Q2 2027 D2L Inc Earnings Call

September 10, 2026

Speaker #2: Hello, everyone. Thank you for joining us, and welcome to D2L Ink's second quarter 2027 financial results digital conferencing call. After today's prepared remarks, we will host a question-and-answer session.

Operator: Hello, everyone. Thank you for joining us, and welcome to D2L Inc.'s Q2 2027 financial results digital conferencing call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Craig Armitage, investor relations. Craig, please go ahead.

Operator: Hello, everyone. Thank you for joining us, and welcome to D2L Inc.'s Q2 2027 Financial Results Digital Conferencing Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Craig Armitage, investor relations. Craig, please go ahead.

Speaker #2: If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Craig Armitage, Investor Relations.

Speaker #2: Craig, please go ahead.

Speaker #3: Good morning. Thank you. Listeners, a reminder that portions of today's discussion will include statements that contain forward-looking information. Any such statements are subject to risks and uncertainties.

Craig Armitage: Good morning. Thank you. 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 the forward-looking information. Further, certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. For identification and discussion of such risks, uncertainties, factors, and assumptions, as well as further information concerning forward-looking statements, please refer to the company's annual and interim management's discussion and analysis and the most recently filed annual information form, in each case as filed under the company's profile on SEDAR+.

Speaker #3: It could cause actual results to differ materially from conclusion or cast or projection in the forward-looking information. Further, 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 #3: For identification and discussion of such risks and certainties, factors and assumptions, as well as further information concerning forward-looking statements, please refer to the company's annual and interim Management's Discussion and Analysis.

Speaker #3: And the most recently filed Annual Information Form, in each case, is filed under the company's profile on SEDAR+. In addition, during the call, reference will be made to various non-IFRS financial measures, including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Gross Profit, Adjusted Gross Margin, and Free Cash Flow.

Craig Armitage: In addition, during the call, reference will be made to various non-IFRS financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit, adjusted gross margin, and free cash flow. These non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other public companies. Please refer to the company's MD&A for the quarter ended 31 July 2026, 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. I would now like to turn the call over to Mr. John Baker, Chief Executive Officer of D2L. Please go ahead, John.

Speaker #3: These non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other public companies.

Speaker #3: Please refer to the company's MD&A for the quarter end of July 31, 2026. 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.

Speaker #3: I'd now like to turn the call over to Mr. John Baker, Chief Executive Officer of D2L. Please go ahead, John.

Speaker #4: Thank you, Craig, and good morning, everyone. Thank you for joining us for our second quarter fiscal 2027 earnings call. We released our financial results after market close yesterday.

John Baker: Thank you, Craig, and good morning, everyone. Thank you for joining us for our Q2 fiscal 2027 earnings call. We released our financial results after market close yesterday, and you can find those materials in the investor relations section of our website. Please note that all amounts discussed today are in US dollars unless otherwise stated. I am pleased to be joined this morning by Josh Huff, our CFO. Our Q2 results reflect both a strong bookings quarter and the anticipated impact of the previously disclosed US K-12 customer churn. While this affected our headline growth metrics for Q2, the underlying performance of our core business remains solid. With this headwind now behind us, we expect improved revenue growth and profitability as we move through the H2 of fiscal 2027. For the Q2, subscription and support revenue increased 2% to $50.9 million.

Speaker #4: And you can find those materials in the investor relations section of our website. Please note that all amounts discussed today are in U.S. dollars, unless otherwise stated.

Speaker #4: I'm pleased to be joined this morning by Josh Huff, our CFO. Our second quarter results reflect both a strong bookings quarter and the anticipated impact of the previously disclosed US K-12 customer churn.

Speaker #4: While this affected our headline growth metrics for Q2, the underlying performance of our core business remains solid. And with this headwind now behind us, we expect improved revenue growth and profitability as we move through the second half of fiscal 2027.

Speaker #4: For the second quarter, subscription and support revenue increased 2% to $50.9 million. Annual recurring revenue, or ARR, increased 5% to $223.4 million. Adjusted EBITDA was $6.5 million.

John Baker: Annual recurring revenue, or ARR, increased 5% to $223.4 million. Adjusted EBITDA was $6.5 million. We repurchased approximately 2 million subordinate voting shares during this quarter while maintaining a strong balance sheet with $106.4 million of cash and no debt. As you will see in our Q2 disclosure, we have adjusted revenue guidance for the full year based upon softness in our advisory services and the delayed launch of a new customer. Josh will get into this in more detail shortly. Importantly, excluding the K-12 market, ARR grew more than 10% year over year, our fourth consecutive quarter of double-digit ARR growth across our core higher education and corporate markets, which account for more than 90% of our revenue. This performance reflects healthy bookings, strong competitive win rates, and our success in expanding customer relationships through the broader D2L platform.

John Baker: Annual recurring revenue, or ARR, increased 5% to $223.4 million. Adjusted EBITDA was $6.5 million. We repurchased approximately 2 million subordinate voting shares during this quarter while maintaining a strong balance sheet with $106.4 million of cash and no debt. As you will see in our Q2 disclosure, we have adjusted revenue guidance for the full year based upon softness in our advisory services and the delayed launch of a new customer. Josh will get into this in more detail shortly. Importantly, excluding the K-12 market, ARR grew more than 10% year-over-year, our fourth consecutive quarter of double-digit ARR growth across our core higher education and corporate markets, which account for more than 90% of our revenue. This performance reflects healthy bookings, strong competitive win rates, and our success in expanding customer relationships through the broader D2L platform.

Speaker #4: And we repurchased approximately $2 million subordinate loading shares during this quarter, all maintaining a strong balance sheet with $106.4 million of cash and no debt.

Speaker #4: As you will see in our Q2 disclosure, we've adjusted revenue guidance for the full year, based upon softness in our advisory services, and the delayed launch of a new customer.

Speaker #4: Josh, we'll get into this in more detail shortly. Importantly, excluding the K-12 market, ARR grew more than 10% year over year. Our fourth consecutive quarter of double-digit ARR growth across our core higher education and corporate markets.

Speaker #4: Which account for more than 90% of our revenue. This performance reflects healthy bookings, strong competitive win rates, and our success in expanding customer relationships through the broader D2L platform.

Speaker #4: And our largest market, higher education, our competitive position continues to strengthen. We continue to displace each of our major competitors as institutions globally look to modernize their learning environments and prepare for the future of learning.

John Baker: In our largest market, higher education, our competitive position continues to strengthen. We continue to displace each of our major competitors as institutions globally look to modernize their learning environments and prepare for the future of learning. In North America higher education, our new customers in the quarter included the School of Professional Studies at Brown University, a member of the Ivy League, as well as Golden Gate University and Southwestern Michigan College. These wins reinforce the importance of our platform and product roadmap among institutions as they make big, long-term decisions about their learning technology. Internationally, our momentum continues to build in key markets. During the quarter, we added customers including the Continuing Professional Development Unit at the University of Leeds in the United Kingdom, Van Lang University in Vietnam, and Instituto de Educação Superior de Brasília in Brazil. Subsequent to quarter end, UNSW Sydney selected D2L Brightspace as its next-generation learning platform.

Speaker #4: In North America higher education, our new customers in the quarter included the School of Professional Studies at Brown University, a member of the Ivy League, as well as Golden Gate University and Southwestern Michigan College.

Speaker #4: These wins reinforced the importance of our platform and product roadmap among institutions as they make big, long-term decisions about their learning technology. Internationally, our momentum continues to build in key markets.

Speaker #4: During the quarter, we added customers including the continuing professional development unit at the University of Leeds in the United Kingdom, then Lang University in Vietnam, and IESB in Brazil, and subsequent to quarter end, UNSW Sydney selected D12 Brightspace as its next-generation learning platform.

Speaker #4: UNSW is one of the top 20-ranked universities globally. This we start Q3. We see a significant long-term opportunity internationally, as institutions around the world modernize their learning platforms.

John Baker: UNSW is one of the top 20 ranked universities globally. This is a flagship win for D2L as we start Q3. We see a significant long-term opportunity internationally as institutions around the world modernize their learning platforms. Before moving on, I'd like to briefly touch on the K-12 market. This has been a challenging last 12 months with the US K-12 market, where we've experienced significantly more churn than normal. We don't take that lightly, and we're committed to delivering better results moving forward. Beginning in Q3 of this fiscal year, we expect the retention and growth trends to continue to normalize in K-12, and we're pleased to report that our remaining K-12 customer portfolio is strong. Engagement remains healthy, and we're seeing encouraging new opportunities and new logos emerge. Beyond education, we further expanded our presence in the corporate market.

Speaker #4: Before moving on, I'd like to briefly touch on the K-12 market. This has been a challenging last 12 months, with the US K-12 market where we've experienced significantly more churn than normal.

Speaker #4: We don't take that lightly, and we're committed to delivering better results moving forward. Beginning in Q3 of this fiscal year, we expect the retention and growth trends to continue to normalize in K-12.

Speaker #4: And we're pleased to report that our remaining K-12 customer portfolio is strong. Engagement remains healthy, and we're seeing encouraging new opportunities and new logos emerge.

Speaker #4: Beyond education, we further expanded our presence in the corporate market. New customers this quarter included the American Society of Safety Professionals, the Royal College of a Niece Statist, and the United Kingdom, and the Public Service Alliance of Canada, one of the Canada's largest unions representing close to 250,000 workers.

John Baker: New customers this quarter included the American Society of Safety Professionals, the Royal College of Anaesthetists in the United Kingdom, and the Public Service Alliance of Canada, one of Canada's largest unions, representing close to 250,000 workers. These wins highlight our ability to support workforce development, professional education, and member learning at scale. New customer acquisition remains an important growth driver, and we're also creating value through the expansion of the D2L platform with our existing customer base. Creator+ continues to gain traction as customers look to create more engaging, interactive, and accessible learning experiences, highlighted by an adoption rate of more than 35% among existing customers. We're also seeing increasing momentum for our AI offering, D2L Lumi. During the quarter, D2L Lumi surpassed CAD 5 million of ARR and is attached on greater than 40% of new customer deployments within global higher education.

Speaker #4: These wins highlight our ability to support workforce development, professional education, and member learning at scale. New customer acquisition remains an important growth driver, and we're also creating value through the expansion of the D12 platform with our existing customer base.

Speaker #4: Creator Plus continues to gain traction as customers look to create more engaging interactive and accessible learning experiences, highlighted by an adoption rate of more than 35% among existing customers.

Speaker #4: We're also seeing increasing momentum for our AI offering, D2L Lumi. During the quarter, D2L Lumi surpassed $5 million of ARR and has attached on greater than 40% of new customer deployments within global higher education.

Speaker #4: And we're working hard to broaden adoption with existing customers as well. This demonstrates that AI is contributing to both sides of our growth strategy.

John Baker: We're working hard to broaden adoption with existing customers as well. This demonstrates that AI is contributing to both sides of our growth strategy. It's strengthening the value proposition for new customers while creating additional opportunity to expand relationships with existing customers. We also see evidence that educators are moving beyond the initial exploration and discussions about AI to now focusing on practical implementation. In research conducted by our team earlier this year, educators consistently emphasized the importance of AI tools that improve learning outcomes, enhance teaching effectiveness, and are deployed in a trusted and responsible manner. We believe this feedback validates our strategy of embedding AI in ways that help educators and learners achieve better outcomes while maintaining strong foundations of trust, privacy, and accessibility. These themes were reinforced at Fusion 2026, our annual customer conference, where we welcomed more than 1,100 attendees from all around the world.

Speaker #4: It's strengthening the value proposition for new customers while creating additional opportunity to expand relationships with existing customers. We also see evidence that educators are moving beyond the initial exploration and discussions about AI to now focusing on practical implementation.

Speaker #4: In research conducted by our team earlier this year, educators consistently emphasized the importance of AI tools that improve learning outcomes, enhance teaching effectiveness, and are deployed in a trusted and responsible manner.

Speaker #4: We believe this feedback validates our strategy of embedding AI in ways that help educators and learners achieve better outcomes, while maintaining strong foundations of trust, privacy, and accessibility.

Speaker #4: These themes were reinforced at Fusion 2026, our annual customer conference, where we welcomed more than 1,100 attendees from all around the world. One of the clearest messages from our customer conversations was that institutions are looking for a practical path forward as AI continues to reshape learning.

John Baker: One of the clearest messages from our customer conversations was that institutions are looking for a practical path forward as AI continues to reshape learning. Customers recognize the potential of AI, but they want to move forward thoughtfully. They are focused on responsible implementation, protecting institutional and learner data, and ensuring that technology contributes to meaningful learning outcome improvement. More broadly, institutions are looking for a trusted partner that can provide both stability and innovation as they navigate this evolving learning landscape. At Fusion, we introduced new AI-powered innovations and platform enhancements across D2L Brightspace, Lumi, Creator+, and H5P. These included new capabilities designed to help customers transform existing learning content to be more engaging and to improve outcomes, translate content into new languages, and provide learners with Lumi Learner Mode for more personalized support and embedded knowledge checks.

Speaker #4: Customers recognize the potential of AI, but they want to move forward thoughtfully. The focus on responsible implementations, protecting institutional and learner data, and ensuring that technology contributes to meaningful learning outcome improvement.

Speaker #4: More broadly, institutions are looking for a trusted partner that can provide both stability and innovation, as they navigate this evolving learning landscape. At Fusion, we introduced new AI-powered innovations and platform enhancements across D12 Brightspace, Lumi, Creator Plus, and H5P.

Speaker #4: These included new capabilities designed to help customers transform existing learning content, to be more engaging, and to improve outcomes. Translate content into new languages, and provide learners with a Lumi learner mode for more personalized support and embedded knowledge checks.

Speaker #4: Overall, we're encouraged by the performance across our core markets, and while our current growth profile has been affected by the previously disclosed U.S. K-12 attrition, we continue to see strengths in bookings, customer expansion, and AI adoption.

John Baker: Overall, we are encouraged by the performance across our core markets. While our current growth profile has been affected by the previously disclosed US K-12 attrition, we continue to see strengths in bookings, customer expansion, and AI adoption. We are well positioned for improved revenue growth and profitability through the balance of fiscal 2027 and into fiscal 2028. With that, I will turn the call over to Josh to review the financial results and to talk about the outlook in more detail.

Speaker #4: We are well positioned for improved revenue growth and profitability through the balance of fiscal 2027 and into fiscal 2028. With that, I'll turn the call over to Josh to review the financial results and to talk about the outlook in more detail.

Speaker #5: Thanks, John, and good morning, everyone.

Josh Huff: Thanks, John, and good morning, everyone. As John noted, our Q2 results reflect continued growth across our core markets, together with the anticipated impact of the previously disclosed US K-12 customer churn. As expected, Q2 represented the period of greatest impact on our reported growth rates. While these factors affected our near-term financial performance, the underlying performance across our core higher education and corporate markets remained solid. Total revenue increased 2% to $55.6 million. Subscription and support revenue increased 2% to $50.9 million, reflecting growth from new customers and expansion with existing customers, partially offset by higher than typical US K-12 churn experienced over the past 12 months.

Speaker #4: As John noted, our second quarter results reflect continued growth across our core markets. Together with the anticipated impact of the previously disclosed US K-12 customer Q2 represented the period of greatest impact on our reported growth rates.

Speaker #4: While these factors affected our near-term financial performance, the underlying performance across our core higher education and corporate markets remained solid. Total revenue increased 2% to $55.6 million.

Speaker #4: Subscription and support revenue increased 2% to $50.9 million, reflecting growth from new customers and expansion with existing customers. Partially offset by higher-than-typical US K-12 churn experienced over the past 12 months.

Speaker #4: In addition, the current quarter was affected by the delayed go-live of a new customer deployment, resulting in an approximately $0.8 million impact to subscription and support revenue in the quarter, and it is anticipated to be live by the end of this fiscal year.

Josh Huff: In addition, the current quarter was affected by the delayed go-live of a new customer deployment, resulting in approximately $0.8 million impact to subscription and support revenue in the quarter and is anticipated to be live by the end of this fiscal year. Annual recurring revenue increased 5% to $223.4 million, and in constant currency increased 6%. Reported ARR in Q2 was impacted by the final major component of US K-12 churn as previously disclosed and in line with our expectations. As John highlighted, excluding the K-12 market, ARR increased 10% year over year and on a constant currency basis increased 11% year over year. Professional services and other revenue was $4.7 million, consistent with the prior year.

Josh Huff: In addition, the current quarter was affected by the delayed go-live of a new customer deployment, resulting in approximately $0.8 million impact to subscription and support revenue in the quarter and is anticipated to be live by the end of this fiscal year. Annual recurring revenue increased 5% to $223.4 million, and in constant currency increased 6%. Reported ARR in Q2 was impacted by the final major component of US K-12 churn as previously disclosed and in line with our expectations. As John highlighted, excluding the K-12 market, ARR increased 10% year-over-year and on a constant currency basis increased 11% year-over-year. Professional services and other revenue was $4.7 million, consistent with the prior year.

Speaker #4: Annual recurring revenue increased 5% to $223.4 million, and in constant currency, increased 6%. Reported ARR in Q2 was impacted by the final major component of US K-12 churn, as previously disclosed and in line with our expectations.

Speaker #4: As John highlighted, excluding the K-12 market, ARR increased 10% year-over-year, and on a constant currency basis increased 11% year-over-year. Professional services and other revenue was $4.7 million, consistent with the prior year.

Speaker #4: We continue to see a softer demand environment for advisory engagements within our professional services practice while remaining confident in the value these services can provide to clients.

Josh Huff: We continue to see a softer demand environment for advisory engagements within our professional services practice while remaining confident in the value these services can provide to clients. Turning to margins and profitability, adjusted gross margin was 70.4%, compared with 70.6% in the prior year period. As previously disclosed, the database technology work was completed during Q2, concluding the associated incremental costs incurred over the past 12 months. This positions us to report improved gross margins in H2 of fiscal 2027 and moving forward. Adjusted EBITDA was $6.5 million, or 11.6% of revenue, compared with $7.5 million, or 13.7% of revenue in the same period last year. Adjusted EBITDA reflected the previously discussed revenue impacts as well as planned investments in sales and marketing, including our annual Fusion customer conference held in Q2.

Speaker #4: Turning to margins and profitability, adjusted gross margin was 70.4% compared with 70.6% in the prior year period. As previously disclosed, the database technology work was completed during the second quarter, concluding the associated incremental costs incurred over the past 12 months.

Speaker #4: This positions us to report improved gross margins in the second half of fiscal 2027 and moving forward. Adjusted EBITDA was 6.5 million, or 11.6% of revenue, compared with 7.5 million, or 13.7% of revenue in the same period last year.

Speaker #4: Adjusted EBITDA reflected the previously discussed revenue investments and sales and marketing, including our annual Fusion customer conference held in Q2. Importantly, the broader progression of our business remains consistent with the first half, second half framework we outlined at the beginning of this fiscal year.

Josh Huff: Importantly, the broader progression of our business remains consistent with the H1/H2 framework we outlined at the beginning of this fiscal year. As we move through H2 of fiscal 2027, we continue to expect higher revenue growth, expanding gross margins, and meaningful adjusted EBITDA margin expansion. The midpoint of our updated guidance implies approximately 7% subscription and support revenue growth and a 16% adjusted EBITDA margin in H2 of the year, a significant improvement relative to our Q2 results. Moving to net income, we reported a net loss of $3.1 million in Q2, compared with net income of $2.7 million earned in the prior year period. The primary driver of this change was a non-cash fair value loss of $4.8 million related to the loan receivable from SkillsWave. As required under IFRS, the loan is measured at fair value each quarter.

Speaker #4: As we move through the second half of fiscal 2027, we continue to expect higher revenue growth, expanding gross margins, and meaningful adjusted EBITDA margin expansion.

Speaker #4: The midpoint of our updated guidance implies approximately 7% subscription and support revenue growth and a 16% adjusted EBITDA margin in the second half of the year.

Speaker #4: A significant improvement relative to our Q2 results. Moving to net income, we reported a net loss of $3.1 million in the second quarter, compared with net income of $2.7 million earned in the prior-year period.

Speaker #4: The primary driver of this change was a non-cash fair value loss of $4.8 million, related to the loan receivable from SkillsWave. As required under IFRS, the loan is measured at fair value each quarter.

Speaker #4: Updated assumptions reflecting SkillsWave operating results, financing environment, and credit risk resulted in the fair value being reduced to nil as at July 31st. This fair value adjustment does not change the underlying loan, which remains in place and secured.

Josh Huff: Updated assumptions reflecting SkillsWave operating results, financing environment, and credit risk resulted in the fair value being reduced to nil as at 31 July. This fair value adjustment does not change the underlying loan, which remains in place and secured. Turning to cash flow. Cash flows from operating activities were $28.8 million in Q2, compared with $15 million in the prior year period, and free cash flow was $28.5 million in Q2, compared with $15.2 million for the same period last year. The year-over-year increases primarily reflect working capital movements, including strong customer collections during the quarter. We believe the trailing 12-month period provides a more representative view of the underlying cash generation as it normalizes working capital movements between quarters.

Speaker #4: Turning to cash flow, cash flows from operating activities were $28.8 million, in the second quarter, compared with $15 million in the prior year period.

Speaker #4: And free cash flow was $28.5 million in the second quarter, compared with $15.2 million for the same period last year. The year-over-year increases primarily reflect working capital movements including strong customer collections during the quarter.

Speaker #4: We believe the trailing 12-month period provides a more representative view of the underlying cash generation as it normalizes working capital movements between quarters. For the 12-month ended July 31st, free cash flow was $42.7 million, versus $24.1 million in the comparable trailing 12-month period.

Josh Huff: For the 12 months ended 31 July, free cash flow was $42.7 million versus $24.1 million in the comparable trailing 12-month period, showing significant progress and scale. Our financial position remains strong as we ended the quarter with $106.4 million of cash in cash equivalents and no debt on our balance sheet. In terms of capital allocation, we completed our previously announced substantial issuer bid during the quarter, repurchasing approximately 1.9 million subordinate voting shares. We also repurchased about 131,000 shares under our normal course issuer bid during the period. As a result, we repurchased a total of approximately 2 million shares during Q2 and will continue using the NCIB over the balance of this year. Looking across a longer period, we have now repurchased more than 3 million subordinate voting shares through the SIB and NCIB combined over the trailing 12 months.

Speaker #4: Showing significant progress in scale. Our financial position remains strong, as we ended the quarter with $106.4 million of cash and cash equivalents, and no debt on our balance sheet.

Speaker #4: In terms of capital allocation, we completed our previously announced substantial issuer bid during the quarter, repurchasing approximately 1.9 million subordinate voting shares. We also repurchased about 131,000 shares under our normal course issuer bid during the period.

Speaker #4: As a result, we repurchased a total of approximately $2 million shares during Q2 and will continue using the NCIB over the balance of this year.

Speaker #4: Looking across the longer period, we have now repurchased more than $3 million subordinate voting shares, through the SIB and NCIB combined over the trailing 12 months.

Speaker #4: This represents 11% of the opening subordinate voting shares outstanding during that period. We believe our use of these programs reflect a disciplined approach to capital allocation, we have been able to meaningfully reduce our share count and return capital to shareholders while maintaining a debt-free balance sheet and significant financial flexibility to continue investing in our organic and inorganic growth opportunities.

Josh Huff: This represents 11% of the opening subordinate voting shares outstanding during that period. We believe our use of these programs reflect a disciplined approach to capital allocation. We have been able to meaningfully reduce our share count and return capital to shareholders while maintaining a debt-free balance sheet and significant financial flexibility to continue investing in our organic and inorganic growth opportunities. Turning to our outlook, we have revised our revenue guidance for fiscal 2027. We now expect subscription and support revenue of $211 million to $213 million, representing growth of 6% to 7% over fiscal 2026, compared with our previous range of $212 million to $214 million. Total revenue of $228 million to $231 million, representing total growth of 5% to 6% over fiscal 2026, compared with our previous range of $231 million to $234 million.

Speaker #4: Turning to our outlook, we have revised our revenue guidance for fiscal 2027. We now expect subscription and support revenue of $211,000,000 to $213,000,000, representing growth of 6% to 7% over fiscal 2026, compared with our previous range of $212,000,000 to $214,000,000.

Speaker #4: And total revenue of $228,000,000 to $231,000,000, representing total growth of 5% to 6% over fiscal 2026, compared with our previous range of $231,000,000 to $234,000,000.

Speaker #4: The revised revenue outlook reflects softer demand within our advisory professional services practice as well as the delayed go-live of a new customer deployment and the corresponding impact on subscription and support revenue in the current fiscal year.

Josh Huff: The revised revenue outlook reflects softer demand within our advisory professional services practice, as well as the delayed go live of a new customer deployment and the corresponding impact on subscription and support revenue in the current fiscal year. Ongoing optimization of our COGS and operating efficiencies is offsetting the impact of the lower revenue outlook, allowing us to maintain our adjusted EBITDA guidance of $33 million to $35 million, representing an adjusted EBITDA margin of approximately 15% at the midpoint. As John highlighted, we continue to expect meaningful improvement in our financial profile during the H2 of fiscal 2027. Looking beyond the current year, our fiscal 2028 target operating model remains unchanged. We continue to target revenue growth of 10% to 15% and an adjusted EBITDA margin of 18% to 20%.

Speaker #4: Ongoing optimization of our cost of goods sold and operating efficiencies is offsetting the impact of the lower revenue outlook. Allowing us to maintain our adjusted EBITDA guidance of $33,000,000 to $35,000,000, representing an adjusted EBITDA margin of approximately 15% at the midpoint.

Speaker #4: As John highlighted, we continue to expect meaningful improvement in our financial profile during the second half of fiscal 2027. Looking beyond the current year, our fiscal 2028 target operating model remains unchanged, we continue to target revenue growth of 10% to 15% in an adjusted EBITDA margin of 18% to 20%.

Speaker #4: We recognize that achieving these targets requires a meaningful step up from our fiscal 2027 performance to date. Our confidence is grounded in four consecutive quarters of double-digit ARR growth in our core markets, a strengthening competitive position, continued international expansion, increasing customer value through products such as Creator+ and D2L Lumi, and the diminishing impact of the churn and COGS headwinds that have affected our reported results the past few quarters.

Josh Huff: We recognize that achieving these targets requires a meaningful step-up from our fiscal 2027 performance to date. Our confidence is grounded in four consecutive quarters of double-digit ARR growth in our core markets, a strengthening competitive position, continued international expansion, increasing customer value through products such as Creator+ and D2L Lumi, and the diminishing impact of the churn and COGS headwinds that have affected our reported results the past few quarters. These targets remain a clear priority for the team, and our focus is squarely on executing the plan to deliver higher revenue growth, expanding margins, and increased cash generation. With that, we will open the call to questions.

Speaker #4: These targets remain a clear priority for the team, and our focus is squarely on executing the plan to deliver higher revenue growth, expanding margins, and increased cash generation.

Speaker #4: With that, we'll open the call to questions.

Speaker #1: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand.

Josh Huff: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Erin Kyle with CIBC. Erin, your line is open. Please go ahead.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Erin Kyle with CIBC. Erin, your line is open. Please go ahead.

Speaker #1: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Erin Kyle with CIBC.

Speaker #1: Erin, your line is open. Please go ahead.

Speaker #3: Hi, good morning. Thanks for taking the questions. I guess first one here is just on the K to 12 churn in the quarter. I'd say that the magnitude of the churn was larger than what we had anticipated.

Erin Kyle: Hi. Good morning. Thanks for taking the questions. I guess first one here is just on the K-12 churn in the quarter. I would say that the magnitude of the churn was larger than what we had anticipated. So maybe if you can comment on the size of the contract there or average contract size across K-12 in your broader markets. Then maybe just as a follow-on, do you have any other large contracts that are similar in size to this one that could be up for renewal in the next few quarters here?

Speaker #3: So maybe if you can kind of comment on the size of the contract there, or average contract size across K to 12 in your broader markets, and then maybe just as a follow-on, do you have any other large contracts that are similar in size to this one that could be up for renewal in the next few quarters here?

Speaker #5: Yeah. As we had discussed in previous quarters, Q2 effectively had that sort of final tranche of churn during this 12-month period where we've had higher levels of churn than normal.

Josh Huff: Yeah. As we had discussed in previous quarters, Q2 effectively had that sort of final tranche of churn, during this sort of 12-month period where we have had higher levels of churn than normal. So the amount of churn from K-12 in the quarter was actually in line with our expectations and plans. We are pleased to report that going forward, we do expect K-12 to return to normal retention and growth effective Q3 and sort of have this ARR headwind behind us. I think the other sort of mechanical thing within ARR is always FX as well. So in the quarter, just to be clear, there was a CAD 2 million haircut on ARR from FX. So when you sort of reconcile each of those data points, we actually added net CAD 6 million of ARR from our core business in the quarter, which is a decent Q2.

Speaker #5: And so the amount of churn from K12 in the quarter was actually in line with our expectations and plans. We are pleased to report that go forward, we do expect a K12 to return to normal retention and growth, effective Q3, and sort of have this ARR headwind behind us.

Speaker #5: I think the other sort of mechanical thing within ARR is always FX, as well. So in the quarter, just to be clear, there was a $2 million haircut on ARR from FX.

Speaker #5: And so when you sort of reconcile each of those data points, we actually added net $6 million of ARR from our core business in the quarter, which is a decent Q2.

Speaker #4: And then Erin, just to add a little color to the K12 market, I spent a lot of time visiting a number of their clients over the course of the last 12 months as well.

John Baker: Erin, just to add a little color to the K-12 market. I spent a lot of time visiting a number of their clients over the course of the last 12 months as well. By and large, the rest of the client base is very solid. So there are other large clients. For example, most of Canada uses D2L as a learning platform, New Zealand, New York City, many others. So there are still large clients, but the clients that remain are very solid, growing and engaging heavily in terms of new technologies to support a better learning experience. So very confident in our go-forward strategy with K-12. Keep in mind, this is now less than 10% of our overall revenue.

Speaker #4: And by and large, the rest of the client base is very solid. So there are other large clients. For example, most of Canada uses D2L as a learning platform—New Zealand, New York City, and many others.

Speaker #4: And so there are still large clients, but the clients that are that remain are very solid. Growing and engaging heavily in terms of new technologies and support, a better learning experience.

Speaker #4: So, very confident in our go-forward strategy with K-12. And keep in mind, this is now less than 10% of our overall revenue.

Speaker #3: Maybe just a follow-up to that, John. Just on the differences in the US K to 12 market and Canada, and international, is there anything you can call out more specifically on why you have the confidence that this is contained to US?

Erin Kyle: Maybe just a follow-up to that, John. Just on the differences in the US K-12 market and Canada and international, is there anything you can call out more specifically on why you have the confidence that this is contained to US? The nuances of the US K-12 market, I imagine, are different than Canada, for example. So maybe if you could just put some color around that.

Speaker #3: The nuances of the US K to 12 market, I imagine, are different than Canada, for example. So maybe if you can just put some color around that.

Speaker #5: Yeah, I think, generally speaking, it's no secret that overall US K-12 edtech spend is down significantly year over year. In our case, what we're seeing in markets like Canada—Canada's ranked number three in the world, for example, in education.

John Baker: Yeah, I think just generally speaking, it's no secret that the overall US K-12 ed tech spend is down significantly year-over-year. In our case, what we're seeing in markets like Canada is ranked number 3 in the world, for example, in education for K-12. There's a real investment in making sure that their students have the best technology to support a really great learning experience that helps them achieve even better results year-over-year. So there is a real investment in cutting-edge technology to support student learning, and we're seeing that in other markets around the world. That's not to say that that's not existing in the US. I just want to be clear on that. There's just been a general pullback on technology spend across the US in the course of the last 2 years.

Speaker #5: For K12, there's a real investment in making sure that their students have the best technology. To support a really great learning experience that helps them achieve even better results year over year.

Speaker #5: So there is a real investment in cutting-edge technology to support student learning, and we're seeing that in other markets around the world. Not to say that that's not existing in the US—I just want to be clear on that.

Speaker #5: There's just been a general pullback on technology spend across the US in the course of the last two years. And at some point, we hope that that will bounce back.

John Baker: At some point we hope that that will bounce back. In the meantime, we're digging in deeply with the clients that really care deeply about improving educational outcomes for their students.

Speaker #5: And in the meantime, we're digging in deeply with the clients that really care deeply about improving educational outcomes for their students.

Speaker #3: Okay, that's helpful. Thank you. And then maybe I'll just ask one more about the deferred implementation that you called out. Can you expand a bit more on the reason behind that deferral?

Erin Kyle: That's helpful. Thank you. Then maybe I'll just ask one more on the deferred implementation that you called out. Can you expand a bit more on the reason behind that deferral? In your view, is the delayed implementation there, do you feel it's company specific or customer specific to that particular account, or do you think it could be expanded to other contracts as well?

Speaker #3: And then in your view, is the delayed implementation there, do you feel it's company specific or customer specific to that particular account? Or is it do you think it could be expanded to other contracts as well?

Speaker #5: Oh, no. This is very specific to one individual account. It's a very large one. As you can tell by the change in guidance for the year.

John Baker: Oh, no, this is very specific to one individual account. It's a very large one, as you can tell by the change in guidance for the year. It's just sliding the go live into end of Q3 from where we expected it to be much earlier. It's just a very large, complex implementation that required custom software development, and there was a fairly significant change of scope of that software development. So until that implementation is done, it's very hard to sort of go live with all this, in this case, close to 1 million users. So when that does go live later this quarter, we're quite excited to start to recognize the revenue after that point forward, which is part of why we're seeing the confidence in the revenue acceleration at H2 of the year.

Speaker #5: It's just sliding the go-live into end of Q3 from where we expected it to be, much earlier. And it's just a very large complex implementation.

Speaker #5: That required custom software development. And there was a fairly significant change of scope of that software development. So until that implementation is done, it's very hard to sort of go live with all this in this case, close to a million users.

Speaker #5: And so when that does go live, later this quarter, we're quite excited to start to recognize the revenue after that point forward, which is part of why we're seeing the confidence in the revenue acceleration of that half of the year.

Speaker #3: Thank you. I'll pass the line.

Erin Kyle: Thank you. I will pass the line.

Speaker #1: Your next question is from Doug Taylor with National Bank. Doug, your line is open. Please go ahead.

Erin Kyle: Your next question from the line of Doug Taylor with National Bank. Doug, your line is open. Please go ahead.

Operator: Your next question from the line of Doug Taylor with National Bank. Doug, your line is open. Please go ahead.

Speaker #2: Yeah. Thank you. Good morning. John, I'll ask you to maybe comment on the pipeline. You obviously had a strong Q2 for core higher education growth.

Doug Taylor: Yeah, thank you. Good morning. John, I will ask you to maybe comment on the pipeline. You obviously had a strong Q2 for core higher education growth. Can you talk about the momentum and the conversion rates that you think about when and what is required to get to your refreshed guidance now for this year as we think about next?

Speaker #2: Can you talk about the momentum and the conversion rates that you think about and what's required to get to your refreshed guidance now for this year?

Speaker #2: And as we think about next.

Speaker #4: Yeah. The guidance change for this year really has very little to do with the pipeline. It's really just recognizing revenue in year. What I'm excited about is actually the pipeline.

Doug Taylor: Yeah, the guidance change for this year really has very little to do with the pipeline. It is really just recognizing revenue in year. What I am excited about is actually the pipeline. Even in a tough macro market with our fee volume down, we are seeing our win rates continue to climb in our core higher education market in particular. We are seeing flagship wins like UNSW Sydney is a great example. It is a top 20 university globally. It is not just in one region. We are seeing wins in many different regions around the world. I am very bullish on the team's work on the pipeline. We are not done yet, Doug. There is a big effort ahead of us to really fire up a replacement cycle to encourage clients to move to an AI-first learning platform.

John Baker: Yeah, the guidance change for this year really has very little to do with the pipeline. It is really just recognizing revenue in year. What I am excited about is actually the pipeline. Even in a tough macro market with our fee volume down, we are seeing our win rates continue to climb in our core higher education market in particular. We are seeing flagship wins like UNSW Sydney is a great example. It is a top 20 university globally. It is not just in one region. We are seeing wins in many different regions around the world. I am very bullish on the team's work on the pipeline. We are not done yet, Doug. There is a big effort ahead of us to really fire up a replacement cycle to encourage clients to move to an AI-first learning platform.

Speaker #4: Even in a tough macro market, with our fee volume down, we're seeing our win rates continue to climb in our core higher education market in particular.

Speaker #4: We're seeing flagship wins like UNSW, Sydney is a great example. It's the top 20 university globally. And it's not just in one region. We're seeing wins in many different regions around the world.

Speaker #4: And so I'm very bullish on the teams work on the pipeline. We're not done yet, Doug. There's a big effort ahead of us to really fire up a replacement cycle to encourage clients to move to an AI-first learning platform.

Speaker #4: But I'm confident, over the course of the next few months, we'll get that really started to fire up. Because what we're seeing now with our clients is close to an order-of-magnitude improvement.

Doug Taylor: But I am confident over the course of the next few months, we will get that really started to fire up because what we are seeing now with our clients is close to an order of magnitude improvement. So the combination of our learning services with Lumi, with Creator+ is really having a major impact on improving educational outcomes. So completion rates are going really high up, which for a university, for example, if they can improve completion rates or retention of students by 10%, that is tens of millions, possibly even hundreds of millions for some of our bigger clients. And so that is compelling just by itself, but we are also saving a tremendous amount of money in terms of development of high-quality learning experiences.

John Baker: But I am confident over the course of the next few months, we will get that really started to fire up because what we are seeing now with our clients is close to an order of magnitude improvement. So the combination of our learning services with Lumi, with Creator+ is really having a major impact on improving educational outcomes. So completion rates are going really high up, which for a university, for example, if they can improve completion rates or retention of students by 10%, that is tens of millions, possibly even hundreds of millions for some of our bigger clients. And so that is compelling just by itself, but we are also saving a tremendous amount of money in terms of development of high-quality learning experiences.

Speaker #4: So the combination of our learning services with Lumi, with Creator Plus, is really having a major impact on proving educational outcomes. So completion rates are going really high up, which for a university, for example, if they can improve completion rates for retention of students by 10%, that's tens of millions, possibly even hundreds of millions for some of our bigger itself.

Speaker #4: But we're also saving a tremendous amount of money in terms of development of high-quality learning experiences. And at the same time, what we have is an environment where students are really desperate to have a better learning experience.

Doug Taylor: And at the same time, what we have is an environment where students are really desperate to have a better learning experience because they are up against students that may be using other technologies to sort of write an essay or to do some of the work, and they want better learning experiences to actually have a better outcome for their own career, for their own progression in life. And so all these, I think, are going to turn into a tailwind for us as we look ahead. And that is starting to show up in the pipeline. We are seeing healthy pipeline generation. But the work is still being done to really start this replacement cycle in the market that will drive our fee volume with our high win rates. That would be a very compelling event.

John Baker: And at the same time, what we have is an environment where students are really desperate to have a better learning experience because they are up against students that may be using other technologies to sort of write an essay or to do some of the work, and they want better learning experiences to actually have a better outcome for their own career, for their own progression in life. And so all these, I think, are going to turn into a tailwind for us as we look ahead. And that is starting to show up in the pipeline. We are seeing healthy pipeline generation. But the work is still being done to really start this replacement cycle in the market that will drive our fee volume with our high win rates. That would be a very compelling event.

Speaker #4: Because they're up against students that may be using other technologies to sort of write an essay or to do some of the work, and they want better learning experiences, to actually have a better outcome for their own career, for their own progression in life.

Speaker #4: And so, all these, I think, are going to turn into a tailwind for us as we look ahead. And that's starting to show up in the pipeline.

Speaker #4: We're seeing healthy pipeline generation. But the work's still being done to really start this replacement cycle in the market. That will drive our fee volume.

Speaker #4: With our high win rates, that will be a very compelling event.

Speaker #2: You've talked about these high win rates and a lot of the success you've had has come I guess at the expense of some of your legacy competitors.

Doug Taylor: You have talked about these high win rates and a lot of the success you have had has come, I guess, at the expense of some of your legacy competitors. But as you use Lumi and AI as a competitive differentiator in future new wins, can you maybe talk about whether there has been a change here in the budget that some of these institutions are willing to allocate towards investment in that technology versus just replacing legacy systems?

Speaker #2: But as you use Lumi and AI as a competitive differentiator in future new wins, can you maybe talk about whether there’s been a change here in the budget that some of these institutions are willing to allocate toward investment in that technology versus just replacing legacy systems?

Speaker #5: I think that's the part that we had to unlock in the back half of this year. It's really helping these institutions understand the value that could come from these technologies.

Doug Taylor: I think that is the part that we have to unlock in the back half of this year, is really helping these institutions understand the value that could come from these technologies. I would imagine most do not realize they can get an order of magnitude improvement by implementing these technologies to support a better learning experience. They just do not have that connection yet. So we have a big education effort ahead of us, but I think it is very compelling. I do not think there is any budget issue from all the clients that I am speaking to. They have budget for AI. There is no sticker price issue with our technology. The key now is trying to figure out the unlocks to get them to buy it as quickly as possible. We are seeing good attach with new clients, which is very encouraging, over 40% buying it right out of the gate.

John Baker: I think that is the part that we have to unlock in the back half of this year, is really helping these institutions understand the value that could come from these technologies. I would imagine most do not realize they can get an order of magnitude improvement by implementing these technologies to support a better learning experience. They just do not have that connection yet. So we have a big education effort ahead of us, but I think it is very compelling. I do not think there is any budget issue from all the clients that I am speaking to. They have budget for AI. There is no sticker price issue with our technology. The key now is trying to figure out the unlocks to get them to buy it as quickly as possible. We are seeing good attach with new clients, which is very encouraging, over 40% buying it right out of the gate.

Speaker #5: I would imagine most don't realize they can get an order of magnitude improvement by implementing these technologies to support a better learning experience. They just don't have that connection yet.

Speaker #5: So we have a big education effort ahead of us. But I think it is very compelling. I don't think there's any budget issue. From all the clients that I'm speaking to, they have budget for AI.

Speaker #5: They have there's there's no sticker price issue with our technology. The key now is trying to figure out the unlocks to get them to buy it as quickly as possible.

Speaker #5: We're seeing good attach with new clients, which is very encouraging. Over 40% are buying it right out of the gate. We're also seeing the attach rate for existing clients ticking up.

Doug Taylor: We're seeing the attach rate for existing clients ticking up, but we want to see it tick up much, much faster. I know it sounds strange, but we're happy with the growth that we've seen so far in H1 of the year with Lumi, but the back half, we're hoping to really start to accelerate the growth.

John Baker: We're seeing the attach rate for existing clients ticking up, but we want to see it tick up much, much faster. I know it sounds strange, but we're happy with the growth that we've seen so far in H1 of the year with Lumi, but the back half, we're hoping to really start to accelerate the growth.

Speaker #5: But we want to see it tick up much, much faster. We might—I know it sounds strange—but we're happy with the growth that we've seen so far in the first half of the year with Lumi.

Speaker #5: But the back half, we're hoping to really start to accelerate the growth.

Speaker #2: Okay, and one more for me. Maybe this one's better suited for Josh. I think you've done a good job articulating the short-term headwinds that you faced in recent quarters.

Doug Taylor: Okay. One more for me. Maybe this one's better suited for Josh. I think you've done a good job articulating the short-term headwinds that you faced in recent quarters. You also did, in your prepared remarks, reiterate the 10% to 15% growth objective as we think about next year. You do have some lingering stubs you'll be lapping from K to 12, FX, and perhaps the professional services set up. Can I maybe just get you to talk through some of those things, the puts and takes, as we think about the growth profile into next year?

Speaker #2: You also did, in your prepared remarks, reiterate that 10% to 15% growth objective as we think about next year. You do have some lingering stubs you'll be lapping from K–12, FX, and perhaps the PS (professional services) setup.

Speaker #2: Can I maybe just get you to talk through some of those things that puts and takes as we think about the growth profile into next year?

Speaker #4: Yeah, absolutely. Appreciate the question. In Q2, as we mentioned, we've always had a bit of this trough dynamic. And so, as we look forward into the second half of the year, we'll start to see some accelerants.

Josh Huff: Yeah, absolutely. Appreciate the question. In Q2, as we mentioned, sort of always had a bit of this trough dynamic, and so as we look forward into H2 of the year, we'll start to see some accelerance this back half. Implicit in the guidance, you kind of can map into a 7% subscription growth in H2 and a 16% EBITDA margin in H2. As you mentioned, those headwinds abating on the K12 front, we'll see that most readily in ARR starting Q3 and beyond. It'll effectively be a sort of clean representation of ads.

Speaker #4: This back half, in the implicit in the guidance, you kind of can map into a 7% subscription growth in the second half. And a 16% EBITDA margin in the second half.

Speaker #4: But also, as you mentioned, those headwinds abating on the K-12 front—we'll see that most readily in ARR. Starting Q3 and beyond, it'll effectively be a sort of clean representation of ads.

Speaker #4: And then on the margin front, the COGS work has actually sort of exceeded our expectations slightly, and so we start to see in the back half of this year already a bit of a step up in our margin profile.

Josh Huff: On the margin front, the COGS work has actually sort of exceeded our expectations slightly, and so we start to see in the back half of this year already, a bit of a step up in our margin profile and that will continue into next fiscal. I'd say more importantly, it really comes down to looking at sort of that core business performance. We look at that ex K12 ARR growth being low double digit the past four quarters, 11% this past quarter. Win rates are strong. International continues to tick at about a 15% growth profile. As John mentioned, we continue to see a really good opportunity with Creator+ and Lumi.

Speaker #4: And that will continue into next fiscal. And I'd say more importantly, it really comes down to looking at sort of that core business performance.

Speaker #4: We look at that ex-K-12 ARR growth being low double digits the past four quarters—11% this past quarter. Win rates are strong. International continues to tick at about a 15% growth profile.

Speaker #4: As John mentioned, we continue to see a really good opportunity with Creator Plus and things are sort of getting us comfortable with our plans to step up into that F-28 operating model and certainly we're committed and focused as a management team to getting there.

Josh Huff: All of those things are sort of getting us comfortable with our plans to step up into that F28 operating model, and certainly we are committed and focused as a management team to getting there.

Speaker #2: Thank you. I'll pass the line.

Doug Taylor: Thank you. I will pass the line.

Speaker #1: Okay. Next question from the line of Gavin Fairweather with Cormac. Gavin, your line is open. Please go ahead.

Doug Taylor: Your next question from the line of Gavin Fairweather with Cormark. Gavin, your line is open. Please go ahead.

Operator: Your next question from the line of Gavin Fairweather with Cormark. Gavin, your line is open. Please go ahead.

Speaker #3: Oh, hey. Good morning. Thanks for taking my questions. Maybe just to start on Australia, I think you've added some sales investments in recent quarters.

Gavin Fairweather: Oh, hey, good morning. Thanks for taking my questions. Maybe just to start on Australia. I think you have added some sales investments in recent quarters, and nice to see the UNSW win coming through subsequent to quarter end. So maybe you can just refresh us on your view of the market structure in Australia and your ambition to that market in years ahead.

Speaker #3: And nice to see the UNSW win coming through subsequent to quarter-end. So maybe you can just refresh us on your view of the market structure in Australia and your ambitions in that market in the years ahead.

Speaker #5: Yes. It's not just Australia. Australia is one of many markets which are now really coming to life for us as a company. What's interesting in Australia is up until recently, we did not have a lot of wins in that region in higher education.

John Baker: Yes. It's not just Australia. Australia is one of many markets which are now really coming to life for us as a company. What's interesting in Australia is, you know, up until recently, we did not have a lot of wins in that region in higher education. We had great clients, great proof points. The market was largely Canvas and Moodle, and we're now starting to see the momentum shift in that market to us with the most two big wins. UNSW is a fantastic one, a great school, very committed to really having a big impact on improving the student learning experience, a very prestigious institution, and I think they're gonna be a great partner. University of Otago, another great example of New Zealand. There's some fantastic new wins in that region of really great clients.

Speaker #5: We had great clients, great proof points. The market was largely Canvas and Moodle. And we're now starting to see the momentum shift in that market to us with those two big wins. UNSW is a fantastic one—a great school, very committed to really having a big impact on improving the student learning experience.

Speaker #5: Had a very prestigious institution. And I think they're going to be a great partner. University of Otaga another great example in New Zealand. There's some fantastic new wins in that region, really great clients.

Speaker #5: And I think it's also a good example of where all these institutions are also using H5P in that region as well too. And so you get this cross-pollination of great experiences but that institution in particular did a very detailed diligence review of our platform and us as a company to make that decision.

John Baker: I think it's also a good example of where, you know, all of these institutions are also using H5P in that region as well too. So you get this cross-pollination of great experiences. But that institution in particular did a very detailed diligence review of our platform and us as a company to make that decision. I think it's gonna be hopefully an example for many other prestigious institutions from around the world to make similar choices in the year ahead. I think that market dynamic is playing out, whether it's in Singapore or Netherlands or South Africa or many, many other countries around the world. This is not just an isolated spot or example, if you will.

Speaker #5: And I think it's going to be hopefully an example for many other prestigious institutions from around the world to make similar choices in the year ahead.

Speaker #5: I think that market dynamic is playing out, whether it's in Singapore, the Netherlands, South Africa, or many, many other countries around the world.

Speaker #5: There's not just an isolated spot, or example, if you will.

Speaker #3: That's great. And then maybe just turning to the corporate side—further momentum this quarter on the membership side. I know that a goal of the company is to push more into employee training.

Gavin Fairweather: That's great. Then maybe just turning to the corporate side, you know, further momentum this quarter on the membership side. I know that, you know, a goal of the company is to push more into employee training. Maybe just you could provide us with an update there. You know, I know there's been a lot of product work underway, and you've hired some new leadership. You know, I know it's probably not gonna impact the back half of this fiscal year, but maybe just update us on the strategy and progress heading into fiscal 2028.

Speaker #3: Maybe you could just provide us with an update there. I know there's been a lot of product work underway, and you've hired some new leadership.

Speaker #3: I know it's probably not going to impact the back half of this fiscal year, but maybe just update us on the strategy and progress heading into fiscal 28.

Speaker #5: No. I think you're still seeing fantastic growth there, especially for training organizations. Where their members need a fantastic learning experience to support those training organizations continue to support their mandates and drive additional revenue for those organizations.

John Baker: No, I think you're still seeing fantastic growth there, especially for training organizations where their members need a fantastic learning experience to support those training organizations continue to support their mandates and drive additional revenue for those organizations. So that's a very strong part of our business and growing quite quickly. You know, we continue to invest across all of our markets in terms of developing new product, new technologies to really support us making sure that we can continually expand the market opportunity that's in front of us. I remain very bullish on corporate being a critical market for us because as you can imagine, anytime that all these industries are going through this big transformation, they're gonna need upskilling and learning, and we're the best platform for them to deliver that to their members.

Speaker #5: So that's a very strong part of our business and growing quite quickly. We continue to invest across all of our markets in terms of developing new product, new technologies to really support us making sure that we can continually expand the market opportunity that's in front of us.

Speaker #5: And I remain very bullish on corporate being a critical market for us because as you can imagine, any time that all these industries are going through this big transformation, they're going to need upskilling and learning.

Speaker #5: And we're the best platform for them to deliver that to their members. And we're quite excited to see the new clients coming on board this past quarter and very bullish on the opportunities in front of us with the new leadership and also the expanded team.

John Baker: We are quite excited to see the new clients coming on board this past quarter. We are very bullish on the opportunities in front of us with the new leadership and also the expanded team.

Speaker #3: Thanks so much. I'll pass the line.

Gavin Fairweather: Thanks so much. I will pass the line.

Speaker #1: Okay. Next question from the line of John Chow. TD Cowen. John, your line is open. Please go ahead.

Gavin Fairweather: Your next question from the line of John Shao, TD Cowen. John, your line is open. Please go ahead.

Operator: Your next question from the line of John Shao, TD Cowen. John, your line is open. Please go ahead.

Speaker #6: Hey. Good morning, guys. Thanks for taking my question. So, in terms of the Lumi ARR, it's good to see that 40% growth in just two quarters.

John Shao: Hey, good morning, guys. Thanks for taking my question. In terms of the Lumi ARR, it is good to see that 40% growth in just two quarters. I understand the attach rate for new customers is relatively high. My question is, how do you plan to drive a higher attach rate among your existing cohort? Is it more of a conversation at renewal, or is the conversation already happening?

Speaker #6: And I understand that tax rate for new customers is relatively high. So my question is, how do you plan to drive a higher tax rate among your existing cohort?

Speaker #6: It's more of a conversation at renewal or is this something or the conversation already happened?

John Baker: The conversation is typical for renewal. That said, the impact that Lumi has now with clients is so significant they should be embracing it today. They shouldn't be waiting. You know, I'm actually personally sitting down with the team to understand all the key objections that get in the way of people trying to buy Lumi today, and seeing if we can figure out how to knock them back as quickly as possible. You know, John, like this is a technology where if they implement it, all of a sudden you can do things like translate this content into different languages. You can automatically take a Word document and convert it into a beautifully engaging interactive learning experience with

Speaker #5: The conversation is typical for renewal. That said, the impact that Lumi has now with clients is so significant it should be embracing it today.

Speaker #5: It shouldn't be waiting. So, I'm actually personally sitting down with the team to understand all the key objections that get in the way of people trying to buy Lumi today.

Speaker #5: And seeing if we can figure out how to knock them back as quickly as possible. John, this is a technology where, if they implement it, all of a sudden you can do things like translate this content into different languages.

Speaker #5: You can automatically take a Word document and convert it into a beautifully engaging interactive learning experience with interactives and flashcards and quick knowledge checks on the bottom of every page.

John Baker: interactives and flashcards and quick knowledge checks on the bottom of every page. It just makes learning so much better for students. We now have closing in on 10 different efficacy studies that demonstrate the impact that it has in terms of improving educational outcomes. Then our learning services team has actually figured out ways to really drive down the cost of developing all of these courses as well. So the combination of those two things is so compelling for clients. It's literally almost 10X better than the way that they've been doing it so far to date. Anytime you can get a product to the point where it's 10X, that's compelling enough to put in place the purchase today. There's little to no risk attached to these clients putting this technology.

Speaker #5: It just makes learning so much better for students. We now have close to 10 different efficacy studies that demonstrate the impact that it has in terms of improving educational outcomes.

Speaker #5: And then our learning services team is actually figured out ways to really drive down the cost of developing all of these courses as well.

Speaker #5: So the combination of those two things is so compelling for clients. It's literally almost 10X better than the way that they've been doing it so far to date.

Speaker #5: And anytime you can get a product to the point where it's 10X, that's compelling enough to put in place the purchase today. There's little to no risk attached to these clients putting this technology.

Speaker #5: The clients that have embraced it have had a tremendous impact on their businesses, and we just need to get the word out, I think.

John Baker: The clients that have embraced it have had a tremendous impact on their businesses, and we just need to get the word out, I think.

Speaker #6: Got it. And in terms of your PS revenue guidance this quarter, I'm just curious, is there weakness largely discretionary or cyclical? Does it reflect a structural change in how customer purchase your PS services?

John Shao: Got it. In terms of your PS revenue guidance this quarter, I'm just curious, is the weakness largely discretionary or cyclical? Does it reflect a structural change in how customer purchase your PS services? My understanding is that you have shortened the deployment cycles. What is the implication maybe for your future PS revenue going forward?

Speaker #6: My understanding is you have shortened the deployment cycles. What is the implication maybe for your future PS revenue going forward?

John Shao: It is largely just on advisory services. It is not on the implementation side of it. I just want to be clear on that. It is largely just softness in a particular quarter. It is not an overall major trend here. I think the overall services for professional services has just largely been flat for a couple of years now. We saw a big spike up during the pandemic, as you can imagine. I am not sure why it is not going up and to the right, to be honest. It does not need to if we can drive the ARR adoption without it going way up, because we are not counting on services, if you will, as a big revenue driver. But we think there is tremendous value in that team. That team, as I said earlier, can unlock the ability for you to 10X improve the educational outcomes for your students.

John Baker: It is largely just on advisory services. It is not on the implementation side of it. I just want to be clear on that. It is largely just softness in a particular quarter. It is not an overall major trend here. I think the overall services for professional services has just largely been flat for a couple of years now. We saw a big spike up during the pandemic, as you can imagine. I am not sure why it is not going up and to the right, to be honest. It does not need to if we can drive the ARR adoption without it going way up, because we are not counting on services, if you will, as a big revenue driver. But we think there is tremendous value in that team. That team, as I said earlier, can unlock the ability for you to 10X improve the educational outcomes for your students.

Speaker #5: It's largely just on advisory services. It's not on the implementation side of it. I just want to be clear on that. And it's largely just softness in a particular quarter.

Speaker #5: It's not an overall major trend here. I think the overall services for professional services have just largely been flat for a couple of years now.

Speaker #5: We saw a big spike up during the pandemic, as you can imagine. I'm not sure why it isn't going up to the right, to be honest.

Speaker #5: It doesn't need to if we can drive the AR adoption without it going way up. We're not counting on services, if you will, as a big revenue driver.

Speaker #5: But we think there's tremendous value in that team. That team, as I said earlier, can unlock the ability for you to 10x improve the educational outcomes for your students.

Speaker #5: And so why wouldn't you engage with them? Similar to Lumi, I'm sitting down with a team to try to figure out what are the blocks in terms of getting this adopted.

John Shao: Why wouldn't you engage with them? So similar to Lumi, I am sitting down with the team to try to figure out what are the blocks in terms of getting this adopted more widely. Again, for clarity, there are great clients that are engaging with this team to drive really incredible results with their programs, and they come back and buy that service over and over again. So it is not like there is not great case studies. There is fantastic case studies there. We just need to make more of our client base aware of this great service. Sometimes it is not just the technology, it is the combination of technology and people that really have a big impact.

John Baker: Why wouldn't you engage with them? So similar to Lumi, I am sitting down with the team to try to figure out what are the blocks in terms of getting this adopted more widely. Again, for clarity, there are great clients that are engaging with this team to drive really incredible results with their programs, and they come back and buy that service over and over again. So it is not like there is not great case studies. There is fantastic case studies there. We just need to make more of our client base aware of this great service. Sometimes it is not just the technology, it is the combination of technology and people that really have a big impact.

Speaker #5: More widely. And again, for clarity, there are great clients that are engaging with this team. To drive really incredible results with their programs. And they come back and buy that service over and over again.

Speaker #5: So it's not like there's not great case studies. There's fantastic case studies there. We just need to make more of our client base aware of this great service.

Speaker #5: Sometimes, it's not just the technology; it's the combination of technology and people that really has a big impact. And I think one of the things that we're going to try to do is really think about how the advisory services group could be thought of almost as forward-deployed engineers that are out there helping clients embrace these new AI technologies, these new approaches to building courses.

John Shao: I think one of the things that we are going to try to do is really think about how the advisory services group could be thought of almost as four deployed engineers that are out there helping clients embrace these new AI technologies, these new approaches to building courses. That might be part of the way that we spike that revenue back up in the back half of the year and into next.

John Baker: I think one of the things that we are going to try to do is really think about how the advisory services group could be thought of almost as four deployed engineers that are out there helping clients embrace these new AI technologies, these new approaches to building courses. That might be part of the way that we spike that revenue back up in the back half of the year and into next.

Speaker #5: And that might be part of the way that we spike that revenue back up in the back half a year and into next.

Speaker #6: That's great. Caller, thank you. I'll pass the line.

John Shao: That is great color. Thank you. I will pop the line.

Speaker #1: Okay. Next question from the line of Thanos Michopulos with BMO Capital Markets. Thanos, your line is open. Please go ahead.

John Shao: Your next question from the line of Thanos Moschopoulos with BMO Capital Markets. Thanos, your line is open. Please go ahead.

Operator: Your next question from the line of Thanos Moschopoulos with BMO Capital Markets. Thanos, your line is open. Please go ahead.

Speaker #7: Hi. Good morning. John, with respect to your increasing win rates and if you look at some larger marquee wins you've had like with in Australia, I imagine these are very complex RFPs where there's a lot of criteria that go into the selection process.

Thanos Moschopoulos: Hi, good morning. John, with respect to your increasing win rates, if you look at some larger marquee wins you have had, like in Australia, I imagine these are very complex RFPs where there is a lot of criteria that go into the selection process. But has a lot of the increasing win rate been due specifically to some of the new capabilities like Lumi, or are there a lot more ingredients that go into it encompassing the overall strength of the platform and other factors?

Speaker #7: But is there is a lot of the increasing win rate been due specifically to some of the new capabilities like Lumi? Or are there a lot more ingredients that go into it encompassing the overall strength of the platform and other factors?

Speaker #5: Well, I think similar to other wins that we've seen in the past, it's many factors that are playing into why they're selecting us. Lumi is certainly a big factor.

John Baker: Well, I think, similar to other wins that we have seen in the past, it is many factors that are playing into why they are selecting us. Lumi is certainly a big factor. It may not be in the actual RFP itself, but as you are looking at implementing these technologies today, you want to pick a partner that is going to have the right solution in place for the next 5, 10, 15, 20 years. You want to pick somebody that has not just got the right product today, but has the right engineering, the right mindset, the right approach to design, the right approach to AI that is going to enable you to be successful many years into the future. I think we spoke about the University of Ottawa previously, where they did a major renewal over a decade long after doing a similar in-depth review.

Speaker #5: It may not be in the actual RFP itself, but as you're looking at implementing this technologies today, you want to pick a partner that's going to have the right solution in place for the next 5, 10, 15, 20 years.

Speaker #5: And so you want to pick somebody that's not just got the right product today, but has the right engineering, the right mindset, the right approach to design, the right approach to AI that's going to enable you to be successful many years into the future.

Speaker #5: And I think we spoke about the University of Ottawa previously, where they did a major renewal over a decade-long period after doing a similar in-depth review.

Speaker #5: So, it's across all these factors: support, partnership, innovation, roadmap, AI, the learning experience. I think the other big factor that's playing in is the work that we're doing around the content experience.

John Baker: So it is across all these factors: support, partnership, innovation, roadmap, AI, the learning experience. I think the other big factor that is playing in is the work that we are doing around the content experience. So students are looking for a better educational journey. They do not want to read just big blocks of text or big PDF files or big Word documents anymore. The ability for us to take that and transform that into a really engaging, interactive experience is something that is very popular with a lot of our clients today. We have, again, very compelling differentiation there with Creator+, with H5P, and now with Lumi as an AI agent that is helping them leverage these other technologies. You are getting this beautiful stacking of these technologies together to really have a big impact for these clients.

Speaker #5: So, students are looking for a better educational journey. They don't really want big blocks of text, or large PDF files, or big Word documents anymore.

Speaker #5: And so the ability for us to take that and transform that into a really engaging interactive experience is something that's very popular with a lot of our clients today.

Speaker #5: And we have, again, very compelling differentiation there with Creator+ and H5P. And now, with Lumi as an AI agent that's helping them leverage these other technologies, you're getting this beautiful stacking of these technologies together to really have a big impact for these clients.

Speaker #5: So I wish there was just like one thing that's compelling everybody, but it's actually all these factors that are super compelling for them.

John Baker: I wish there was just one thing that is compelling everybody, but it is actually all these factors that are super compelling for them.

Speaker #7: Great. On K-12, recognizing that it's a small portion of the business now, now that you're through this churn, would you expect that segment to still remain the dragon overall corporate growth or is there an opportunity for that to leave your approach a growth rate that's more similar to the overall corporate average?

Thanos Moschopoulos: Great. On K-12, recognizing that that is a small portion of the business now that you are through this churn, would you expect that segment to still remain the drag on overall corporate growth, or is there an opportunity for that to maybe approach growth rates more similar to the overall corporate average?

John Baker: I think there is an opportunity for it to return to the average. The base that we have is very strong. The impact that we are having with those clients is big. K-12 is going through a very similar transformation as every other sector that we are working in in terms of how they deliver the great educational experiences. Our technology is perfectly suited for that market. But again, it is a small base. It is much easier to grow in a small base. We do believe our product is a great fit for that market long term. Does it get the same attention as the other 90% plus of our business? Proportionally, I think it is a fair investment that enables us to keep that base very strong and enables us to potentially return to it not being a drag, but hopefully supporting the growth, long term.

Speaker #5: I think there's an opportunity for it to return to the average. The base that we have is very strong. The impact that we're having with those clients is big.

Speaker #5: And K-12 is going through a very similar transformation as every other sector that we're working in in terms of how they deliver the great educational experiences.

Speaker #5: And so our technology is perfectly suited for that market. But again, it's a small base. It's much easier to grow in a small base and we do believe our product is a great fit for that market long term.

Speaker #5: So, does it get the same attention as the other 90-plus percent of our business? Proportionately, I think it's a fair investment that enables us to keep that base very strong and enables us to potentially return to it not being a drag, but hopefully supporting growth long term.

Speaker #7: Great. I'll pass the line. Thank you.

Thanos Moschopoulos: Great. I will pass the line. Thank you.

Speaker #1: Your next question from the line of Brian Peterson with Raymond James. Brian, your line is open. Please go ahead.

Thanos Moschopoulos: Your next question from the line of Brian Peterson with Raymond James. Brian, your line is open. Please go ahead.

Operator: Your next question from the line of Brian Peterson with Raymond James. Brian, your line is open. Please go ahead.

Speaker #8: Hi, gentlemen. Thanks for taking the question. Josh, one for you. Just on the K-12 churn side, is there any way to kind of help us understand when that was reflected in ARR over the last few quarters?

Brian Peterson: Hey, gentlemen. Thanks for taking the question. Josh, one for you. Just on the K-12 churn side, is there any way to help us understand when that was reflected in ARR over the last few quarters? I say that not because of you guys size it, so we can look at the ARR growth rate, but I just want to make sure I am tracking the sequential change and when that started to impact results maybe a few quarters ago versus now.

Speaker #8: And I say that not because you guys size it, right? So we can kind of look at the ARR growth rate, but I just want to make sure I'm tracking the sequential change.

Speaker #8: And when that started to impact results, maybe a few quarters ago versus now.

Speaker #5: Yeah, for sure. So Q2 was sort of the final tranche and as we sort of articulated the data points in an earlier question, was sort of the largest batch and so we started to see that impact RevRec in Q2.

Josh Huff: Yeah, for sure. Q2 was the final tranche, and as we articulated the data points in an earlier question, was the largest batch. We started to see that impact rev rec in Q2. There would have been a bit of a gradual step up over the past three quarters where we would have seen an impact on rev rec. We still see a bit of that obviously impact in the back half, which is why, as Matt mentioned, implicit in our guidance is a 7% subscription growth profile and not something more reflective of our ex K-12 ARR growth rates just yet. That is the timeline, and magnitude and impact.

Speaker #5: And so there would have been a bit of a gradual step up over the past sort of three quarters where we would have seen an impact on RevRec.

Speaker #5: We still see a bit of that. Obviously, impact in the back half, which is why, as mentioned, implicit in our guidance is a 7% subscription growth profile and not something more reflective of our ex-K-12 ARR growth rates just yet.

Speaker #5: But that's sort of the timeline, magnitude, and impact.

Speaker #8: Okay. Thanks, Josh. And John, maybe one for you. Can you just remind us and I understand you and maybe in structure have pretty good market share in North America, but as I think about internationally, how much of those systems are still on legacy platforms?

Brian Peterson: Okay. Thanks, Josh. John, maybe one for you. Can you just remind us, and I understand you and maybe Instructure have pretty good market share in North America, but as I think about internationally, how much of those systems are still on legacy platforms? As you think about that pipeline to move to cloud-based solutions, has AI accelerated that growth? I just would love to understand maybe the size of that opportunity and any momentum you are seeing there. Thanks, guys.

Speaker #8: And as you think about that pipeline to move to kind of cloud-based solutions, has AI accelerated that growth? And just would love to understand maybe the size of that opportunity in any momentum you're seeing there.

Speaker #8: Thanks, guys.

Speaker #5: Yeah, that's a great question, Brian. So international, we've seen, again, be about 15% growth rate for us on ARR, which is fantastic. I think that can continue to maintain or accelerate even because it's not just a move to cloud.

Brian Peterson: Yeah, that's a great question, Brian. International, we are seeing, again, the 15% growth rate for us on ARR, which is fantastic. I think that can continue to maintain or accelerate even, because it's not just a move to cloud. I think with 80% plus still on legacy, I would argue 90% plus because I would lump Canvas into the legacy mix now. I think there is a very compelling opportunity internationally. International, as you know, is making up a bigger and bigger part of our base. As that continues to accelerate, it gives us very good confidence that we can achieve our 10% to 15% next year in terms of overall growth. I want to be clear, it's not just cloud, it's this transition to an AI first learning platform.

John Baker: Yeah, that's a great question, Brian. International, we are seeing, again, the 15% growth rate for us on ARR, which is fantastic. I think that can continue to maintain or accelerate even, because it's not just a move to cloud. I think with 80% plus still on legacy, I would argue 90% plus because I would lump Canvas into the legacy mix now. I think there is a very compelling opportunity internationally. International, as you know, is making up a bigger and bigger part of our base. As that continues to accelerate, it gives us very good confidence that we can achieve our 10% to 15% next year in terms of overall growth. I want to be clear, it's not just cloud, it's this transition to an AI first learning platform.

Speaker #5: I think with 80-plus percent still on legacy, I would argue 90-plus percent, because I would lump Canvas into the legacy mix now. I think there is a very compelling opportunity internationally.

Speaker #5: And international, as you know, is making up a bigger and bigger part of our base. So, as that continues to accelerate, it gives us very good confidence that we can achieve our 10% to 15% next year.

Speaker #5: In terms of overall growth, I want to be clear, it's not just cloud. It's this transition to an AI-first learning platform. In the past, we would compete and we would try to be like 3% better or 5% better.

Brian Peterson: In the past we would compete and we would try to be 3% better or 5% better. I think the combination of our learning services plus Lumi, plus Creator+, of some of these other technologies that we've brought to bear is now putting us in a position where we can almost be 10X better, not 3% better, but significantly better than what they're using today in terms of improving educational outcomes and driving down costs. So that, I think, opens up a big replacement cycle globally because if an institution can save that much money or retain that much revenue, then the cost of our technology becomes almost free. So we do want to lean into international in a much bigger way. That said, we still see tremendous opportunities for growth in North America. It's been held back a little with the K-12 churn in the US.

John Baker: In the past we would compete and we would try to be 3% better or 5% better. I think the combination of our learning services plus Lumi, plus Creator+, of some of these other technologies that we've brought to bear is now putting us in a position where we can almost be 10X better, not 3% better, but significantly better than what they're using today in terms of improving educational outcomes and driving down costs. So that, I think, opens up a big replacement cycle globally because if an institution can save that much money or retain that much revenue, then the cost of our technology becomes almost free. So we do want to lean into international in a much bigger way. That said, we still see tremendous opportunities for growth in North America. It's been held back a little with the K-12 churn in the US.

Speaker #5: I think the combination of our learning services, plus Lumi, plus Creator Plus, plus some of these other technologies that we brought to bear, is now putting us in a position where we can almost be 10x better.

Speaker #5: Not 3% better, but significantly better than what they're using today, in terms of improving educational outcomes and driving down cost. So that, I think, opens up a big replacement cycle globally.

Speaker #5: Because if an institution's can save that much money or retain that much revenue, then the cost of our technology becomes almost free. And so we do want to lean into international on a much bigger way.

Speaker #5: And that said, we still see tremendous opportunities for growth in North America. We've just been it's been held back a little with the K-12 churn in the US.

Speaker #8: Thanks, John.

Brian Peterson: Thanks, John.

Speaker #1: Your next question comes from the line of Essie Taste with Staple. Essie, your line is open. Please go ahead. Your next question comes from the line of Ty Sullivan with RBC Capital Markets.

Brian Peterson: Your next question from the line of Essie Tasche with Stifel. Essie, your line is open. Please go ahead. Your next question from the line of Ty Sullivan with RBC Capital Markets. Ty, your line is open. Please go ahead.

Operator: Your next question from the line of Essie Tasche with Stifel. Essie, your line is open. Please go ahead. Your next question from the line of Ty Sullivan with RBC Capital Markets. Ty, your line is open. Please go ahead.

Speaker #1: Ty, your line is open. Please go ahead.

Speaker #9: Hi, morning, guys. Thanks for taking the questions. Just on the light revenue for the quarter, you called out the 0.8 million delayed go-live as well as softer advisory services.

Brian Peterson: Hi. Morning, guys. Thanks for taking the questions. On the light revenue for the quarter, you called out the 0.8 million delayed go live as well as softer advisory services. Were those the two main contributing factors or was there anything else at play during the quarter?

Ty Sullivan: Hi. Morning, guys. Thanks for taking the questions. On the light revenue for the quarter, you called out the 0.8 million delayed go live as well as softer advisory services. Were those the two main contributing factors or was there anything else at play during the quarter?

Speaker #9: Were those sort of the two main contributing factors or was there anything else at play during the quarter?

Josh Huff: Yeah. The bridge from a lower subscription growth profile in Q2 versus the norm would be a combination of the K-12 drag, the delayed go live, and then relative to initial expectations, the non-USD foreign exchange rates have had more pressure relative to what our expectations were at the start of the year. That has taken a chunk out of Q2 as well as full year expectations on subscription.

Speaker #5: Yeah, the sort of bridge from a lower subscription growth profile in Q2 versus sort of the norm would be a combination of the K-12 drag, the delayed go-live, and then sort of relative to initial expectations, the non-USD foreign exchange rates.

Speaker #5: Have had more pressure relative to what sort of our expectations were at the start of the year. And so that's taken a chunk out of sort of Q2 as well as full-year expectations on subscription.

Speaker #9: Okay, thanks. That's helpful. And just on the guidance for the year, obviously, revenue guidance was lowered, but even the guidance was maintained. Where specifically do you expect the offsets to come from in the back half of the year?

Josh Huff: Okay, thanks. That is helpful. On the guidance for the year, obviously revenue guidance was lowered, but EBITDA guidance was maintained. Where specifically do you expect the offsets to come from in the back half of the year? Do you expect more contribution from the gross margin side or the OpEx side?

Ty Sullivan: Okay, thanks. That is helpful. On the guidance for the year, obviously revenue guidance was lowered, but EBITDA guidance was maintained. Where specifically do you expect the offsets to come from in the back half of the year? Do you expect more contribution from the gross margin side or the OpEx side?

Speaker #9: And do you expect more contribution from the gross margin side or the OpEx side?

Speaker #5: Yeah, so a good chunk of the revenue reduction was professional services, which has a lower gross margin profile. So it's sort of a less impactful flow-through to EBITDA.

Josh Huff: Yeah. A good chunk of the revenue reduction was professional services, which has a lower adjusted gross margin profile, so it is a less impactful flow through to adjusted EBITDA. But the dynamic really that we see on the adjusted EBITDA side is, in the back half of the year, you have a higher revenue and adjusted gross margin profile flowing across a flat OpEx profile, so you see more throughput to adjusted EBITDA. But then also, the adjusted gross margin profile itself is a step higher, in the back half of the year than the first half of the year based upon lapping that database work. Also delivering on that work slightly better than our original plans had anticipated.

Speaker #5: But the dynamic really that we see on the adjusted EBITDA side is, in the back half of the year, you have a higher revenue and gross margin profile flowing across a sort of flat OpEx profile.

Speaker #5: And so you see more throughput to EBITDA, but then also the gross margin profile itself is a step higher in the back half of the year than the first half of the year, based upon lapping that database work and also delivering on that work slightly better than our original plans had anticipated.

Speaker #9: Okay, great. Thank you. I will pass the line.

Josh Huff: Okay, great. Thank you. I will pass the line.

Ty Sullivan: Okay, great. Thank you. I will pass the line.

Speaker #1: Your next question from the line of Susan Sukumar, with Staple, Susan, your line is open. Please go ahead.

Josh Huff: Your next question from the line of Suthan Sukumar with Stifel. Susan, your line is open. Please go ahead.

Operator: Your next question from the line of Suthan Sukumar with Stifel. Susan, your line is open. Please go ahead.

Speaker #10: Hey, good morning, guys. This is Essie speaking on behalf of Suzanne. For my first question, I wanted to talk about U.S. growth. It looks like it was down year over year.

Josh Huff: Hey, good morning, guys. This is SA speaking on behalf of Susan. For my first question, I wanted to talk about US growth. It looks like it was down year-over-year, and I was curious if that was a function of a slipped deal or some lumpiness there. What are you seeing in the broader demand environment for the US?

Suthan Sukumar: Hey, good morning, guys. This is SA speaking on behalf of Susan. For my first question, I wanted to talk about US growth. It looks like it was down year-over-year, and I was curious if that was a function of a slipped deal or some lumpiness there. What are you seeing in the broader demand environment for the US?

Speaker #10: And I was curious if that was a function of a slip deal or some lumpiness there. And what are you seeing in the broader demand environment for the US?

Speaker #5: I think the main decline in the US is the US K-12 churn coming out. We're seeing

Josh Huff: I think the main decline in the US is the US K-12 churn coming out. We are seeing good, similar muted demand in higher education in terms of RFP volume. Our win rate continues to tick up, and higher education seems to be pretty strong actually in the US. It is really just the US K-12 churn and then maybe some lightness in our learning services work that has been done traditionally in the US. Those are probably the two main factors. Overall, the US K-12 ed tech spend has trended down for a couple of years now. I do think that is normalizing, and so the hope is that we will start to see some new logo adds in the near future, both in the US and other K-12 markets around the world.

John Baker: I think the main decline in the US is the US K-12 churn coming out. We are seeing good, similar muted demand in higher education in terms of RFP volume. Our win rate continues to tick up, and higher education seems to be pretty strong actually in the US. It is really just the US K-12 churn and then maybe some lightness in our learning services work that has been done traditionally in the US. Those are probably the two main factors. Overall, the US K-12 ed tech spend has trended down for a couple of years now. I do think that is normalizing, and so the hope is that we will start to see some new logo adds in the near future, both in the US and other K-12 markets around the world.

Speaker #11: good, you know, similar muted demand in higher education in terms of RFP volume, but our win rate continues to tick up in higher education CISOs.

Speaker #11: So that seems to be pretty strong actually in the US. It's really just the US K-12 churn and then maybe some lightness in our learning services work that's been done traditionally in the US.

Speaker #11: So those are probably the two main factors. Overall, U.S. K-12 edtech spend has trended down for a couple of years now. I do think that's normalizing, and so the hope is that we will start to see some new logo adds in the near future, both in the U.S. and other K-12 markets around the world.

Speaker #11: You know, long-term, I think the trend is a replacement cycle for old legacy platforms that are not really AI-enabled because you can get this Maybe it's a 5x improvement or a 10x improvement with the technology and the services that we're kind of providing for these clients to support this learning transformation that they're all going through.

Josh Huff: Long term, I think the trend is a replacement cycle for old legacy platforms that are not really AI-enabled because you can get this, maybe it is a 5x improvement or a 10x improvement with the technology and the services that we are kind of providing for these clients to support this learning transformation that they are all going through. The hope is that is already starting to show up in the pipeline. The pipeline continues to grow quarter over quarter over quarter. We need to do the work now of translating that into a real replacement cycle in the US market.

John Baker: Long term, I think the trend is a replacement cycle for old legacy platforms that are not really AI-enabled because you can get this, maybe it is a 5x improvement or a 10x improvement with the technology and the services that we are kind of providing for these clients to support this learning transformation that they are all going through. The hope is that is already starting to show up in the pipeline. The pipeline continues to grow quarter over quarter over quarter. We need to do the work now of translating that into a real replacement cycle in the US market.

Speaker #11: And so the hope is that that's already starting to show up in the pipeline. The pipeline continues to grow quarter over quarter over quarter, and so we need to do the work now of translating that into a real replacement cycle in the US market.

Speaker #12: Got it, sounds good. For my second question, I want to talk— touch on AI. Good to see the Loomi ARR mountain stone. I know that Loomi may not be in RFPs yet, but maybe just a question on how AI overall is playing out.

Josh Huff: Got it. Sounds good. For my second question, I wanted to touch on AI. Good to see the Lumi ARR milestone. I know that Lumi may not be in RFPs yet, but maybe just a question on how AI overall is taking part in pricing discussions. Yeah, just how AI has been a factor in that.

Suthan Sukumar: Got it. Sounds good. For my second question, I wanted to touch on AI. Good to see the Lumi ARR milestone. I know that Lumi may not be in RFPs yet, but maybe just a question on how AI overall is taking part in pricing discussions. Yeah, just how AI has been a factor in that.

Speaker #12: taking part in pricing discussions. And yeah, just how AI has been a factor in that.

Josh Huff: We charge an additional amount for Lumi. So far that price point has not been a barrier for any of the clients that we are engaging with because it comes with this savings. If, for example, a client is spending CAD 10 million a year on program development, they could now either spend CAD 5 million a year and get the same productivity, or that CAD 10 million goes twice as far. There is a huge ROI attached to it that dwarfs the investment that is being made. Pricing has not been a major factor there. I think as the adoption continues to tick up, last year we talked about an 8x increase, the year before an 80x increase in terms of the adoption of the utilization of that product. I still think that is going to look like the floor of the hockey stick.

John Baker: We charge an additional amount for Lumi. So far that price point has not been a barrier for any of the clients that we are engaging with because it comes with this savings. If, for example, a client is spending CAD 10 million a year on program development, they could now either spend CAD 5 million a year and get the same productivity, or that CAD 10 million goes twice as far. There is a huge ROI attached to it that dwarfs the investment that is being made. Pricing has not been a major factor there. I think as the adoption continues to tick up, last year we talked about an 8x increase, the year before an 80x increase in terms of the adoption of the utilization of that product. I still think that is going to look like the floor of the hockey stick.

Speaker #11: You know, we charge an additional amount for Loomi. So far, that price point has not been a barrier for any of the clients that we're engaging with.

Speaker #11: really comes with this savings. So if, for example, a client's spending $10 million a year on program development, they could now either spend $5 million a year and get the same productivity, or that $10 million goes twice as far.

Speaker #11: And so there's a huge ROI attached to it that dwarfs the investment that's being made. And so pricing has not been a major factor there.

Speaker #11: And I think, as the adoption continues to tick up—last year we talked about an 8x increase, the year before an 80x increase in terms of the adoption.

Speaker #11: Of like the utilization of that product, as that, you know, I still think that's going to look like the floor of the hockey stick.

Speaker #11: There's still going to be massive enough. Ahead as as a GenTech work comes into gear, so I I do remain very bullish on this being a high impact part of our growth story.

Josh Huff: There is still going to be massive adoption ahead as agentic work comes into gear. I do remain very bullish on this being a high impact part of our growth story going forward. It just has not hit RFPs yet. With clients, it shows up in a better learning experience. It shows up in better retention. It shows up in things that they care about today and do measure today. So it is an indirect impact, which is why our win rate continues to go up quarter over quarter over quarter.

John Baker: There is still going to be massive adoption ahead as agentic work comes into gear. I do remain very bullish on this being a high impact part of our growth story going forward. It just has not hit RFPs yet. With clients, it shows up in a better learning experience. It shows up in better retention. It shows up in things that they care about today and do measure today. So it is an indirect impact, which is why our win rate continues to go up quarter over quarter over quarter.

Speaker #11: Going forward, it just hasn't hit RFPs yet. And with clients, it shows up in a better learning experience—it shows up in better retention.

Speaker #11: It shows up in things that they care about. today and do measure today. So it's an indirect impact, which is why our win rate continues to go up quarter over quarter over quarter.

Speaker #12: Great. And for my last question, I want to talk about just quickly on the The international growth looks like it decelerated versus the last quarter.

Josh Huff: Great. For my last question, I want to talk about, just quickly on the international growth. Looks like it decelerated versus the last quarter. I just want to see what the gap was between the ARR growth being 15% in that. Then, if I can also tie in just a quick question on just capital priorities, post the SIB. Thank you.

Suthan Sukumar: Great. For my last question, I want to talk about, just quickly on the international growth. Looks like it decelerated versus the last quarter. I just want to see what the gap was between the ARR growth being 15% in that. Then, if I can also tie in just a quick question on just capital priorities, post the SIB. Thank you.

Speaker #12: I just want to see what the gap was between the ARR growth being 15% and that. And then, if I can, also tie in just a quick question on capital priorities post the SIV.

Speaker #12: Thank you.

Speaker #11: Yeah, thanks. I appreciate the question. Yeah, no, there isn't any deceleration in our international growth profile. We continue to view it as a 15% growth business.

Josh Huff: Yeah, thanks. I appreciate the questions. Yeah, no, there isn't any deceleration in our international growth profile. We continue to view it as a 15% growth business that's been doing that the past several years and in line to do that this year. I think what you can see from quarter to quarter is some sort of imperfect fluctuations, mainly on the professional services side, or potentially on the FX side as well. But overall, as John mentioned earlier, we see tremendous opportunity internationally and globally, and we're seeing some really good evidence points. Even just this past quarter, some really key wins in Asia and in Australia and other parts of the globe. Then your second question, if you don't mind just repeating it just to make sure I heard correctly.

Speaker #11: It's been doing that the past several years and in line to do that this year. I think what you can see from kind of quarter to quarter is some sort of imperfect fluctuations, mainly on the professional services side or potentially on the SIV side.

Speaker #11: side as well. But overall, as John mentioned earlier, we see tremendous opportunity internationally and globally. We're seeing some really good evidence points, even just this past quarter—some really key wins in Asia, in Australia, and in other parts of the world.

Speaker #11: And then your second question, if you don't mind just repeating it just to make sure I heard correctly. Yeah, so for us, it's really been consistent.

Josh Huff: Yeah, thank you. Just last question on just capital priorities, post the SIB.

Suthan Sukumar: Yeah, thank you. Just last question on just capital priorities, post the SIB.

Josh Huff: Yeah. For us, it's really been consistent. We've always looked at organic investment, buybacks, disciplined M&A. That continues to be the case. Obviously, the past 12 months, we've leaned into buybacks more strongly. The last 12 months we've done about 3 million shares or 11% of the opening subordinate voting shares. We've reinstated our NCIB. We plan to make full use of that for the remainder of this year. But we continue to actively review capital allocation as a management team and as a board and would expect to continue to do so for the balance of the year.

Speaker #11: So we've always looked at organic investment buybacks. Disciplined M&A. That continues to be the case. Obviously, the past 12 months we've leaned into buybacks more strongly.

Speaker #11: In the last 12 months, we've done about 3 million shares or 11% of the opening subordinate voting shares. And we've reinstated our NCIB We plan to make full use of that for the remainder of this year.

Speaker #11: But we continue to actively review capital allocation as a management team and as a board, and would expect to continue to do so for the balance of the year.

Speaker #12: Thank you so much, and I'll pass the line.

Josh Huff: Thank you so much. I will pass the line.

Suthan Sukumar: Thank you so much. I will pass the line.

Speaker #11: We have reached the end of the Q&A session. I will now turn the call back to John Baker for closing remarks. Thank you, operator, and thank you everyone for joining us on the call today.

Josh Huff: We have reached the end of the Q&A session. I will now turn the call back to John Baker for closing remarks.

Operator: We have reached the end of the Q&A session. I will now turn the call back to John Baker for closing remarks.

John Baker: Thank you, operator, and thank you everyone for joining us on the call today. We are looking forward to updating you following our Q3 results. Have a great day, everybody.

Speaker #11: We're looking forward to updating you following our Q3 results. Have a great day, everybody. This concludes today's call. Thank you for attending. You may now disconnect.

John Baker: This concludes today's call. Thank you for attending. You may now disconnect.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.