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Transcript Summary

D2L Inc. concluded fiscal 2026 with $198.4 million in subscription revenue, a 10% year-over-year increase. The company demonstrated strong financial health, generating $44.4 million in free cash flow and maintaining a $119 million cash balance with no debt. While total growth was dampened by churn in the U.S. K-12 segment, core markets in Higher Education, Corporate, and International performed well, delivering 14% ARR growth. The company’s AI platform, D2L Lumi, showed rapid adoption with a $3.5 million ARR and a 40% attach rate for new Higher Ed clients. Management highlighted significant internal productivity gains from AI, including an 80% cost reduction in specific content services. Although fiscal 2027 guidance projects 6-8% growth—reflecting near-term K-12 headwinds and database migration costs—D2L reiterated its fiscal 2028 targets of 10-15% revenue growth and 18-20% EBITDA margins. With win rates against major competitors exceeding 50% and a record pipeline, the company remains confident in its path toward global market leadership. Capital allocation remains balanced between aggressive share buybacks and potential M&A to expand its footprint in the corporate learning and international education sectors.

5-year share-count history (top 10 holders by peak, incl. exited) + price

Full Earnings Call Transcript — Q4 • 2026-04-02

Operator: Hello, everyone, and thank you for joining the D2L Inc. Q4 2026 Financial Results Call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is now my pleasure to hand over to your host, Craig Armitage, to begin. Please go ahead.
Craig Armitage: Thank you, and good morning, everyone. Listeners are reminded that portions of today's discussion will include statements that contain forward-looking information. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information. Further, certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. For identification and discussion of such risks, uncertainties, factors and assumptions as well as further information concerning forward-looking statements, please refer to the company's annual management's discussion and analysis, and the most recently filed annual information form, in each case is filed on the company's profile on SEDAR+ at www.sedarplus.com. In addition, during the call, reference will be made to various non-IFRS financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted gross margin and free cash flow. These non-IFRS financial measures do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other public companies. Please refer to the company's MD&A for the years ended January 31, 2026 and 2025 for more information about these and other non-IFRS financial measures, including where applicable, a reconciliation of historical non-IFRS financial measures to the most directly comparable IFRS financial measures from our financial statements. With that, I'll turn the call over to John Baker, Chief Executive Officer of D2L. Please go ahead, John.
John Baker: Thank you, Craig, and thank you, everyone, for joining us for our Q4 earnings call. We released financial results after the markets closed yesterday, which you can find on the Investor Relations section of our website at d2l.com. Please note that the results we're discussing today are in U.S. dollars. I'm joined this morning by Josh Huff, our CFO, and we look forward to taking you through the results today and addressing any questions. Last year, fiscal 2026 was a strong year of execution and progress for D2L across our growth markets. We delivered 10% subscription and support revenue growth, ending the year at $198.4 million, increased ARR to roughly $220 million, generated $44.4 million of free cash flow, and we strengthened our balance sheet with $119 million in cash and no debt. Last year, our platform supported more than 21 million users globally across our customer base of more than 1,500 organizations in over 40 countries. At the same time, the year was not without challenges. Namely, we experienced higher churn in our U.S. K-12 customer base. While K-12 is the smallest of our 3 main markets, this dynamic is weighing on near-term revenue growth. For context, K-12 represents 10% of our ARR at year-end and roughly half of that is in the U.S. To give investors a better view of the underlying performance in our core growth markets, higher education, corporate and international, we've included KPIs that exclude K-12 for some of our data points this quarterly update. Demand across these markets remain strong. ARR grew by 14% and almost 11% in constant currency. Our sales and marketing teams demonstrated another strong quarter of execution in a year that had lower-than-normal deal volumes in North America Higher Education. That said, we're seeing good demand signals across our core growth markets, pipeline generation exceeded expectations last year and remains healthy entering this new fiscal year, reinforcing our confidence in our future growth. Turning to the Q4 operating highlights. It was a solid quarter for new bookings and customer additions. In North America Higher Education, we saw a gradual improvement in market conditions with a modest uptick in full campus RFPs and an increased interest in continuing education and adult learning applications for upskilling. We believe our competitive position is stronger than ever and that's reflected in win rates consistently above 50%. This past quarter, we won business from all 3 of our main competitors with new customers that included Henry Ford College, a large community college in Michigan with a strong focus on workforce development. The University of Colorado: Colorado Springs, a public research university known for engineering, health sciences and expanding digital programs. And Okanagan College, British Columbia's largest regional post-secondary institutions, which serves over 20,000 learners. In K-12, we continue to provide great service to the largest school districts in North America. And in Q4, we added Hudson Global Scholars, a K-12 organization delivering U.S. curriculum and diploma programs to K-12 students globally. Internationally, we entered the new year with good momentum. Year-over-year, international ARR growth exceeded 15% in fiscal 2026, and we're seeing strong pipeline as we look ahead. Recent new customer wins include the University of Free State in South Africa, one of the largest public universities serving 37,000 students through a significant online learning presence. The University of Prince Mugrin in Saudi Arabia, a private institution focused on English language education. Whitecliffe College in New Zealand, a leading creative arts and design institution. And building on our market leadership in Singapore, we also added Singapore University of Social Sciences, which specializes in lifelong learning for working adults. After my recent trip to Singapore, it's clear our clients in that region are on the leading edge when it comes to adopting new AIs for this new era. In corporate learning, we're also expanding our customer portfolio to include a large statewide public health agency serving millions of residents. This win reflects the strength of our platform in supporting large, highly regulated organizations with complex needs. And we added the American Society of Interior Designers, which represents more than 25,000 professionals and educators nationwide. In addition to these new customers, we continue to win third-party recognition for D2L's product leadership. During the quarter, D2L Brightspace is recognized as the Top Learning Management System by Trading Industry and one of the Best Enterprise Learning Management Systems by Talented Learning. We also received multiple Brandon Hall Group awards for both D2L Brightspace and D2L Lumi. We appreciate the efforts of the D2Lers, who have partnered with our clients so closely to build amazing learning experiences that helped us win these awards. Now before I talk about the latest AI milestones, I want to frame this through the lens of D2L's long-term vision. For more than 25 years, we've been unified in our mission to transform the way the world learns, and we've done that through multiple technology shifts, the move to mobile, then to cloud, and we've learned to stay focused on what matters the most to educators and learners. Over this period, we've had the vision to deliver personalized learning at scale, and we see AI as a powerful enabler of the work that we're doing with our clients. We're implementing AI in the way that our customers have asked for within the core learning platform that always sits at the center of teaching and learning. D2L Brightspace is a system of record and a system of engagement for more than 21 million users, many use it for hours each day. And because our customers operate in a regulated mission-critical environment, we've built a foundation of responsible AI, giving them a trusted platform that is built to operate safely and reliably at scale. And we're in the center of a broader ecosystem that supports thousands of third-party products. In 2025, for example, there were 2.1 billion integration links from our platform into partner sites. With this as a foundation, our AI strategy is focused on embedding AI into the core workflows educators and learners use every day to improve outcomes while at the same time, delivering better efficiency. This past year, we've had a 4x expansion of AI capabilities across more workflows for educators supporting new languages and into new experiences for learners, such as tutoring, feedback and just-in-time interventions. We continue to see strong interest from customers for D2L Lumi. ARR was more than $3.5 million at the year-end, up from roughly $2 million at the end of Q3. And the attach rate is accelerating, reaching over 40% now for new higher education customers. Importantly, our position as an AI-first next-generation platform is resonating in our markets. It's helping us win new customers and secure renewals, supporting both a high retention rate and increasing win rate. And it's against this backdrop that we see an opportunity to accelerate our market share gains globally, and we're investing to capitalize on this momentum. In addition to customer-facing applications, we're increasingly developing AI through all aspects of the company on a foundation of responsible adoption. We have extended AI into internal workflows across engineering, go-to-market, customer support and customer success. And we're already seeing a positive impact among all of our teams. For example, our Learning Services group cut the cost of converting old Word documents into engaging, highly interactive learning by over 80%. What took days is now taking minutes, and it has a big impact on the quality of learning for students. These innovations are focused on supporting higher revenue per employee over time while improving customer outcomes. This operational leverage will become more visible as these improvements continue to scale, supporting margin expansion and increasing profitability in future years. With that, I'll turn the call over to Josh to walk through our financial results and our outlook in more detail. Over to you, Josh.
Josh Huff: Thanks, John, and good morning. As John noted, we had a solid fourth quarter, highlighted by healthy bookings and continued strength in pipeline generation, which in part was offset by churn within our U.S. K-12 customer base. Total revenue increased 5% in Q4 to $55.8 million and 6% for the full year to $217.5 million. Subscription and support revenue increased 9% in Q4 to $51.1 million, driven by new customer growth and expansion from existing customers and was partially offset by U.S. K-12 churn. For the fiscal year, subscription and support revenue increased 10% to $198.4 million. Annual recurring revenue grew by 10% to $219.8 million and 7% on a constant currency basis. We saw continued strength in new ARR bookings from our global higher education and corporate markets. Q4 ARR growth was approximately 11% in these markets combined on a constant currency basis. Q4 professional services and other revenue decreased 27% to $4.7 million in part due to a $0.9 million onetime revenue adjustment in the prior year and a generally cautious spending environment in the U.S. market. Turning to margins. This is an area where we've made significant progress over the past several years. And in fiscal '26, we expanded margins while absorbing additional costs related to the database technology migration. In the second half of the year, this database technology migration had an approximately 200 basis point impact on adjusted gross margin. We expect the impact to scale down over the course of fiscal '27 as the work is completed, putting us back on the path to gross margin expansion in fiscal '28 and beyond. Adjusted gross margin for Q4 was 68.7% compared to 69.6% and in the prior year period, and subscription and support gross margin was 71.9% versus 73.2% last year. For the full year, adjusted gross margin expanded 60 basis points to 69.6% and subscription and support gross margin improved 50 basis points to 73.3%. In terms of earnings and cash flow in the quarter, adjusted EBITDA in Q4 was $8.1 million compared to $9.4 million in the prior year period, primarily reflecting the year-over-year comparison in professional services and the database migration costs. For the full year, adjusted EBITDA increased 17% to $32.9 million with an adjusted EBITDA margin of 15.1% for the full year. Free cash flow was $12.2 million in the quarter, up from negative $0.6 million in the same period last year, reflecting strong working capital management in the current period. And for the fiscal year, we are pleased to report free cash flow grew 63% to $44.4 million as the company continues to scale its profitability and optimize working capital management. Below the line, our Q4 net loss was $1.4 million versus prior year net income of $19.9 million, with the change being explained primarily by a $15.8 million nonrecurring income tax recovery in the prior year and a noncash fair value adjustment of $4.3 million on the loan receivable from SkillsWave Corporation. For the full year, income was $9 million. Lastly, our financial position remained very strong at fiscal year-end with no debt and $119.2 million in cash and cash equivalents on our balance sheet. In terms of uses of cash, in Q4, we repurchased and canceled approximately 350,000 Subordinate Voting Shares under our NCIB program, bringing the total for the fiscal year to nearly 1 million shares as of January 31, '26, for an aggregate price of $11 million, representing the cancellation of 3.6% of the opening Subordinate Voting Shares outstanding and roughly doubling the utilization of the NCIB this year. We continue to put great focus and effort into growing our annual recurring revenue balances, both from new customer acquisitions as evidenced by some of the examples John provided as well as our ability to grow and retain our existing customers. Growth in ARR is a strong indicator of future growth in revenue and future margin expansion through operating scale. In the current year, our overall ARR growth and related metrics were impacted by our U.S. K-12 market. Excluding this market, our ARR grew 11% year-over-year on a constant currency basis or 14% on a reported basis, and our GRR was 94.4%, and net revenue retention was 103.7%, metrics that collectively give us confidence in our ability to invest into our growth drivers and deliver corresponding strong returns and outcomes. Looking forward, for the current fiscal year, we are guiding to subscription and support revenue of $212 million to $214 million or growth of 7% to 8%. Total revenue of $231 million to $234 million or growth of 6% to 8% and adjusted EBITDA of $33 million to $35 million, implying an adjusted EBITDA margin of 15% at the midpoint. We expect revenue growth and adjusted EBITDA margin to increase as fiscal 2027 progresses, enabling performance to improve in the second half of the year relative to the first half of the year. While we continue to make operating efficiency improvements, the overall operating margin guidance for fiscal '27 is affected in part by the flow-through of the U.S. K-12 churn, at a time when we are seeing strong investment returns, in our core growth markets of global higher education and corporate. In fiscal '27, we are carefully balancing near-term operating efficiency with appropriate investment levels to most effectively meet our medium-term objectives and position the company for our long-term goal of market leadership. Furthermore, in addition to the fiscal '27 guidance, we reiterated our medium-term target operating model of 10% to 15% revenue growth and 18% to 20% adjusted EBITDA margin by fiscal '28. We recognize that our fiscal '27 outlook remains below these targets, reflecting the impact of near-term headwinds we discussed today. From a revenue perspective, our confidence in accelerating growth is rooted in several factors: one, our strong ARR growth and new customer acquisition in our core growth markets as evidenced by 11% year-over-year constant currency ARR growth in our global higher ed plus corporate markets; two, a gradual improvement in overall global higher education activity levels where D2L operates with very high competitive win rates; and lastly, progress in customer expansion, including upsell of add-on solutions developed organically or added inorganically. From an adjusted EBITDA perspective, we have high visibility into margin expansion, driven by increases in gross margin as technology migration costs moderate and operating leverage as revenue grows, supported by scale and productivity gains across the organization. We are excited about the progress we are making as a business and confident in our path forward as we work towards our goal of becoming the market leader for learning globally. With that, we will open the call to questions. Operator?
Operator: [Operator Instructions] The first question today comes from Erin Kyle of CIBC.
Erin Kyle: I just want to start with the ARR growth. You noted 14% ARR growth ex K-12 or almost 11% in constant currency. So you called out a healthier pipeline, a slight uptick in RFP activity. I just want to know where you think -- how sustainable you think that growth rate is exiting Q4? And maybe what's embedded in the fiscal 2027 guidance, excluding K-12?
Josh Huff: Yes. Thanks, Erin. Good question. We're pleased with the progress in Q4, as we highlighted, specifically within global higher ed and corporate, we continue to see strong bookings, and as we look forward, we expect that to continue. If you look back over the past 2 to 3 years, we've sort of been operating within that range. And we expect to continue to be in that kind of low double-digit range as we look forward in F '27. We still have some of the offset coming from the U.S. K-12 market as we disclosed. But as we look forward, that core growth rate that effectively is on 90% of our ARR, we're confident in continuing into the future.
Erin Kyle: That's helpful. And maybe I'll switch gears just to the net cash balance. You ended the year with close to $120 million in cash, no debt. So how should we think about buyback pace in fiscal 2027 versus pace of reinvestment and possibly potential M&A from here?
Josh Huff: Yes, good question. Again, we were pleased with the free cash flow generation in the quarter as well as the year now exceeding $40 million on a full year basis. And that's equating to a strong balance sheet, as you mentioned, which is giving us flexibility from a capital allocation perspective. We continue -- as we look over the near and medium term and long term, we see a mix of growing the business through M&A as a way of complementing the organic growth. But we also see a very attractive price point from a buyback perspective. We've been using the NCIB more significantly in the past year, we more than doubled the usage of the NCIB. We're increasing the level of usage and the capacity here in F '27. And we also recognize that there are additional ways to buy back stock, and we actively evaluate that as well.
Erin Kyle: Maybe I'll just squeeze a quick follow-up on that one. On M&A, if that is something you're considering, maybe you can just give us some color on maybe what type of targets you'd be looking at? Would it be more tuck-in acquisitions or something more substantial and kind of geared towards the corporate market, and growing that opportunity or more in the higher education space?
John Baker: That's a great question Erin. I think we continue to evaluate a number of different opportunities in that space. As you can imagine, for us, it's really important to bring in companies that can really help us solve really important problems for our clients. A good example would be the H5P acquisition that we did a couple of years ago now that enabled us to really open up not only higher education as a market, but really plays well in our corporate marketplace as well. So things that have a natural halo effect across all of our key growth markets is ideal, something that's driving an accelerated growth, helping us expand our gross margin, helping us contribute to EBITDA. These are ideal candidates for us to tuck into D2L. And we're looking at a broader M&A set, as you can imagine, in the year ahead.
Operator: The next question comes from Gavin Fairweather of ATB Cormark.
Gavin Fairweather: In your prepared remarks, you talked about displacing all of your major competitors this quarter. I'm curious, what the key deciding factor was on the Canvas takeaway.
John Baker: I think when you look at the factors for all 3 takeaways really from all of our 3 main competitors, it's fairly consistent. It's having a very clear road map for the future in terms of where the technology is going. It's providing exceptional support to the customer to help them through the transition, and having the capability that's going to be needed for the next generation of learning. Many of these clients are trying to also support at this stage, many modalities of learning, on-campus, online, staff upskilling, supporting the workforce market, in the core education market that we're serving today, being able to support all of those at once with one common platform is a compelling differentiator. And then there's a number of others, too, Gavin. We're still seeing pretty consistently our win rate tick up well above 50% in higher education. And I think the thing that's really standing out for a lot of our clients is the innovation that we're putting into the platform. AI is also helping. It's not showing up in RFPs yet, but it's certainly contributing as the UX in our platform, leveraging AI is just so much easier to create quizzes, create content, create interactive learning experiences, take old courses that might be using Word documents or PowerPoints or PDFs and turn them into a really engaging modern web experiences for students to really drive better outcomes that deliver better retention, better learning experiences. So I feel like we're winning on all fronts, to be honest, Gavin. I think the work that we have ahead of us is really trying to drive that replacement cycle for all 3 of these competitors, position all of them as legacy technology and help our clients really recognize that we are the leader when it comes to AI and this next wave of learning, and it's built on a strong foundation of responsible AI, leadership on learning science and really delivering an amazing learning experience for students.
Gavin Fairweather: Appreciate that. Very helpful. And in your prepared remarks, you also talked about leaning in on sales. Maybe you can just talk about which regions or business lines are getting further investments and what you're seeing in kind of the demand and competitive environment that's telling you to lean in now?
John Baker: Well, the leading indicator for us is really pipeline. And over the course of the last year, we've seen pipeline continue to perform incredibly well, exceeding our expectations for the full year, also trending well even into the new year here. And so we are definitely seeing good momentum on that front. Our win rate continues to tick up in our core markets. So we're excited about that actually across all of our markets. So we think there's a real opportunity to lean in now to both education and into corporate. And so both key growth markets are actually getting investment at this stage.
Gavin Fairweather: Just lastly for me, just on K-12. Can you just touch on the renewal book for fiscal '27? And kind of how much of that 10% of ARR is kind of up for renewal this year?
John Baker: Yes. Well, maybe I'll split this with Josh. What's interesting with K-12 is you've got a sort of a story of 2 markets. K-12 U.S. has seen some challenges with retention, and we'll get into that in a second. That's about 5% of our ARR. That said, we still have some great U.S. clients. We're actually growing it. Hudson Global Scholars is a great example of a real thought leader in the space adopting us as a platform. And what's also interesting is the pipeline continues to build. So we feel confident on the rest of K-12 outside of the U.S. Those clients are engaging really well, adopting more, leveraging the platform in bigger ways. And so while it represents now 10% of our business, it's not the fastest-growing part of our business, it still feels very solid as a book of business. And I think long term, will be a market that we want to see bounce back from where it is today. Josh, I don't know if you want to get into the specifics.
Josh Huff: Yes. No, that was a good answer. Good color. As John mentioned, from a renewal perspective, like given it is now roughly 10% of ARR, we typically see about 1/3 of the base be up for renewal in a year, and we see a similar dynamic this year. And as we progress through F '27, we'll start to see the impact of the pressure we've articulated start to moderate, and that's part of what gives us confidence effectively in F '28, is as we get into F '28, the core growth rate from our markets starts to effectively represent itself in our consolidated results in a more pronounced way.
Gavin Fairweather: Congrats on the strong bookings.
John Baker: Thank you. There's been a lot of hard work by the team, so I appreciate it.
Operator: The next question comes from John Shao of TD Cowen.
John Shao: So some of the customers talked to last year were actually a bit cautious towards AI. So right now, do you think you're spending enough time educating the market, so they're getting incrementally more comfortable with AI?
John Baker: Yes. I think our client base certainly is getting more comfortable with AI. And the leading indicator for us is going to be the change in RFP activity that specifically called out AI functionality, which we've not yet seen pick up. Just want to be clear on that. We're seeing the occasional mention, but it's not consistent. That said, as we pointed in the call, 40% attach rate for new clients adopting our AI capability out of the gate, Lumi, which is impressive. Typically, when people are doing an RFP, they're just looking for the base product. And so now it's being attached of Lumi, Creator, all these other different add-ons continuing to grow speaks to how important this technology is to transform the experience for our clients. I also pointed out on an earlier call that we saw about an 80x increase in the adoption. So those clients have adopted. We saw about an 80x increase year-over-year with the utilization of our AI in the platform. We haven't seen 80x this year, but it's up closer to 8x increase in adoption for those that have adopted the platform again this year. So it's -- we're seeing some really good momentum within the adoption for clients. And I think as we continue to roll out more and more capability, I think you'll see that confidence continue to grow. And I think it's all rooted in the impact that we're having. And so if through these technologies, it makes it tenfold easier or even twice as easy to build really high-quality courses and create assessments that really lead to better outcomes for students. I think you'll see more clients needing this technology, not just desiring it.
John Shao: I think that 40% attach rate is quite impressive. And how should we think about Lumi versus external AI model like ChatGPT? Do you think they're going to coexist this together? Or they're kind of mutually exclusive for your users?
John Baker: I think you're going to see them coexist. I think OpenAI is really a great consumer app. And I think many users will use that. I think you'll see -- well, in our case, we use over 12 different models inside our platform to support all the different AI applications within Brightspace. And so you're going to see us harnessing these technologies. And then you're going to see us fine-tune models to support personalizing the learning and taking all of the data and the insight that we have around learning science and improving these AI models to provide a better experience on the learning side for our clients. And then I hope that you'll see us lean into this even more in the year ahead as we try to embrace new ways of thinking about AI. And if you think about it, at the heart of AI is learning. And so I hope that we've become a very significant player in the AI world as we go forward, not just in terms of the technology, but in terms of the human impact in terms of upskilling with our clients to support the transformations in the workplaces, to support preparing students for the next generation of jobs, the changing entry-level roles that people are going to have to find as they look for jobs. We're at the heart of solving many of these critical problems. And I'm quite excited with the team's motivation and excitement about digging in and getting this all done.
Operator: The next question comes from Stephen Machielsen of BMO Capital Markets.
Stephen Machielsen: I just want to dig in a bit on the growth algorithm, specifically the new logo adds versus expansions. Do you see that mix changing in your fiscal '27 assumptions? And does that mix need to change going into 2028 and getting back to that 10% to 15% growth?
John Baker: Well, I think we might actually see a bit more action with our clients this year ahead because I actually do think the adoption of like products like Lumi, Creator+ and others will accelerate quite quickly. And so maybe slightly more with clients and new logos, but I expect a number of new logos to continue to accelerate in the year ahead, just given the pipeline and given the work that our teams are doing. And then beyond North America, in international markets, the teams are working really well to drive deeper penetration into existing markets and also start to open up new markets, which should see accelerated new logo growth as well, too. So I'm not saying one or the other is going to be my favorite child, but I really do think both should be firing at a good level this year, which will set up next year in terms of revenue rec really well.
Josh Huff: Yes. We've been operating at a roughly 50-50 -- Stephen, just to add a bit of color. Sorry, there's a lag. We've been operating at a roughly 50-50 mix in F '26. We'd expect that to continue over the medium term. If you look back in the history of D2L 2, 3, 4 years ago, it was more of a 2/3, 1/3 new logo orientation. The existing customer upsell motion, as we've talked about for many quarters, is a strategic priority of the business and adding things like H5P, Creator+, Lumi to our portfolio that add incremental value to customers, but also help that upsell commercial motion has been a priority and is showing really good progress. But to answer your question, it's a 50-50 mix is sort of the way to think about it.
Stephen Machielsen: Okay. That's very helpful. Now looking into the fiscal '27 EBITDA guidance, it implies that -- well, it doesn't really imply much in the way of operating leverage. Now I know there's additional expenses related to the database migration. But I'm guessing there's some investment in there as well. I wonder if you could give us a bit more color on where you expect that spend to go, and how much of that additional spend could fall off going into fiscal '28?
Josh Huff: Yes. Thanks, Stephen. So a couple of things. As we mentioned, the second half profile does accelerate. So we'll exit the year with a margin profile that's higher than sort of the average full year guide of 15%. Mechanically, there's kind of two near-term headwinds. One is the database migration cost, which moderate as we exit the year, and that's about 100 basis points. And the second is just foreign exchange rates, specifically the strengthening of the Canadian currency, given a majority of our expenses are Canadian, and that has a roughly 100 basis point impact on our margin profile. And then if I just sort of pan out, as we've been working through strategic planning going into fiscal '27, we did carefully consider the right balance of investment and operating leverage in the near term. And seeing the progress in our core growth markets, as we mentioned, growing 11%, and NRR rate of 104%, and then also seeing good progress with Lumi, we made the decision to, in F '27, make what we feel is appropriate investment into those growth drivers where we're seeing strong return, while also balancing operational improvements that are, in some respect, being offset by those near-term headwinds I mentioned before. So that's sort of the mechanics of the F '27 margin profile.
John Baker: I maybe just add -- Josh did a good answer there. But just maybe just add a bit more color. The work that we're doing on the gross margin improvement is progressing really well. I've been quite impressed with the team's work there is tracking well as we articulated before, trying to wrap that work up as quickly as we can in the first half of this year, and feel like the team is doing a good job on that front. And then there is a lot of AI investment, as you can imagine, that's going into both the product, but also in terms of internal adoption. And that should have a pretty big impact on our ability to confidently hit our numbers for next year for EBITDA.
Operator: The next question is from Paul Treiber of RBC Capital Markets.
Paul Treiber: You mentioned that the database migration has been going well. Just can you just dig a little bit deeper on it? And the point of my question is really around like the magnitude of the change that's involved, particularly have you been able to utilize AI to help smooth that transition because we've heard lots of stories of apps being vibe coded in the weekend and things like that. Like the migration has been going for a couple of quarters now. Just could you give us an -- explain the degree of complexity that's been involved in that migration?
John Baker: I think we're actually through the bulk of it, Paul. This has been many years of us actually working on this transition. And so it's not vibe coded, just for clarity, like we did try to use a whole bunch of different technologies to help make the transitions from one version to another much easier, much faster. But -- this has been some of our best engineers working for many years to support this transition. That work is largely done. It's now a bit more of a pave path for the next quarter or 2. And so there is more work that we could do in the future. And so there are additional gross margin improvements that we can make over the following years. But what I like is many of our best engineers are going to wrap this work up and get back to some of the other things that are going to really add a lot of value to us as a company. And so yes, no vibe coding at this stage. But hopefully, we'll see more leveraging of AI in other ways.
Paul Treiber: That's helpful. The second question is a big picture around R&D and with the use of AI internally, can you give us a sense, or what's your sense in terms of like the productivity gains that you've seen with it? And then how do you look at the balance between taking those productivity gains and using it to drive more product innovation versus letting some of that fall to the bottom line?
John Baker: Yes. I think we're still early stages in terms of our own internal adoption of AI. So the teams that have embraced it, I'll give you a couple of examples, our Learning Services group have cut the cost -- internal cost of developing courses by over 50%. We're even now offering services to our clients to help them understand how they can do similar work using our tooling, using our team to help drive the cost of developing new programs and new courses by upwards of 50%, which is not small. Many of these clients will spend tens of millions on new program design in a year, and so they can do twice as much for the same spend, or they could cut and drive efficiency dramatically for their university or college or for their training organization. Very compelling. So I think that's an opportunity, not just a cost saver. And then internally, like we did have one of our teams leverage a lot of agentic AI and automation with AI and it managed to take the team as they saw natural attrition, we didn't let people go for clarity. But as we saw natural attrition, the team is now less than half the size it used to be, but it's 3x more productive. And so there are key workflows. There are key applications of AI within D2L that we want to see like that apply to many, many other parts of the organization to really improve the efficiency and automation. And maybe one last example, I can give you 100 examples, but one last example is where our big effort right now has been trying to take implementation for new clients. So we're removing all these folks from all of our main competitors. In the past, it used to take many, many months to convert a client over to us as a platform. And then recently, we've been saying 3 months, not 3 years. It takes some of our competitors 3 years to move from one system to theirs. In our case, it's now 3 months is our promise. And we're trying to get it down to 3 weeks. Like now that's an ambitious goal because as you can imagine, changing a big enterprise system like this is not easy. But the combination of people plus agentic plus AI is really going to help us solve a critical bottleneck, which, as you can imagine, if there's a replacement cycle to move to more of a modern AI-first learning platform, which we expect to create momentum around, we want to be able to capture that momentum as fast as possible. And so we're definitely leaning into this, this year. This is part of the investment that we talked about with Josh and myself earlier, is investing to see the deployment of more of these technologies across the broader organization. I don't think -- I can't think of a team that wouldn't benefit from leveraging these technologies in the future.
Operator: The next question comes from Suthan Sukumar from Stifel.
Suthan Sukumar: For my first question, I wanted to touch on corporate learning. It's good to see consistent traction here. Can you speak a little bit to some of the progress you've made on revamping your go-to-market process given the recent hires and where you stand on your product investment focus for employee learning use case and how that's tracking? And when do you expect that to start? When do you expect to make a more meaningful push on that front?
John Baker: So I didn't quite catch that last part of the question there, the second part of the question. But I'm happy to speak to the first part first. But if you can sort of repeat the second part, that would be great.
Suthan Sukumar: Sure. Yes. The second part was more around where you stand on from an R&D product perspective for the employee learning use case, and how that's tracking? And when do you expect to see more impact on that front?
John Baker: Yes. No, those are all great questions. And so we -- as we've mentioned in the previous call, we're really -- if you look at our growth markets, education, higher education specifically, and corporate, in the past, we were very much focused on training organizations, think like professional accountants or nurses or other, interior designers is another one that we announced this week. That's all going well, and we continue to make investments both on the go-to-market and also in terms of R&D to support that push, and those are growing very well, as Josh pointed out. Employee training is relatively new. We have a lot of clients in that space already that adopted us, but we still think we need to put a little bit more investment from an R&D perspective into that market. The investment that we're making on the sales team underneath Kevin Capitani, and his leadership has been going well. The team is building out. I think I just approved another hire this week. And now it's about driving execution, we're even chatting with some clients later today. So I think that's going to go well this year. But the key now is making sure that the go-to-market motion really fires up and that we support it quickly on the R&D front. Now keep in mind, all of the R&D that we do for employee training is going to play incredibly well with our other markets because the functionality that we're building to close gaps there in that space are going to be features that are going to be loved by pretty much every other client that we've got. So I feel like it's a very worthwhile investment.
Suthan Sukumar: For my second question, I wanted to touch on M&A. In this backdrop, do you see increased opportunity for acquisitions? And in general, how have your priorities changed? I'm kind of curious as to what might be becoming incrementally more exciting for you guys more recently.
Josh Huff: Yes. No, it's definitely changed what we're looking at in terms of M&A. I do think M&A is still an important driver for us to accelerate growth and also to support our ambition from a profitability perspective. And I think our team is hungry for additional products, even though we've got a number of them already to be able to take it to our base because our clients have no shortage of challenges, they want us, like a company like ours to help them solve. And so I do think there's capacity for us to continue to push on that lever. And so in terms of what's different, I think we're thinking about the market differently in this new age of AI. We want to really look at things that are going to really help us strengthen the platform and that are very defensible in this new market. And so in our case, we're also seeing 1,000 applicants for a job. And so it's not about so much the talent, it's really about the combination of a great team, solving really important problems that really strengthen our platform story.
Operator: The next question comes from Brian Peterson of Raymond James.
Jessica Wang: This is Jessica on for Brian. Really good to hear about the positive commentary on pipeline generation coming out of last year. So I'm just thinking in light of that, how should we be considering the current pipeline mix, like a rough high-level view of it between what would be considered more like your early-stage interest or opportunities that are further along in the current procurement evaluation process?
John Baker: By the way, I think it's Jessica, right? Is that right?
Jessica Wang: Yes.
John Baker: Yes. Thanks, Jessica. Sorry, you got introduced as Brian. I wasn't quite sure. So I think when you look at -- I appreciate it. When you look at our pipeline, we have -- it's basically across the board. We certainly have a lot more early-stage pipeline. But that pipeline is, as you can imagine, the team worked through it pretty aggressively to move it through the conversion stages. Conversions at each of the stages has continued to tick up, like we mentioned with the win rate at the final stage. It's still taking longer to take people through that journey, if you will, maybe slightly less than it was this time last year, but it's still a journey. There's no question, it's still a full court press. The team is working very hard to sort of convert everything. But what I do like is the pipeline is growing, conversion is growing. The teams really dialed in, in terms of really looking at the data in new ways and better ways. And I feel very good about our ability to go off and win that business that we're generating in terms of interest. So I'd say a gradual improvement, and we will hopefully pick up speed as we get through the year.
Jessica Wang: And also sort of a follow-up. In the past, international markets have been slower to adopt cloud LMS as compared to the North American market. But as we're having the development in AI, have you even seen the new technologies helping with just expanding the market there internationally and winning deals?
John Baker: Yes. That's a great question because it's a very much a challenge in international, right? Because you're right. They've been a lot slower to adopt cloud. But I think they've come around. We've announced a bunch of wins there internationally that historically, we wouldn't have seen because they were not ready for cloud in the past, but they are today. And then AI is, I think, a compelling driver internationally. But more importantly, responsible AI. They want to make sure that the partner they're working with are really thinking carefully about how to implement these technologies in the ways that are going to improve the educational outcomes for students and make the jobs of the faculty and the administration that much easier. And so it's not just AI. It's making sure that we implement it in ways that are really going to have a really positive impact, which is why we're putting so much work into developing efficacy studies and partnering closely. We just announced, for example, 5 different grants with the SUNY System to really look at different nuanced uses of this technology to support the classroom experience. And so it's that combination of these things that are really driving international adoption. And I think internationally, many of these schools want to leapfrog. They've been using old legacy platforms for a very long time, and they're ready for a change. And when they want the change, these clients tend to want to embrace a lot of different technologies, not just the core learning platform. And so I'm actually quite excited about the international market. And in some regions, not all, just for clarity, some regions have an abundance of capacity, but other regions where there's not a lot of capacity as and they have not learned how to build a lot of online courses, they're relatively new in. A good example would be India, who has just opened up the market for online. Our ability to go in and not only help them with a great platform, but also help them through the -- how do you actually build a great online program is highly impactful. There's a good case study that we just put out where we took a University from 0 online students to 50,000 just over a handful of years. And so that kind of growth doesn't happen without a great partner. And so I think our team is well positioned to support these clients globally.
Operator: We have no further questions at this time. So I'd like to hand back to John for closing remarks.
John Baker: Well, thank you, everyone, for joining us for the call today. We're really looking forward to updating you following our Q1 results. Have a great day, everyone, and Happy Easter.
Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.