D2L (DTOL) investor relations material

Executive summary

• Q2 results showed solid core business performance despite anticipated U.S. K-12 customer churn, which impacted headline growth metrics; core higher education and corporate markets remain strong, with expectations for improved revenue growth and profitability in H2 2027.

• Subscription and support revenue rose 2% to $50.9M; ARR increased 5% to $223.4M; adjusted EBITDA was $6.5M; $106.4M in cash and no debt.

• Excluding K-12, ARR grew over 10% year-over-year, marking the fourth consecutive quarter of double-digit ARR growth in core markets.

• Significant share buyback activity, with approximately 2M shares repurchased in the quarter and over 3M shares (11% of opening shares) repurchased in the trailing 12 months.

• AI adoption is accelerating, with D2L Lumi surpassing $5M ARR and over 40% attach rate in new higher education deployments.

Financial highlights

• Total revenue increased 2% to $55.6M year-over-year; subscription and support revenue up 2% to $50.9M.

• Adjusted gross margin was 70.4% (vs. 70.6% prior year); adjusted EBITDA margin was 11.6% (vs. 13.7%).

• Net loss of $3.1M (vs. net income of $2.7M prior year), primarily due to a $4.8M non-cash fair value loss on a loan receivable.

• Free cash flow for Q2 was $28.5M (vs. $15.2M prior year); trailing 12-month free cash flow was $42.7M (vs. $24.1M prior period).

• Free cash flow margin for the quarter was 51.3%, up from 27.8% year-over-year.

Outlook and guidance

• FY27 subscription and support revenue guidance revised to $211M–$213M (6%–7% growth); total revenue guidance revised to $228M–$231M (5%–6% growth).

• Adjusted EBITDA guidance maintained at $33M–$35M (approx. 15% margin midpoint).

• FY28 targets unchanged: 10%–15% revenue growth and 18%–20% adjusted EBITDA margin.

• H2 2027 expected to show higher revenue growth, expanding gross margins, and improved adjusted EBITDA margin (midpoint: 7% subscription growth, 16% EBITDA margin).

• Revenue outlook revised downward due to softer demand in advisory professional services and delayed customer deployment, but Adjusted EBITDA guidance maintained due to cost optimization.