D2L Inc Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Graham Smith - Cormark Securities - Analyst : This is actually Graham Smith on for Gavin. So could you just give an update on the progress in some of the newer gateway countries like India, South Africa, the ones in the LatAm? Any color on that would be great.

Question: Graham Smith - Cormark Securities - Analyst : That's great. And then just when you're looking into the pipeline for Creator-plus and Lumi, what's your sense on the speed of adoption and how those kind of will progress versus prior product releases? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 1:30PM, DTOL.TO - Q3 2025 D2L Inc Earnings Call

Question: Graham Smith - Cormark Securities - Analyst : That's great. And then I guess just on the adjusted EBITDA, the margins were obviously a big positive surprise in the quarter, even when considering that additional services revenue. And the implied Q4 guide has margins coming back down to sort of more what we previously anticipated as a normal expansion trajectory. So maybe could you help bridge the gap on whether costs were a bit lower than expected in the quarter or if you're going to toggle up growth investments more? And then, I guess, in what areas would you be toggling those up in specifically?

Question: Doug Taylor - Canaccord Genuity Corp - Analyst : I'll echo the congratulations on a strong quarter. I'd like to start by talking about the subscription and support revenue guide being now at the top end of your range with a bit of an uptick in some of the metrics in Q3. That guidance suggests Q4 will look a lot like Q3. So I just want to unpack some of the sequential elements there from what appears to be steadily strengthening overall recurring revenue growth profile. Anything to call out there in terms of Q3 to Q4? And are there any seasonal elements related to maybe H5P that we should now be considering?

Question: Doug Taylor - Canaccord Genuity Corp - Analyst : That same foreign exchange, I was going to ask about that anyways, should provide some sequential benefit to your bottom line though in Q4 as well, if I'm not mistaken.

Question: Doug Taylor - Canaccord Genuity Corp - Analyst : Next question, professional services. Even if you back out the $1.2 million, this was still one of the strongest quarterly performances, I think, ever, if not in several years. And so I guess I just want to ask what we should tie that to if it was just the sequential -- or the seasonal launch of a couple of new customers or if there is any other way that we should make an inference on your growth profile or the number of new contract or new customer wins or anything like that, that we should tie to what we saw in PS revenue this quarter?

Question: Doug Taylor - Canaccord Genuity Corp - Analyst : So would you tie any of this to the Lumi and, or the Creator+ new suite of products? Is there additional training and elements there that you would tie that to?

Question: Suthan Sukumar - Stifel Nicolaus Canada Inc - Analyst : Congrats on a strong quarter. For my first question, I wanted to touch on the competitive landscape. Just curious what you're seeing in the markets today. I mean, you're clearly still seeing high win rates sustained. So wondering what the competitive response you're seeing in the market. And given the recent Canvas acquisition, are you seeing potential for some distraction there? And could that fuel more displacement opportunities than you've seen in the past?

Question: Suthan Sukumar - Stifel Nicolaus Canada Inc - Analyst : Got you. Great. On the continued pipeline expansion and win rates, can you talk a little bit about how having H5P now under the umbrella and your new AI centric product launches, Lumi, Achievement+. How are those helping with your net new business pipeline? Is this becoming more of a focus point in conversations with prospects?

Question: Suthan Sukumar - Stifel Nicolaus Canada Inc - Analyst : Okay, great. And then last question for me guys is really on the M&A side of things. As you think about your product road map going forward, could M&A still be a key lever to tap as you look at accelerating some of your product initiatives or potentially addressing some white spaces in the overall offering?

Question: Brian Peterson - Raymond James & Associates Inc - Analyst : Congrats on the strong quarter. So John, I'd love to understand your thoughts as we head into 2025. I know we had a little bit of a macro slowdown in '24. Your win rates are really strong. But any help in understanding what that RFP pipeline looks for calendar year '25?

Question: Brian Peterson - Raymond James & Associates Inc - Analyst : I appreciate the color, John. And maybe just a follow-up. Like as you guys have built up a broader product portfolio, is there any shift in the go-to-market internally maybe to focus more on a back-to-base motion? Just any thoughts on that?

Question: Paul Treiber - RBC Capital Markets - Analyst : I just wanted to discuss the longer-term growth and profitability algorithm. The press release mentions Rule of 40. Is that the level of performance that you're targeting or you'd like to target in the long term?

Question: Paul Treiber - RBC Capital Markets - Analyst : That's great to hear. The quarter was quite solid across the Board. One thing I wanted to hone in on is international revenue. It looks like it was a bit of a slower quarter this quarter. Is that primarily FX? Or was there something else other than FX that may have had an impact on international revenue?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Just to clarify, the $1.2 million of professional services revenue, did that fall entirely into the US region? Or is that distributed across multiple regions?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Great. And you called out $0.5 million of usage-based subscription revenue that was pulled from Q4 into Q3. Can you just provide more color on that?

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Great. And finally -- . REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 1:30PM, DTOL.TO - Q3 2025 D2L Inc Earnings Call

Question: Thanos Moschopoulos - BMO Capital Markets - Analyst : Great. And finally, can you provide some more color on the recent Seesaw partnership, just recognizing that they have quite a large footprint.

Question: Kiran Sritharan - Eight Capital - Analyst : Congratulations on the quarter. Thank for taking the question. To start, I just want to -- can I have some commentary on what you're seeing with consumption patterns with the new school year? We thought gross margins are influenced here, but on an adjusted basis, it actually jumped up sequentially. So maybe you can unpack that relationship as well.

Question: Kiran Sritharan - Eight Capital - Analyst : And I'll probably follow on with a question on the corporate markets that you were just talking about. Just your growth and product strategy there. How would you compare the pace of growth versus what you expect from the academic market? And what are some of your priorities with regard to the evolution of that product offering into that market?

Question: Kiran Sritharan - Eight Capital - Analyst : And then finally here, on the inorganic strategy, you previously mentioned how the acquisition of H5P pull forward your product road map there. Just curious, as you consolidate the market and given the success you're seeing with H5P, there's any other opportunities you'd maybe call out as low hanging fruit that you would like to acquire and integrate as you look into the future?

Question: Daniel Chan - TD Cowen - Analyst : John, you talked about the election potentially have an impact on RFPs in the quarter. Now that the decision has been made, any budgets or policy changes that we should be mindful of going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 1:30PM, DTOL.TO - Q3 2025 D2L Inc Earnings Call

Question: Daniel Chan - TD Cowen - Analyst : And just on that improvement -- potential improvement, any of that coming from the take private of your two main competitors? Just wondering if you're seeing any change in increased inbounds or if there's an opportunity for you guys to lean into some growth there?

Question: Daniel Chan - TD Cowen - Analyst : And then, Josh, the free cash flow continues to tick up here. We talked about M&A. You renewed your NCIB. Just thoughts on priorities for capital allocation.