D2L Inc T.DTOL

Alternate Symbol(s): DTLIF

D2L Inc. is a global learning technology company. The Company delivers personalized, flexible and modern learning experiences for people of all ages. The Company’s core cloud-based learning innovation platform, Brightspace, serves three distinct markets: kindergarten to grade 12 schools (K-12), higher education, and corporate markets. Its Brightspace Core functionality is extended through Performance+, its advanced analytics package, and Creator+, which provides authoring tools for efficient and effective learning and engages learners through add-on solutions such as video and catalogue capabilities, video-based training and courses. Its learning technology leverages features like artificial intelligence, smart workflow design and automation to help educators, activities, and other technologies. The Company sells its platform primarily through its direct sales force in North America, Europe, and Australia, as well as through a mix of direct and indirect channel partners.

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D2L Inc

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Post by retiredcfon Dec 06, 2024 9:24am

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Post# 36348913

RBC Report

Their upside scenario target is $27.00. GLTA

December 5, 2024

Outperform

TSX: DTOL; CAD 18.20

Price Target CAD 22.00 ↑ 16.00

D2L Inc.
Targeting the rule of 40 over time

Our view: Even excluding unusuals, Q3 results were solid, above RBC/ consensus estimates. Upwardly revised FY25 guidance implies sustained growth and margin expansion. Management's messaging of "rule of 40" performance over time suggests further growth and margin upside is possible. Maintain Outperform, given D2L's discounted valuation and our forecast for adj. EPS to grow 38% CAGR from CY24 to CY26. Raising target from C$16.00 to C$22.00.

Key points:

• Despite unusuals, Q3 ahead of RBC/consensus. Revenue rose 18% Y/Y to $54MM, ahead of RBC/consensus at $51MM. Adj. EBITDA of $10.4MM (19.2% margin) was well ahead of RBC/consensus at $6.7MM/$6.8MM. Excluding unusuals ($0.5MM subscription pull-forward, $1.2MM services revenue), Q3 revenue and adj. EBITDA exceeded RBC/consensus. Adj. EPS was $0.17, above RBC/consensus at $0.12/$0.06.

FY25 guidance raised. D2L increased FY25 guidance to $204-205MM revenue (12% Y/Y mid-point) and $25.5-26.5MM adj. EBITDA (13% margin mid-point), up from $199-202MM and $22-24MM previously and above consensus at $201MM revenue and $21MM adj. EBITDA. Even excluding Q3 unusuals, FY25 guidance was raised (by ~$2MM revenue and ~$1MM adj. EBITDA).
ARR up 12% Y/Y, in line with expectations. ARR increased 12% Y/Y (11.4% constant currency) to $202MM, effectively in line with RBC at $202MM and consensus at $203MM. Net new ARR was $3.4MM, up materially from $1.6MM Q3/FY24 and nearly in line with D2L's organic TTM average ($4.0MM). Net new ARR stems primarily from new customer wins.
AI-based products differentiate D2L and increase awareness with customers. D2L's new AI-based products like Lumi and Creator+ are driving improved student outcomes, which is raising D2L's awareness with customers. As a result, the company is seeing a growing pipeline across various markets. Additionally, D2L may also benefit following the takeouts of competitors and traction cross-selling and upselling into H5P's large customer base (200MM users). Our outlook calls for ARR growth to increase from 12% Q3 to 14% FY27e.
Messaging the rule of 40. Management mentioned the "rule of 40", which, in our view, suggests upside to growth and margins over time. We are introducing FY27 estimates, which call for 13% revenue growth and 19% adj. EBITDA margins.
Valuation re-rating likely to continue. Even though D2L’s shares have rallied 68% YTD, D2L continues to trade at a discounted valuation of 2.8x NTM EV/S and 23x NTM P/E, below EdTech peers at 4.2x and 26x, respectively. We believe that as D2L’s profitability improves and growth accelerates, the stock is likely to re-rate closer to its peers. We are rolling forward the basis of our price target from CY25e to CY26e; our revised C $22.00 price target is based on 21x CY26e P/E (previously 19x CY25e P/E)