D2L Inc
TSX:DTOL
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Hello and welcome to the D2L Inc. Q1 Fiscal 2025 Financial Results Conference Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions]I will now hand the call over to Craig Armitage to begin. Craig, please go ahead.
Good morning. Welcome to the D2L Inc. Fiscal 2025 First Quarter Results Conference Call. Listeners are reminded that portion 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 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 risks identified in the company's annual and interim Management Discussion and Analysis or the most recently filed annual information form, in each case, as filed under the company's profile on SEDAR+ at www.sedarplus.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 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 3 months ended April 30, 2024, 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 5, 2024, at 8:30 a.m. Eastern Time.I would now like to turn the call over to Mr. John Baker, Chief Executive Officer, D2L. Please go ahead, John.
Thank you, Craig, and thank you, everyone, for joining us for our Q1 Earnings Call. We released financial results after 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: Stephen Laster, our President; and Josh Huff, our CFO. On the back of delivering a strong 2024, I'm pleased to report it was a solid start to fiscal 2025, highlighted by strong growth in our subscription and support revenue, annual recurring revenue and operating profitability. Total revenue was up 10% to $48.5 million, including 10% growth in our SaaS revenue. Annual recurring revenue was up 11% year-over-year to $190.3 million and increased by 12% on a constant currency basis. And adjusted EBITDA increased to $4 million, up from $2.8 million in Q1 of last year. Simply put, we have a clear path to achieve our full year growth outlook, which includes exiting the year with low to mid-teens adjusted EBITDA margin. I'm very impressed with what the team has done to make sure that we're delivering on our balance of growth and profitability.During the first quarter, D2L celebrated its 25th anniversary, an incredible milestone for our team. When I started the company in my third year of university, it was to have a transformational impact on the way the world learns because learning has this wonderful ripple effect across our campuses, companies, communities and countries. Building more engaging and inspiring learning experiences was my inspiration at the beginning and we are as dedicated as ever to this vision. We've clearly come a long way since those early founding days and each quarter we continue to strengthen our fundamentals. We now have a global team supporting well over 18.5 million people using our learning platform in countries all around the world.Through our great efforts and the care of our team for our clients, D2L has become the #1 learning platform in many countries around the world. For example, I just got back from Singapore where we now are #1 with over 70% market share. And in our most competitive market, North American higher education, we're now the fastest growing learning management system and we're winning more than 50% of the time. Our work with corporate clients to deliver better upscaling experiences is also growing quickly. And from a financial perspective, we have a strong balance sheet with no debt and are balancing top line growth with increasing profitability, giving us the ability to invest for the future.At the same time, as we've increased efficiencies and margins, we're making substantial investments in product innovation, doubling down on the voice of customer and our focus on the learning moment. Stephen is going to touch on a few exciting product milestones that we have ahead.In this past quarter, we also won several important awards that validate the hard work of our team. We won 2 CODiE Awards, one for the best learning management system across education; and the second award for the best customer education LMS in the corporate market. And D2L Brightspace was also named the easiest to use learning platform by G2 for both the corporate and education markets. As we'd like to say, it was not easy to become the easiest to use learning platform. It was a tremendous effort and investment over many years to achieve this milestone. Our team had many thousands of design sessions with users and have really focused on building moments of delight and ease-of-use into the workflows that are truly transforming learning.These awards are recognition of the incredible work of many D2L-ers who live our mission and obsess over customer experiences day-in and day-out. Thank you. It's helped us to pull ahead of our competition. As we prepare to welcome over 1000 of our customers at our Annual Fusion Conference next month. It's also a very exciting time for D2L. We're hard at work engaging learners because it's never mattered more and we've never been more encouraged by the outlook and opportunity for the company.Now with that, I'll turn the call over to Stephen. Over to you.
Thanks John, and good morning. I'll briefly comment on our go-to-market activities and investments in innovation. It was a productive start to fiscal '25 on both fronts. During the first quarter, we continued to add noteworthy new customers to the D2L platform. In our largest market, higher education, the University of Hawaii selected Brightspace for its 50,000 students. In the words of their leadership, moving to the Brightspace platform marks a pivotal moment in their commitment to providing a cutting-edge educational experience for students, faculty and staff.We also welcomed Madison Area Technical College, a well regarded technical college in Wisconsin serving more than 20,000 students. They are replacing a legacy system with ours beginning this fall to meet the evolving needs of faculty and students in the future of education. Internationally, upwards of 70% to 80% of higher education remains on legacy learning platforms. We're diligently building market leadership in focused countries that act as regional hubs.In Europe, a great example is the Netherlands. We first entered the market in 2016 and have methodically established market leadership to the point where we are now at 60% share. During the first quarter, we strengthened this position with 2 new additions. We added leading applied sciences University, Hogeschool Leiden, where Brightspace will support the highly personalized approach to learning for their 12,000-plus students. And we also welcomed Utrecht University, one of the oldest universities in the Netherlands, serving more than 35,000 students. In selecting Brightspace over multiple competitors, they highlighted the superior scores on usability and responsible design, including our vision on the use of artificial intelligence. To John's earlier comment on ease-of-use, our investments in this area are translating to commercial success.We're replicating the strategy for other markets. For example, we continue to see the D2L brand and presence build in India. In the past 2 years, we have doubled our customer count through our market leadership and online learning in region. Over time, we believe D2L will be the market leader globally for following the path we have taken in North America and replicating our success in targeted regions to-date. In K-12, we continue to partner with larger school systems through their digital transformation.In Q1, we welcomed the Broome-Tioga Board of Cooperative Educational Services, which serves 15 school districts in New York state comprising nearly 35,000 students. In corporate, our team is doing a great job building the D2L footprint in employee learning and training organizations. We recently onboarded the Royal Institute of British Architects, a global professional membership body driving excellence in architecture for more than 25,000 learners. And D2L is being acknowledged as a leader in corporate learning, recently earning recognition as one of the top 10 learning systems by The Craig Weiss Group. This award and others from Forrester and Aragon reflects the impact we're having with clients as they embrace our technology to make sure their employees are ready for work of the future.In Q1, we continue to strengthen our go-to-market capabilities with the addition of our new Chief Marketing Officer, Brian Finnerty. Brian is a respected and accomplished marketing leader with comprehensive experience, leading brands through high growth and global expansion. We're excited to have him on the team to enhance D2L's brand as a leader in the global digital learning market.It was also a productive quarter on the innovation side as we enhance existing offerings and broaden our portfolio of products. I'll be brief on this topic to avoid previewing too much of what we're excited to share at our Fusion conference this summer. In terms of important new functionality and products, on the AI front, we continue to get great feedback on the generative AI beta program for practice questions and quiz questions. Customers using it like the full integration into workflows, clarity on what is AI generated and of course human in the loop at all times. We're also getting valuable customer input to advance the achievement beta program, which is providing impactful new capabilities around outcomes analytics and learning success.We continue to see high customer interest in Creator+ leading to a growing attachment rate for this product. Our sales efforts are now supported by compelling efficacy data from customers like South University, which leverage Creator+ to transform text-heavy content into dynamic learner-centric modules. They've seen a 30% reduction in course development time and a much higher percentage of learners achieving As and Bs, with content designed using Creator+ versus their old model. Lastly, we have enhanced the ability for bulk course importing, allowing new customers to more efficiently migrate from other LMSs to Brightspace.I'm going to stop here as I hope to see you at Fusion and look forward to updating you on these topics along with Q2 results in a few months. I will now turn the call over to Josh for an expanded discussion on the financials. Josh?
Thanks, Stephen, and good morning. Our full financials were posted last night, so I will be brief. As John highlighted, our Q1 results demonstrate continued progress executing a balance of solid top line growth with significantly improved profitability.Total revenue for Q1 was $48.5 million, a 10% increase over the same period last year. Growth was led by subscription and support revenue, which was up 10% in Q1 to $43 million. Our professional services and other revenue returned to growth, increasing by 10% to $5.5 million. Annual recurring revenue at quarter end increased by 11% from $170.9 million to $190.3 million. Foreign exchange had a bigger impact this quarter, and therefore, I will highlight that constant currency ARR rose by 12% to $191.4 million. Net of FX, the net ARR adds for the quarter were approximately $4 million. A reminder that Q1 is typically a seasonally lower quarter for bookings based upon the buying season for educational and corporate institutions.Looking at gross profit and gross margin. Q1 gross profit increased by 9% to $32.7 million. Gross margin for Q1 came in at 67.4%, down slightly from 67.6% in Q1 of last year due to onetime partner fees and would have otherwise increased roughly 100 basis points year-over-year. The growth in our subscription gross profit was a highlight again this quarter, up 11% in Q1, and subscription and support gross margin rose to 72% in Q1, an increase from 71% in the prior year. We expect gross margin expansion over the course of this fiscal year, building on the significant progress the past 2 years.A few quick comments on operating expenses. As we articulated with our Q4 results, we expect to hold OpEx essentially flat for the full year, leading to additional operating leverage. Operating expenses for the quarter were $33.3 million, impacted by roughly $1.5 million in onetime expenses unrelated to the continuing operations of the business. Excluding these expenses, Q1 OpEx increased 7% over the prior year. As we look ahead to Q2, I would also highlight seasonality in our sales and marketing spend, specifically that we will see an increase in our expenses for Q2 to account for our Annual Fusion Conference consistent with prior years. In terms of operating profitability and cash flow, we reported adjusted EBITDA of $4 million or 8.3% margin, up from $2.8 million last year or 6.4% margin. This represents a 190 basis point increase in margin year-over-year.Just to quickly reflect on the profitability transition we've been undergoing. Our guidance for fiscal 2025 at the midpoint represents a 700 basis point improvement to our adjusted EBITDA margin relative to fiscal 2024 and builds on the 600 basis point improvement to adjusted EBITDA margin that we delivered comparing fiscal 2024 to fiscal 2023. And we are pleased with our progress in Q1. Over the first 3 months of the year, we have generated roughly 50% of the adjusted EBITDA we generated over the full 12 months in fiscal 2024. We're excited to build on this during the year. As John highlighted, our outlook calls for a meaningful lift in the back half of this year with an exit rate of low to mid-teen adjusted EBITDA margin. This would effectively have us exiting the year at a Rule of 25 profile on the Rule of 40 benchmark.We reported free cash flow of negative $14.9 million in Q1, an improvement of $3.7 million from the same period in the prior year. A reminder, cash flows from operations historically have a seasonal low in the first quarter each year and a seasonal high in the second quarter each year due to the contractual timing of annual invoicing with our end customers, many of which have a fiscal year-end in the second quarter. Based on this seasonality, our progress on free cash flow growth is better illuminated when you look at trailing 12-month data. For the trailing 12 months at Q1 of this year, we generated free cash flow of $13.7 million, an increase of $16.1 million from negative $2.4 million for the equivalent trailing 12-month period as of Q1 of last year. The growth in free cash flow this year will allow us to build on a strong financial position.At quarter end, we had no debt and $99 million in cash, providing us the financial flexibility to make disciplined growth investments, both organic and inorganic as we move forward. Additionally, we continue to be active with the NCIB buyback program whenever possible, given our current share price. During the quarter, we repurchased and canceled 131,380 subordinate voting shares under this program. Lastly with the Q1 results, we reiterated our previously issued fiscal 2025 guidance, and we would like to thank the team for the strong performance in Q1.With that, we'd be happy to take your questions. Operator?
[Operator Instructions] And our first question comes from Doug Taylor from Canaccord Genuity.
Yes. I'll start with a question, it's sort of a bigger picture question for John or for Stephen. There's been some more activity from private equity in and around the edutech market of-late. I know PowerSchool isn't necessarily a competitor, but it's comparable anyways. But a good reminder that most of the players you do see regularly are PE-controlled or back. So I wanted to just refresh the discussion on the overall competitive landscape and what you see is a competitive response to D2L continuing to take share away from legacy players in both North American and increasingly International markets.
Great question. We're obviously monitoring the activity that's happening in the market. And at the core, it doesn't change what we're focused on. We're going to continue to focus on our execution, on the plan that we put out. It's leading to these high win rates that we're seeing, to your point, taking market share across the board, globally. And we're competing well, we're winning. We're going to continue to invest in product to differentiate in the market and use this as a moment in time to really win more market share and continue to grow and build those stronger relationships with clients. So that focus, making those substantial investments in product innovation, doubling down on the voice of the customer, making sure that we're building the best learning moments we can with our clients, I think puts us in a very highly differentiated space in our markets globally. And so, I see this as an opportunity for us to continue to grow at a faster pace in the future.
All right. Could you -- and just in case I might have missed it, can you update us a little bit on the spin out transaction timetable if you've got any more specificity there? And what's remaining to be done to affect that transaction?
Another good question, Doug. So still targeting end of June for the spin it to close. Transitions going well, where things are progressing as planned, as steady as she goes.
Okay. And then one more from me, maybe for Josh. Just to clarify what you said about the gross margin profile here, I think you said 100 basis points of onetime partner-related fees in the quarter. Is it fair for us to then, as we look to Q2 and beyond, then add 100 basis points to just the -- the subscription and support portion of the margin profile and then continue to gradually expand from there? Is that what you're trying to communicate with that statement?
Yes. That's fair. I mean, as we said in the opening remarks, we're talking about 100 basis points in the quarter. So relatively small dollar amounts. But as you said, as we look forward to the rest of the year, we do expect gross margin to continue to improve. It's an area, as you know, we've been making significant investment in both from a Cloud Engineering perspective as well as from a support perspective. And so, yes, as you look at the rest of the year -- it's sort of step function improvements, as you'll recall in quarters past. But we do expect continued expansion in the back half of the year.
Okay. A steady quarter. I'll pass the line.
And our next question comes from Dan Chan from TD Cowen.
This is [ Justin ] on for Dan. So for the past few quarters in a row, we've seen about 12% ARR growth in constant currency. How should we bridge the growth we're seeing in ARR with current subscription growth guidance at about 10% for the full year? When should we really expect some of these ARR adds to start converting to revenue?
Yes. A good question. Thank you, Justin. Yes, as we've discussed in the past, there certainly is sort of a timing element as new customers get implemented and onboarded and that revenue starts to kick in. We're also very much aware of the environment and the macro setting. And so we're just being mindful whether it be in regards to the sales cycle timing we've talked about in the past or whether it be in regards to foreign exchange. We're being mindful of that as we provide our guidance for the remainder of the year.
That's helpful. And just want to comment, there was a public report out against one of your peers recently which called for constrained growth due to the ESSER funding winding down. Can you maybe talk to the government funding dynamics as it relates to software spend? And maybe, it may or may not affect D2L's growth in the near term?
Yes. I think, we said on other calls in the past that we really didn't chase that money. We had a number of clients that benefited from it and certainly saw some pullback in previous years as they spiked up in terms of utilization in K-12 and came back down. Most of our K-12 clients are higher than they were during the pandemic, but certainly weren't where they were during the peak. So for us, we've largely digested those changes in our client base. I can't think of any other issues that we've got to deal with there. We're certainly seeing opportunity within the K-12 market with our competitors client base as they go through a similar dynamic playing out in the year to 2 years ahead. But we, if you recall, primarily focused on the higher education and corporate as our growth levers for the last few years. And that's helped us avoid the dynamic that's playing out in K-12 today.
Our next question comes from Christian Sgro from Eight Capital.
For my first question, I want to ask a follow-on to Justin's first question earlier. Back to ARR in that bridge to the revenue profile, would you encourage us to think of the quarterly ARR as a measure of, call it, 6-month or 12-month subscription revenue growth? How much would you encourage us or not encourage us to look at the ARR metric in the near term, especially given we have pointed guidance for the full year that helps to guide sort of financial picture?
Yes. No, absolutely. Like ARR continues to be, as we've mentioned in the past, a really strong leading indicator for future revenue. And you're right, there is about a 6-month that can be up to 12-month, depending on the size of the new customer, sort of implementation, onboarding and then flow through to revenue recognition. So certainly continue to encourage you to look at ARR as a leading indicator for the top line. And I'd also encourage you just to look at historical flow-through timing when you look at ARR adds relative to future subscription revenue growth.
Okay. That's helpful, Josh. And the second one, I'll poke at the inorganic strategy, your opportunities to consolidate the market. Is there any change to what you're looking out for there in terms of product or reach? And just what you're seeing maybe from a valuation perspective or if that might depend on the asset? Just any color there would be helpful.
Yes. So we continue to be laser-focused on the strategy we previously spoke about. We're looking at assets that really have a positive impact on our customer base and in our mission of transforming learning. We're looking at assets that fit nicely into our open platform ecosystem, and we're actively out in the market looking at opportunities. The valuation, to your point, will depend on the asset and the particular requirements, but we are actively out there looking and will continue to do so.
Our next question comes from Brian Peterson from Raymond James.
So I just wanted to hit on the pipeline of opportunities in North America. I know that's been up a debate. I would love to understand, I know again I know the first quarter is not a big one for bookings. But what are you seeing from the pipeline overall in North America? And what are you expecting this year?
Good to speak to you again, Brian. We're actually seeing a healthy pipeline generation in Q1. And as we've mentioned on previous calls, we're seeing the market slowly starting to rebound from where it was impacted by the pandemic. And so that slow, steady rebound globally is good. I think, macro conditions are still what they are. I think, that's a pretty global condition for all software companies right now. But in our space, we seem to be seeing a bounce back. It's not bouncing back as fast as we would hope at this stage, but it's still bouncing back. And I think that gives us very good confidence in the next 12 months as we continue to execute well on the plans that we've got.And I think, Brian, the other big thing is our ability to differentiate in the market now is substantial. We've got great products. We've got great products in the pipeline. We're even seeing some of the work that we've done around sustainability reports now showing up as key requirements that are weighted in these RFPs. So our competitive differentiation and ability to win these RFPs, as we see more and more of them quarter-over-quarter, puts us in a very good spot to execute on the year.
No, that's great. And obviously, it was great to see the Hawaii win. But -- and also thinking in the Netherlands and some large win activity overseas, like are there certain markets where you're making more calculated bets? And how do we think about that balance of going to attack those markets but also understanding that you guys are focusing on margin expansion? How do we think about that balance?
It's not -- we're not trying to do every market everywhere in the world. We're very focused on key markets that we look at as gateways into the broader region and going as deep as we can in those markets. For example, just in Singapore, where we're now over 70% market share and we're trying to go [ with ] some more. We're obviously winning more opportunities in the Netherlands, in Colombia, just recently in Mexico, helping the team to expand in that region as we've opened up our entity, and the U.S. is still our most competitive market.If you look at the market itself, we still see tremendous opportunity in North America, still 40%-plus legacy technology that's being used. We see that as an opportunity for replacement, and then globally it's around 80%. And so, long runway of opportunities to pursue globally. And our approach now is really zeroing in on the key markets that we think will be critical for us to winning the broader regions. And that approach seems to be working well.
Our next question comes from -- our next question comes from Thanos Moschopoulos from BMO Capital Markets.
You kind of touched on AI in your prepared remarks. I'm sure we're going to hear more about it and your recent product developments at the upcoming user conference. But in general, can you talk about the role that AI is starting to play in RFPs and your competitive positioning in that regard against your largest competitors?
We're definitely seeing AI come up in the conversations with our clients globally. For example, my -- well, my trip in the fall and spring into the New York area highlighted that very strongly for me when almost 100% of the questions that came from the audience were AI related in education. So we see a tremendous opportunity here.And as you recall, Thanos, we've been working on AI and our core technology for over a decade, doing everything from closed captioning videos to predicting student grades with 87% accuracy by Week 3 to being able to create adaptive learning pathways and now beta testing with the hope of launching technology around generative AI being incorporated into the platform to do things like question generation, content generation, assignment generation and many, many other workflows. So we see this as a tremendous productivity tool to really help our clients, and we see this as an opportunity for us to grow as we continue to expand the product portfolio in this space.And I think this will be yet another competitive differentiator for us in our markets as we continue to pursue opportunities globally. So it's not showing up in all our fees at this stage for clarity, but we're starting to see more and more asks around artificial intelligence in our process.
Great. Going back to your comments on the macro, and how it's looking better for you guys, does that apply to both higher ED and corporate? Just, I mean, given some of the recent data points in the corporate market, some of the companies are having challenges, obviously, but you're also seeing a bit of a bounce back in corporate as well?
For clarity, like we understand the macro conditions that are going on in the broader software space. That said, we are still seeing our conditions slowly improving quarter-over-quarter year-over-year, and that we do see in corporate and in higher education. But I wouldn't say we're seeing it more pronounced in one or the other. I think the TAM is much, much larger in corporate and we're taking a very focused approach in terms of how we're winning training organizations or employee organizations that really want to do the best job they can with the best opportunity. It still does still take longer to close than it would have pre-pandemic, but the team's doing a good job executing on deals and quite impressed with their execution on not only deals, but also pipeline generation today.
And our next question comes from Suthan Sukumar from Stifel.
I wanted to touch on adoption and upsell traction with Creator+ and Performance+. Could you provide an update on sort of how those, how that upsell expansion motion has been trending within the base?
Yes. So we continue to be happy with our ability to expand there. If you look at our performance since IPO, we've grown from about a 33% attach rate to about 50%. A lot of that has been driven by the uptake of Creator+. The new efficacy data that we have around it from customer usage is very impressive.We're seeing reductions in the time and cost to create courseware coupled with an increase in student success rates, thanks to courses built by Creator+. And so this attach rate is growing. We're pleased with the progress we've made with Course Merchant with Creator+, and we continue to focus our R&D efforts and our selling efforts to drive it. We're very happy with the progress.
And as you, as you guys look ahead for growth this year and beyond, how are you guys thinking about the mix of net new versus expansions as part of your growth looking forward?
Well, I think one of the things that stands out for us as a company, especially compared to our peers, is the net new logo adds. I think the fact that most of our growth today is coming from new logos, is highly differentiated in our space. That said, why we're putting so much energy into these new products, whether it's Creator+ or Achievement Plus or work that we're going to be launching this summer around AI, all of these things are going to contribute to us being able to expand with existing customers. And there's no easier way to expand than adding new products to existing customers. It's also why we're leaning in on the M&A growth lever. We talked about Course Merchant in the past. We're seeing great traction with that product. We'd like to do that with some others as we look forward into the future.We've got this winning learning platform. It's an opportunity for us now to expand modules and to drive NRR up. Long-term, we want to get to more of a balance versus it mostly being driven by new logos. It'd be great, for example, next year to get to 2/3 coming from new logos and 1/3 from existing. But we'd like to see continue to take it up as we drive more innovation into the space.
Our next question comes from John Shao from National Bank.
Could you please give us some colors on your partnership channels. More specifically, it's been 1.25 since announcement of the new [ benefit ] partnership. So any updates from that relationship so far.
Well, sorry, I didn't quite catch the partner name that you mentioned there.
The new benefit partnership that the one you announced last quarter?
Okay. So I think generally speaking, we're seeing good traction with our partners globally. We've got a new Head of Partnerships to put them to place, and he's doing a fantastic job building out relationships with partners globally. I'm expecting to see some great progress there with partners in terms of revenue generation, co-selling activities, being able to come to market with really innovative technologies -- and we're optimistic that a lot of these partners will be at our conference this summer in July and Toronto as an opportunity to showcase what their technology and ours can do together.Another good example of a good partner would be Unity. So looking at VR, AR, augmented reality coming together with our learning platform to support new types of use cases to support learners and whether it's from safety training to being able to manage complex plans globally, leveraging these technologies together is going to have a big impact for a lot of our big corporate clients and also some of our education clients globally. That partnership, in particular, I got excited about when I was in Singapore as they're looking to put together both our technology and their technology to support a number of initiatives in that country. And today, we have 1,800 different technologies that integrate in. As we continue to leverage those partnerships, I think it will have a big impact in our growth in the future.
Just building on John's comments, this is another great example -- it's a great example of our R&D investment really driving the ability to be a platform in the ecosystem. These partners benefit from our APIs, our SDKs and our leading adoption of EdTech standards, which results in just seamless user experiences for our learners and for our educators.
Okay. I have a question to Josh on professional services. The margin was down year-over-year. Just wondering if that's more of a one-off given the nature of the current projects?
Yes. Thanks, John. Yes, you actually saw Q1 was a step from Q4. So I believe Q4 was around 26% margin. Q1, 30% margin. There is some movement quarter-to-quarter based on the type of engagements within the quarter. We tend to think of it in that sort of 30%, give or take, services margin level. And so we're pleased with Q1 as being a good representation of that.
Our next question comes from Paul Treiber from RBC Capital Markets.
I was just hoping that you could elaborate a bit further on win rates. You've seen good movement upwards in win rates. Is that uniform across markets and geographies? Or do you see differences depending on the category you're competing in?
I mean quarter-to-quarter, it moves a little bit. But generally we've seen the win rate continue to tick up in most markets globally. In our most competitive markets, we're winning that more than half the time. And even in corporate, we're seeing our win rates continue to tick up. It's good to see the team continuing to invest, but I think it's also a product of the fact that we're investing in our technologies to support all the different types of use cases as we expand into these new markets like corporate. And you have to remember, we've got the same competitors that we're competing against in North America, globally. So it's still noodle blackboard in structure, and it gives us the ability to really differentiate as we add these new capabilities to support better learning experiences around the world.I actually think many parts of the world are embracing a lot more of our technology faster too. So if you look at clients in Mexico as an example, a visit that I did recently, they're embracing all of our AI, they're embracing the work that we're doing around Creator Plus, they're embracing adaptive learning pathways. They're really leaning in to driving better retention, better engagement, and better impact for their students and trying to leapfrog what folks are doing around the world. So it's very encouraging to see what many of the top universities are doing globally with our platform.
And switching to deploymentx, I assume most of your wins, at least in education, are migrations from existing LMSs. How much like resistance to change? Or how much of the deployment is consumed with migrations? And then will the -- you mentioned in the prepared remarks, the bulk course importing, to what degree will that help reduce friction and how are you trying to reduce friction overall or just migrations?
Yes. I think the key is we've put a lot of work into automating the deployment, so the actual setting up of the site is the same day the contract is signed. So it's not hard to actually set up to the actual sites itself. The course conversion can be done in bulk, so we help clients move some cases hundreds of thousands of courses, sometimes over a weekend. So that is a highly automated activity.Integrations for many of the systems are now fully automated. Some require recipes to be created, if you will, to trade data back and forth, but by and large, we're driving automation there. However, it still takes time to communicate the change. And so the bulk of the time that clients take, and usually it's around 4 months on average to make a change from one system to ours, is largely training up faculty, making sure there's good communication, traditional change management, and making sure things are done really well.For example, I just got a great note from one of our top clients in New York talking about how more of the colleges went live this week and how excited they were about the partnership that we had with D2L and how well our team performed in giving them confidence as they took that next step of going live. They felt very confident in the ability for us to make sure their faculty and students were very happy. And so that activity our team is getting to be world class at, and we'll continue to drive our efforts to reduce the time it takes to have these clients transition over from legacy platforms.
And then just lastly for me, just you mentioned that the Rule of 40, directionally speaking, do you see the Rule of 40 as like a long term aspiration for the company? And then the upside from 25, like would you lean in or would you see in terms of more upside on the growth side or the margin side of that equation?
Yes. Thanks Paul. Yes, we do look at Rule of 40 benchmarks as a helpful guide for us. We'll continue to lean into that balanced growth and profitability. And I think the word balance is really important. So making sure we're making the right investments to win and compete in the market, as we have, while incrementally improving our profitability over time.And so the medium term outlook we provided as part of the Q4 MD&A, a few months ago, I think provides some additional color on that. But it'll continue to be a balance. But making sure we're making the right investments to delight our customers, to bring world class experiences to the market, and to really create a category leader over time. And so you'll continue to see that balance over time.
We currently have no further questions. We'll hand back over to John Baker for any final remarks.
All right. Thank you very much, operator, and thank you, everyone, for joining us on today's call. It's a very exciting time for us at D2L. I hope to see many of you at our Fusion conference. In the meantime, have a great day. Thanks again. Talk soon.
That does conclude today's conference call. Have a nice day. You may now disconnect your lines.