Earnings call transcript: D2L Inc Q2 2025 sees revenue boost and AI focus

D2L Inc. reported a revenue increase in Q2 2025, highlighting its focus on AI-driven innovations and international market expansion. According to InvestingPro data, the stock has seen significant pressure, falling over 27% in the past six months to trade at $9.64. Despite this decline, the company remains optimistic about future growth, maintaining its annual guidance and emphasizing the transformative potential of AI in education. Analysis from InvestingPro suggests the stock is currently fairly valued based on its comprehensive Fair Value model.

Key Takeaways

• D2L’s revenue grew by 9% year-over-year, reaching $52.8 million.
• The company launched the D2L Lumi AI platform, underlining its commitment to AI.
• Operating expenses were well-managed, with a decrease as a percentage of revenue.
• D2L maintains strong international growth, winning key clients globally.
• The stock price fell slightly, despite positive financial performance.

Company Performance

D2L Inc. demonstrated solid performance in Q2 2025, with a 9% year-over-year revenue increase, driven by strong subscription and support revenues. The company continues to expand its international footprint, securing significant contracts in various countries. D2L’s strategic focus on AI and digital learning tools positions it well in the competitive education technology sector.

Financial Highlights

• Revenue: $52.8 million, up 9% year-over-year
• Subscription and support revenue: $47.7 million, up 11%
• Adjusted EBITDA: $9.3 million, representing a 17.6% margin
• Annual recurring revenue: $206.8 million, up 9%
• Free cash flow improved to -$1.8 million from -$15 million last year
• Cash reserves: $92.5 million, with no debt

Outlook & Guidance

D2L is maintaining its annual guidance, expecting modest increases in operating expenses. The company is focusing on AI as a major growth driver, predicting it will have a more significant impact than previous technological shifts. D2L anticipates market normalization post-July 1 budget cycles, which could enhance its growth prospects. Analyst consensus from InvestingPro shows a bullish outlook, with price targets ranging from $10.97 to $14.62, suggesting potential upside. For deeper insights into D2L’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers, along with 10+ additional ProTips and extensive financial metrics.

Executive Commentary

CEO John Baker emphasized the transformative potential of AI, stating, "AI will act as a catalyst for new investments to improve the learning experience and outcomes." He also noted, "Our learning platform has never mattered more to these clients," highlighting the company’s pivotal role in education.

Risks and Challenges

• Economic uncertainty in the U.S. Higher Education market could impact future growth.
• Elongated sales cycles may delay revenue realization.
• Competitive pressures in the global education technology market.
• Potential challenges in scaling AI-driven initiatives.
• Macroeconomic factors affecting corporate learning investments.

D2L’s Q2 2025 performance underscores its strategic focus on AI and international expansion, positioning it well for future growth despite current market challenges.

Full transcript - D2L Inc (DTOL) Q1 2026:

Breeka, Conference Moderator: Good morning, and thank you all for attending today’s D2L Inc. Q1 Fiscal Financial Results Conference Call. My name is Breeka, and I will be your moderator for today. This morning’s call is being recorded on 06/11/2025 at 08:30 a. M.

Eastern Time. I would now like to pass the conference over to your host, Craig Armitage. Thank you. You may proceed.

Craig Armitage, Legal/Compliance Representative, D2L Inc.: Thank you, and good morning, everyone. 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 forward 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 plus at www.sedarplus.com.

In addition, during this call, will be made to various non IFRS financial measures, including constant currency revenue, adjusted EBITDA, adjusted EBITDA margin, adjusted gross margin and free cash flow. These non IFRS measures do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. Please refer to the company’s MD and A for the three months ended 04/30/2025 and 2024 for more information about these and certain other non IFRS financial measures, including where applicable a reconciliation of historical non IFRS financial measures to the most directly comparable IFRS financial measures from our financial statements. I’d now like to turn the call over to Mr. John Baker, Chief Executive Officer of D2L.

Please go ahead.

John Baker, Chief Executive Officer, D2L Inc.: Thank you, Craig, and thank you, everyone, for joining us for our Q1 earnings call. We released financial results after the markets closed yesterday, which you can find on the Investor Relations section of our website at d2l.com. Please note that the results we’re discussing today are in U. S. Dollars.

I’m joined this morning by Josh Huffman, our CFO, and I’m pleased to report it was a solid start to fiscal twenty six with our team executing successfully in the current macro environment, delivering efficient growth and strengthening our fundamentals. The Q1 highlights include total revenue growth of 9% to $52,800,000 Subscription and support revenue rose 11% to $47,700,000 Adjusted gross margins were up three sixty basis points to 71%. Annual recurring revenue was up 9% over last year’s Q1 to $206,800,000 on a constant currency basis. And adjusted EBITDA grew to $9,300,000 with adjusted EBITDA margin at 17.6%, more than double the 8.3% we reported in last year’s Q1. As we shared in April, with our year end results, the macroeconomic environment continues to present short term challenges.

This is most apparent in U. S. Higher education where we’ve seen heightened levels of uncertainty leading to delays in evaluations and decision making. This remained consistent in Q1 with a slight increase in market activity in the last month or so. As you know, a learning platform is a mission critical part of an institution’s technology stack.

And increasingly, leaders I speak with appreciate that a modern AI learning platform can be an important solution to enhance learner engagement, drive student retention, and therefore, revenue retention, and enabling new learning modalities with greater efficiency. And despite the current market dynamics in US higher education, our sales pipeline continues to build. Our competitive position is getting stronger, and we’re winning more than 50% of the available opportunities in North America higher education. In q one, these wins include LCI Education, a group of 12 institutions on five continents, educating over 20,000 learners. This innovative institution is widely known for its leadership in technology based learning.

And Knox College, a leader in theological education, is transitioning its students to Brightspace, shifting from a legacy vendor. Internationally, we continue to grow our footprint adding great new customers. In Q1, these included the University of Otago, New Zealand’s oldest university with more than 20,000 students. Universidad de la Sabana, a top private university in Colombia, where Brightspace now powers six of the top 10 private universities by ranking. And we also welcomed Hogent University, one of the largest applied sciences and arts universities in Belgium with more than 17,000 students.

Our win rates are strong across our core markets as well. In Q1, we continued to expand the customer base, adding the Institute of Electrical and Electronics Engineers, often known as the IEEE, Computer Society, and also Pantheon Academy, among others. In addition to new customer expansion, we’re leaning into our existing relationships, providing additional value to customers and growing our net revenue retention. Our upsell and cross sell motion is improving, and we’re seeing healthy pipeline generation for new products led by our AI offering, D12Loomi and Creator Plus. As an example, towards the end of the quarter, we landed the system wide Lumi expansion for a large US higher education system.

In general, the future of AI continues to be top of mind in my conversations with customers and prospects. D12 recently partnered with the online learning consortium to study how students in higher education perceive and use generative AI technologies. The report shows that students are embracing and unlocking the power of AI, and they want their faculty and institutions to meet where they are in their learning journey. This highlights the need for investments in AI tools that can boost engagement and facilitate important personal learning interactions. D twelve Lumi is well positioned to improve the student experience with AI while at the same time increasing the efficiency for educators.

Building on the strong foundation that we’ve built over the last twenty five years, we are leaning into our AI learning platform strategy. We believe that AI will act as a catalyst for new investments to improve the learning experience and outcomes, and this is a chapter that we believe will be more impactful for our clients than the move to the cloud. We have a robust innovation road map for d twelve Lumen across all of our products, and we continue to look forward to sharing more at our Fusion users conference next month. We’re pleased that our commitment to innovation and product design continues to be recognized and awarded. In q one, Brightspace was named one of the best education software products by g two, and g twelve was named one of the best software companies in Canada and one of the world’s top ed tech companies of 2025 by TIME.

Looking ahead, we remain focused on balancing near term performance with strategic investments as we work to become the number one in targeted education markets globally and establish ourselves as the next generation learning platform for corporate upskilling. With that, I’ll turn the call over to Josh. Over to you.

Josh Huffman, Chief Financial Officer, D2L Inc.: Thanks, John, and good morning. The Q1 results show a strong balance of top line growth combined with further improvements in gross margin and operating leverage. Total revenue for Q1 was CAD52.8 million, a 9% increase over the same period last year, and constant currency revenue increased 10.5% to CAD53.6 million. Subscription and support revenue increased 11% to CAD47.7 million. Constant currency annual recurring revenue grew by 9% from $190,300,000 to $206,800,000 From a new bookings perspective, Q1 is typically our seasonally lowest quarter of the year.

Professional services and other revenue decreased 8% in Q1 to $5,100,000 In the current macroeconomic conditions, there has been a slight reduction in customer propensity to commit to and consume larger professional services engagements. The Q1 results showed material gross margin improvement. Adjusted gross margin came in at 71.3%, up from 67.7% last year. Subscription and support gross margin rose to 75.2% compared to 72.2% in Q1 of prior year, reflecting ongoing engineered optimizations in our cloud technology delivery and the positive flow through of increasing revenues from high margin software add ons. And gross margin for Professional Services was 22.3% in Q1 versus 30.1% in the comparable period last year.

We delivered these results while continuing to manage operating expenses. Operating expenses for the first quarter were $33,500,000 up less than 1% year over year. As a percentage of revenue, total OpEx was 64% this quarter versus 69% of revenue in last year’s Q1, a roughly 500 basis point improvement in operating scale. R and D was 22% of revenue compared to 25% of revenue in last year’s Q1, in large part due to efficiency improvements and lower headcount post the SkillsWave spinout. Sales and marketing expenses were up 6% over the same period of the prior year in Q1.

As a reminder, as we look ahead to Q2, results will include expenses for our annual user conference, Fusion. We’re excited to welcome more than 1,000 of our customers, prospects, partners and employees to this important annual event. And while G and A expenses increased, this was mainly due to nonrecurring post combination compensation from the acquisition of H5P last year. Excluding the impact of these costs, G and A increased by $300,000 year over year. As we shared in April, thousand we will be investing prudently this year in product innovation and market expansion and therefore expect operating expenses to increase modestly as reflected in our guidance.

The combination of revenue growth, improved gross margins and operating leverage drove a substantial year over year improvement in profitability. We reported Q1 adjusted EBITDA of $9,300,000 or 17.6 percent margin, an increase from 8.3% margin in the same period of the prior year. Net income for the period improved to $3,300,000 compared with $600,000 for the same period in the prior year. Free cash flow improved significantly to negative $1,800,000 in Q1 compared to negative $15,000,000 in the same period in the prior year, driven by our improved profitability and in part benefiting from timing of working capital. Cash flows typically have a seasonal low in the first quarter each year and a seasonal high in the second quarter of each year.

At quarter end, we had no debt and $92,500,000 in cash, providing us the financial flexibility to invest in growth opportunities as we move forward. In terms of capital allocation, we bought back over 168,000 shares under the NCIB program in the quarter. This largely offset any dilution from equity grants. As a result, the weighted average diluted shares outstanding increased less than 1% over the past twelve months. We will continue to make use of the NCIB within our capital allocation plans.

With our Q1 results, we reiterated our annual guidance. For fiscal twenty twenty six, we plan to continue making measured investments in growth while scaling the operations towards increasing levels of profitability. And while we are navigating tougher macro conditions currently, we continue to see strong growth drivers over the medium term, which we expect will lead to higher revenue growth along with further adjusted EBITDA margin expansion as reflected in our medium term outlook shared in April. And at this time, I will now pass it back to the operator for Q and A.

Breeka, Conference Moderator: Thank you. We will now begin the question and answer session. question we have comes from Gavin Fairweather with Cormark. You may proceed.

Gavin Fairweather, Analyst, Cormark: Hey, good morning. Thanks for taking my questions and congrats on the strong results. Maybe just to start on the Fusen registrations. I think you talked about 1,000 registrations. Maybe you can discuss how those are tracking versus previous years, if you’ve noticed an uptick in the number of prospects there as a leading indicator.

John Baker, Chief Executive Officer, D2L Inc.: Yeah. Good morning, Gavin. Fusion’s tracking fairly well. So if you look at comparing it to 2023, we’re tracking above the attendance that we saw at that event. We saw certainly a lot of folks come to our Toronto event last year.

You know, today, we’re tracking close to about a thousand just over a thousand registrations. We’re hoping to see at least a thousand people in person, maybe as many as 1,200 in Georgia. You know, that said, demand for, you know, attending the event, for some for some of our clients is down, in markets outside of The US. That said, our US demand for the event is is is is going very well. Know, we’re working hard to make sure that we’re incentivizing our clients from Canada or other markets globally, to make the trip, and we’re hopeful that, we’ll see many more of them in person.

And if not, we’ll catch them, through virtual attendance.

Gavin Fairweather, Analyst, Cormark: Great. Appreciate that. And then maybe just on international, nice to see the strength this quarter. Tom, maybe you can discuss kind of how the pipeline KPIs are shaping up? How deal momentum is progressing in in some of your core international markets.

And also curious if there’s any kind of particular markets that you call out as as being particularly exciting at the moment.

John Baker, Chief Executive Officer, D2L Inc.: Yeah. No. We’re seeing good wins internationally. So that We’re seeing each of the different regions, putting up great wins on the board.

You know, I I I think, you know, last quarter was, was a good quarter for our international team. I think the pipeline for the rest of the year looks very strong, and continue to execute really well, globally. Very impressed with what the team is accomplishing.

Gavin Fairweather, Analyst, Cormark: And then maybe for Josh and and lastly for me, just on the SaaS gross margins. Obviously, some surprising strength that came through on that line this quarter. If you look at the SaaS cost of goods sold, was basically flat despite 9% revenue growth. Maybe you can discuss in a bit more detail the drivers behind that strength and to what extent you would view these as being sustainable for the business?

Josh Huffman, Chief Financial Officer, D2L Inc.: Sorry, Gavin, do you mind just repeating? It was a little muffled.

Gavin Fairweather, Analyst, Cormark: Yes. Just on the SaaS gross margins. Obviously, surprising strength this quarter. Can you just discuss in a bit more detail the drivers behind the lift in SaaS gross margins and to what extent they’re sustainable?

Josh Huffman, Chief Financial Officer, D2L Inc.: Yes, certainly. So we were pleased with Q1’s gross margin, significant increase year over year. It continues to be really a story, of optimizing our delivery. So both from a cloud optimization perspective, again, sort of a engineered road map of improvements that the team has done a really good job executing against. We’ve also started to, infuse AI, into our support operations, which has been, helping as well.

And I I will say, like, q one was sort of pleasantly above what maybe we would consider to be sort of the the durable run rate where we are right now to the effect of about a 100 basis points. So as you look forward to the rest of the year, I would just just keep that in mind. But certainly, as we look back, you know, twenty four months ago, we had aspired to to get to these levels, over this period of time and and certainly look forward to advancing even further over the medium term.

Gavin Fairweather, Analyst, Cormark: Thanks so much. I’ll pass the line.

Breeka, Conference Moderator: Thank you. Your next question comes from Doug Taylor with Canaccord Genuity.

Doug Taylor, Analyst, Canaccord Genuity: Yes. Thank you. Good morning. I’ll follow along a similar line of questioning around the gross margin profile, which jumped off the page this quarter. Part of that being efficiencies infrastructure.

You also referenced some of the mix of higher margin products, and presumably, are some of the add ons that you’re selling through. So I guess my question here was just to take a step back and maybe refresh us on the penetration rates you’ve got of some of those add ons and just so we can imagine what the gross margin profile upside there is from these levels as you get those you know, to to the desired, you know, penetration rates?

John Baker, Chief Executive Officer, D2L Inc.: Yeah. Good morning, Doug. So in terms of the, attach rates, we’re seeing good attach rates for the additional products with new clients. So north of 50% of new clients are adopting, at least one, and in many cases, all of the additional, packages that we’ve got to offer. And then with existing clients, we’re still seeing a nice ramp.

So quarter over quarter, seeing good velocity in terms of growth, but nowhere near the full potential of adoption of these technologies into the base. So long runway ahead of us in terms of driving that revenue expansion. And as as new clients embrace these new technologies, it does improve our gross margin. So the gross margin on these additional products is is nice. But the core improvements that we’ve been making have been largely engineering driven.

So continuing to make, you know, multiple projects have an impact on optimizing our cloud environment. And and as as Josh pointed out, there’s a long road map of additional improvements that we continue to want to make in the years ahead. So, you know, very excited about where we we are today, but we’ve got lots more to be done.

Josh Huffman, Chief Financial Officer, D2L Inc.: Yeah. Maybe I’ll just add to that as well. I think when you you look at the overall product portfolio expansion sort of approach we’ve taken recently. I think, you know, one of the benefits is differentiated value to our customers on the overall solution set. And certainly, we’ve been vocal on the net revenue retention, expansion benefit.

But I think, probably what we’re highlighting here is these are high gross margin software products. And so as the attach rate continues to climb, we will see kind of flow through from a gross margin perspective.

Doug Taylor, Analyst, Canaccord Genuity: Okay. Well, that’s useful data, on that subject. The other question, I wanted to ask here, when you initially set your annual guidance a couple months back, you know, the noise related to the Department of Education changes was pretty fresh. You’ve reiterated that guidance today, and looks like you’re tracking well to it. I guess what I’m I’ll ask now is that with the benefit of a couple more months, which is a lifetime in these markets, has that impact played out as you anticipated?

Is it, you know, better or worse? You know, any additional thoughts there would be useful. Thank you.

John Baker, Chief Executive Officer, D2L Inc.: Yeah. Good question, Doug. So it’s playing out as we anticipated so far. You know, it’s it’s certainly have had an impact with the number of clients. That said, we have seen in the last month or so a slight increase in the volume of activity that we’re seeing in the market.

So that’s a that’s a good sign, but I would say it’s too early to say we’re out of the fog yet. You know, the team’s executing really well, so our win rates continue to be north of 50%. We’re doing well with pipeline generation. It’s probably the best we’ve seen in a very long time. And now it’s about driving good executions through that pipeline as people work through these issues that they’re grappling with in the the broader macro.

I have every confidence in our team’s ability to execute, and it’s really up to us to now drive that execution, you know, q two, q ’3, q ’4, to get this, growth engine fired fired up in a bigger way. Alright. Thanks for that color. I’ll pass the line. Yeah. maybe

one other point just to add. You know, in the conversations with clients, it’s not just modernizing their learning platform. That’s at the heart of the conversation. It’s also leveraging, like, some of the new technologies that we’ve built, whether it’s Creator Plus with h five p or Lumi, to really provide a better educational experience for students as they’re going through moments of austerity as well too. So how do we drive efficiency and productivity gains for our faculty while at the same time improving educational outcomes?

That seems to be why our pipeline is building so quickly. Appreciate that. Thank

Breeka, Conference Moderator: you. We have Erin Carr with CIBC. Please go ahead.

Erin Carr, Analyst, CIBC: Hi. Good morning. Thanks for taking my questions. Maybe just a question on AI mandates kind of in response to your last comment there. There was a headline last week.

It was Ohio State University launched an AI fluency initiative to embed AI into its core undergrad requirements. So have you seen other AI mandates like this coming out across your customer base or new prospects? And do do you see something like this kind of been driving demand for products like Lumi?

John Baker, Chief Executive Officer, D2L Inc.: Yeah. I I think we have. I I actually sat on an AI task force at at the State University of New York, around, driving changes to the curriculum, workforce upskilling, and a number of other different initiatives, very similar to what you saw announced at Ohio State. I think you’ll see, hopefully, all universities and colleges embrace the same type of thinking in in terms of embedding AI skill sets into every discipline across all the programs that they’re offering. And that will lead to AI being embraced as a as a core part of the workflow for building these learning experiences, assessing, tutoring, and you name it.

So we’ll be very excited about this potential. Lumi is well positioned to support our clients in that endeavor. And the efficacy studies that we’re seeing now come back from working with clients to test this technology and to see what the impact is has been nothing short of breathtaking, dramatically reducing cost in the development of courses, while at the same time lifting retention, lifting engagement, and lifting outcomes for students. It’s a winning combination.

Erin Carr, Analyst, CIBC: Thank you. That’s that’s helpful color there. And then I I just wanna switch gears and go back to the profitability. So, very strong in the quarter, 17.6 adjusted EBITDA margin, and other questions touched on that gross margin profile, which was great to see. You maintained your guidance for the year at 15% adjusted EBITDA.

So maybe if you could just dig into some of those investments that you’re making throughout the year and maybe give us a little bit of additional color on the cadence of the margin profile for the rest of the year, that would be great.

Josh Huffman, Chief Financial Officer, D2L Inc.: Yeah. Certainly, Erin. Good question. We’re pleased with q one, specifically the the gross margin, highlight. And as mentioned, there’s about 100 basis points there sort of beyond what we would consider to be the run rate rest of the year.

Also just a reminder, have Fusion in Q2. It’s a really strong event, a big event that requires investment for us typically about 1,500,000 to $2,000,000 And then I think the last point probably stating the obvious a bit here, but it’s a dynamic macro. Specifically foreign exchange rates have been moving around quite a bit. If we look at Q1 bottom to top, there was a 500 basis point swing within the ninety days. And for us, we know foreign exchange can have an impact on our reported performance.

And so for us, evaluating those various factors, we decided to maintain our guidance, for the rest of the year and certainly pleased with our progress so far against that plan.

Erin Carr, Analyst, CIBC: Thank you. That’s helpful color. I’ll pass the line.

Breeka, Conference Moderator: Your next question comes from Paul Trebia with RBC Capital Markets.

Paul Trebia, Analyst, RBC Capital Markets: Thanks very much and good morning. Just a question on the pipeline, your comment about the pipeline build. Is the mix skewed to either The U. S. Or international?

And then just given the lower conversion rates in The U. S. Over the last quarter or so, are you getting feedback from clients when they do come into the pipeline if they do anticipate going ahead with deployments even in this environment?

John Baker, Chief Executive Officer, D2L Inc.: Great great questions, Paul. So I of all, I would say we’re not seeing, less conversion rate. We’re just seeing elongated process. So, you know, I have every expectation that the folks that are coming into the pipeline will convert. You know, I I don’t see that going away.

I think it’s just they’ve gotta grapple with how to tackle all these other changes that are happening on the campuses before they put in place the system. But the the desire to put in place a a modern learning platform that’s AI is is very strong. And so when you look at the details underneath our pipeline, we’re seeing almost every region slash market that we’re competing in, outperforming. Right now, there’s a you know, I’ve I’ve not seen this in a long time in terms of the pipe generation, over performing, for the for this number of quarters. We now need to start to translate that to your point into one deal, and it’s just gonna take some time to actually go through that execution given the current macro.

You know, we’re still seeing our key volume, still muted. But if you look at, the last month or or so, we’ve we’ve seen a slight uptick, year over year, and we’re tracking relatively well to plan. So I I don’t don’t anticipate, you know, much of a challenge as we as we as we work at converting these folks that are in the pipeline to becoming very successful clients, over the course of the next few quarters.

Paul Trebia, Analyst, RBC Capital Markets: Thanks. That’s helpful. And then in terms of the deals in the pipeline, the rationale that you’re getting from customers, is it primarily on upgrading legacy systems to the cloud? Is it about the AI opportunity to improve learning, or is it also related to, like, AI improving, productivity that’s driving some of the the interest in the pipeline?

John Baker, Chief Executive Officer, D2L Inc.: Well, right now, it’s just traditional upgrading of legacy vendors to a more modern learning platform. We’re only really now leaning into our our AI narrative. And I and I think, you know, clearly, we’re having some of those conversations with folks, but the broad pipeline has been generated based upon traditional messages that have gone out. I I do think AI that leads to better educational outcomes and a and a better experience for faculty, will continue to accelerate pipeline generation, which will continue to help us accelerate growth. I I personally think it isn’t showing up yet in our fees, but I personally think it’ll it’ll have a huge impact bigger than cloud in terms of a disruptive force in our space, to drive change.

I can’t imagine you’re gonna wanna be at a university that’s not using it in AI experience to help you generate questions automatically, to help you build content, help you translate that content, help you close capture the content. It’s just such a big productivity lift for anyone that’s creating learning experiences. And then if you look at the student experiences that are coming next, it’s gonna be a very compelling offering to our clients to make that student experience as good as it possibly can be. So, I do I do think this is gonna be a a big replacement wave for legacy vendors that have not embraced AI.

Paul Trebia, Analyst, RBC Capital Markets: And just lastly, just in light of the current environment, have you seen M and A valuations decline? And would you consider taking advantage and making acquisitions at this time?

John Baker, Chief Executive Officer, D2L Inc.: We’re certainly seeing a mix. Some companies’ valuations are have not seen any to come behind. If anything, we’ve seen them push up. In other cases, we’ve seen companies, you know, facing bankruptcy because no one no one’s really looking to to take on the the risk of taking them on as an acquisition. So it seems to be a bit more binary.

Either folks are doing very well, and they’re they’re commanding a a bigger premium, and folks that are not doing well, hitting a wall. So it’s that said, you know, we’re sticking to our our plans in terms of trying to find the ones that have great value, high impact in terms of our ability to grow faster, solve really important problems for our clients, contribute to our gross margin, profitability profile, things that fit our strategy, if you will. And we’re seeing a good healthy pipeline for the companies that look like that as well too at this stage.

Paul Trebia, Analyst, RBC Capital Markets: Great. Thanks for taking the questions.

Breeka, Conference Moderator: Thank you. We now have a question from Thanos Moschopoulos with BMO Capital Markets on the line.

Thanos Moschopoulos, Analyst, BMO Capital Markets: Hi, good morning. Just, the comment on FX, obviously, you’ve had some big swings. Just to clarify, does FX influence the software gross margin line or not materially?

Josh Huffman, Chief Financial Officer, D2L Inc.: It has a a bit of an impact, but but no. Not not materially. Not not a driver as much as the other themes I mentioned.

Thanos Moschopoulos, Analyst, BMO Capital Markets: K. John, on corporate specifically, your commentary regarding the pipeline, does that apply for corporate as well? How how has that market sort of evolved in in recent weeks with all the macro uncertainty?

John Baker, Chief Executive Officer, D2L Inc.: Yeah. No. I I I think corporate’s followed a similar macro trend. You know, we’re still seeing great pipeline generation, especially in our core market around training organizations. We’re pushing harder into employee learning through the course of this year.

We expect that to continue to build in terms of pipeline, But many companies went through a similar, quick reset, heading into this new macro environment. But as they’ve gone through that, you know, they’re now looking for a better learning platform to deliver improved experiences and results for their company or for their membership, if you will. And and we’re we’re definitely well positioned to help them save money as they’re building these high quality learning experiences, provide a a better learning experience at the core that delivers, you know, better retention, better completion rates, better outcomes, and that’s compelling for for most companies today.

Thanos Moschopoulos, Analyst, BMO Capital Markets: Great. And h five p, you’re approaching the one year anniversary. So maybe just an update in terms of how that integration’s progressed. And you’d also acquired some new customer relationships as part of that. Any comments on whether that’s contributed to some of the pipeline as well for cross sell?

John Baker, Chief Executive Officer, D2L Inc.: Yeah. It’s it’s helpful. You know, we’re we’re working hard to actually put together an h five p mini event at our fusion conference. You know, we’ve seen now where, we’ve done calls with h five p’s clients, them expressing interest post call, in looking at Brightspace and vice versa. And I I do think that cross sell motion is something that’s relatively new for us, but we’ll continue to lean into it to to drive faster growth for both H5P and for for D2L.

And we’re certainly selling more h five p. You know, I I think one of the nice things that we saw as h five p came on is a continued acceleration of growth for h five p. It also became part of our Creator Plus package, which has allowed us to to drive better adoption of Creator Plus. And that cross sell motion of being able to to drag along the learning platform, if you will, the h five p users is starting to show early promise in in building pipeline for us. You have to remember when when you have a learning platform that builds more engaging learning experiences, it really helps students learn in a more efficient way, so they spend less time having to learn.

They’re able to retain that knowledge for longer. They’re able to score higher on exams, get better grades, and that persistence that that, them completing those courses enables the universities and colleges or schools or even companies to retain that revenue that they would normally otherwise see vaporize as they drop out. And so it’s very important for us to make sure that we continue to lean in on Skater Plus and HIP to to continue to build a world class interactive learning experience.

Thanos Moschopoulos, Analyst, BMO Capital Markets: Great. Thanks. I’ll pass the line.

Breeka, Conference Moderator: Thanks, Thanks, have John Chao with National Bank. Please go ahead when you’re ready.

John Chao, Analyst, National Bank: Good morning. Thanks for taking my question. Maybe start with your notable IEEE win. Given this is a global organizations, could you maybe talk about your client scale of deployment, maybe their selection process and criteria?

John Baker, Chief Executive Officer, D2L Inc.: Yeah. No. I well, yeah. We’re we’re hoping that that one grows significantly over time. But like many other training organizations that support a membership, the the key is building a great learning experience for their members because in many cases, they’re paying for these courses, a significant membership fee, and you wanna create as much value as you possibly can.

And so there are gonna be some that start off small and and grow over time and others that might start off with a few 100,000 members, and continue to expand with with a good learning experience. You also see things like course merchant playing a role here where, you know, having a catalog to make it easier for them to sell these courses to their members is also important. You’re seeing a competency based, education, which was very popular with a lot of professional schools also playing very well into corporate where they define, here are the learning outcomes. They demonstrate mastery of those outcomes. That really covers off a lot of, CIPD or, basically, you’re tracking over professional credits, or professional memberships like engineering in particular or or maybe accountants in in another case.

And so these types of, learning experiences are made very easy in our platform, and Lumi, making it easier to create those experiences. So instead of having to tag all of these competencies or expectations or skills, you know, yourself, we now have AI recommending how to link these things together such that you can automatically create that knowledge map pretty quickly and very easily. Those are some of the many things that, these organizations are looking at.

John Chao, Analyst, National Bank: K. Thanks. Appreciate the colors. John, could you also talk about your client exposure to the international student going to The US given their visa situation? I assume it’s still part of your commentary on the market volatility.

Right?

John Baker, Chief Executive Officer, D2L Inc.: Yeah. No. It’s very much so. Not just in The US, but we’ve seen international student impacts in Canada, Australia, and other markets global globally. And so we’re mindful of that.

Now, you know, typically, we’re pricing these things as an FTE model or full time equivalency. So the numb on percentage basis for the individual clients is not usually that big of an impact. And on the whole, we’re seeing usage going up for clients year over year. And so while it is having an impact for clients, it’s not having as big of an impact as probably folks would imagine.

John Chao, Analyst, National Bank: Okay. That makes sense. And maybe one last question to Josh. Could you help us quantify your user conference costs this year on your OpEx? Is this a bit higher this year given that last year was in Toronto?

Josh Huffman, Chief Financial Officer, D2L Inc.: Yeah. I wouldn’t suggest that sort of a year over year drastic change. I’d say it’s more in line with what we’ve communicated in the past, which I think was something in the range of 1,500,000.0 to $2,000,000

John Chao, Analyst, National Bank: Okay. Thanks. I’ll top the line.

Breeka, Conference Moderator: Thank you. We have Brian Peterson with Raymond James now.

John Chao, Analyst, National Bank: Hey, guys. Thanks for taking the question. Just one for me. John, I know you mentioned that there’s some elongated sales cycles in North America. You mentioned that a few quarters now.

I’m curious, have customers indicated that they’re looking to make decisions in that typical decision period over this summer, or is it possible that these decisions could get pushed into 2026? Any color there? Thanks, guys.

John Baker, Chief Executive Officer, D2L Inc.: That’s good that’s a good question. I’m sure some of the decisions will get pushed into next year. But the the folks that I’m engaging with, which may be a little bit further down the pipeline, are looking to make decisions this summer, some in the fall, some shortly. So I I I I don’t you know, what would have been like a a decision that would have been made in q one is maybe being made in q two or q three. I don’t see a lot of them slipping from the q one period into q four, at least not at this stage.

And I think folks just really needed to get through that budget cycle with what what what you know, July 1 is a typical start to budget year for many of our clients. And so I hope but we’ve not proven this yet, that post July 1 things start to return a little bit little bit more towards normal. But we’ll see as we get to our fusion conference this year. Great. Thanks, John.

Yep. Thank you, Brian.

Breeka, Conference Moderator: We have Susan Szipka with Stifel now. Please go ahead.

Craig Armitage, Legal/Compliance Representative, D2L Inc.0: Hey guys, good morning. I wanted to touch on The U. S. Higher ed market with respect to the new business versus expansion motion. I was curious, is this slowdown impacting both?

Or might expansions be progressing better than expected here?

John Baker, Chief Executive Officer, D2L Inc.: I think the macro is impacting both the new logos as well as expansion. Because as you can imagine, if you’re, I don’t know, a university or a school or or a company having to deal with a change, you, of all, deal with the change, and then you progress the projects you need, as a priority. You know, I’ll underscore that our learning platform has never mattered more to these clients, because as they go through, you know, a challenge, they need to continue to invest in things that are gonna improve the student outcomes, while at the same time, they may be making other cuts elsewhere. And so we’re we’re kind of in that nice zone where we can help them find new growth factors with, upskilling or or workforce development, at the same time as helping them drive efficiency with things like artificial intelligence to improve the the you know, just take the number of hours it takes to build the course and cut it by half in some cases. And so if we can drive efficiency and improve outcomes, it’s a good solution for, a better ROI for our clients.

So, you know, I I just think there’s a little bit more scrutiny going into reviewing these systems, just making sure that they’re gonna be well done over the course of the next few months.

Craig Armitage, Legal/Compliance Representative, D2L Inc.0: Got it. That’s helpful. And on the competitive landscape, how are you how are you seeing peers respond to the slowdown, especially the the big ones under under private equity ownership? Anything notable there to call out?

John Baker, Chief Executive Officer, D2L Inc.: I think there’s there’s a number of public statements on one of our private equity backed, corporate or sorry, education, competitors, that’s that’s been struggling, with the transition largely due to the increased interest rates attached to debt. But, you know, I I I’d I’d say, we’re still learning how all of our private equity competitors are gonna react in this new market where, you know this is the one challenge with them being private is that they don’t report publicly every quarter.

Craig Armitage, Legal/Compliance Representative, D2L Inc.0: Yeah. Makes sense. I also wanna touch on corporate learning. You know, you guys are obviously still making, continued progress on this front. Could you remind us on what some of your priorities are on the product innovation front?

And, you know, given that your you know, sounds like your your ideal customer profile is evolving to that, more of a corporate learning customer. You know, how is your go to market evolving here is on the back of that? You know, is there gonna be a you know, does that mean a bigger push on direct sales, or might partners play a more important role here?

John Baker, Chief Executive Officer, D2L Inc.: So you’re you’re seeing us push on a number of different key growth levers. So, you know, the the one being, you know, continuing to double down on differentiation in our core markets, with AI and Creator Plus and other things that are gonna really drive improved educational experience, improves that ROI, makes, adopting our learning platform a very clear strategy for a lot of universities, colleges, companies around the world that see an AI learning platform as the next evolution of our, you know, learning experience very similar to how cloud was a a replacement wave in the past. So that that’s a primary focus for us, and you’ll see us continue to double down on that strategy, in the months and year ahead. And then beyond that, we’re also, you know, as you as you alluded to, very focused on international growth as another key lever for us. There’s no reason why in many markets around the world, we can’t become the number one player like we’ve become in The Netherlands or Singapore or Canada or other markets.

Columbia now, where we have six of the top 10, private universities now running on our platform. So we we wanna continue to to to drive that both with a direct motion where we’ve got sales reps themselves, building these relationships, but also continuing to add the right channel partners where we work together to go after the opportunities in markets like South Africa or India or other markets globally. And then the is is is really around that corporate use case. So, you know, we’ve I think we’ve done a very good job in making sure that we meet the needs of of training organizations. We’ll continue to add new features to support them.

But opening up that employee learning experiences has been a little longer journey for us, but I’m actually quite excited about the road map that we have in the year ahead in terms of both integrating, our learning platform into, you know, dozens, if not hundreds of other different HR and other systems that companies are using today, making that very easy and and almost out of the box, as well as tackling a few other use cases that needed to just make it easier for us to support, these companies embracing, the best possible learning experience. I I think given the strength that we have in terms of content creation, the learning experience itself, better skills tracking with our outcomes module, all of these things create a really amazing learning experience once you’re onboarded. We now need to just get rid of all the the hurdles in terms of getting people through that initial integration and onboarding. And that’s where the focus is right now in terms of driving that corporate lever, for our growth engine for the future.

Craig Armitage, Legal/Compliance Representative, D2L Inc.0: K. Good. Thank you for taking my questions guys. I’ll pass the line.

John Baker, Chief Executive Officer, D2L Inc.: Thank you, Susan.

Breeka, Conference Moderator: Thank you. I can confirm that does conclude the Q and A session. And I would like to hand it back to John for some final closing comments.

John Baker, Chief Executive Officer, D2L Inc.: Thank you for joining us on our call today. We’re looking forward to updating you following our Fusion users conference with our Q2 results. I hope to see some of you at the conference in Georgia this year. Thank you again for the support, and have a great day, everyone.

Breeka, Conference Moderator: Thank you all for joining. I can confirm that does conclude today’s call. Thank you all for your participation. You may now disconnect your line.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.