D2L Inc
TSX:DTOL
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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the D2L Inc. Fiscal 2024 First Quarter Results Conference Call. [Operator Instructions] 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 section entitled Forward-Looking Information and the risks identified in the company's annual and interim MD&A or most recently filed Annual Information Form in each case as filed under the company's profile on SEDAR at www.sedar.com. In addition, during this call, reference will be made to various non-IFRS financial measures, including constant currency revenue, adjusted EBITDA, adjusted gross profit, adjusted gross margin and free cash flow.These non-IFRS financial measures do not have any standardized meanings described 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 three months ended April 30, 2023, for more information about these and certain 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. This morning's call is being recorded on June 8, 2023 at 8:30 AM Eastern Time.I would now like to turn the call over to Mr. John Baker, Chief Executive Officer of D2L. Please go ahead.
Thank you, operator, and thank you, everyone, for joining us for our Q1 fiscal '24 earnings call. After the market closed yesterday, we released our financial results for the period ending April 30, 2023. You can find this information on the Investors section of our website at d2l.com. Please note that the results we're discussing today are in U.S. dollars. I'm pleased to be joined this morning by Stephen Laster, our President; and Josh Huff, our CFO. It was a strong start to the new fiscal year for D2L. Consistent with the themes from our year-end call, our comments today will focus on four key points: one, we're making excellent progress on our plan to balance topline growth with profitability and operational productivity. I'm incredibly proud of how the team is delivering and this puts us on track to achieve our outlook.Two, we have a clear momentum in our largest market, higher education, with significant new customer wins already this year and a healthy prospect pipeline. Three, we continue to demonstrate a strong value proposition in the corporate market, which is allowing us to expand our customer base in that important market. And four, we're making good progress on the expansion of our evolution of our learning platform, including the most recent acquisition of Connected Shopping. As we work to deliver balanced growth, we're pleased with the financial results for the first quarter. First quarter revenue was $44.2 million and up 9% on a constant currency basis.And ARR was $170.9 million and up 10% on a constant currency basis. Our gross margins increased 470 basis points year-over-year, and our profit metrics improved considerably with meaningful growth in adjusted EBITDA and positive net income in the quarter. From a sales perspective, we continue to add new customers in all our markets. In higher education, a strong competitive win rate and momentum is allowing us to capitalize on renewed [ RFP ] activity to add high-quality institutions across many different markets. New clients in North America include Taylor University, a 175-year-old institution in Indiana that's ranked among the Top 3 best Midwestern colleges in the U.S. The University of Niagara Falls, a new university that will open in 2024 and aims to deliver technology-oriented education to prepared learners for a digital world is yet another great example of clients adding this year.And earlier this week, we announced -- we're partnering with Western University, which is ranked in the top 1% of higher education institutions globally to enrich the students experience for more than 40,000 students. This important win adds to a growing list of marquee clients in recent months. Our international teams also continued to do great work building out market leadership in focused countries and penetrating new regions. In recent months, we've added Charles Sturt University in Australia, a multi-campus public university serving more than 40,000 students, and we welcome Universidade Sao Francisco, a well-regarded university in Brazil, which adds to the growing momentum we're seeing in that country.In our K-12 market, we're excited to work with Savannah-Chatham County Public School System in Georgia to accelerate their digital transformation. This system is one of the 10 largest in the states, serving more than 35,000 students. And in corporate, more and more organizations are choosing D2L to address the growing demand for upskilling to accelerate learning to support productivity gains and to adapt to the future of work. And in the non-profit market, one of our newest customers is [indiscernible], an organization that's making a great impact on the lives of young adults across the U.S. by empowering them to move from minimal wage to meaningful careers.As I visit customers and prospects across the globe, their feedback reinforces why we are winning. For example, I often hear about our superior ease of use and the impact that we're having on running outcomes. And as many organizations adapt to the new demands from learners, they now need a platform that supports the unique needs of the learners in all learning modalities in-person and online. It's also encouraging to hear more leaders planning that next step in the digital transformation and building for the future, a future that embraces competency-based and personalized learning. Our platform positions us well to take advantage of these opportunities.And more important than anything, D2L is winning because we're a trusted partner to help our customers accelerate their digital transformation. We provide great technology and our people work shoulder-to-shoulder to make the technology a success, in supporting their clients' organizational goals. Invariably, my conversations with leaders in education and corporate markets also cover the opportunities and challenges that AI presents. For those who don't know our history, D2L has a long and proven track record of harnessing the best of technology for authentic learning experiences. And we've been a pioneer in using artificial intelligence and machine learning for productivity gains, for feedback, for developing insights and for predicting at-risk students.These are examples of artificial intelligence that are already embedded in our products today. I use these moments to listen and learn and to reassure that we're on the right partner track to help them adapt and address the challenges of AI. And at the heart of adapting is learning. Our company will continue to adapt to learn and incorporate the latest technologies into our offerings and in partnership with our customers, who continue to de-humanize the learning moment. It's undeniable that AI will change the learning experience, and it will also change many jobs and careers. This will create a significant demand for upskilling, which we continue to view as a long-term growth driver for our business.At this point, I'll turn the call over to Stephen to talk about our progress on other key growth pillars. Over to you, Stephen. Thanks, John, and good morning. Our team continues to focus on and deliver an efficient and scaled operation while accelerating gains in our core markets. We remain committed to ensuring our customer success through our award-winning software and services and to partnering with them through their ongoing digital transformation. It was a successful and eventful first quarter across many parts of the business, and I want to express my sincere thanks to the entire D2L team. I'll call out several key developments.First, and consistent with our plan to complement organic growth with disciplined M&A, we announced the acquisition of UK-based Connected Shopping, the makers of course merchant software. D2L has worked with Course Merchant as an integration partner and reseller for over 7 years, and we currently have more than 100 D2L customers using the software. We are attracted to this business for multiple reasons. John talked about the upskilling trend that is impacting both education and corporate learning. This is fueling a lot of client demand for continuing studies, which is where the Course Merchant solution fits perfectly.The platform improves course and program discovery and simplifies payment and enrollment. It's been great to welcome the connected shopping team to D2L, and we look forward to growing together as we bring this product to more of our clients and prospects. Across the company, we continue to build a digital-first company in all aspects of our core operations. This includes enhanced use of technology in sales and marketing to drive growth and impact. To help accelerate these efforts, we recently announced the addition of a new Chief Marketing Officer, Jen Ogden-Reese, who joined us to lead our global marketing function.Jen is a highly accomplished leader with a great track record of growth, and we're excited to have her on the D2L team. While there's always work to be done, we're making good iterative progress in building a market-leading, highly efficient and profitable operation at D2L. Our win rates are strong. Our road map is market right, our gross margins are improving, and we're showing growth on the bottom line, and the credit goes to the entire D2L team. We appreciate the drive we are seeing across the organization and the resulting success.I will now turn the call over to Josh for a deeper dive into the financials.
Thanks, Stephen, and good morning. Our full financials were issued last night, so I will focus on the highlights for the first quarter. As in past quarters, I will reference non-IFRS measures and KPIs that we believe provide a more complete picture of our performance. As John highlighted, it was a strong first quarter as we continue to demonstrate progress on our balanced growth plan. Total revenue for Q1 increased by 6% to $44.2 million and constant currency revenue increased 9% to $45.5 million. Q1 subscription and support revenue was $39.2 million, a 10% increase over the same period last year or a 13% increase on a constant currency basis.This reflects new logo growth, combined with revenue retention and expansion from our existing customers. Q1 professional services and other revenue decreased by 18% to $5 million. As we conveyed with Q4 results, the main driver of the year-over-year change was the conclusion of a large services engagement that was active throughout fiscal 2023. We continue to see strong demand for professional services as customers work through their digital transformations. And from time-to-time, expect to see other large projects in the mix, which can create short-term lumpiness in services revenue. Generally, we anticipate the mix to be closer to a 90-10 software-to-services split moving forward.We ended the quarter at $170.9 million in annual recurring revenue, an increase of 10% on a constant currency basis. Q1 is historically a seasonally lighter quarter for new ARR bookings based upon the academic calendar year. One of the key highlights of this quarter was our gross profit and gross profit margin performance. Adjusted gross profit, which removes noncash stock-based compensation expense increased by 14% to $30.0 million, and adjusted gross margin grew significantly year-over-year, reaching 67.8% versus 63.1%, a 470 basis point increase, as John mentioned in his remarks.The improvement was largely driven by higher subscription and support revenues coupled with a decrease in the associated cost of revenue due to the ongoing optimization of our cloud technology and support costs. The gross margin on subscription and support revenues rose from 68% in last year's Q1 to 71% in the current period. These margins put us essentially at the midpoint of our medium-term target model. We view these as sustainable levels in fiscal 2024. Our operating expenses for the period reflect our efforts to create efficiency as we scale. Total operating expenses were $29.8 million versus $30.8 million in the same period last year, with modest year-over-year decreases in all three expense categories.Total OpEx represented 67% of revenue, a decrease from 73% in the prior year. We're pleased with the results to-date and anticipate further operating scale as we grow the top line. The combination of revenue growth, improved gross profit margins and OpEx scale contributed to strong growth in adjusted EBITDA. Q1 adjusted EBITDA was $2.8 million compared to an adjusted EBITDA loss of $1.5 million in the same period last year. This represents a 6.4% adjusted EBITDA margin versus negative 3.6% margin in the prior year, a 10 percentage point improvement. While our fiscal 2024 guidance called for year-over-year improvements in adjusted EBITDA, the current period result did benefit partly from timing.For example, some of the planned cloud optimization work was done sooner than anticipated in the first quarter. A reminder, as communicated in April, it is still appropriate to expect a scaling of growth and profits in the second half as we exit the year. Also, I would highlight that in the second quarter, we will be hosting our annual customer conference, Fusion, which results in some additional sales and marketing spend in the quarter. We look forward to the impact Fusion will have on our customers and prospects. It's shaping up to be a great event.Overall, we are doing well with the transition of our business towards profitable growth, which has allowed us to increase our adjusted EBITDA guidance for full year fiscal 2024 to $6 million to $8 million from our previous guidance of $4 million to $6 million. Looking at cash flow; the cash used in operating activities increased to $17.0 million from $15.3 million in the prior year, and free cash flow decreased to negative $18.7 million versus negative $16.2 million in the prior year. As a reminder, 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, in line with the timing of annual customer invoicing.We finished the first quarter in a strong financial position with no debt and $92.1 million in cash. As we navigate the business through the macroeconomic backdrop, our strong balance sheet and ability to generate free cash flow give us valuable stability in the near term and the flexibility to take advantage of favorable growth trends in our market over time.Thank you for participating in today's call. And with that, I'll pass it back to John for closing comments.
Thanks, Josh. I want to commend the team on their execution on our mission during the quarter. These efforts are making D2L a stronger and more productive company and enabling us to deliver an excellent client experience with strong financial outcomes, a winning combination. As we look ahead to the remainder of fiscal '24, we're seeing improving demand environments across education and business as they prioritize investments in better learning experiences. We will continue to make disciplined investments to capture this market opportunity and deliver on our vision for the future of learning.We appreciate your interest and support. And with that, we'd be happy to take your questions. Back to you, operator.
[Operator Instructions] Our first question today go to Daniel Chan of TD Cohen.
Nice to see the EBITDA margin progress this quarter and the margin guidance was raised. Anything changed over the last couple of months to drive such a material uplift in profitability expectations?
Yeah. Thanks, Dan. There was certainly, as mentioned in our remarks, there was some timing from an OpEx perspective. Some of the cloud optimization work. We worked through quicker than expected, which was positive. And then there was just some timing on a few different engagements throughout the organization. But probably most positively is the gross margin expansion that we saw in the quarter. And as mentioned, it's at levels we're comfortable with sustaining for fiscal 2024. So it was a bit of gross margin, a bit of operating expenditure timing.
That's helpful. So if I look at your full year margin guidance, it's coming in below what you achieved for Q1, but you're expecting gross margin to be sustainable for the rest of the year. So looking at guidance, it's kind of suggesting that margins may be a little bit lower for the rest of the year for EBITDA. What's driving that expectation? How should we think about margins progressing throughout the year?
Yeah, for sure. So as we mentioned in April in our call, there's certainly a second half, first half element here. So in the second half, we expect acceleration from a revenue perspective as well as a profit perspective. I think I'll also remind in Q2, we do have our Fusion Conference. And so there tends to be a bit of an increase in OpEx during Q2. And so certainly, we don't guide quarter-to-quarter. But I think with the full year guide and sort of Q1 performance, I think the inputs are probably there to make some assumptions on what the rest of the year looks like.
Okay. I appreciate that. And then one final one, if I may, on ARR. The sequential growth slowed. I know you mentioned that there's a little seasonality in Q1, but you did reiterate your fiscal '24 revenue guidance. So was ARR in line with what you expected? And what are you thinking about how you -- should we be thinking about ARR and revenue growth throughout the year just given the ARR results this quarter?
Yeah. Good question. So as mentioned, yeah, there is some seasonality in Q1. So generally speaking, Q1 is seasonally a lower quarter from a new bookings perspective. It was in line with sort of how we were seeing things in Q1. And we're actually seeing some really good activity in Q2 and beyond. Certainly, overall, the new business environment is improving. We're seeing a healthy pipeline. That said, the bar to get transactions done remains tightened, so more approvals and scrutiny. And so some individual deals can push and take a little bit longer than anticipated. But overall activity is healthy and picking up, and we feel pretty good. We have some good visibility into Q2. And yeah, that's sort of what we saw in the quarter.
And the next question goes to Maxim Matushansky of RBC Capital Markets.
Just following up on that question. Just -- I didn't hear you mention. So I just wanted to clarify whether you're reiterating the fiscal '24 revenue guidance and then the kind of fiscal '25 mid operating margin targets?
Yeah. No changes to either.
Okay, great. Can you maybe speak -- you announced yesterday you're planning on expanding in India. Can you expand on that a bit as to what that means in terms of your additional headcount investment or perhaps reallocation of existing resources and then also how you're thinking about maybe the potential opportunity in the Indian market in general?
So we see a tremendous opportunity in India. Today, we serve a number of the top schools that are serving students in the online learning fashion. We see that market as an opportunity for us to continue to go deeper, wider with multiple different accounts within higher education in particular, but also reaching eventually into corporate and into K-12. So the India launch is very important for us. It's a very big market. They care deeply about education and us putting in place the people, the development teams, the support, the infrastructure to really enable those clients to be highly successful, is going to be a winning combination in that market.And we're very focused on making sure that we execute well and putting in place the right people make a big difference there. Overall, we're not expecting overall headcount across all of D2L to grow substantially this year. So there's no real change there in terms of plans. And in this particular case, the work that we're doing in India has been planned for multiple years. So this is not an overnight decision that we made. This is one that we've been very purposeful in terms of planning over the last couple of years.
Great. And just one final one for me. Just on the M&A of Connected Shopping. Should we expect more kind of smaller tuck-ins to come or how are you thinking about the pace and size of M&A going forward?
Yeah. Our approach to M&A remains the same. And as we've said before, we are very focused on M&A that really helps drive the learning moment, which is the core of our strategy. And so we continue to look for opportunities that really benefit our customers' strategies -- that integrate well with our platform and that we're able to really leverage our ability to go to market and to be intimate with our customers. You should expect that we'll continue to evaluate those opportunities. And when they make sense, we'll take action.
And I'll add. We're very excited about what we see as opportunity with Course Merchants. If you look at our continuing studies clients, these are large universities that see one of the big growth factors for them is nontraditional students, helping to support upscaling for the workplaces and the ability for us to now provide a really good registration, enrollment mechanism handling the e-commerce to support that registration process, making that very easy for clients is going to be, again, yet another winning combination to support clients' growth and our growth and really exemplifies what we're trying to do with building out the evolution of our platform to support that learning moment.
The next question goes to Doug Taylor of Canaccord.
Let me come at the EBITDA guidance question another way. You said you don't expect headcount to grow for the company overall through the balance of the year. You've got accelerating revenue growth in the second half. You're suggesting stable gross margins as well. So I too am having trouble reconciling why your EBITDA for the year, given the Q1 starting point couldn't be even stronger than your updated guidance. So I guess I'm asking are we missing something here or are you just building in a degree of conservatism into your forecast?
Yeah. Sure. Thanks, Doug. So I think -- it's important to understand the second quarter. I mentioned some of the timing in the first half was sort of pushed into Q1 versus Q2. So Q2 not only has a bit of that timing being pushed into Q1, but also the Fusion expenditures in Q2 as well. So I think when you kind of look at things, think about Q2 and sort of the levels of EBITDA you can expect in Q2 and then also think about that second half scaling both from a revenue perspective as well as an OpEx scale perspective. But certainly, it's an outlook that we feel confident in. We're pleased with the progress we're making from an operating efficiency perspective, both gross margin as well as our operating lines. And so we look forward to continued progress.
The small tuck-in acquisition you made since quarter end, I mean, I know it's relatively immaterial in size. But maybe you could just comment on the degree to which that's been factored into the guidance or how it's impacted your guidance or the financial model at all that you've set out.
Yeah. It's a fairly small transaction. We are excited about it, of course, but the financial impact is pretty small and nominal. We were an existing partner. They were a partner of ours. And so certainly, some of the financial impact was already sort of within our financials, if you will. But it's a smaller transaction, so very, very little impact.
Okay. Just wanted to confirm that. Maybe one more for me -- for John. I mean, let me be the one to ask the AI question, which seems to come up in every call these days, it's had quite an impact on some of, I guess, I'll call them your ecosystem participants in the quarter, namely the content providers with different business models and your own, but maybe I'll get you to comment on where you see your own businesses most impacted one way or another by that trend?
Yeah, a good question, Doug. And as you can imagine, it doesn't matter where I go in the world either, I get asked the same question. And I think we break it down into four swim lanes. So we're helping the clients address the risks that are attached to AI, whether that's academic integrity, supporting them through cybersecurity updates to their courses and offerings that they're providing to their learners, faculty [indiscernible] but then we're also trying to sort of a second swim lane, if you will, is really driving a research agenda, how does this update tutoring, how does this update assessment, how does this update the learning experience itself?The third swim lane is helping our clients through the redesign of courses, to embrace AI as part of the learning experience to update the skill sets that are being taught across all these different programs to incorporate AI, very similar to if you're taking an MBA in the past, Excel would have been a key productivity tool that would have been part of the curriculum. AI is going to be part of the curriculum for many different disciplines from design to engineering, through marketing and many others. So updating that curriculum is a third stream. And fourth is, as you can imagine, there's going to be a lot of displacement in the workplace because of AI.Jobs are going to change. What people are going to be doing is going to be radically transformed through these types of technologies. And so we see that as a long-term tailwind in upskilling and we're well positioned to help our clients deliver that upskilling to support a more nimble economy and to help people make these transitions. And I was just actually in Mexico last week with the Deputy Ambassador and she had a great line. She says, in the past, I used to upskill to get the next step in my career to take the next promotion. Now I have to upskill just to stay current in my job because things are changing so fast. And I think that really underscores the demand environment that we see as an opportunity. So for us, it's really capturing the opportunity unlike some of the other companies that you've mentioned in the past. Good question Doug.
The next question goes to Christian Sgro of Eight Capital.
You commented on strength in the core higher ed markets. You're seeing good things in the pipeline. Maybe I'll just ask a broad question on some context there. What types of higher education institutions you've seen [ strain ] from maybe the size of those customers and maybe where internationally, you're seeing some of that pull?
Yeah, good question there, Christian. I think in our case, we're seeing good demand across almost every segment of higher education, both international, U.S., Canada, mid-market, enterprise systems. We seem to be seeing great opportunity across the board. Our win rates in North America, we're about 50% last year. We hope that, that will continue this year as we look out, really not seeing a competitive differentiation there change as we build out this product as we build out the functionality on our system, we feel like we're pulling away from our competitor set. So that strong win rate should continue if we keep executing well on that.And the pipeline looks very, very strong. If I think about Q1, we had good results in Q1. I'm very optimistic about the next quarter and through the rest of the year in terms of supporting the model that we put in front of you. And then globally, as I mentioned in the past, we're now starting to tip over the 50% market share in some countries around the world, whether that's the Netherlands in terms of top universities or Colombia, in terms of top universities or Singapore or other markets globally. It's great to see wins in Australia this past quarter. The investment that we're making in India is an important market.Some of these schools have hundreds of thousands of students. I can't think of a better platform for them to be running on than D2L. The reason I was in Mexico is there's some schools down there that have hundreds of thousands of students. Again, we're well positioned to support these institutions as they go through a digital transformation. And as they go from not really using the technology at all in many of these regions to starting to leverage it just like they do in the U.S. or Canada to have a big impact on improving the educational outcomes.And at that scale, we really are the best platform out of all of the competitors to support them through that transition. So yeah, if you're hearing anything, I'm obviously very excited to see the market bouncing back. And I'm very proud of how the team is building up the capability and our ability to get into these new markets in a better way. So it's actually quite exciting.
That's all great color, John. And it sounds like broad-based strength. The next question, almost a repeat question, but I want to dig in more qualitatively on the gross margin strength on the subscription side. I think I was as positively surprised as anyone else. And I think in the past, student utilization might have affected this one way or another. A bunch of learners at home pulling on, say, cloud consumption. But could you elaborate a little bit on the optimization there? It sounds like its sustainable, which is great. What was sort of done ahead of time or what helped to optimize the platform?
So we're running a number of different optimizations on -- as we've shifted to the cloud, we're now optimizing to improve our storage footprint and improve how we serve clients with fewer servers versus many. There's a number of different optimizations that we've been working on for a period of time now. Some of them are starting to hit in terms of the impact in gross margins. Our overall utilization, if you're getting at that is still high with our clients. We've not seen that go down post pandemic. If anything, we see it continue to decline. I put a post recently talking about our video utilization.It had a little dip as we went into last year with post-COVID, if you will. But this year, over the course of the last 12 months, we saw a 5x increase again. So I think as we went through sort of that transition period, there might have been a little bit of a change there. That was last year. But this year, everyone seems to be leveraging these technologies in a bigger and bigger way, and they're moving up the adoption curve, Christian. I think the key is they're starting to use the technology in more meaningful ways to improve educational outcomes. I'll let Stephen talk to any specifics. Do you want to add anything on the optimization of the cloud?
No. I think John expressed it correctly. We have been on a multiyear journey and continue to take a portion of our engineering capacity and really focus on the efficient utilization of our machine time. And I think that's the benefit you're seeing in gross margin. To John's point, as we look at videos, grades submitted, assignments created. The core use of the platform continues to be strong. And frankly, we're pleased about that. We want that. And so what we've done is deliberately invested in engineering to really optimize how we consume, compute and storage and it's paying off, and we're very proud of the team that's doing the work, and it's also driving highly available, highly secure environment as well, and that's our commitment to our customer.
And maybe not to [indiscernible], it ties back into the earlier point that I was making on these large statewide systems or countries that implement our technology because we're making those optimizations, it enables us to gain scale as they scale, whereas we're certainly seeing some of our legacy competitors really fall down once they cross certain student number thresholds, if you will, and costs start to balloon. Our ability to scale to the $1 million, $2 million range for specific clients is very helpful as we think about the long-term strategy for the company.
I'll jump in with the third and last question as well. Sorry go ahead, Stephen.
I was just going to say you'll continue to see us improve in this area. It is built into our plans, and we're excited for it.
Fantastic. And it's showing up already. I'll jump in with a third and last question as well and then pass the line. Just very quickly on upsell, with Performance+ or Creator+, how that's trended against the historical attach rates, opportunities there? And then again I'll pass line.
Yeah. We're still early on the Creator+. It launched in November, but we're seeing very good uptake in terms of pipeline, and the team is seeing good promise in terms of converting that pipeline into uptake in terms of attach rate. I've had an opportunity to see it firsthand as I visited a few clients globally. I'm excited. What we're doing with Creator+ is applying real learning science to the learning moment. So instead of just the content for students [ being ] watch this video or read this page of content and then do an assignment or do a quiz.They're getting this embedded interactive and practices and they get real-time feedback. It makes the learning experience that much more engaging for students. This is not a small improvement. This is a step function improvement for the quality of the learning experience. And I think as more and more clients embrace this, I think this is going to be a bit of a game changer for us in terms of driving the attach rate. But again, early days. We're going to get [ this side ] into the market, got to get the proof points going, but the early indicators are very strong.
And the next question goes to John Shao of National Bank of Canada.
So John, you mentioned the win rate. I'm just curious about the historical changes of that number. Anything material in the past 12 to 24 months?
Yeah. I think the key is we've taken a win rate from the range of around 10% to 20% to 20% to 20% to 30% to now up over 50% in many markets around the world, including North America. And that's very important because if you look at our growth, it's largely been drive -- it's been driven off that win rate increasing. It's not been about more RFPs hitting The Street during the last three years. We're now starting to see more RFPs hitting The Street. And as the market rebounds as we continue to hold that win rate high, that's helping us get through not only this year, but giving us good support for next year's model as well, too.
Okay John, I have a question. Go ahead.
Oh no, no, no. And it was also great to see some wins like Western and others. These are marquee universities globally adopting Brightspace as the platform of choice for their students. I think these early wins this year are indicative of us continuing to strengthen the relationships with our clients. Our clients see us as the right partner for the future, making the right investments into the platform, into our client experience and to support. So building that trust with clients is critical as they're making these decisions, not just for this year but for the next 5 or 10 years. Winning these clients really matters.
Okay. I also have a question on upselling, especially the timing of it. Let's say, you line a new customer this quarter. So how long does the customer -- how long does it take for the customer to take or to buy another module or new product from you? If they do that, what is the usual catalyst for such a behavior?
Yes. Thanks, John. I mean it's really -- there's a customer journey. And certainly, as the customer progresses with D2L, they continue to add various services and solutions to add value to their mix. So I wouldn't say there's necessarily an exact science or uniform pattern to how these customers engage. But generally speaking, there is an implementation migration period that we've talked about in the past can take anywhere sort of in the realm of 6 to 9 months. And so thereafter, you'd see sort of some additional consumption of services and products. But generally speaking, these are very long-term relationships we have with our customers. And so, you'll see that continued upsell, cross-sell over time as we continue to progress in our journey with the customer.
I think [indiscernible]. Well, I think you might have [indiscernible] later, John. But I think as clients take that adoption mindset, initially, they're moving from cobbling together different digital tools to support online learning or face-to-face to now embracing a proper platform to do that at scale, then they start to engage in things like optimization, around improving retention or improving learning outcomes or supporting better productivity for their organizations.That's a key point where they engage our teams to help them drive change, not only with using the technology, but how to build great courses and how to support better outcomes. And then ultimately, we're working with a number of clients today to really transform the experience embracing things like personalized learning, competency-based education and new models of learning that really help take them to the next level in terms of supporting the student experience, but also great opportunities for us to bring along other services or other technologies to support them in that endeavor.
The next question goes to Brian Peterson of Raymond James.
Hi. This is [ Jessica ] on for Brian. I just have a couple of questions. Just a follow-up question on your international pipeline. I just want to double [ click ], how should we think about the upper or lower balance of your growth rate in international markets over the next few years?
Great question, Jessica. I don't know if you put a [ band ], if you will, in terms of lower or upper. Right now, what we're seeing is international outpacing growth in North America. I don't see that trend changing because if you look at the adoption state for international, 70% to 80% of the market is using very old, very legacy technology that we've largely replaced in North America. So the ability for us to go in with a great technology, great support, great customer experience and be the right partner for them to take the next leap is there. And what we're seeing in international markets is they don't want like just the next step up.They want the best learning platform to support their institutions. It's almost like when I ask I rolled out telephone, they didn't roll out landlines, they rolled out cell phones. Our hope as we go international is that as these markets open up, they pivot to the best learning solutions for their citizens, for their students, for their companies possible, not sort of second best implementation, if you will. So I see our win rates so far in international are following fairly similar footprint is what we're seeing in North America, 50% or so. Some regions are much higher. Some regions are around that range. And the key for us now is continue to go deeper in the markets we're in today and to start to pick off new markets as we open up.
Got it. And my second question is the education market in North America, typically, there's a lot of buying in the summer when schools year is out. And I know we're in early June, but is there anything you can share on your perspective on the current selling season?
As I think Josh and all of us mentioned earlier, we are seeing a good first half. Q1 was good. Q2 so far is shaping up very well. I think, yeah, that's probably where I would leave it.
Sorry, just -- I can just get room for one more [indiscernible]. As part of you're talking about efficiency gains, can you also talk about what you're seeing more specifically go-to-market and bookings perspective? And how would you characterize your satisfaction with your current sales market [indiscernible]?
Yeah. I think our sales productivity is continuing to get stronger. You've got to remember, if I think about the net number we're casting out there to capture opportunities, we still have a long way to go in terms of making that net a little tighter to capture even more and more opportunities that's out there. Our team is really good as opportunities mature in terms of closing them as exemplified by our win rates in all the different markets that we're in.And I think as Jen comes up to speed on our marketing in terms of CMO and as the sales team continues to polish up that early-stage funnel, I think we're well-positioned to not only capture the demand that's already generated, but also to start to generate more demand in more markets globally. And so -- but I wanted to make sure that I underscore, we're trying to do that as efficiently as possible to keep that balance of growth and profitability.
And our next question goes to Thanos Moschopoulos of BMO Capital Markets.
Just going back to the commentary on the spending environment. Is it pretty consistent in terms of the improvement you're seeing across the three segments, higher ed, K-12 and corporate or is there any differences to call out in that regard?
Thanos, I don't think we're seeing much difference in terms of the spending environment. No, I think our education market [indiscernible] still looks pretty healthy. Now that said, still longer cycles in terms of the sales process, as we've talked about for a few quarters now. But overall, no, the demand looks pretty good.
U.S. revenue growth was fairly flat year-over-year. I presume that was due to lower services revenue, but I just want to confirm that's the case.
Yeah, that's right, Thanos. I think the 90 days can sometimes be difficult to sort of conclude on growth rates. I'd certainly recommend looking at last fiscal or just a longer period of time, but you're spot on, there were some professional services that were in prior year, and so they're impacting the comparative for the first quarter.
Great. And then finally, can you update us on the channel as you continue to build out your international presence? Is there much happening as far as adding on new partners? Is the focus on just leveraging existing relationships or what's happening from a channel perspective?
Yeah. I think the work that we're doing in terms of balancing growth and profitability, tightening up our operations, getting stronger in terms of how we're going to market. That applies to the channel as well. You're seeing the investments that we're making. I was in Mexico with our channel and with our partners and with our direct team there last week. We've got a team now in India this week as we're launching more with our channel with our direct folks there.You're still seeing us investing in that group. We're trying to make sure that we've got the right partners in each of these different regions. We're working very hard to make sure that they're well enabled and that we see the win rates that we're seeing in these different markets continue to expand into new markets that we're going after with the channel partners. So look forward us to continue to make very strategic, very purposeful investments in the channel strategy as we go forward.
We have no further questions. I will now hand back to John for any closing comments.
Well, thank you very much, everybody, for joining us on the call today. We're looking forward to updating you following our Q2 results, and I hope some of you have the opportunity to join us at Fusion, our Annual Users Conference this July 12 to 14 in Anaheim, California. Have a great day, everybody. Thank you.
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