D2L Inc. Announces Spin-out Transaction for D2L Wave

• D2L is spinning out D2L Wave into a standalone independent company
• Transaction provides greater focus and alignment across the core D2L business and is consistent with the Company's emphasis on balancing growth and profitability
• D2L remains highly focused on growing within the corporate market through its award-winning Brightspace learning platform
• D2L to retain 30% ownership interest in the new company

TORONTO, April 3, 2024 /CNW/ - D2L Inc. (TSX: DTOL) ("D2L" or the "Company"), a global learning technology company, announced today that it has entered into a binding letter agreement (the "Letter Agreement") to spin-out D2L Wave into a new independent standalone company, SkillsWave Corporation ("SkillsWave"), and will sell majority ownership to a company owned by John Baker, with an expected mid-year closing date. D2L Wave 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.  The D2L Wave upskilling technology was created to help businesses prepare for the future of work by tackling the skills and talent gap. 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. 

Transaction Highlights

• D2L remains committed to growth and innovation in the corporate market.
  • D2L serves more than 500 corporate customers today with its Brightspace learning platform, including corporations, training organizations and government customers, with the vast majority of D2L corporate revenue coming from the Brightspace learning platform and related services.
  • D2L will continue to grow its corporate customer base through its Brightspace learning platform.
• Transaction is consistent with D2L's continued emphasis on balancing growth and profitability
  • D2L plans to continue making measured investments for growth in fiscal 2025, while optimizing its operations towards increasing levels of profitability.
• Transaction provides continuity for D2L Wave customers, partners, and employees.
  • D2L will retain a 30% ownership interest in SkillsWave.
  • Senior team members focused on D2L Wave will transition to SkillsWave, including Senior Vice President Sasha Thackaberry. John Baker will provide strategic oversight and guidance as Executive Chair for SkillsWave and continue as Chairman of the Board and Chief Executive Officer of D2L.
  • D2L will be working with D2L Wave education partners, clients, and internal teams to facilitate a smooth transition.

"This transaction makes strategic sense for both entities and reflects the reality that Wave is at an earlier stage of development than our core business, and has a different business model and investment requirements," said Stephen Laster, President of D2L. "Wave is a unique upskilling technology that has gained traction in an area with long-term potential. As a separate company, we believe it will be better positioned to advance its business plan. For D2L, we are excited to sharpen our focus on our core offerings within the education and corporate learning markets. We have strong momentum in higher education, as reflected in our 50% win rate and number two market position by enrollments in North American higher education¹ and our success in penetrating targeted international markets. We continue to have high conviction in the corporate learning opportunity – this remains a key growth area of our business."

Ian Giffen, Lead Director of D2L's Board of Directors, commented: "After a thorough review and analysis by the Special Committee, the Board determined this transaction was in the best interests of the Company. It enables D2L to continue to have a venture interest in the future of SkillsWave and enables the D2L team to focus entirely on the continued expansion and growth of the core learning platform and services business. The transaction is also consistent with our objective of building a company with increasing growth in both revenue and profitability."

"The primary focus for me will remain on D2L and delivering on our important mission to transform the way the world learns," said John Baker, Founder & Chief Executive Officer of D2L. "In my role as Executive Chair of SkillsWave, I look forward to continuing to support the team as they deliver exceptional experiences for businesses leveraging the Wave platform to upskill their people. I am excited for the next chapter of growth as SkillsWave accelerates its product development and expands its world class education provider network."

Background and Terms of the Transaction 

In early 2024, the Board formally constituted a Special Committee (the "Special Committee") of independent directors of the Company to review, assess and examine, and to advise the Board on a potential spin-out of the D2L Wave offering, as well as any strategic alternatives, that may be in the best interests of the Company. The mandate of the Special Committee also included oversight of the negotiation with respect to any proposed transaction involving John Baker, the Chief Executive Officer of the Company, or other strategic alternatives. 

The Special Committee retained Blake, Cassels & Graydon LLP as its  legal advisor in connection with the execution of its mandate and retained an independent third-party firm to provide advisory services regarding the value of the D2L Wave offering. The buyer had independent legal representation in the transaction from McCarthy Tétrault LLP and also engaged independent financial advisors. 

The Special Committee, during its review, considered several alternatives to the transaction reflected in the Letter Agreement. The Special Committee considered and reviewed the benefits and risks of each alternative, and the potential steps that could be taken to mitigate those risks, whether the spin-out transaction or any alternative that constituted a related party transaction would be fair to the Company's minority shareholders, and the implications of any related party involvement.

After careful consideration, including discussion of the report and recommendation of the Special Committee, review of the terms of the Letter Agreement, consideration of the fairness of the transaction to the Company's minority shareholders and its impact on the Company's various stakeholders, including the customers, education partners and employees  of the D2L Wave business, and following consultation with its advisors, the Board of Directors determined that the spin-out transaction was in the best interests of the Company, and unanimously approved the transaction and the Letter Agreement, with John Baker abstaining and being recused as a result of his conflict of interest in the matter.

Pursuant to the Letter Agreement, the parties have agreed to work in good faith to settle and enter into the definitive agreements and documents as contemplated thereunder reflecting the following and other terms:

• Consideration: A company of which John Baker is the sole shareholder will acquire a 70% interest in voting common shares of SkillsWave from D2L at closing in exchange for consideration of C$1,120,000 (the "Purchase Price") payable in cash, and the assumption of liabilities associated with the D2L Wave offering.
• Voting Agreement: D2L will retain a 30% ownership interest in voting common shares of SkillsWave at closing, with customary shareholder rights including the right to nominate a director to the SkillsWave Board, which will also include John Baker and three independent directors.
• Loan and Security Agreement: D2L will provide a loan to SkillsWave in the amount of US$9,500,000 maturing in five years and payable at maturity, bearing interest rate at the Canadian prime rate per annum, compounding annually, and secured by all assets of SkillsWave constituting a first priority security interest, subject to permitted liens. The loan will be advanced in tranches with US$5,000,000 advanced upon closing of the transaction, and the balance advanced on the six month anniversary of closing. The loan principal and accrued interest will be convertible at the option of D2L Corporation at the Purchase Price per share paid by the buyer into non-voting common shares of SkillsWave that, together with the shares it acquired at closing (to the extent they continue to be held), do not exceed a 37.5% ownership interest in SkillsWave.
• Transition Services Agreement: D2L will enter into a Transition Services Agreement with SkillsWave, to provide administrative services on a cost recovery basis to support the orderly transition of the Wave offering from D2L to SkillsWave, which transition is expected to be substantially completed on or before January 31, 2025.
• Non-Competition Agreement: D2L and SkillsWave will enter into an agreement limiting them from competing with the other party's business as conducted at closing for a period of 5 years.

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

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, information regarding: the spin-out transaction of D2L Wave, including the timing, terms and expected impacts thereof; and the transition of the D2L Wave business and personnel to SkillsWave; as well as 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; and expectations regarding the growth of the Company's customer base, revenue, revenue generation potential and expectations regarding costs, including as a percentage of revenue. 

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: that the conditions to completing the spin-out of D2L Wave are achieved or waived in a timely manner; 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 of the Company's Management's Discussion and Analysis ("MD&A") for the three and 12 months ended January 31, 2024; 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 risks identified 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 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 clients all over the world, D2L is supporting millions of people learning online and in person. Our growing global workforce is dedicated to making the best learning products to leave the world better than they found it. Learn more about D2L for K-12, higher education and businesses at www.D2L.com.

SOURCE D2L Inc.

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