D2L Inc.

Hello everyone, and thank you for joining the D2L Inc Q4 earnings call. My name is Lucy and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad. I will now hand over to host Craig Armitage Investor Relations to begin. Please go ahead.

Good morning. 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. Our 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 management discussion and analysis and the most recently filed annual information form, in each case as filed 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 revenue, adjusted EBITDA margin, adjusted gross margin, and free cash flow. These non-IFRS financial measures do not have a 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 years ended January 31st, 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. And now I'd like to turn a call over to Mr. John Baker, Chief Executive Officer at D2L. Please go ahead, John.

Thank you, Craig, and thank you, everyone, for joining us for our Q4 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 Huff, our CFO, And I'm pleased to report it was a strong fourth quarter that underscored our effective execution in fiscal 2025. We balanced top-line growth with meaningfully improved profitability with revenue and adjusted EBITDA exceeding our full-year guidance. When you look at the numbers, it's important to understand the impact of FX in the period, particularly in Q4. We've included several constant currency metrics to provide a more accurate picture of our ongoing performance. The Q4 highlights include total revenue growth of 12% to $53.3 million. Subscription and support revenue rose 11% to $46.8 million. Annual recurring revenue was up 9% over last year's Q4 to $205.3 million on a constant currency basis. And adjusted EBITDA increased $9.4 million with adjusted EBITDA margin at 17.7% compared to 7.3% in last year's Q4. In fiscal 2023, we set out a medium-term model that concluded in fiscal 2025. We executed well against this and have navigated the major transition in the financial profile of the business. From fiscal 2023 to 2025, we added $37 million to our annual revenue. Adjusted gross margins were up approximately 500 basis points to 69%. Adjusted EBITDA increased by $31 million, and our adjusted EBITDA margin reached 13.7%, up from a negative 1.7% in fiscal 23. Re-cash flow increased by 27 million. And expressed another way, we dramatically advanced our Rule of 40 performance, reaching 26% in fiscal 2025 versus 7% in fiscal 23. At the same time, we've added 4 million users, bringing us to more than 20 million users on the Brightspace Learning Platform at year end. And I want to thank the entire D2L team for their contributions. His performance is a direct reflection of the tremendous focus and discipline work across the company. I also take this opportunity to thank Stephen Laster for his leadership and impact. As you may know, Stephen was a D2L client and a partner and a friend for many years before joining our team. Over the past three years, he's helped us build a strong and deep leadership group, and his work across other key areas of the business have allowed us to move forward on an even stronger foundation. We wish him well going forward. Our results in fiscal 2025 were achieved despite challenges posed by the macroeconomic environment, which has affected market activity levels, particularly in U.S. higher education. Through our 25-year history, we've experienced macro challenges many times, and our performance through these periods highlights the relative resiliency of our business. Organizations managing through a period of austerity were a strong partner as our modern AI-first platform can improve learner engagement and retention while increasing efficiency, a compelling value proposition. We have the team highly focused on building great software, delivering first-class services to our customers, and continuing to drive efficient growth. This work will put us in an even better position when the macro uncertainty clears. Building on our strong foundation, D12's next chapter will be defined by ushering in our AI-first learning platform strategy, as we've already started with the introduction of D12 Living, We see platform innovation as a key driver of growth over the medium term as our clients look to us to improve learning experience and outcomes. This chapter for G2L will continue to be a balance of growth and profitability while we drive to be number one in focused education markets globally and establish ourselves as the next-gen learning platform for upskilling in the corporate market. As you will see in the new medium-term outlook, we have high confidence in the growth drivers and our ability to generate higher revenue growth and margin expansion over this period. Our confidence is rooted in several factors. One, our meetings with leaders globally continue to reinforce the underlying demand for a better learning platform as organizations look for ways to address high-priority issues like upskilling and reskilling, combating enrollment pressures, or addressing growing demand for continuing education and professional upskilling. And they appreciate that most platforms cannot meet their needs. Remember that in higher education, legacy platforms still hold 30% market share in North America and over 70% market share internationally. Second, our competitive position is getting stronger. Even in a challenging macro market, our team has delivered the fastest growth among our higher education learning platform peers. And in North America, we increased our market share last year and solidified our position as the number two LMS vendor by enrollment. And our win rate continues to be strong at north of 50% in this important market. Through the great efforts of our team, D2L has also become the number one higher education learning platform in many countries around the world. In our most recent quarter, our new higher education customers include Roger Williams University in the US, Salta Group in the Netherlands, and Desh Bhagat University in India. And our win rates are strong and improving across our corporate markets as well. In Q4, we continue to expand the customer base in employee learning and training organizations, adding Vyasa Energy and Shepard & Company, among others. Third, our new products are hitting the mark with customers, and we're seeing strong pipeline generation from our recently expanded portfolio, including our AI offerings and TraderPlus. Our organic and inorganic product portfolio has allowed us to increase our attach rates and average deal size. TraderPlus as an example, has doubled its ARPU following the acquisition of H5P in July of 2024. And the product now has an attach rate of 20% across our customer base. And our attach rate on Quartz Merchant is up 55% since we acquired the business in May of 2023. As we've leaned into our existing relationships, we're providing incremental value to customers as they grow with us. Recent examples of this in Q4 include in the APAC region, an operating public university serving 40,000 owners which has been a long-standing customer of ours, renewing their relationship and expanding their suite of tools to include Achievement Plus, NuMe Pro, Creator Plus, and partner products that we resell. And another 10-year customer in the U.S. added Creator Plus with AI generations via H5P on a renewal. Due to a steady increase in program offerings and enrollment, this institution is expecting to triple the number of learners over the next five years. These are just two of many examples that underscore our success at introducing new products that solve important customer challenges and help grow D2L's addressable market and revenue opportunities. Looking across our customer base, our net revenue retention rate at year end shows early evidence of this cross-sell and upsell success. Constant currency, NRR, increased by 60 basis points year over year to 102.7%. Excluding the impact of a small subscription retirement, constant currency nrr would have been 104.1 an increase of 200 basis points over the prior year there is a significant opportunity to move nrr higher in the coming years and we believe investments in ai will be one of the key catalysts customers are responding very positively to our approach and solutions around ai we continue to differentiate with an ai first human-centered solution pragmatically delivered to our clients to have a high impact in the use cases that matter And to do this right, you need to layer AI on top of the right foundation, a robust learning process, and you need to be deeply rooted in learning, which are clear strengths of D2L. As the market evolves, we believe that we can further differentiate those areas. As we go to market, we're assembling case studies and efficacy data from many users that are seeing significant impact on improving educational outcomes, from retention to engagement to time on task, And we're receiving industry recognition as well. H12 Lumi won three awards in the primary, secondary, and higher education categories in the Teaching and Learning Awards of Excellence Best of 2024. Under the direction of our newest CTO, Andrew, and our Chief Product Officer, Christian Pentel, we will continue to strengthen our core platform, expand our portfolio, and enhance our speed of development as we work to solve more challenges for clients, strengthen our growth levers, and widen the gap between D2L and the competition. We have a robust roadmap, and we look forward to unveiling important product developments at our future users conference in a few months. Lastly, even though we're in tough macro conditions, our confidence in the medium term outlook is supported by a great team, strong financial position with no debt, increasing cash flow, and the flexibility to invest in organic and inorganic growth levers for us as a company. With that, I'll turn the call over to Josh.