D2L Inc. Announces Second Quarter Fiscal 2025 Financial Results

• Total revenue increased 11% year-over-year to US$49.2 million
• Subscription and support revenue grew 12% year-over-year to US$44.0 million
• Annual Recurring Revenue¹ reached US$198.3 million, up 11% over the prior year, and Constant Currency Annual Recurring Revenue¹ grew 12%
• Adjusted EBITDA² of US$4.2 million (8.6% margin) in the quarter
• Company increases revenue guidance to $199 million to $202 million and Adjusted EBITDA guidance to $22 million to $24 million

TORONTO, Sept. 4, 2024 /CNW/ - D2L Inc. (TSX: DTOL) ("D2L" or the "Company"), a leading global learning technology company, today announced financial results for its Fiscal 2025 second quarter ended July 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.

"Our second-quarter results demonstrate continued execution on our balanced growth and profitability plan, highlighted by strong growth in Annual Recurring Revenue, subscription revenue, and Free Cash Flow generation," said John Baker, CEO of D2L. "Our year-to-date performance positions us for continued growth and meaningful Adjusted EBITDA margin expansion in the second half of the year. At the same time, we are reinforcing our commitment to innovation that empowers our customers to create greater impact, achieve better outcomes, and deepen the human connection to learning. In recent months, we have significantly expanded our products and solutions, both through internal development and acquisition, which gives us more opportunity to create even deeper relationships with our growing customer base." 

Second Quarter Fiscal 2025 Financial Highlights

• Total revenue was $49.2 million, up 11% from the same period in the prior year.
• Subscription and support revenue was $44.0 million, an increase of 12% over the same period of the prior year.
• Annual Recurring Revenue¹ as at July 31, 2024 increased by 11% year-over-year, from $178.5 million to $198.3 million. Constant Currency Annual Recurring Revenue¹ increased 12% to $200.6 million.
• Cash flow from operating activities was $31.4 million, up 37% versus $22.9 million in the same period in the prior year, and Free Cash Flow² was $31.2 million, up 53% from $20.4 million in the same period in the prior year. Cash flows from operations have a seasonal low in the first quarter each year and a seasonal high in the second quarter each year.
• Cash flow from operating activities for the trailing 12-month period ended July 31, 2024 was $26.4 million, compared with $8.7 million for the trailing 12-month period ended July 31, 2023.
• Gross profit increased 12% to $33.4 million (67.9% gross profit margin) from $29.7 million (66.7% gross profit margin) in the same period of the prior year.
• Gross profit margin for subscription and support revenue increased to 72.9%, from 72.5% in the same period of the prior year.
• Adjusted EBITDA² increased to $4.2 million from a loss of $0.5 million for the same period in the prior year, and grew to $8.2 million year to date from $2.3 million in the comparative six-month period in the prior year.
• Loss for the period was $0.3 million, compared with a loss of $4.8 million for the comparative period of the prior year. The Q2 2025 results included approximately $1.2 million in non-recurring expenses and transaction-related costs. These expenses are net of a gain of $0.9 million on the disposal of the Company's majority ownership stake in SkillsWave.
• During the quarter, the Company completed the acquisition of H5P Group for an initial total consideration of $31.3 million.
• Strong balance sheet at quarter end, with cash and cash equivalents of $98.1 million and no debt.
• During the quarter ended July 31, 2024, the Company repurchased and canceled 106,900 Subordinate Voting Shares under its normal course issuer bid ("NCIB"). The Company has repurchased 279,480 shares since the inception of the NCIB on December 3, 2024.

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.

Second Quarter Fiscal 2025 Financial Results – Selected Financial Measures
(in thousands of U.S. dollars, except for percentages)

	Three months ended July 31					Six months ended July 31
	2024	2023	Change	Change		2024	2023	Change	Change
	$	$	$	%		$	$	$	%
Subscription & Support Revenue	44,017	39,405	4,612	11.7 %		86,971	78,595	8,376	10.7 %
Professional Services & Other Revenue	5,151	5,065	86	1.7 %		10,692	10,103	589	5.8 %
Total Revenue	49,168	44,470	4,698	10.6 %		97,663	88,698	8,965	10.1 %
Constant Currency Revenue1	49,568	44,470	5,098	11.5 %		98,019	88,698	9,321	10.5 %
Gross Profit	33,373	29,681	3,692	12.4 %		66,050	59,561	6,489	10.9 %
Adjusted Gross Profit 1	33,522	29,853	3,669	12.3 %		66,345	59,844	6,501	10.9 %
Adjusted Gross Margin1	68.2 %	67.1 %				67.9 %	67.5 %
Loss for the period	(262)	(4,828)	4,566	94.6 %		310	(3,718)	4,028	108.3 %
Adjusted EBITDA (Loss)1	4,213	(534)	4,747	889.0 %		8,232	2,277	5,955	261.5 %
Cash Flows From Operating Activities	31,443	22,888	8,555	37.4 %		16,617	5,853	10,764	183.9 %
Free Cash Flow1	31,223	20,449	10,774	52.7 %		16,271	1,765	14,506	821.9 %

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.

Second Quarter Business & Operating Highlights

• D2L continued to grow its customer base in education in North America, including the additions of Stark State College and University of Texas at Rio Grande Valley.
• D2L continued to expand its international customer base, including Hanze University of Applied Sciences and SteelCorp Construction S.A.
• Signed new corporate customers, including Ontario Nurses' Association and a large healthcare non-profit with 50,000 learners.
• Acquired H5P Group, a leading SaaS learning solution and provider of interactive content creation software with a global user base serving millions of individuals spanning more than 50 countries.
• Hosted its annual, sold-out user-conference, Fusion 2024, where global edtech leaders had access to inspiring keynotes, engaging discussions on the future of learning, and demonstrations of learning innovation.
• Launched D2L Lumi, a new artificial intelligence (AI)-powered feature in Brightspace to help build better content, assessments, and activities, saving educators valuable time.
• Launched D2L Achievement+ for Brightspace, a new add-on package that can help institutions and organizations implement a competency-based learning model, allowing learners to advance and master material at a pace that suits them best.
• Completed the previously announced transaction to spin-out SkillsWave into a new independent standalone company.
• Subsequent to quarter end, appointed Marta DeBellis to the Company's Board of Directors. DeBellis is an executive leader and leadership coach bringing over 30-years of global go-to-market experience focused on technology, for brands such as Adobe, Intel, and Instructure.

Financial Outlook

D2L updated its previously issued financial guidance for the year ended January 31, 2025 ("Fiscal 2025") as follows:

• Subscription and support revenue in the range of $178 million to $181 million, implying growth of 11% at the midpoint over Fiscal 2024, an increase from previously issued guidance of $177 million to $180 million (growth of 10% at the midpoint);
• Total revenue in the range of $199 million to $202 million, implying growth of 10% at the midpoint over Fiscal 2024, an increase from previously issued guidance of $197 million to $201 million (growth of 9% at the midpoint); and
• Adjusted EBITDA in the range of $22 million to $24 million, an increase from previously issued guidance of $21 million to $23 million (implying Adjusted EBITDA margin of 11% at the midpoint, consistent with previous guidance).

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 guidance revisions reflect the Company's continued progress in balancing revenue growth with operating efficiency improvements, as well as the partial year contributions in the Company's third and fourth quarter from the acquisition of H5P on July 9, 2024, inclusive of business combination accounting.

For additional details on the Company's outlook, including the principal underlying assumptions and risk factors regarding achievement, refer to the "Financial Outlook" section of the Company's Management's Discussion and Analysis for the three and 12 months ended January 31, 2024 (the "Annual MD&A"), as well as the "Forward-Looking Information" section therein, below and in the Company's Management's Discussion and Analysis for the three months ended July 31, 2024 (the "Interim MD&A").

Conference Call & Webcast

D2L management will host a conference call on Thursday, September 5, 2024 at 8:30 am ET to discuss its second quarter Fiscal 2025 financial results.

Date:		Thursday, September 5, 2024
Time:		8:30 am (ET)
Dial in number:		Canada/US: 1 [phone] International: 1 [phone] Access code: 540799
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, including the Company's balanced growth and profitability plan; the Company's budgets, operations and taxes; and judgments and estimates impacting on financial statements. 

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, including the acquisition of H5P; 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" of the Annual MD&A; 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, or at "Summary of Factors Affecting Our Performance" of the Company's Interim MD&A or in the "Risk Factors" section of the Company's most recently filed annual information form, 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.
Condensed Consolidated Interim Statements of Financial Position
(In U.S. dollars)

As at July 31, 2024 and January 31, 2024
(Unaudited)

		July 31, 2024	January 31, 2024
Assets
Current assets:
	Cash and cash equivalents	$    98,059,870	$   116,943,499
	Trade and other receivables	28,519,428	23,025,690
	Uninvoiced revenue	3,542,139	3,971,861
	Prepaid expenses	7,643,525	10,517,226
	Deferred commissions	5,365,809	5,334,864
		143,130,771	159,793,140
Non-current assets:
	Other receivables	476,385	537,056
	Prepaid expenses	290,583	119,872
	Deferred income taxes	544,501	529,674
	Right-of-use assets	8,642,646	8,774,960
	Property and equipment	7,729,392	8,427,734
	Deferred commissions	7,785,682	7,730,724
	Investment in associate	341,334	—
	Loan receivable from associate	5,031,127	—
	Intangible assets	18,416,205	770,707
	Goodwill	26,051,803	10,440,091
Total assets		$    218,440,429	$    197,123,958
Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable and accrued liabilities	$     27,839,548	$    32,635,926
	Deferred revenue	113,252,795	93,727,368
	Lease liabilities	1,366,283	1,002,464
	Contingent consideration	311,549	271,479
		142,770,175	127,637,237
Non-current liabilities:
	Deferred income taxes	4,334,057	587,075
	Lease liabilities	11,096,375	11,707,534
	Contingent consideration	4,529,000	311,839
		19,959,432	12,606,448
		162,729,607	140,243,685
Shareholders' equity:
	Share capital	367,404,918	364,830,884
	Additional paid-in capital	46,517,830	47,485,107
	Accumulated other comprehensive loss	(7,471,175)	(4,998,317)
	Deficit	(350,740,751)	(350,437,401)
		55,710,822	56,880,273
Total liabilities and shareholders' equity		$    218,440,429	$   197,123,958

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

For the three and six months ended July 31, 2024 and 2023
(Unaudited)

			Three months ended July 31		Six months ended July 31
			2024	2023	2024	2023
Revenue:
	Subscription and support		$ 44,017,554	$ 39,405,679	$ 86,971,029	$ 78,595,340
	Professional service and other		5,150,798	5,064,462	10,692,215	10,102,740
			49,168,352	44,470,141	97,663,244	88,698,080
Cost of revenue:
	Subscription and support		11,928,116	10,852,459	23,874,726	22,093,199
	Professional services and other		3,867,294	3,936,514	7,738,162	7,043,818
			15,795,410	14,788,973	31,612,888	29,137,017
Gross profit			33,372,942	29,681,168	66,050,356	59,561,063
Expenses:
	Sales and marketing		14,591,271	14,961,079	27,496,210	27,401,746
	Research and development		11,863,787	12,519,168	24,154,558	23,664,521
	General and administrative		8,480,828	7,312,207	16,580,259	13,501,710
			34,935,886	34,792,454	68,231,027	64,567,977
Loss from operations			(1,562,944)	(5,111,286)	(2,180,671)	(5,006,914)
Interest and other income (expense):
	Interest expense		(153,886)	(142,866)	(314,546)	(298,874)
	Interest income		944,693	840,405	2,028,738	1,716,512
	Other income (expense)		(59,433)	(211)	43	15,252
	Gain on SkillsWave disposal transaction		917,395	—	917,395	—
	Foreign exchange gain (loss)		(147,067)	(364,693)	83,714	65,479
			1,501,702	332,635	2,715,344	1,498,369
(Loss) income before income taxes			(61,242)	(4,778,651)	534,673	(3,508,545)
Income taxes (recovery):
	Current		305,923	316,769	356,668	391,411
	Deferred		(104,581)	(267,464)	(131,677)	(182,451)
			201,342	49,305	224,991	208,960
(Loss) income for the period			(262,584)	(4,827,956)	309,682	(3,717,505)
Other comprehensive gain (loss):
	Foreign currency translation gain (loss)		(1,677,168)	746,510	(2,472,858)	535,299
Comprehensive loss			$ (1,939,752)	$ (4,081,446)	$ (2,163,176)	$ (3,182,206)
(Loss) earnings per share – basic			$  (0.00)	$  (0.09)	$  0.01	$  (0.07)
(Loss) earnings share – diluted			$  (0.00)	$  (0.09)	$  0.01	$  (0.07)
Weighted average number of common shares – basic			54,374,056	53,430,984	54,195,897	53,328,052
Weighted average number of common shares – diluted			54,374,056	53,430,984	55,770,096	53,328,052

D2L INC.
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity
(In U.S. dollars)

For the six months ended July 31, 2024 and 2023
(Unaudited)

	Share Capital		Additional paid-in capital	Accumulated other comprehensive loss	Deficit	Total
	Shares	Amount
Balance, January 31, 2024	53,978,085	$  364,830,884	$  47,485,107	$  (4,998,317)	$  (350,437,401)	$  56,880,273
Issuance of Subordinate Voting Shares on exercise of options	351,007	3,043,827	(1,593,216)	—	—	1,450,611
Issuance of Subordinate Voting Shares on settlement of restricted share units	355,840	1,287,144	(4,290,550)	—	—	(3,003,406)
Stock-based compensation	—	—	4,916,489	—	—	4,916,489
Repurchase of share capital for cancellation under NCIB	(238,280)	(1,756,937)	—	—	—	(1,756,937)
Change in share repurchase commitment under ASPP	—	—	—	—	(613,032)	(613,032)
Other comprehensive loss	—	—	—	(2,472,858)	—	(2,472,858)
Income for the period	—	—	—	—	309,682	309,682
Balance, July 31, 2024	54,446,652	$  367,404,918	$  46,517,830	$  (7,471,175)	$  (350,740,751)	$  55,710,822
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	301,494	2,702,550	(1,146,774)	—	—	1,555,776
Issuance of Subordinate Voting Shares on settlement of restricted share units	209,695	961,800	(2,405,427)	—	—	(1,443,627)
Stock-based compensation	—	—	5,169,006	—	—	5,169,006
Other comprehensive gain	—	—	—	535,299	—	535,299
Loss for the period	—	—	—	—	(3,717,505)	(3,717,505)
Balance, July 31, 2023	53,657,719	$   361,304,174	$   47,700,966	$   (4,466,506)	$  (348,348,407)	$   56,190,227

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

For the six months ended July 31, 2024 and 2023
(Unaudited)

			2024		2023
Operating activities:
	(Loss) income for the period		$309,682		$(3,717,505)
	Items not involving cash:
		Depreciation of property and equipment	861,831		721,635
		Depreciation of right-of-use assets	612,221		643,910
		Amortization of intangible assets	179,233		32,572
		Gain on disposal of property and equipment	(47,194)		(15,670)
		Stock-based compensation	4,916,489		5,169,006
		Net interest income	(1,714,192)		(1,417,638)
		Income tax expense	224,991		208,960
		Gain on SkillsWave disposal transaction	(917,395)		—
		Loss from equity accounted investee	96,764		—
	Changes in operating assets and liabilities:
		Trade and other receivables	(4,478,486)		(7,434,422)
		Uninvoiced revenue	325,811		(615,095)
		Prepaid expenses	2,528,054		1,573,388
		Deferred commissions	(271,090)		(1,331,109)
		Accounts payable and accrued liabilities	(6,439,504)		(4,182,827)
		Deferred revenue	19,061,544		14,936,043
		Right-of-use assets and lease liabilities	(49,476)		—
	Interest received		1,984,358		1,717,429
	Interest paid		(17,757)		—
	Income taxes paid		(548,991)		(435,663)
	Cash flows from operating activities		16,616,893		5,853,014
Financing activities:
	Payment of lease liabilities		(853,965)		(262,024)
	Proceeds from exercise of stock options		1,450,611		1,555,776
	Taxes paid on settlement of restricted share units		(3,003,406)		(1,443,627)
	Repurchase of share capital for cancellation under NCIB		(1,756,937)		—
	Cash flows used in financing activities		(4,163,697)		(149,875)
Investing activities:
	Purchase of property and equipment		(393,023)		(4,103,826)
	Proceeds from disposal of property and equipment		47,194		15,670
	Acquisition of business, net of cash acquired		(22,308,927)		(2,766,284)
	Payment of contingent consideration		(249,436)		—
	Transfer of cash on disposal of SkillsWave		(1,483,357)		—
	Proceeds from sale of majority ownership stake in SkillsWave		809,038		—
	Issuance of loan to SkillsWave		(5,000,000)		—
	Cash flows used in investing activities		(28,578,511)		(6,854,440)
Effect of exchange rate changes on cash and cash equivalents			(2,758,314)		690,427
Decrease in cash and cash equivalents			(18,883,629)		(460,874)
Cash and cash equivalents, beginning of period			116,943,499		110,732,236
Cash and cash equivalents, end of period			98,059,870		110,271,362

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, transaction-related expenses, fair value adjustment of acquired deferred revenue, income (loss) from equity accounted investee, 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 recent changes to and 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 Interim MD&A, 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 July 31		Six months ended July 31
	2024	2023	2024	2023
(Loss) income for the period	(262)	(4,828)	310	(3,718)
Stock-based compensation	2,584	3,095	4,917	5,169
Foreign exchange loss (gain)	147	365	(84)	(65)
Non-recurring expenses(1)	1,045	150	1,866	150
Transaction-related costs(2)	151	552	823	552
Fair value adjustment of acquired deferred revenue	139	—	139	—
Loss from equity accounted investee	97	—	97	—
Net interest income	(791)	(698)	(1,714)	(1,418)
Income tax expense	201	49	225	209
Depreciation and amortization	902	781	1,653	1,398
Adjusted EBITDA	4,213	(534)	8,232	2,277
Adjusted EBITDA Margin	8.6 %	-1.2 %	8.4 %	2.6 %

Notes:
(1)	These expenses relate to non-recurring activities, such as certain legal fees incurred that are not indicative of continuing operations, and changes of workforce or technology whereby certain functions were realigned to optimize operations.
(2)	These expenses include certain legal and professional fees that were incurred in connection with acquisition and other strategic transactions, including the disposal of our majority ownership stake in SkillsWave and our acquisition of H5P. These expenses also include post-combination compensation costs from the acquisition of H5P. These expenses are net of a gain of $0.9 million recognized on the disposal of our majority ownership stake in SkillsWave. These expenses would not have been incurred if not for these transactions and are not considered expenses indicative of the Company's continuing operations.

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 Interim MD&A, 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 July 31		Six months ended July 31
	2024	2023	2024	2023
Gross profit for the period	33,373	29,681	66,050	59,561
Stock based compensation	149	172	295	283
Adjusted Gross Profit	33,522	29,853	66,345	59,844
Adjusted Gross Margin	68.2 %	67.1 %	67.9 %	67.5 %

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 Interim MD&A, 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 July 31		Six months ended July 31
	2024	2023	2024	2023
Cash flow from operating activities	31,443	22,888	16,617	5,853
Net addition to property and equipment	(220)	(2,439)	(346)	(4,088)
Free Cash Flow	31,223	20,449	16,271	1,765
Free Cash Flow Margin	63.5 %	46.0 %	16.7 %	2.0 %

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 Interim MD&A, which section is incorporated by reference herein.

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

	Three months ended July 31		Six months ended July 31
(in thousands of U.S. dollars)	2024	2023	2024	2023
	$	$	$	$
Total revenue for the period	49,168	44,470	97,663	88,698
Negative impact of foreign exchange rate changes over the prior period	400	—	356	—
Constant Currency Revenue	49,568	44,470	98,019	88,698

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 July 31
(in millions of U.S. dollars, except percentages)	2024	2023	Change
	$	$	%
Annual Recurring Revenue	198.3	178.5	11.1 %
Constant Currency Annual Recurring Revenue	200.6	178.5	12.4 %

For further information, please contact:
Craig Armitage, Investor Relations
[e-mail]
[phone]

SOURCE D2L Inc.

Copyright 2024 Canada NewsWire