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

• Total revenue grows 21% for Q1 to US$41.9 million
• Annual Recurring Revenue increases 17%, reaching US$159.3 million at quarter end
• Gross profit increases 26% to $26.4 million
  

TORONTO, June 08, 2022 (GLOBE NEWSWIRE) -- D2L Inc. (TSX: DTOL) (“D2L” or the “Company”), a global learning technology company, today announced financial results for its fiscal 2023 first quarter ended April 30, 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 continue to see a healthy demand environment as more schools, universities and businesses invest in online learning and digitizing the classroom,” said John Baker, President and CEO of D2L. “Against this backdrop, it was a solid start to fiscal 2023, highlighted by 21% revenue growth and a 26% gross profit increase, with gross margin improvements materializing at a faster pace. Each month, we are adding important new customers while continuing to strengthen the value proposition for users through our investments in platform enhancements.”

“Our conversations with academic and business leaders reinforce the pressing need for investments in better learning technology. During past economic cycles, our business has benefited from the resilience of our end markets, and our expectation is that investments in improving learning outcomes will be largely unaffected by the macroeconomic conditions. In the corporate setting, labour market tightness is emphasizing the importance of onboarding and upskilling,” added Mr. Baker.

Mr. Baker continued: “As we work to capture this demand, it has taken us more time than expected to build our own sales and marketing capacity globally – primarily as a result of the war for talent that most of the technology industry is currently experiencing. While we continue scaling, this shift in timing has affected our revenue growth outlook for fiscal 2023. With the addition of our new COO, I am happy to report that we have made good progress improving our operational efficiencies. The net effect is we now forecast a delay in revenue growth for fiscal 2023 and a reduced EBITDA loss for the year. The fundamentals of the business are strong and we are on a faster path to profitability.”

First Quarter Fiscal 2023 Financial Highlights

• Total revenue of $41.9 million, up 21% from the comparative period in the prior year.
• Annual Recurring Revenue² increased by $23.3 million or 17% year-over-year to $159.3 million as at April 30, 2022, compared with $136.0 million as at April 30, 2021.
• Subscription and support revenue of $35.8 million, an increase of 17% over the prior year, primarily attributable to the growth in new customers.
• Professional services and other revenue of $6.1 million, up 54% from the same period of the prior year. The increase was driven by several significant new customer implementations and content development work for new and existing customers.
• Gross Profit of $26.4 million (62.9% of revenue), an increase of 26% from Gross Profit of $20.9 million (60.5% of revenue) in the prior year.
• Adjusted EBITDA¹ loss of $1.5 million, compared to Adjusted EBITDA loss of $0.1 million for the comparative period in the prior year.
• Loss for the period decreased to $4.8 million, compared with a loss for the period of $34.4 million in the same quarter of the prior year. The year-over-year improvement was largely the result of the $32.3 million fair value loss on the redeemable convertible preferred shares that was recognized in the prior period, with no corresponding impact in the current period.
• Cash flow used in operating activities improved 23% year over year to $15.3 million, versus $19.8 million in the prior year, and Free Cash Flow¹ for Q1 improved to negative $16.2 million, compared with negative $19.9 million in the prior year. Cash flows from operations generally have a seasonal low in the first quarter each year and a seasonal high in the second quarter each year, due to the contractual timing of annual invoicing with the Company’s Higher Education customers located in the United States.
• Strong balance sheet at quarter end, with cash of $98.1 million and no debt.
  

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.

First Quarter Business & Operating Highlights

• Signed a new customer agreement with Brock University, one of Canada’s top post-secondary institutions, to deliver D2L Brightspace to more than 19,000 students.
• Signed new customer agreements with two prestigious universities on the U.S. east coast to deliver D2L Brightspace to students and faculty.
• Signed a new customer agreement with the University of Limerick to build a flexible, technology-enhanced learning platform that responds to digitization and anticipates the future world of work.
• Signed a new customer agreement with Breda University of Applied Sciences to help provide students with a flexible, collaborative and personalized learning experience underpinned by powerful learning analytics.
• Signed a new agreement with the National Payroll Institute, which sets the professional standard of excellence and sharing of critical expertise. The Institute will soon provide their digital designation programs through D2L Brightspace.
• Signed a new customer agreement with Reading in Motion, a not-for-profit organization dedicated to helping young learners read, deliver programming for students as well as professional development for staff.
• Signed a new customer agreement with the Ted Rogers School of Management’s Diversity Institute to run a project through Brightspace that will reach people at companies across Canada and ensure their workforces are embracing diversity and inclusion.
• Named as a SIIA CODiE Award 2022 finalist in nine categories, including Best Learning Management System and Best Personalized Learning Solution. 

First Quarter Fiscal 2023 Financial Results
        
Selected Financial Measures

	Three months ended April 30
	2022	2021	Change	Change
	$	$	$	%
Subscription & Support Revenue	35,766	30,562	5,204	17.0%
Professional Services & Other Revenue	6,104	3,974	2,130	53.6%
Total Revenue	41,870	34,536	7,334	21.2%
Gross Profit	26,353	20,903	5,450	26.1%
Adjusted Gross Profit 1	26,423	20,934	5,489	26.2%
Adjusted Gross Margin1	63.1%	60.6%
Loss for the period	(4,763)	(34,446)	29,683	86.2%
Adjusted EBITDA (loss)1	(1,505)	(95)	(1,410)	-1,484.2%
Cash Flows from (used in) Operating Activities	(15,298)	(19,781)	4,483	22.7%
Free Cash Flow1	(16,202)	(19,925)	3,723	18.7%

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

Financial Outlook

The Company updated its previous guidance for the 12 months ended January 31, 2023 to reflect lower revenue growth and reduced Adjusted EBITDA loss. Specifically, for fiscal 2023 the Company is expecting:

• Total revenue in the range of $175 million to $178 million, implying growth of 15% to 17% over the year ended January 31, 2022 (rather than our previous guidance of total revenue in the range of $179 million to $182 million, implying growth of 18% to 20% over the same period); and
• Adjusted EBITDA loss in the range of $9 million to $11 million (rather than our previous guidance of Adjusted EBITDA loss in the range of $12 million to $14 million).

D2L continues to see strong market demand for learning platforms across its education (higher education and K-12) and corporate markets, consistent with its view entering fiscal 2023. With so many organizations at the early stages of digital adoption, D2L remains well positioned to help potential customers replace legacy technology and experiences. The change in the expected revenue growth for fiscal 2023 mainly reflects the time required to ramp up the Company’s sales and marketing teams, as well as the impact of changes in foreign exchange rates, particularly the strengthening U.S. dollar. In addition, the Company is now expecting a lower Adjusted EBITDA loss in fiscal 2023, reflecting disciplined cost optimization and a strategic prioritization of our investments, thereby putting us on an accelerated path to profitability.

Conference Call & Webcast
D2L management will host a conference call on Thursday, June 9, 2022 at 8:30 am ET to discuss its first quarter fiscal 2023 financial results.

Date:		Thursday June 9, 2022
Time:		8:30 am (ET)
Dial in number:		Canada: 1 [phone] or 1 [phone] United States: 1 [phone] Access code: 459486
Webcast:		A live webcast will be available at ir.d2l.com/events-and-presentations/events/
Replay:		Canada: 1 [phone] or US: 1 [phone] (replay code: 01936) Available until June 16, 2022

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; addressable markets for the Company’s products and solutions; 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; 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 ability to seek out, enter into and successfully integrate acquisitions, including the acquisition of Bayfield Design Inc. (“Bayfield”); 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; 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, assumptions and other factors, including but not limited to: 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 operating results; and the risks identified in the Company’s annual and most recently filed interim management’s discussion and analysis or the Company’s Annual Information Form for the year ended January 31, 2022. 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.

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

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

As at April 30, 2022 and January 31, 2022
(Unaudited)

		April 30, 2022			January 31, 2022
Assets
Current assets:
	Cash and cash equivalents	$	98,115,482		$	114,675,495
	Trade and other receivables		22,682,466			26,155,906
	Uninvoiced revenue		2,608,822			2,253,146
	Prepaid expenses		7,426,357			7,930,462
	Deferred commissions		3,723,299			3,711,334
			134,556,426			154,726,343
Non-current assets:
	Prepaid expenses		164,987			178,585
	Deferred income taxes		164,436			139,101
	Right-of-use assets		13,266,437			1,323,017
	Property and equipment		2,660,153			2,323,708
	Deferred commissions		7,534,453			7,510,242
	Intangible assets		5,437,524			5,537,024
	Goodwill		7,414,615			7,474,647
Total assets		$	171,199,031		$	179,212,667
Liabilities and Shareholders' Deficiency
Current liabilities:
	Accounts payable and accrued liabilities	$	19,406,405		$	24,340,115
	Deferred revenue		70,296,773			82,915,871
	Lease liabilities		1,160,155			1,199,013
	Provisions		3,265,449			3,265,449
			94,128,782			111,720,448
Non-current liabilities:
	Deferred income taxes		372,085			418,403
	Lease liabilities		13,036,037			693,921
			13,408,122			1,112,324
			107,536,904			112,832,772
Shareholders' equity:
	Share capital		354,945,019			354,277,986
	Additional paid-in capital		43,118,321			41,686,794
	Accumulated other comprehensive loss		(3,384,373	)		(3,330,708	)
	Deficit		(331,016,840	)		(326,254,177	)
			63,662,127			66,379,895
Commitments and contingencies
Related party transactions
Total liabilities and shareholders' equity		$	171,199,031		$	179,212,667

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

For the three months ended April 30, 2022 and 2021
(Unaudited)

			2022			2021
Revenue:
	Subscription and support	$	35,766,503		$	30,561,610
	Professional services and other		6,103,581			3,974,148
			41,870,084			34,535,758
Cost of revenue:
	Subscription and support		11,438,628			11,058,046
	Professional services and other		4,078,365			2,575,144
			15,516,993			13,633,190
Gross profit			26,353,091			20,902,568
Expenses:
	Sales and marketing		13,057,090			10,136,350
	Research and development		11,285,167			8,324,831
	General and administrative		6,407,040			4,349,399
			30,749,297			22,810,580
Loss from operations			(4,396,206	)		(1,908,012	)
Interest and other income (expense):
	Interest expense		(237,600	)		(115,358	)
	Interest income		18,246			2,911
	Loss on redeemable convertible preferred shares		-			(32,315,296	)
	Foreign exchange gain (loss)		(28,218	)		4,298
			(247,572	)		(32,423,445	)
Loss before income taxes			(4,643,778	)		(34,331,457	)
Income taxes (recovery):
	Current		189,516			54,283
	Deferred		(70,631	)		60,385
			118,885			114,668
Loss for the period			(4,762,663	)		(34,446,125	)
Other comprehensive income (loss):
	Foreign currency translation income (loss)		(53,665	)		420,048
Comprehensive loss		$	(4,816,328	)	$	(34,026,077	)
Loss per share – basic		$	(0.09	)	$	(1.26	)
Loss per share – diluted			(0.09	)		(1.26	)
Weighted average number of common shares – basic			52,987,915			27,404,171
Weighted average number of common shares – diluted			52,987,915			27,404,171

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

For the three months ended April 30, 2022 and 2021
(Unaudited)

	Share Capital			Additional paid-in					Accumulated other			Deficit			Total
	Shares	Amount			capital				comprehensive loss
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	85,774		667,033			(218,526	)			–			–			448,507
Stock-based compensation	–		–			1,650,053				–			–			1,650,053
Other comprehensive loss	–		–			–				(53,665	)		–			(53,665	)
Loss for the period	–		–			–				–			(4,762,663	)		(4,762,663	)
Balance, April 30, 2022	52,998,276	$	354,945,019		$	43,118,321			$	(3,384,373	)	$	(331,016,840	)	$	63,662,127
Balance, January 31, 2021	26,468,768	$	217,633		$	45,285,371			$	(4,190,459	)	$	(228,601,100	)	$	(187,288,555	)
Issuance of Class O common shares on exercise of options	1,487,696		17,374,174			(6,307,665	)			–			–			11,066,509
Stock-based compensation	–		–			389,417				–			–			389,417
Other comprehensive income	–		–			–				420,048			–			420,048
Loss for the period	–		–			–				–			(34,446,125	)		(34,446,125	)
Balance, April 30, 2021	27,956,464	$	17,591,807		$	39,367,123			$	(3,770,411	)	$	(263,047,225	)	$	(209,858,706	)

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

For the three months ended April 30, 2022 and 2021
(Unaudited)

				2022			2021
Operating activities:
	Loss for the period		$	(4,762,663	)	$	(34,446,125	)
	Items not involving cash:
		Depreciation of property and equipment		557,254			342,165
		Depreciation of right-of-use assets		629,323			414,379
		Amortization of intangible assets		55,645			4,706
		Fair value loss on redeemable convertible preferred shares		–			32,315,296
		Stock-based compensation		1,650,053			389,417
		Net interest expense		219,354			112,447
		Income tax expense		118,885			114,668
	Changes in operating assets and liabilities:
		Trade and other receivables		3,214,425			(10,467,540	)
		Uninvoiced revenue		(372,689	)		1,663,236
		Prepaid expenses		452,896			(1,757,859	)
		Deferred commissions		(214,492	)		88,734
		Accounts payable and accrued liabilities		(4,965,676	)		(3,936,673	)
		Deferred revenue		(11,953,677	)		(4,517,770	)
		Right-of-use assets and lease liabilities		129,413			(18,810	)
	Interest received			18,246			2,911
	Interest paid			(74,299	)		(52,775	)
	Income taxes paid			–			(31,900	)
	Cash flows used in operating activities			(15,298,002	)		(19,781,493	)
Financing activities:
	Payment of lease liabilities			(547,484	)		(559,367	)
	Proceeds from exercise of stock options			448,507			11,066,509
	Borrowings on credit facility			–			7,000,003
	Cash flows (used in) from financing activities			(98,977	)		17,507,145
Investing activities:
	Purchase of property and equipment			(904,353	)		(143,752	)
	Issuance of shareholder loan			–			(16,648,465	)
	Cash flows used in investing activities			(904,353	)		(16,792,217	)
Effect of exchange rate changes on cash and cash equivalents				(258,681	)		375,406
Decrease in cash and cash equivalents				(16,560,013	)		(18,691,159	)
Cash and cash equivalents, beginning of period				114,675,495			45,303,944
Cash and cash equivalents, end of period				98,115,482			26,612,785

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 and Free Cash Flow Margin. 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), as adjusted for changes in the fair value of redeemable preferred shares, stock-based compensation, foreign exchange gains and losses, transaction-related expenses and other income and losses. Adjusted EBITDA Margin is calculated as Adjusted EBITDA expressed as a percentage of total revenue. The following table reconciles Adjusted EBITDA to net income (loss), and discloses Adjusted EBITDA Margin, for the periods indicated:

(in thousands of U.S. dollars, except for percentages)	Three months ended April 30
	2022		2021
Loss for the period	(4,763	)	(34,446	)
Loss on redeemable convertible preferred shares	-		32,315
Stock-based compensation	1,650		389
Foreign exchange loss (gain)	28		(4	)
Transaction-related costs(1)	-		663
Interest expense net of interest income	219		112
Income tax expense	119		115
Depreciation and amortization	1,242		761
Adjusted EBITDA	(1,505	)	(95	)
Adjusted EBITDA Margin	-3.6	%	-0.3	%

(1)   These costs include professional, legal, consulting and accounting fees incurred in connection with the Company’s initial public offering, which closed on November 3, 2021, and related other activities, and are not considered indicative of continuing operations. These costs did not meet the criteria for capitalization and thus were expensed in the Company’s consolidated statements of comprehensive loss. Share issuance costs that met the criteria for capitalization are described in Note 13(b) of the Company’s annual audited consolidated financial statements.

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.

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

	Three months ended April 30
(in thousands of U.S. dollars, except for percentages)	2022		2021
Gross profit for the period	26,353		20,903
Stock based compensation	70		31
Adjusted Gross Profit	26,423		20,934
Adjusted Gross Margin	63.1	%	60.6	%

Free Cash Flow and Free Cash Flow Margins

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.

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

	Three months ended April 30
(in thousands of U.S. dollars, except for percentages)	2022		2021
Cash flow used in operating activities	(15,298	)	(19,781	)
Purchase of property and equipment, net of proceeds on disposal	(904	)	(144	)
Free Cash Flow	(16,202	)	(19,925	)
Free Cash Flow Margin	-38.7	%	-57.7	%

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 April 30, 2022 was $159.3 million ($136.0 million as at April 30, 2021).