D2L Inc. Announces Fourth Quarter and Fiscal 2024 Financial Results

• Total revenue in Q4 increased 11% year-over-year to US$47.6 million; full-year revenue grew 8% to US$182.4 million
• Q4 subscription and support revenue grew 12% year-over-year to US$42.2 million; full-year subscription and support revenue grew 11% to US$162.2 million
• Annual Recurring Revenue¹ reached US$188.1 million at year-end, up 12% over the prior year-end
• Cash flow from operating activities of US$15.7 million in fiscal 2024, an increase of US$11.9 million from the prior year
• Q4 Adjusted EBITDA² of US$3.5 million (7.3% margin), versus US$0.4 million (1.0% margin) in the prior year; full-year EBITDA of US$7.9 million (4.3% margin), an increase of US$10.8 million from the prior year
• Subsequent to quarter end, announced spin-out transaction for D2L Wave

TORONTO, April 3, 2024 /CNW/ - D2L Inc. (TSX: DTOL) ("D2L" or the "Company"), a leading global learning technology company, today announced financial results for its fiscal 2024 fourth quarter and full year ended January 31, 2024. All amounts are in U.S. dollars and all figures are prepared in accordance with International Financial Reporting Standards ("IFRS") unless otherwise indicated.

"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 and profitability," said John Baker, CEO of D2L. "Fourth-quarter subscription and support revenue grew 12%, subscription gross profit increased by 19%, Adjusted EBITDA was up substantially, and we generated more than $15 million in cash flow from operations for the fiscal year – adding to the company's strong financial position. We continue to win great new customers in our core markets and recently became the number two in market share in North American higher education by enrollment³ – a testament to the quality of our learning platform and our relentless focus on being an active strategic partner to our customers."

Mr. Baker added: "We have a strong team focused on our clients' success, and we are making the right long-term investments to become the category leader, while at the same time remaining highly focused on continuing to deliver balanced growth with a significant emphasis on further margin expansion."

Fourth Quarter Fiscal 2024 Financial Highlights

• Total revenue of $47.6 million, up 11% from the same period in the prior year.
• Subscription and support revenue was $42.2 million, an increase of 12% over the same period of the prior year, reflecting growth from new customers and strong revenue retention and expansion from existing customers.
• Annual Recurring Revenue¹ ("ARR") as at January 31, 2024 increased by 12% year-over-year, from $168.0 million to $188.1 million.
• Gross profit increased 17% to $32.0 million (67.3% gross profit margin) from $27.3 million (64.0% gross profit margin) in the same period of the prior year.
• Gross profit margin for subscription and support revenue increased to 73.0%, from 68.7% in the same period of the prior year, an improvement of 430 basis points.
• Adjusted EBITDA² of $3.5 million, compared with Adjusted EBITDA of $0.4 million for the comparative period in the prior year.
•  Income for the period was $0.6 million, compared with a loss of $6.2 million for the comparative period of the prior year.
• Cash flow used in operating activities was $5.5 million, versus $5.3 million in the same period in the prior year, and Free Cash Flow² was negative $6.1 million, compared to Free Cash Flow of negative $7.0 million in the same period in the prior year.
• Gross Revenue Retention Rate¹ in fiscal 2024 was 94%, up from 92% in fiscal 2023; Net Revenue Retention Rate¹ was 102% for fiscal 2024, consistent with the prior year.
• Strong balance sheet at quarter end, with cash and cash equivalents of $116.9 million and no debt.
• Initiated a Normal Course Issuer Bid ("NCIB") in December 2023. During the year ended January 31, 2024, the Company repurchased and canceled 41,200 Subordinate Voting Shares under the NCIB.

1 Refer to "Key Performance Indicators" section of this press release.

2 A non-IFRS financial measure or non-IFRS ratio.  Refer to "Non IFRS Financial Measures" section of this press release.

3 Source: Market share by enrollment as referenced in Phil Hill & Associates Higher Education LMS Market Dynamics Year-End 2023 Report

Fourth Quarter and Full Year Fiscal 2024 Financial Results – Selected Financial Measures
(in thousands of U.S. dollars, except for percentages)

	Three months ended January 31					Year ended January 31
	2024	2023	Change	Change	2024		2023	Change	Change
	$	$	$	%	$		$	$	%
Subscription & Support Revenue	42,187	37,790	4,397	11.6 %	162,232		145,939	16,293	11.2 %
Professional Services & Other Revenue	5,382	4,894	488	10.0 %	20,148		22,457	-2,309	-10.3 %
Total Revenue	47,569	42,684	4,885	11.4 %	182,380		168,396	13,984	8.3 %
Constant Currency Revenue1	47,401	42,684	4,717	11.1 %	183,812		168,396	15,416	9.2 %
Gross Profit	32,035	27,326	4,709	17.2 %	122,196		107,770	14,426	13.4 %
Adjusted Gross Profit1	32,169	27,434	4,735	17.3 %	122,760		108,139	14,621	13.5 %
Adjusted Gross Margin1	67.6 %	64.3 %			67.3 %		64.2 %
Income (Loss) for the period	563	(6,186)	6,749	109.1 %	(3,542)		(18,377)	14,835	80.7 %
Adjusted EBITDA (Loss)1	3,463	425	3,038	714.8 %	7,862		(2,904)	10,766	370.7 %
Cash Flows from Operating Activities	(5,512)	(5,279)	(233)	-4.4 %	15,659		3,779	11,880	314.4 %
Free Cash Flow1	(6,077)	(7,046)	969	13.8 %	9,932		107	9,825	9182.2 %

1 A non-IFRS financial measure or non-IFRS ratio.  Refer to the "Non-IFRS Financial Measures and Reconciliation of Non-IFRS Financial Measures" section of this press release for more details.

Fourth Quarter Business & Operating Highlights

• D2L's learning platform had more than 18 million users at year end, up from 16 million at the beginning the year. D2L's customer list grew to more than 1,310 at January 31, 2024 (from over 1,240 as at January 31, 2023), representing a broad cross-section of colleges, universities, K-12 school districts and companies in more than 40 countries.
• D2L continued to grow its customer base in education in North America, including the additions of Villanova University and Aurora University.
• The Company continued to expand international customer base, including Universidad Madero, The Independent Institute of Education, and Smart Training Society.
• D2L signed new corporate customers, including The Canadian Red Cross and Nebraska Health Care Association.
• The Company continues to deliver AI-focused functionality to enhance the learning moment, including
  the roll-out of its Generative AI beta program to help educators and content creators easily and quickly generate practice questions and quiz questions using existing course content. D2L also launched a free Introduction to AI Ethics and Governance course, built in partnership with AI specialists, INQ Consulting, to help build a greater understanding of AI technology.
• D2L was listed on Forbes' 2024 Canada's Best Employers List and was recognized as a 2023 Canada's Most Admired Corporate Cultures™ mid-market company for the third time in a row.
• Partnered with the Open Society University Network (OSUN), joined by the Baker Family Foundation, to support OSUN's Hubs for Connected Learning model in the Dabab refugee camp in Kenya. The pilot project will give 150 refugees access to a new pilot project that will help equip them with critical thinking, analysis, and digital literacy skills in preparation for higher education and labor pathways.

Spin-out Transaction for D2L Wave Offering
On April 3, 2024, the Company announced that it has entered into a binding letter agreement (the "Letter Agreement") to spin-out the D2L Wave offering into a new independent standalone company, SkillsWave Corporation ("SkillsWave"), and will sell majority ownership to John Baker, with an expected mid-year closing date. The D2L Wave offering is an early stage upskilling technology, representing a very small percentage of D2L's overall revenue in Fiscal 2024, and is separate from D2L's corporate learning core business. This transaction enables the Company to increase focus on the continued growth and profitability of the core SaaS business, led by its industry-leading learning platform Brightspace in the global education and corporate markets. For additional information on the background and terms of the transaction and Letter Agreement, please refer to the full news release, which can be found here.

Financial Outlook
D2L is initiating financial guidance for the year ended January 31, 2025 ("Fiscal 2025"), which reflects the operating levels the Company expects to achieve for Fiscal 2025.  D2L plans to continue making measured investments for growth in Fiscal 2025, while optimizing its operations towards increasing levels of profitability. Specifically, for Fiscal 2025 the Company is issuing the following guidance:

• Subscription and support revenue in the range of $177 million to $180 million, implying growth of 10% at the midpoint over Fiscal 2024;
• Total revenue in the range of $197 million to $201 million, implying growth of 9% at the midpoint over Fiscal 2024; and
• Adjusted EBITDA in the range of $21 million to $23 million, implying Adjusted EBITDA margin of 11% at the midpoint.

The Company expects revenue and Adjusted EBITDA to increase as Fiscal 2025 progresses, enabling the Company to exit the year with low-to-mid-teen Adjusted EBITDA Margin. 

These targets demonstrate the Company's continued emphasis on balancing growth and profitability, including increased levels of revenue growth and Adjusted EBITDA in Fiscal 2025 relative to Fiscal 2024. These targets include the expected impact of the D2L Wave spin-out transaction based upon a targeted mid-year close date which will contribute to increased profitability in the second half of the year.  The achievement of the Adjusted EBITDA guidance is based upon continued efficiencies and leverage in our operations as we grow our revenue. The anticipated revenue growth rates in Fiscal 2025 are informed in part by the levels of sales activity that occurred during Fiscal 2024, and the resulting impact of such activity on the corresponding revenue recognition in Fiscal 2025.

As we look over the medium term, we expect to generate annual revenue growth in the low double-digit to mid-teens and we expect Adjusted EBITDA and Adjusted EBITDA Margin to increase annually, based on further operating leverage and continued improvements in gross margin. For additional details on the Company's outlook, refer to the "Financial Outlook" section of the Company's Management's Discussion and Analysis ("MD&A") for the three and 12 months ended January 31, 2024. The principal assumptions and factors underlying this are discussed below. See also the assumptions and factors noted at "Forward-Looking Information".

The foregoing information has been prepared by management of the Company and has been outlined assuming accounting policies that are generally consistent with our current accounting policies. This information is based on underlying assumptions and factors that management believes are reasonable in the circumstances, given the applicable time periods, as well as the Company's capabilities and business plans, current and past growth rates, current customer contractual commitments, customer purchasing history, renewal experience and historic results, management's assessment of market dynamics and views of the drivers of growth, estimated growth in the target addressable market, expectations concerning growth strategies and opportunities, and ability to scale operations and realize cost efficiencies as the Company grows revenues. The foregoing is also based on assumptions relating to external factors that may be beyond our control, including general economic conditions remaining stable, the industry trends described in the "Industry Overview and Trends" section of the Company's Annual Information Form ("AIF"), the outcome of our international expansion, offering expansion, and partner ecosystem expansion initiatives, and cost savings from efficiency improvements and operating leverage.  However, there can be no assurance that we will be successful in achieving the increases in performance set out above. Nor can any assurances be given regarding the realization of our expectations and drivers that anticipated growth and margin improvements are based on.

The purpose of disclosing our medium-term outlook is to provide investors with additional information concerning the Company's operating focus and expected performance over the medium term. However, there can be no assurance that we will be successful in achieving that which is set out above. For example, our strategy may evolve in response to changes in external factors outside our control such as changes in the markets that our customers operate in or general economic conditions, and these factors may affect our ability to achieve these increases in performance over the medium term.  Our views on the medium term outlook is also forward-looking information for the purposes of applicable securities laws in Canada and readers are therefore cautioned that actual results may vary materially from that discussed above. See also "Summary of Factors Affecting our Performance" and "Forward-Looking Information" set out above and "Risk Factors" in the Company's AIF for a description of other assumptions underlying the forward-looking information and of the risks and uncertainties that generally impact our business and that could cause actual results to vary materially.

Conference Call & Webcast
D2L management will host a conference call on Thursday, April 4, 2024 at 8:30 am ET to discuss its fourth quarter and full-year fiscal 2024 financial results.

Date:		Thursday, April 4, 2024
Time:		8:30 am (ET)
Dial in number:		Canada/US: 1 [phone] International: 1 [phone] Access code: 223741
Webcast:		A live webcast will be available at ir.d2l.com/events-and-presentations/events/ The webcast will also be archived

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; judgments and estimates impacting on financial statements; the markets in which the Company operates; industry trends and the Company's competitive position; expansion of the Company's product offerings; the anticipated impacts of acquisitions; trends in research and development expenses and general and administrative expenses, each as a percentage of revenue; planned expenditures in sales and marketing and research and development activities; the timing and pace for achieving gross profitability; expectations regarding the growth of the Company's customer base, revenue, revenue generation potential and expectations regarding costs, including as a percentage of revenue; and the proposed spin-out of D2L Wave. 

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 effectively; the effects of foreign currency exchange rate fluctuations 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 assumptions underlying the judgments and estimates impacting on financial statements; and the Company's ability to retain key personnel; the factors and assumptions discussed under the "Financial Outlook" section above; that the conditions to completing the spin-out of D2L Wave are achieved or waived in a timely manner; 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 risk of non-completion of the D2L Wave spin-out, or completion on the terms other than those initially negotiated, due to an inability to achieve satisfaction of applicable closing conditions, or obtain such third party consents as considered desirable by the parties and the further risks identified herein, or at "Summary of Factors Affecting Our Performance" of the Company's MD&A for the three and 12 months ended January 31, 2024, or in the "Risk Factors" section of the Company's most recently filed AIF, in each case filed under the Company's profile on SEDAR+ at www.sedarplus.com. 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.
Consolidated Statements of Financial Position
(In U.S. dollars)

As at January 31, 2024 and January 31, 2023

		2024	2023
Assets
Current assets:
	Cash and cash equivalents	$   116,943,499	$   110,732,236
	Trade and other receivables	23,025,690	20,894,794
	Uninvoiced revenue	3,971,861	2,107,015
	Prepaid expenses	10,517,226	8,183,390
	Deferred commissions	5,334,864	4,487,043
		159,793,140	146,404,478
Non-current assets:
	Other receivables	537,056	193,036
	Prepaid expenses	119,872	122,469
	Deferred income taxes	529,674	189,178
	Right-of-use assets	8,774,960	11,205,371
	Property and equipment	8,427,734	4,287,095
	Deferred commissions	7,730,724	6,849,779
	Intangible assets	770,707	288,099
	Goodwill	10,440,091	7,070,432
Total assets		$    197,123,958	$    176,609,937
Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable and accrued liabilities	$      32,635,926	$      23,450,767
	Deferred revenue	93,727,368	85,662,830
	Lease liabilities	1,002,464	1,127,600
	Contingent consideration	271,479	—
		127,637,237	110,241,197
Non-current liabilities:
	Deferred income taxes	587,075	398,906
	Lease liabilities	11,707,534	11,878,556
	Contingent consideration	311,839	—
		12,606,448	12,277,462
		140,243,685	122,518,659
Shareholders' equity:
	Share capital	364,830,884	357,639,824
	Additional paid-in capital	47,485,107	46,084,161
	Accumulated other comprehensive loss	(4,998,317)	(5,001,805)
	Deficit	(350,437,401)	(344,630,902)
		56,880,273	54,091,278
Total liabilities and shareholders' equity		$    197,123,958	$   176,609,937

D2L Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In U.S. dollars)                                                                                                                             

Years ended January 31, 2024 and 2023

		2024		2023
Revenue:
	Subscription and support	$   162,231,829		$   145,938,597
	Professional services and other	20,148,646		22,457,819
		182,380,475		168,396,416
Cost of revenue:
	Subscription and support	45,351,420		46,271,187
	Professional services and other	14,832,600		14,354,963
		60,184,020		60,626,150
Gross profit		122,196,455		107,770,266
Expenses:
	Sales and marketing	52,914,495		55,010,030
	Research and development	48,320,129		43,067,814
	General and administrative	28,074,111		25,619,759
	Impairment loss on intangible assets	—		4,474,370
		129,308,735		128,171,973
Loss from operations		(7,112,280)		(20,401,707)
Interest and other income (expenses):
	Interest expense	(619,860)		(716,342)
	Interest income	4,225,939		1,335,965
	Other income	230,947		—
	Foreign exchange gain	79,689		1,839,447
		3,916,715		2,459,070
Loss before income taxes		(3,195,565)		(17,942,637)
Income taxes (recovery):
	Current	636,726		503,662
	Deferred	(290,202)		(69,574)
		346,524		434,088
Loss for the year		(3,542,089)		(18,376,725)
Other comprehensive gain (loss):
	Foreign currency translation gain (loss)	3,488		(1,671,097)
Comprehensive loss		$  (3,538,601)		$  (20,047,822)
Loss per share – basic		$  (0.07)		$  (0.35)
Loss per share – diluted		(0.07)		(0.35)
Weighted average number of common shares – basic		53,554,686		53,029,605
Weighted average number of common shares – diluted			53,554,686	53,029,605

D2L Inc.
Consolidated Statements of Shareholders' Equity
(In U.S. dollars)

Years ended January 31, 2024 and 2023

	Share Capital		Additional paid-in capital	Accumulated other comprehensive loss	Deficit	Total
	Shares	Amount
Balance, January 31, 2022	52,912,502	$  354,277,986	$  41,686,794	$  (3,330,708)	$  (326,254,177)	$  66,379,895
Issuance of Subordinate Voting Shares on exercise of options	120,224	994,959	(368,688)	—	—	626,271
Issuance of Subordinate Voting Shares on settlement of restricted share units	113,804	2,366,879	(2,971,847)	—	—	(604,968)
Stock-based compensation	—	—	7,737,902	—	—	7,737,902
Other comprehensive loss	—	—	—	(1,671,097)	—	(1,671,097)
Loss for the year	—	—	—	—	(18,376,725)	(18,376,725)
Balance, January 31, 2023	53,146,530	357,639,824	46,084,161	(5,001,805)	(344,630,902)	54,091,278
Issuance of Subordinate Voting Shares on exercise of options	497,386	4,581,368	(2,226,913)	—	—	2,354,455
Issuance of Subordinate Voting Shares on settlement of restricted share units	375,369	2,932,606	(5,659,029)	—	—	(2,726,423)
Stock-based compensation	—	—	9,286,888	—	—	9,286,888
Repurchase of share capital for cancellation under NCIB	(41,200)	(322,914)	—	—	—	(322,914)
Share repurchase commitment under the ASPP	—	—	—	—	(2,264,410)	(2,264,410)
Other comprehensive gain	—	—	—	3,488	—	3,488
Loss for the year	—	—	—	—	(3,542,089)	(3,542,089)
Balance, January 31, 2024	53,978,085	$  364,830,884	$  47,485,107	$  (4,998,317)	$  (350,437,401)	$  56,880,273

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

Years ended January 31, 2024 and 2023

			2024		2023
Operating activities:
	Loss for the year		$  (3,542,089)		$  (18,376,725)
	Items not involving cash:
		Depreciation of property and equipment	1,598,200		1,506,222
		Depreciation of right-of-use assets	1,184,848		2,138,765
		Amortization of intangible assets	88,097		598,545
		Impairment loss on intangible assets	—		4,474,370
		Stock-based compensation	9,286,888		7,737,902
		Net interest (income) expense	(3,606,079)		(619,623)
		Income tax expense	346,524		434,088
	Changes in operating assets and liabilities:
		Trade and other receivables	(1,064,604)		4,485,203
		Uninvoiced revenue	(1,841,656)		115,296
		Prepaid expenses	(2,293,679)		(645,246)
		Deferred commissions	(1,661,350)		(584,204)
		Accounts payable and accrued liabilities	5,499,539		23,867
		Provisions	—		(3,265,449)
		Deferred revenue	8,041,852		4,615,107
		Right-of-use assets and lease liabilities	—		134,720
	Interest received		4,223,677		1,335,965
	Interest paid		(28,577)		(83,779)
	Income taxes paid		(572,592)		(245,675)
	Cash flows from operating activities		15,658,999		3,779,349
Financing activities:
	Payment of lease liabilities		(1,015,760)		(1,651,520)
	Lease incentive received		961,920		—
	Proceeds from exercise of stock options		2,354,455		626,271
	Taxes paid on settlement of restricted share units		(2,726,423)		(604,968)
	Repurchase of share capital for cancellation under NCIB			(322,914)	—
	Cash flows used in financing activities		(748,722)		(1,630,217)
Investing activities:
	Purchase of property and equipment		(5,727,243)		(3,672,349)
	Acquisition of business, net of cash acquired		(2,793,180)		—
	Cash flows used in investing activities		(8,520,423)		(3,672,349)
Effect of exchange rate changes on cash and cash equivalents			(178,591)		(2,420,042)
Increase (decrease) in cash and cash equivalents			6,211,263		(3,943,259)
Cash and cash equivalents, beginning of year			110,732,236		114,675,495
Cash and cash equivalents, end of year			$  116,943,499		$  110,732,236

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 stock-based compensation, foreign exchange gains and losses, non-recurring expenses, acquisition-related costs, impairment charges 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 – Non-IFRS Financial Measures and Non-IFRS Financial Ratios – Adjusted EBITDA and Adjusted EBITDA Margin" section in the Company's MD&A for the three and 12 months ended January 31, 2024, which section is incorporated by reference herein.

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

(in thousands of U.S. dollars, except for percentages)	Three months ended January 31		Fiscal year ended January 31
	2024	2023	2024	2023
Profit (Loss) for the period	563	(6,186)	(3,542)	(18,377)
Stock-based compensation	2,050	1,942	9,287	7,738
Foreign exchange loss (gain)	300	(1,041)	(80)	(1,839)
Non-recurring expenses	1,021	978	1,978	1,042
Impairment loss on intangible assets	—	4,474	—	4,474
Acquisition-related costs	88	—	809	—
Net interest expense (income)	(1,124)	(729)	(3,606)	(620)
Income tax expense	43	9	347	434
Other (income) loss	(202)	—	(202)	—
Depreciation and amortization	724	978	2,871	4,245
Adjusted EBITDA	3,463	425	7,862	(2,904)
Adjusted EBITDA Margin	7.3 %	1.0 %	4.3 %	-1.7 %

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 – Non-IFRS Financial Measures and Non-IFRS Financial Ratios – Adjusted Gross Profit and Adjusted Gross Margin" section in the Company's MD&A for the three and 12 months ended January 31, 2024, which section is incorporated by reference herein.

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

(in thousands of U.S. dollars, except for percentages)	Three months ended January 31		Fiscal year ended January 31
	2024	2023	2024	2023
Gross profit for the period	32,035	27,326	122,196	107,770
Stock based compensation	134	108	564	369
Adjusted Gross Profit	32,169	27,434	122,760	108,139
Adjusted Gross Margin	67.6 %	64.3 %	67.3 %	64.2 %

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 Margin see "Non-IFRS and Other Financial Measures – Non-IFRS Financial Measures and Non-IFRS Financial Ratios – Free Cash Flow and Free Cash Flow Margin" section in the Company's MD&A for the three and 12 months ended January 31, 2024, which section is incorporated by reference herein.

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:

(in thousands of U.S. dollars, except for percentages)	Three months ended January 31		Fiscal year ended January 31
	2024	2023	2024	2023
Cash flow from (used in) operating activities	(5,512)	(5,279)	15,659	3,779
Net addition to property and equipment	(565)	(1,767)	(5,727)	(3,672)
Free Cash Flow	(6,077)	(7,046)	9,932	107
Free Cash Flow Margin	-12.8 %	-16.5 %	5.4 %	0.1 %

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 – Non-IFRS Financial Measures and Non-IFRS Financial Ratios – Constant Currency Revenue" section in the Company's MD&A for the three and 12 months ended January 31, 2024, which section is incorporated by reference herein.

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

	Three months ended January 31		Fiscal year ended January 31
(in thousands of U.S. dollars)	2024	2023	2024	2023
Total revenue for the period	47,569	42,684	182,380	168,396
Impact of foreign exchange rate changes over the prior period	(168)	—	1,432	—
Constant Currency Revenue	47,401	42,684	183,812	168,396

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 and Constant Currency 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 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. We define Constant Currency Annual Recurring Revenue 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.

	As at January 31
(in millions of U.S. dollars, except percentages)	2024	2023	Change
	$	$	%
Annual Recurring Revenue	188.1	168.0	12.0 %
Constant Currency Annual Recurring Revenue	187.9	168.0	11.8 %

• Net Revenue Retention Rate: We calculate Net Revenue Retention Rate for a fiscal year by considering all customers at the beginning of a fiscal year, and dividing our annual subscription revenue attributable to this group of customers at the end of the fiscal year, by the annual subscription revenue attributable to this group of customers in the prior fiscal year. By implication, this ratio, expressed as a percentage, excludes any sales from new customers acquired during the fiscal year, but does include incremental sales from the existing base of customers during the fiscal year being measured. This calculation contemplates all changes to Annual Recurring Revenue for the designated group of customers, which includes customer terminations and non-renewals, customer consolidations, changes in quantities of users, changes in pricing, additional applications purchased or applications no longer used. We believe that measuring the ability to retain and expand revenue generated from the existing customer base is a key indicator of the long-term value that we provide to customers. Net Revenue Retention Rate for the fiscal year ended January 31, 2024 was 102% (102% for the fiscal year ended January 31, 2023). See the "Review of Operations - Revenue" section of the MD&A for a further discussion of the consistency year-over-year.
• Gross Revenue Retention Rate: We calculate Gross Revenue Retention Rate for a fiscal year by subtracting downgrades, cancellations and terminations over the fiscal year from Annual Recurring Revenue at the beginning of the year, and dividing the result by the Annual Recurring Revenue from the beginning of the year. For clarity, the Gross Revenue Retention Rate calculation does not include incremental sales from the existing base of customers during the fiscal year being measured. As we continue to focus on increasing our product and service offering, we are providing more visibility into underlying customer and revenue retention rates, in addition to our ability to expand and grow revenue from our existing customers. As a result, we introduced Gross Revenue Retention Rate, which is a key measure to provide insight into the Company's success retaining existing customers. We believe that measuring the ability to retain revenue from our existing customer base is a key indicator of the long-term value that we provide to customers. Gross Revenue Retention Rate for this fiscal year ended January 31, 2024 was 94% (92% for the fiscal year ended January 31, 2023). See the "Review of Operations – Revenue" section of the Company's MD&A for the three and 12 months ended January 31, 2024 for a further discussion of the variance year-over-year.

SOURCE D2L Inc.

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