D2L Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the DHUL Inc. Fiscal 2024 Fourth Quarter Results Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided for you at the time for the questions. If anyone has any difficulties hearing the conference, you may press star and zero for operator assistance at any time. Listeners are reminded that portions of today's discussion will include statements that contain forward-looking information. Any such statements are subjected to risk and uncertainties that could cause actual results to differ materially from a conclusion forecast or projection in forward-looking information. Further, certain material factors or assumptions were applied in drawing a conclusion or making a forecast or project as reflected in the forward-looking information. For identification and discussion of such risk, uncertainties, factors, and assumptions, as well as further information, concerning forward-looking statements, please refer to the risk identified in the company's annual and interring management discussion and analysis or most recently filled annual information form, in each case as filled under the company's profile on CEDARplus at www.cedarplus.com. In addition, during this call, reference will be made to various non-IFRS financial measures including constant currency of revenue, adjusted EBITDA, adjusted gross profit, adjusted gross margin, and free cash flow. These non-IFRS financial measures do not have any standardized meanings prescribed by IFRS and may not be comparable to similar measures presented by other public companies. Please refer to the company's MD&A for the year ended January 31, 2024 for more information about this and certain other non-IFRS financial measures, including where applicable a reconciliation of history non-IFRS financial measures to the most recently comparable IFRS financial measures from our financial statements. This morning call is being recorded on April 4th, 2024 at 830 a.m. Eastern Time. I would now like to turn the call over to Mr. John Baker, Chief Executive Officer of D2L. Please go ahead, sir.

Thank you, Operator, and thank you, everyone, for joining us on our Q4 and year-end earnings call. We released financial results after the market closed yesterday. which you'll find on the investor relations section of our website at d2l.com. Please note the results we're discussing today are in US dollars. I'm joined this morning by Stephen Laster, our president, and Josh Huff, our CFO. I'm pleased to report it was a strong fourth quarter to close out a year in which we made significant progress on our plan to balance continued top line growth with meaningfully improved operating leverage. Our results were at the high end or above our guidance for the year, Total revenue for Q4 was up 11% to $47.6 million, including 12% growth in our subscription and support revenue. Annual recurring revenue was up 12% year over year, or $20 million, growing to $188.1 million. Our gross margins increased by 330 basis points to 67%, driven by significantly higher subscription margins. And adjusted EBITDA increased to 3.5 million in Q4 from 0.4 million in Q4 of last year. Simply put, the team is executing well on the major transition in the financial profile of the business. We accomplished this while strengthening our fundamentals. We are winning great customers across all markets, as you will hear from Stephen, and we've added 2 million more users since the start of last year, bringing us to 18 million users on the Brightspace Learning Hub. In our largest and most competitive market, we jumped to number two in total enrollment in market share in North America higher education, up from number four at this time last year. And our win rate is getting stronger as it rose to over 50% in this important market last year. We're enhancing our core product while broadening our portfolio of products, partners, and services, including making investments in artificial intelligence. And lastly, Our gross revenue retention rate was 94% last year. This is a new metric we're reporting and the results last year are a testament to our relentless focus on being an active and very strategic partner for clients all around the world. I want to thank our team for their effort and commitment to achieving a balanced growth plan while staying focused on our vision and mission. Our team is working hard to make investments in our products and services to strengthen our leadership in the market. And I also want to recognize the efforts of de-twellers that are working so hard to deliver on those exceptional customer experiences. It's what keeps our clients happy and engaged. And as we look ahead, I'm confident in our roadmap and our strategy that it's well positioned to align with our customers' needs. On a recent trip to New York, where we hosted 47 different universities and colleges and other institutions, including SUNY, CUNY, NYU, and the New York City Department of Education, I participated in the highly engaging conversation around the future of work and learning, and these conversations revealed two main insights. First, it's very clear that the work that we're doing around artificial intelligence addresses what customers are looking for, both in the short and longer term. Our clients are viewing us as a critical partner as they embrace AI, and we are working hard to seize that opportunity. And second, These meetings reinforce the power of the community we're building, which is uniquely strengthened by our ability to bring together constituents from across education and corporate markets to address multiple use cases and modalities of learning. These capabilities make us the right partner to tackle important challenges, whether in student engagement, enrollment, continuing education, or upskilling. And with that, I'm now going to turn over the call to Stephen, to provide more color on our go-to-market and investments in innovation. Steven, over to you.

Thanks, John, and good morning. Apologies to everyone for my voice this morning, but I'm happy to be here. Our fiscal 24 results demonstrate that we're building a stronger and more profitable business while making meaningful headway on key growth strategies. During this past year, we continued to grow our customer base and build scale across our markets as we helped more and more organizations reshape the future of education and work. Brightspace is now serving more than 1,300 customers and 18 million users in over 40 countries. In our largest market, higher education, we had another good year. In North America, more than half of new learning platform adoptions were Brightspace. And as John highlighted, we've moved to number two in market share by enrollment, a great milestone for the team. In the fourth quarter, these new clients included Philadelphia University, a premier university in Pennsylvania, which selected G2L Brightspace for its roughly 10,000 students, replacing a legacy competitor. They selected our platform to, in their words, allow for further innovative teaching and learning in the decades ahead and to expand their capabilities in the graduate space. We also welcomed Aurora University, private teaching-centered institution in Illinois that is transitioning from an open source platform. They said the Brightspace LMS offers new opportunities for transformative teaching and learning for courses across disciplines and all modalities. We enter fiscal 2025 with momentum in higher ed, which is translating to healthy pipeline activity. International expansion, an important growth driver, And in fiscal 24, we continue to expand D2L's footprint in key markets with institutions that are increasingly demanding much more from their learning platform. Recently, we onboarded Madeira University, a private higher institution based in Pueblo, Mexico. And we replaced a legacy competitor at the Independent Institute of Education, a large private institution in South Africa. We're building a good growing community of institutions in South Africa, and we see good opportunity to increase our presence in this market. These are just a few examples of the sales activity that drove an 18% increase in our revenue outside North America last year. Looking ahead, the international opportunity to remain sizable for D2L with legacy platforms holding 70 to 80% market share in many regions. In our corporate market, we continue to build the D2L brand and customer base. In the fourth quarter, we had an important win with the Canadian Red Cross, part of the largest humanitarian network in the world. They will use our learning platform to reach nearly 1 million learners with training that could be lifesaving. This is another example of our success with organizations that care deeply about the best learning experiences. In this instance, our ability to support multiple use cases and our course merchant technology were key factors in their decision to replace a competitor with Brightspace. Concurrent with Q4 earnings, we announced the spinning out of D2L Wave into a new independent standalone company called Skills Wave. Wave is an early stage of skilling technology created to help businesses prepare for the future of work by tackling the skills and talent gap. represent a very small percentage of our total revenue in fiscal 24 and is separate from our corporate learning core business. D2L serves more than 500 corporate customers today with a vast majority of the corporate revenue coming from Brightspace subscriptions and related services. We continue to have high conviction in corporate learning, and this remains a key growth area of our business. The spin-out transaction makes strategic sense for both entities and reflects the reality that Wave is at an earlier stage of development than our core business and has a different business model and investment requirements. Wave has gained traction in an area with long-term potential, and we believe it will be better positioned to advance its business plan as a separate entity. And with a 30% ownership position, DGL will continue to have a venture interest in the future of SkillsWave. For D2L, this transaction enables us to focus entirely on the continued expansion and growth of the core learning platform and services business. It ties our objective to generate increasing levels of profitability, as you see in our outlook. The transaction is expected to close mid-year, and the SkillsWave team will be working closely with our WAVE clients, our education partners, and internal teams to facilitate a smooth transition. Another key growth strategy is expanding our platform. There's a highly productive year for our team as we delivered on a long roadmap of enhancements to existing offerings while broadening our portfolio of products, partners, and services. I'll highlight some key developments. Our continued investment in user experience is having a real impact on our commercial success. Our platform's ease of use was favorably reviewed in the assessment document published by the University of Southern California, and we're getting similar feedback from other new customers and prospects. In terms of new products, we continue to deliver on AI-focused functionality to support students and help faculty build higher quality learning experiences in less time, resulting in better student outcomes. We recently released our generative AI beta program to help educators and content creators easily and quickly generate practice questions and quiz questions using existing course content. There are millions of quiz questions generated each week in Brightspace, leveraging the fact that we have a common platform where identifying other ways to infuse AI across the platform, including the ability to generate practice questions in Creative Plus. In addition to our internal capabilities, we have a rich ecosystem of partners who are delivering AI-enabled products throughout our ecosystem. During the year, we continue to build best-in-class teams. Recently, Lee Potech was promoted to the role of Chief Revenue Officer to lead Z2L's global go-to-market strategy. With over a decade at the company, most recently as Senior Vice President Sales and Customer Success, Lee brings a wealth of experience from within the organization. We also welcomed Amy Clark as Chief People Officer to lead our award-winning people and culture department. Amy's recent experiences include leadership positions at two larger public companies, Colliers and Manulife, and we look forward to her work in continuing to build a company culture in which talent thrives. In closing, we're appreciative of the work of all D2Lers in delivering a strong 2024, which sets us up well for further success in 2025 and beyond. I will now turn the call over to Josh for an expanded discussion on the financials.