D2L Inc. Announces Third Quarter Fiscal 2023 Financial Results & Updated Outlook

• Total Q3 revenue grew 9% year over year to US$42.7 million and Constant Currency Revenue¹ increased 13% to US$44.2 million
• Total year-to-date revenue grew 14% year over year to US$125.7 million and Constant Currency Revenue¹ increased 17% to US$128.7 million
• Annual Recurring Revenue² increased by 7% year over year to US$160.3 million and Constant Currency Annual Recurring Revenue² increased 12% to US$167.4 million
• Total year-to-date cash flow from operating activities was US$9.1 million, versus US$4.1 million in the same period in the prior year
• Strong balance sheet at quarter end, with cash and cash equivalents of US$118.0 million and no debt

TORONTO, Dec. 7, 2022 /CNW/ - D2L Inc. (TSX: DTOL) ("D2L" or the "Company"), a leading global learning technology company, today announced financial results for its fiscal 2023 third quarter ended October 31, 2022. All amounts are in U.S. dollars and all figures are prepared in accordance with International Financial Reporting Standards (IFRS) unless otherwise indicated.

"We continued to expand our customer base and presence in multiple markets during the third quarter. Our growing market share and win rate in higher education positions us well for renewed market activity, as institutions make strategic investment decisions to address the need for flexible, high-quality, digital learning experiences," said John Baker, CEO of D2L. "Subsequent to quarter end, we also launched Brightspace Creator+ to solve a clear customer need by simplifying creation of engaging digital course content, while at the same time expanding the revenue opportunity from our existing customer base. We are effectively navigating the near-term macroeconomic challenges and are moving forward with confidence in the resilience of our end markets, the long-term demand outlook, our strong business fundamentals, and our accelerated path to profitability."

Third Quarter Fiscal 2023 Financial Highlights

• Total revenue of $42.7 million, up 9% from the comparative period in the prior year. Constant Currency Revenue¹ grew 13% year-over-year to $44.2 million.
• Annual Recurring Revenue² increased by 7% to $160.3 million, relative to the same period of the prior year. Constant Currency Annual Recurring Revenue² reached $167.4 million, a $17.8 million or 12% increase over the same quarter last year.
• Subscription and support revenue was $36.6 million, an increase of 4.7% over the prior year, reflecting growth from new customers, coupled with solid revenue retention and expansion from existing customers, offset by foreign exchange headwinds from non-USD denominated revenues.
• Professional services and other revenue increased to $6.1 million, up 45% from the same period of the prior year. The growth reflects several significant delivered professional services engagements, including new customer implementations and content development work for new and existing customers.
• Gross Profit for the quarter was $27.5 million (64.5% of revenue), an increase of 62% from Gross Profit of $17.0 million (43.5% of revenue) in the comparative period in the prior year. The increase was primarily due to the recognition of employee trust stock-based compensation expense of $8.1 million in the equivalent period of the prior year, which did not have a corresponding impact in the current period.
• Adjusted Gross Profit¹ was $27.6 million (64.7% of revenue) for the third quarter, an increase of 10% from Adjusted Gross Profit of $25.1 million (64.2% of revenue) in the comparative period in the prior year. The increases were the result of higher subscription and support revenues, combined with growth of professional services and other revenues, outpacing the increases in the related costs of revenue.
• Adjusted EBITDA¹ loss of $0.4 million, compared to a loss of $0.3 million for the comparative period in the prior year.
• Loss for the period decreased to $2.6 million, compared with a loss of $41.5 million for the same period of the prior year. The year-over-year improvement was largely the result of the $65.8 million employee trust stock-based compensation expense and was partially offset by the $25.9 million fair value gain on the redeemable convertible preferred shares, both of which were recognized in the prior period with no corresponding impact in the current period.
• Cash flow from operating activities was $8.1 million, versus $3.5 million in the same period in the prior year, and Free Cash Flow¹ for Q3 was $7.3 million, compared to Free Cash Flow of $3.2 million in the same period in the prior year.

¹ A non-IFRS financial measure or non-IFRS ratio. Please refer to "Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures" section of this press release.
² Please refer to "Key Performance Indicators" section of this press release.

Third Quarter Fiscal 2023 Financial Results

Selected Financial Measures

Business & Operating Highlights

• Subsequent to quarter end, D2L announced the promotion and appointment of Stephen Laster to the role of President. Laster joined D2L in the fourth quarter of 2021 as Chief Operating Officer. He is a seasoned executive with over 25 years of leadership experience in digital transformation, product development, and technology enablement. In this expanded role, Laster will lead D2L's strategy, product, services, sales, and marketing teams, working alongside Founder and CEO John Baker. The full press release is available here.
• In November, D2L launched Brightspace Creator+ to all its customers. Creator+ simplifies the complexity of creating learning content, thereby empowering content creators to build compelling and engaging courses for their learners.
• Continued to grow our customer base in North American higher education, as highlighted by multiple new agreements, including George Brown College, Chattanooga College Medical, Dental and Technical Careers, and Dallas College.
• Signed a new customer agreement with Hwa Chong International School in Singapore, delivering D2L Brightspace to help diversify the local education landscape and offer more educational pathways to students.
• Hearst Technology Inc. chose D2L Brightspace for its dynamic user experience and interface. Brightspace will help provide elite-level professional development to Hearst's top technical experts, including data scientists, coders, security professionals and more.
• D2L continued to build on its strength in supporting the learning and training needs of associations, highlighted by new agreements with the International Association for Public Participation Australasia, The Association of Alberta Forest Management Professionals, and The Center for Fair Futures.
• D2L Wave launched a new e-commerce feature that enables direct corporate billing to eliminate the need for employees to pay out-of-pocket and streamlines the registration process for users. D2L Wave also introduced four new education providers to its catalog of offerings, including its first ever US-based education partner.

Financial Outlook
The Company is updating its previous guidance for the 12 months ended January 31, 2023 (provided in its Q2 results press release dated September 7, 2022) to reflect improved  Adjusted EBITDA loss as the Company pursues an accelerated path to profitability. For fiscal 2023, the Company is expecting Adjusted EBITDA loss in the range of $4 million to $6 million, rather than its previous guidance of Adjusted EBITDA loss in the range of $6 million to $8 million. This revision is reflective of continued cost optimization and a measured prioritization of investments, combined with favourable fluctuations in foreign exchange rates. 

D2L's fiscal 2023 revenue guidance is unchanged. The Company is expecting total revenue in the range of $168 million to $170 million, implying growth of 11% to 12% over the year ended January 31, 2022 (12% to 14% on a constant currency basis).  

Conference Call & Webcast
D2L management will host a conference call on Thursday, December 8, 2022 at 8:30 am ET to discuss its third quarter fiscal 2023 financial results.

Forward-Looking Information
This press release includes statements containing "forward-looking information" within the meaning of applicable securities laws. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects", "budget", "scheduled", "estimates", "outlook", "target", "forecasts", "projection", "potential", "prospects", "strategy", "intends", "anticipates", "seek", "believes", "opportunity", "guidance", "aim", "goal" or variations of such words and phrases or statements that certain future conditions, actions, events or results "may", "could", "would", "should", "might", "will", "can", or negative versions thereof, "be taken", "occur", "continue" or "be achieved", and other similar expressions. Statements containing forward-looking information are not historical facts, but instead represent management's expectations, estimates and projections regarding future events or circumstances.

This forward-looking information relates to the Company's future financial outlook and anticipated events or results and includes, but is not limited to, statements under the heading "Financial Outlook" and information regarding: the Company's financial position, financial results, business strategy, performance, achievements, prospects, objectives, opportunities, business plans and growth strategies; the Company's budgets, operations and taxes; the markets in which the Company operates; industry trends and the Company's competitive position; expansion of the Company's product offerings; trends in research and development expenses as a percentage of revenue; the timing and pace for achieving profitability; and expectations regarding the growth of the Company's customer base, revenue and revenue generation potential.

Forward-looking information is based on certain assumptions, expectations and projections, and analyses made by the Company in light of management's experience and perception of historical trends, current conditions and expected future developments and other factors it believes are appropriate, including the following: the Company's ability to win business from new customers and expand business from existing customers; the timing of new customer wins and expansion decisions by existing customers; the Company's ability to generate revenue and expand its business while controlling costs and expenses; the Company's ability to manage growth effectively; the Company's ability to hire and retain personnel returning to levels consistent with historical experiences; the effects of foreign currency exchange rate fluctuations on our operations; the effects of inflation on our operations; the ability to seek out, enter into and successfully integrate acquisitions; business and industry trends, including the success of current and future product development initiatives; positive social development and attitudes toward the pursuit of higher education; the Company's ability to maintain positive relationships with its customer base and strategic partners; the Company's ability to adapt and develop solutions that keep pace with continuing changes in technology, education and customer needs; the ability to patent new technologies and protect intellectual property rights; the Company's ability to comply with security, cybersecurity and accessibility laws, regulations and standards; the Company's ability to retain key personnel; the factors and assumptions referenced under "Financial Outlook" of the Company's MD&A for the three and nine months ended October 31, 2022 and that the list of factors referenced in the following paragraph, collectively, do not have a material impact on the Company.

Although the Company believes that the assumptions underlying such forward-looking information were reasonable when made, they are inherently uncertain and are subject to significant risks and uncertainties and may prove to be incorrect. The Company cautions investors that forward-looking information is not a guarantee of the future and that actual results may differ materially from those made in or suggested by the forward-looking information contained in this press release. Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks, uncertainties and other factors, including but not limited to the risks identified herein, including at "Summary of Factors Affecting Our Performance" of the Company's MD&A for the three and nine months ended October 31, 2022, or in the "Risk Factors" section of the Company's AIF. If any of these risks or uncertainties materialize, or if assumptions underlying the forward-looking information prove incorrect, actual results might vary materially from those anticipated in the forward-looking information.

Given these risks and uncertainties, investors are cautioned not to place undue reliance on forward-looking information, including any financial outlook. Any forward-looking information that is contained in this press release speaks only as of the date of such statement, and the Company undertakes no obligation to update any forward-looking information or to publicly announce the results of any revisions to any of those statements to reflect future events or developments, except as required by applicable securities laws. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.

About D2L Inc. (TSX: DTOL)
D2L is transforming the way the world learns?helping learners of all ages achieve more than they dreamed possible. Working closely with customers all over the world, D2L is supporting millions of people learning online and in person. Our global workforce is dedicated to making the best learning products to leave the world better than they found it. Learn more at?www.D2L.com. 

D2L Inc.
Condensed Consolidated Interim Balance Sheets
(Unaudited)
(In U.S. dollars)

As at October 31, 2022 and January 31, 2022

D2L Inc.
Condensed Consolidated Interim Statements of Comprehensive Loss
(Unaudited)
(In U.S. dollars)

For the three and nine months ended October 31, 2022 and 2021

D2L Inc.
Condensed Consolidated Interim Statements of Shareholders' Equity (Deficiency)
(Unaudited)
(In U.S. dollars)

For the nine months ended October 31, 2022 and 2021

D2L Inc.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited)
(In U.S. dollars)

For the nine months ended October 31, 2022 and 2021

Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures
The information presented within this press release refers to certain non-IFRS financial measures (including non-IFRS ratios) including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Gross Profit, Adjusted Gross Margin, Free Cash Flow, Free Cash Flow Margin, and Constant Currency Revenue. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS. Non-IFRS financial measures should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS and are unlikely to be comparable to similar measures presented by other issuers. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company's results of operations, financial performance and liquidity from management's perspective and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS measures. The Company believes that securities analysts, investors and other interested parties frequently use non-IFRS financial measures in the evaluation of the Company. The Company's management also uses non-IFRS financial measures to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts, and to assess our ability to meet our capital expenditures and working capital requirements.

Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is defined as net income (loss), excluding interest, taxes, depreciation and amortization (or EBITDA), adjusted for changes in the fair value of redeemable convertible preferred shares, stock-based compensation, foreign exchange gains and losses, transaction-related expenses, non-recurring activities and other income and losses. Adjusted EBITDA Margin is calculated as Adjusted EBITDA expressed as a percentage of total revenue.  For an explanation of management's use of Adjusted EBITDA and Adjusted EBITDA Margin see "Non-IFRS and Other Financial Measures" section in the Company's MD&A.

The following table reconciles Adjusted EBITDA to loss for the period, and discloses Adjusted EBITDA Margin, for the periods indicated:

Adjusted Gross Profit and Adjusted Gross Margin
Adjusted Gross Profit is defined as gross profit excluding related stock-based compensation expenses. Adjusted Gross Margin is calculated as Adjusted Gross Profit expressed as a percentage of total revenue. For an explanation of management's use of Adjusted Gross Profit and Adjusted Gross Margin see "Non-IFRS and Other Financial Measures" section in the Company's MD&A.

The following table reconciles Adjusted Gross Margin to gross profit expressed as a percentage of revenue, for the periods indicated:

Free Cash Flow and Free Cash Flow Margin
Free Cash Flow is defined as cash provided by (used in) operating activities less net additions to property and equipment. Free Cash Flow Margin is calculated as Free Cash Flow expressed as a percentage of total revenue. For an explanation of management's use of Free Cash Flow and Free Cash Flow Margins see "Non-IFRS and Other Financial Measures" section in the Company's MD&A.

The following table reconciles our cash flow from (used in) operating activities to Free Cash Flow, and discloses Free Cash Flow Margin, for the periods indicated:

Constant Currency Revenue
Constant Currency Revenue is defined as foreign-currency-denominated revenues translated at the historical exchange rates from the comparable prior period into our U.S. dollar functional currency. For an explanation of management's use of Constant Currency Revenue see "Non-IFRS and Other Financial Measures" section in the Company's MD&A.

The following table reconciles our Constant Currency Revenue to revenue, for the periods indicated:

Key Performance Indicators

Management uses a number of metrics, including the key performance indicators identified below, to help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Our key performance indicators may be calculated in a manner different than similar key performance indicators used by other issuers. These metrics are estimated operating metrics and not projections, nor actual financial results, and are not indicative of current or future performance.

• Annual Recurring Revenue: We define Annual Recurring Revenue as the annualized equivalent value of subscription revenue from all existing customer contracts as at the date being measured, exclusive of the implementation period. Our calculation of Annual Recurring Revenue assumes that customers will renew their contractual commitments as those commitments come up for renewal. We believe Annual Recurring Revenue provides a reasonable, real-time measure of performance in a subscription-based environment and provides us with visibility for potential growth to our cash flows. We believe that an increasing Annual Recurring Revenue indicates the continued strength in the expansion of our business, and will continue to be our focus on a go-forward basis. Annual recurring revenue as at October 31, 2022 was $160.3 million ($149.6 million as at October 31, 2021).
  
  
• Constant Currency Annual Recurring Revenue: Constant Currency Annual Recurring Revenue is defined as foreign-currency-denominated Annual Recurring Revenue translated at the historical exchange rates from the comparable prior period into our U.S. dollar functional currency. Constant Currency Annual Recurring Revenue as at October 31, 2022 was $167.4 million ($149.6 million as at October 31, 2021).

SOURCE D2L Inc.