Tanos Moscapolos: Great, I'll pass the line, thanks.

Speaker Change: Great I'll pass along thanks.

Speaker Change: Yeah.

Operator: And our next question comes from Suthan Sukumar from Skyfall. Your line is now open.

Speaker Change: And our next question comes to Atlanta to 10, six from my phone.

Speaker Change: Your line is now open.

Suthan Sukumar: Good morning, gents. I wanted to touch on adoption and upsell Traction with CreatorPlus and PerformancePlus. Could you provide an update on how that upsell expansion motion has been trending within the base?

Speaker Change: Good morning Gents.

Wanted to touch on.

Speaker Change: Uh huh.

Adoption and upsell traction with.

Speaker Change: Creator plus at performance plus could you provide an update on sort of how those hold.

Speaker Change: That up from expansion motion has been trending within the base.

Speaker Change: Yes, so we continue to be happy with our ability to expand their if you look at our performance since IPO, we've grown from about 33% attach rate to about 50%.

John Baker: Yeah, so we continue to be happy with our ability to expand there. If you look at our performance since IPO, we've grown from about a 33% attach rate to about 50%. A lot of that has been driven by the uptake of Creator Plus. The new efficacy data that we have around it from customer usage is very impressive. We're seeing reductions in the time and cost to create courseware coupled with an increase in student success rates thanks to courses built by Creator Plus.

Speaker Change: Lot of that has been driven by the uptake of creator plus.

Speaker Change: The new efficacy data that we have around it from customer usage is very impressive.

Speaker Change: Seeing reductions in the time and cost to create courseware, coupled with an increase in the student success rates.

Speaker Change: Thanks, two questions built by creator plus.

John Baker: And so this attach rate is growing. We're pleased with the progress we've made with Course Merchant and Creator Plus, and we continue to focus our R&D efforts and our selling efforts to drive it. I'm very happy with the progress.

Speaker Change: So this is calculated is growing we're pleased with that.

Speaker Change: Yes, we've made with of course merchant with greater plus and we continue to focus our R&D efforts and our selling efforts to drive it very happy with progress.

Speaker Change: Great Thanks for that color.

Suthan Sukumar: Thanks for that color. And as you guys look ahead, you know, for growth this year and beyond, how are you guys thinking about the mix of net new versus expansions, you know, as part of your growth? Looking forward?

Speaker Change: And as you as you guys look ahead.

Speaker Change: For growth this year and beyond.

Speaker Change:

How are you guys thinking about the mix of.

Speaker Change: Of net new versus extensions.

Speaker Change: As part of your growth.

Speaker Change: Looking forward.

John Baker: Well, I think one of the things that stands out for us as a company, especially compared to our peers, is the net new logo ads. I think the fact that most of our growth today is coming from new logos is highly differentiated in our space. That said, why we're putting so much energy into these new products, whether it's Creator Plus or Achievement Plus or the work that we're going to be launching this summer around AI, all of these things are going to contribute to us being able to expand with existing customers. And there's no easier way to expand than adding new products to existing customers. It's also why we're leaning in on the M&A Growth Lever. We talked about Course Merchant in the past.

Speaker Change: Well I think one of the one of the things that stands out for us as a company, especially compared to our peers is the net new logo adds I think the fact that most of our growth today is coming from new logos.

Speaker Change: <unk> is highly differentiated in our space.

Speaker Change: That said.

Speaker Change: Why we're putting so much energy into these new products, whether it's greater plus or achievement, plus where they were going to be launching the somewhere around AI.

Speaker Change: All of these things are going to contribute to us being able to expand with existing customers and theres no easier way to expand then adding new products to existing customers.

Speaker Change: Also why we're leaning in on the M&A growth lever, we've talked to that course merchant in the past, we're seeing great traction with that product, we'd like to do that some others as we look forward into the future.

John Baker: We're seeing great traction with that product, and we'd like to do that with some others as we look forward into the future. We have this winning learning platform.

Speaker Change: Got this winning learning platform.

John Baker: It's an opportunity for us now to expand modules and to drive NRR up. You know, long-term, we want to get to more of a balance versus it mostly being driven by new logos. It would be great, for example, next year to get to two-thirds coming from new logos and a third from existing ones. But we'd like to continue to take it up as we drive more innovation into the space.

Speaker Change: Opportunity for us now to expand modules to drive that are up.

Speaker Change: Long term, we want to get to more of a balance versus it mostly being driven by new logos. It would be great. For example, next year to get to 2% is coming from new logos and a third from existing.

Speaker Change: But we'd like to continue to tick it up as we drive more innovation into the space.

Suthan Sukumar: Great. Thanks for that call, John. I'll pass the line.

Speaker Change: Great Thanks for that.

Speaker Change: I'll pass the line.

Speaker Change: Thank you.

Operator: Thank you. Our next question comes from John Chow from National Bank.

Speaker Change: Alan.

Speaker Change: Our next question comes from John Shaw from National Bank.

John Baker: Good morning. Thanks for taking my question. Could you please give us some color on your partnership channels? More specifically, it's been more than a quarter since the announcement of the new Benedict partnership. So, any updates on that relationship so far?

John Baker: Hey, good morning, Thanks for taking my question could you. Please give us some colors on your partnership channels more specifically, it's been one in a quarter since the announcement of the new benefit partnerships with any updates from that relationship so far.

John Baker: Also, I didn't quite catch the partner name that you mentioned there.

Speaker Change #100: Oh, sorry, I didn't quite catch the partner name that you mentioned there.

John Baker: The New Benedict Partnership, the one you announced last quarter.

Speaker Change #101: The new vintages partnership that the one you announced last quarter.

John Baker: Okay, so I think, generally speaking, we're seeing good traction with our partners globally. We've got a new head of partnerships put in place, and he's doing a fantastic job building up relationships with partners globally. I'm expecting to see some great progress there with partners in terms of revenue generation, co-selling activities, and being able to come to market with really innovative technologies. And we're optimistic that a lot of these partners will be at our conference this summer in July in Toronto as an opportunity to showcase what their technology and ours can do together.

Speaker Change #102: Okay. So.

Speaker Change #103: I think generally speaking, we're seeing good traction with our partners globally.

Speaker Change #104: Got a new head of partnerships put them into place.

Speaker Change #104: And he is doing a fantastic job building.

Speaker Change #104: Building, our relationships with partners globally.

Speaker Change #104: I am expecting to see some.

Speaker Change #104: Some great progress there with partners in terms of revenue generation.

Speaker Change #104: Co selling activities being able to come to market with really innovative technologies.

Speaker Change #104: And.

Speaker Change #104: We're optimistic that a lot of these partners will be at our conference. This summer in July in Toronto as.

Speaker Change #104: There is an opportunity to showcase what their technology and ours can do together and another good example of a good partner with the unity.

John Baker: Another good example of a good partner would be Unity. So, looking at VR, AR, and augmented reality coming together with our learning platform to support new types of use cases to support learners, whether it's from safety training to being able to manage complex plants globally. Leveraging these technologies together is going to have a big impact for a lot of our big corporate clients and also some of our education clients globally. That partnership, in particular, I got excited about when I was in Singapore as they're looking to put together both our technology and their technology to support a number

Speaker Change #104: So looking at VR AR augmented reality coming together with our learning platform to support new types of use cases to support learners, whether it's from safety training to.

Speaker Change #104: Being able to manage complex plants globally, leveraging these technologies together, it's going to have a big impact for a lot of our big corporate clients and also some of our education clients globally.

Speaker Change #104: That partnership in particular I got excited about when I was in Singapore as Theyre looking to put together, both our technology and their technology to support a number of initiatives in that country.

Speaker Change #104: And today, we have <unk> thousand 800 different technologies that integrate in.

Speaker Change #104: As we continue to leverage those partnerships I think it will have a big impact on our growth in the future.

John Baker: Just building on John's example, this is another great example of our R&D investment really driving the ability to be a platform in the ecosystem. Those partners benefit from our APIs, our SDKs, and our leading adoption of ed tech standards, which results in seamless user experiences for our learners and for our educators. OK, thanks. I have a question for Josh on professional services. The margin was down year over year. Just wondering if that's more of a why not given the nature of the current project.

Speaker Change #105: And just building on the color John This is another great example.

Speaker Change #105: Great example of our R&D investment really driving the ability to be a platform in the ecosystem.

Speaker Change #105: Partners benefit from our API or SDK, and our leading adoption of Ed Tech standards, which results in just seamless user experiences.

And for educators.

Speaker Change #106: Okay. Thanks, I have a question to charge on professional services. The margin was down year over year, just wondering if that say more of a one off given the nature of the current projects.

Josh Huff: Yeah, thanks, John. Yeah, you actually saw Q1 was a step from Q4. So I believe Q4 was around 26% margin, and Q1 was 30% margin. There is some movement quarter to quarter based on the type of engagements within the quarter. We tend to think of it in that sort of 30%, give or take services margin level. And so we're pleased with Q1 as being a good representation of that.

Speaker Change #107: Yes, Thanks John.

Speaker Change #108: You actually saw Q1 was the stat from Q4. So I believe Q4 was around 26% margin Q1, 30% margin. There is some movement quarter to quarter based on the type of engagements within the quarter, we tend to think of it in that sort of 30% give or take services.

Speaker Change #108: Margin level and so we're pleased with Q1 as being a good representation of that.

John Baker: Okay, thanks for the callers. I'll pop the line.

Speaker Change #109: Okay. Thanks for the color is the pump alone.

Operator: Our next question comes from Paul Treiber from RBC Capital Markets.

Speaker Change #110: Our next question comes from Paul <unk> from RBC capital markets.

Paul Michael Treiber: Well, thanks very much and good morning.

Speaker Change #111: Well, thanks, very much and good morning.

Paul Michael Treiber: So hoping that you could elaborate a bit further on win rates. You've seen good movement upwards on win rates. Is that uniform across markets and geographies, or do you see differences depending on the category that they're competing in?

Paul <unk>: If you can elaborate a bit further on win rates that you've seen good movement upwards and win rates is that uniform across markets and geographies or do you see.

Speaker Change #113: Differences, depending on the category around the computing.

John Baker: I mean, quarter to quarter is a little bit, but generally, we've seen the win rate continue to tick up in most markets globally. In our most competitive markets, we're running now more than half the time. And even in corporate, we're seeing our win rates continue to tick up. It's good to see the team continuing to invest, but I don't think it's also a product of the fact that we're investing in our technologies to support all the different types of use cases as we expand into these new markets like corporate.

Speaker Change #114: I mean quarter to quarter, because it is a little bit.

Speaker Change #115: But generally we've seen the win rate continue to tick up in most markets globally.

In our most competitive markets, we're running now more than half the time.

Speaker Change #115: And even in corporate were seeing our win rates continue to tick up.

Speaker Change #115: It's good to see the team continuing to invest but I don't think it's also a product of the fact that we're investing in our technology.

Speaker Change #115: All the different types of use cases, as we expand into these new markets like corporate.

John Baker: And you have to remember, we've got the same competitors that we're competing against in North America globally. So it's still Moodle, Blackboard, Instructure, and it gives us the ability to really differentiate as we add these new capabilities to support better learning experiences around the world. I actually think many parts of the world are embracing a lot more of our technology faster too. So if you look at clients in Mexico, as an example of a visit that I did recently, they're embracing all of our AI, they're embracing the work that we're doing around Creator Plus, they're embracing adaptive learning pathways, they're really leaning into driving better retention, better engagement, and better impact for their students and So it's very encouraging to see what many of the top universities are doing globally with our platform.

Speaker Change #115: And you have to remember we've got the same competitors that we're competing against the North America globally. So it's still noodle blackboard and structure.

Speaker Change #116: And it gives us the ability to really differentiate as we add these new capabilities to support better learning experiences around the world.

Speaker Change #116: I think many parts of the world are embracing a lot more of our technology faster too. So if you look at.

Speaker Change #116: Clients in Mexico.

Speaker Change #116: An example visit that I did recently, they're embracing all of our AI. They are embracing the work that we're doing around creative plus they're embracing adaptive learning pathways.

Speaker Change #116: They are really leaning in to driving better retention better engagement and better impact for their students and trying to leapfrog.

Speaker Change #116: What folks are getting around the world. So it's very encouraging to see what many of the top universities are doing globally.

Speaker Change #116: Platform.

John Baker: And switching to deployment times, you know, I assume most of your wins, at least in education or migrations from existing LMS, are how much resistance to change? Or like, just as much of the deployment is consumed with migrations? And then will the event in the program marks and bulk course importing help reduce friction? To what degree will that help reduce friction? And how are you trying to reduce friction overall with this migration?

Speaker Change #117: And switching to deployment times I assume most of your wins at least in the education of our migrations from existing assets.

Much.

Speaker Change #117: Resistance to change or.

Speaker Change #117: Much of the deployment is consumed with migrations and then will the you mentioned in the prepared remarks and bulk course importing.

Speaker Change #118: To what degree will that help reduce friction and how you're trying to reduce friction overall or just migration.

John Baker: Yeah, I think the key is we've put a lot of work into automating the deployment. So the actual setting up of the site is the same day the contract is signed. You know, so it's not hard to actually set up the actual site itself.

Speaker Change #119: Yes, I think the key is we.

Speaker Change #120: We've put a lot of work into automating the deployment so the actual setting up with the flight as the same day the contract is signed.

Speaker Change #120: So it's not hard to actually set up to the actual site itself.

John Baker: The course conversion can be done in bulk. So we help clients move, in some cases, hundreds of thousands of courses, sometimes over a weekend. So that is a highly automated activity. Integrations for many of the systems are now fully automated. But some require recipes to be created, if you will, to trade data back and forth.

Speaker Change #121: Of course conversion can be done in bulk so we help clients to move some cases hundreds of thousands of courses sometimes over a weekend.

Speaker Change #121: That is it a highly automated activity.

Speaker Change #121: Integrations for many of the systems are now fully automated some require recipes to be treated as you build the trade data back and forth, but by and large we're driving automation. There. However, it still takes time to communicate the change and so the the bulk of the time that clients take and usually it's around four months on average to make.

John Baker: But, by and large, we're driving automation there. However, it still takes time to communicate the change. And so the bulk of the time that clients take, and usually it's around four months on average to make a change from one system to two hours, is largely training up faculty, making sure there's good communication, traditional change management, and making sure things are done really well. For example, I just got a great note from one of our top clients in New York talking about how more of their colleges went live this week and how excited they were about the partnership that we had with D2L and how well our team performed in giving them confidence as they took that next step of going live.

Speaker Change #122: It changed from one system to ours.

Speaker Change #122: Largely training, our faculty, making sure there's good communication traditional change management.

Speaker Change #122: And making sure things are done really well for example, I just got a great note from one of our one of our top clients in New York talking about how more of apologists went live this week and how excited they were about the partnership that we had with <unk> and how well our team performed and giving them confidence that they took that next step of going live.

Speaker Change #122: They felt very confident in the ability for us to make sure their faculty and students who are very happy and so that that activity. Our team is getting to be world class at and we will continue to drive our efforts to reduce the time it takes to have as our clients transition over from from legacy platforms.

John Baker: They felt very confident in the ability of us to make sure their faculty and students were very happy. And so that activity is one that our team is getting to be world class at and will continue to drive our efforts to reduce the time it takes to have these clients transition over from legacy platforms.

Paul Michael Treiber: And then, just lastly for me, you mentioned the rule of 40. Directionally speaking, do you see the rule of 40 as like a long-term aspiration for the company? And then, you know, the upside from, from 25, like would you lean in, or would you see potential more upside on the growth side or the margin side of that?

Speaker Change #122: And then just lastly for me just.

Speaker Change #123: You mentioned that the rule of 40 Directionally speaking decent rule of 40 is like a long term aspiration for the company.

Speaker Change #123: Then the.

Speaker Change #123: The upside from from 25 like <unk>.

Speaker Change #124: We did lean in or would you see potential more upside on the growth side or the margin side of that equation.

Josh Huff: Yeah, thanks, Paul. Yeah, we do look at the rule of 40 benchmarks as a helpful guide for us. We'll continue to lean into that balance of growth and profitability. And I think the word balance is really important. So making sure we're making the right investments to win and compete in the market as we have, while incrementally improving our profitability over time. And so the medium-term outlook we provided as part of the Q4M DNA a few months ago, I think, provides some additional color on that, but it'll continue to be a balance, but making sure we're making the right investments to delight our customers, to bring world-class experiences to the market, and And so you'll continue to see that balance over time. I agree.

Paul <unk>: Yes, Thanks, Paul Yes, we do.

Speaker Change #125: Look at you know rule of 40 benchmark says a helpful Guide for US, we'll continue to lean into that balanced growth and profitability and I think the word balance is really important.

Speaker Change #125: So making sure we're making the right investments to win and compete in the market as we have while incrementally improving our profitability over time and so the medium term outlook. We provided as part of the Q4 M. DNA a few months ago I think provide some additional color on that but it will continue to be a balanced, but making sure we're making the right.

Speaker Change #125: Investments to delight, our customers to bring world class experiences to the market and to really create a category leader over time.

Speaker Change #125: So you'll continue to see that balance over time.

Paul Michael Treiber: All right, great. Thanks. Thanks for taking the questions.

Speaker Change #126: Great. Thanks, Thanks for taking questions.

Speaker Change #126: Okay.

Operator: We currently have no further questions, so we'll hand it back over to John Baker for any final remarks.

Speaker Change #126: We currently have no further question I will hand back over to John Baker for any final remarks.

John Baker: All right, thank you very much, operator, and thank you everyone for joining us on today's call. It's a very exciting time for us at D2L. I hope to see many of you at our Fusion conference. In the meantime, have a great day. Thanks again. Talk soon.

John Baker: Alright, Thank you very much operator, and thank you everyone for joining us on today's call.

John Baker: Very.

John Baker: It said in time for us at each well hope to see many of you at our fusion conference.

John Baker: Have a great day, thanks again vaccine.

Operator: That does conclude today's conference call. Have a nice day. You may now disconnect your line.

Speaker Change #128: That does concludes today's conference call have a nice day you may now disconnect your lines.

Speaker Change #128: Goodbye.

Speaker Change #128: [music].