D2L Inc
TSX:DTOL
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
8.2
15.13
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the D2L Inc. Fiscal 2023 Third 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 enjoying his 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 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 we 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 October 31st, 2022. 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 December 8, 2022 at 8:30 a.m. Eastern Time. I would now like to turn the call over to Mr. John Baker, Chief Executive Officer of D2L. Please go ahead, sir.
Thank you, operator, and thank you, everyone, for joining us this morning for our Q3 earnings call. After markets closed yesterday, we released our Q3 fiscal 2023 results for the period ending October 31st, 2022. 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 the U.S. dollars.
I'm joined this morning by Stephen Laster and Josh Huff. In October, Josh was named our Interim CFO, taking over from Melissa Howatson. We greatly appreciate Melissa's contributions to D2L and wish her continued success in her new role. She's done a wonderful job supporting a seamless transition to Josh. And Josh has a long history at D12 and deep knowledge of all areas of the business. He was instrumental in our IPO process, and he led our business planning and external financial reporting.
And yesterday, we announced that Stephen will take on an expanded leadership role as President. Stephen joined us in Q4 of last year and has already had a tremendous positive impact on our organization. He's been leading the expansion and evolution of our warning platform, elevating our client experience and bringing additional rigor operationally to the business so that we can continue to scale efficiently. And in this new role, he'll be helping us build an even stronger revenue engine. Stephen and I have had many opportunities to work together over the past 15 years, starting in the early days when he was the CIO at Harvard Business School. We are fully aligned on the vision and opportunity for D2L, and I'm excited for him to take on a broader role and to work closely with me to shape the direction of D2L and to expand our leadership position in EdTech.
Turning to the financial results. It was a solid third quarter, while foreign exchange remains a headwind to our reported revenue growth constant currency revenue grew 13% to $44.2 million and constant currency annual recurring revenue increased 12% or close to $18 million year-over-year to $167.4 million. We continue to show steady gross margin improvement. Adjusted EBITDA performance also improved to a modest loss of $400,000 in the quarter as we continue on an accelerated path to profitability. In addition, we ended the quarter with $118 million in cash and no debt as we continued to grow our cash balance year-to-date. Josh is going to provide more details on the financial metrics shortly.
And you will see that the business fundamentals are strong and improving as we navigate the near-term economic challenges that we discussed in recent quarters. In addition to the financial highlights, we continue to strengthen our customer base and presence in multiple markets during the third quarter. Education is our largest market. And while we're seeing deal flow increase in higher education, new adoptions still remain below pre-pandemic levels but more importantly, we are winning a greater share of new implementations.
One of the leading market research firms recently published data showing how D2L is now the market leader for new learning platform adoptions and higher education this year across both North America and Europe. More than 55% of new adoption this year have been D2L right space. This is the continuation of a trend of increases in win rates over the last 3 years, and we believe our win rate is a clear validation of our product decisions and platform investments.
Our approach to make it easier to personalize learning, both in class and online is resonating with so many learners and educators and clients. Momentum shifts are not easy in any market, and we're working hard to build on this result. We added great new clients in the third quarter, George Brown College, one of the top 10 research colleges in Canada, selected bright space for its 27,000 full-time students and more than 58,000 containing education registrations annual. Dallas College, one of the largest community colleges in Texas, chose 12 bright space for more than 44,000 students, faculty and staff.
And building on our strength in Tennessee, we also welcome Chenango College to our learning platform. In K-12, we're seeing good adoption of the platform as students return to class and for online learning, and I'm proud to share that we won a number of great new schools globally. And in corporate, which represents a huge addressable opportunity for D2L which we continued to focus on key use cases such as onboarding, leadership development, competency furling and upskilling, where we're well positioned to drive growth as corporate clients look for a better, more efficient and more impactful learning experience.
And while we've seen that sales cycles have been longer than normal in some cases, we continue to add great new organizations to the platform, including Hirst technology, which shows D2L Brightspace to provide elite-level professional development to its top technical experts, including data scientists, coders, security professionals and more. And we continue to build on our strengths in supporting the learning and training needs of association as highlighted by new agreements with the International Association for Public Participation Australasia and the Association of Alberta Force management professionals and a center for fair futures, just to name a few. Now at this point, I'm going to pass it over to Stephen for a few comments. Over to you, Stephen.
Thanks, John, and good morning. It's a pleasure to address many of you for the first time. Having been in the learning technology business for over 20 years and as a former client and partner of D2L, I've always admired John's vision and the mission-driven culture built over 20 years at the forefront of learning technology. From my vantage point, D2L is best positioned to lead the market and transform the way the world learns. I'm excited to take on this expanded role, working alongside John and with the executive team to build the future of work and learning.
Picking up on John's comments, we have a clear opportunity to partner with K-12 and higher education to their digital transformation. As we think about the opportunity, nearly 40% of higher education institutions in the U.S. on legacy LMS platforms. We've seen a marked improvement in RFP activity recently. And as we look out to next year, our growing market share, our competitive win rate and momentum and road map positions us well for continued success. In corporate, our wins demonstrate a strong product market fit. We will continue to push into new submarkets, where we help organizations drive real ROI and productivity through our improved learning and upskilling. We're also strategically focused on increasing our value to customers.
In November, we launched Creator+ to all our customers. And like all of our products, Creator+ was built in close collaboration with education leaders and learning design experts. Creators helps enable anyone to create engaging digital courses using workflows integrated into Brightspace, saving course creators time and effort while ensuring effective and efficient learner outcomes.
I want to extend a big thank you to all early access customers for Creator+ and all D2Ls that help innovate and execute on this exciting offering. By staying close to our customers and solving their problems, my experience gives me great confidence that we can meaningfully scale our revenue while doing so in a highly efficient and profitable operating framework. I will turn the call over to Josh now, who will discuss the financial results in more detail.
Thanks, Stephen, and good morning. Our Q3 materials were filed last night, so I will focus my comments on the key highlights for the third quarter and year-to-date. Please note, I will reference non-IFRS measures and KPIs such as constant currency revenue and constant currency ARR that we believe provide a more accurate picture of our performance as they exclude the impact of foreign exchange between periods. To assist in year-over-year comparisons, where relevant, I will exclude the onetime and nonrecurring stock-based compensation expense from the same period last year and highlight the adjusted numbers. Total revenue for Q3 increased by 9% to $42.7 million. And as John mentioned, constant currency revenue increased 13% to $44.2 million. For the fiscal year-to-date, revenue rose 14% to $125.7 million and 17% to $128.7 million on a constant currency basis.
Looking at the revenue breakdown, Q3 recurring subscription and support revenue was $36.6 million, up by 5% over the same period last year. For the year-to-date, subscription and support revenue increased 10%, reflecting growth in new customers, coupled with revenue, retention and expansion from existing customers, offset by foreign exchange headwinds. Constant currency subscription and support revenue was $37.9 million, up by 8% over the same period last year. It was a strong quarter for professional services and other revenue, which increased by 45% to $6.1 million. For the year-to-date, professional services and other revenue was up 47% over the same period in the prior year.
The improved results were driven by several significant delivered professional services engagements, including new customer implementations and content development work for new and existing customers. Several of these large engagements are nearing completion. In general, while there will continue to be some lumpiness, we anticipate the mix to be closer to 90 10 software services split go forward. We continue to be pleased with the upward trend in gross profit and gross profit margins. Gross profit performance year-over-year is skewed by the employee trust stock-based compensation expense of $8.1 million in last year's Q1, which did not have a corresponding impact in the current period. Therefore, adjusted gross profit provides a more accurate picture.
Adjusted gross profit was $27.6 million for the third quarter, an increase of 10% from $25.1 million last year. The increases were the result of higher subscription and support revenues combined with growth of professional services and other revenues outpacing the increases in the related cost of revenue. Gross margin continues to trend upward. Q3 adjusted gross margin was 64.7%, up 50 basis points from last year. Gross profit margin for subscription and support increased by 1.1% year-over-year from 67.2% to 68.3%. And for the year-to-date period, gross profit margin for subscription and support increased by 1.5% to 68.2%. The increases reflect several factors, most significantly, the continued optimization of cloud technology, which has improved our cost of delivery.
Gross profit margin for professional services and other was 41.3% this period versus 27.0% last year, excluding the impact of the employee trust stock-based compensation expense. The improvement in services margins primarily reflects higher employee utilization compared to the prior period, which was caused by significant onboarding of service delivery teams last year. This has improved the revenue generation capabilities for our professional services team. The operating expense comparisons year-over-year were also impacted by the onetime stock-based comp expense last year. I would refer you to the MD&A where we provide a breakdown by major expense capture.
For the current period, total operating expenses were $31.1 million or 73% of revenue versus $26.5 million or 62% of revenue in the same period last year. When you exclude the impact of the employee trust stock-based compensation expense, the increase is mainly due to higher employee headcount and related salary expenses for sales and marketing efforts in the current period in support of our overall growth strategy to attract new customers and grow existing customers.
With our Q2 results in September, we implemented a new medium-term target operating model to achieve the right balance of growth and profitability. As part of that, we have taken a disciplined approach to cost optimization, including reducing our workforce by approximately 5%. In terms of operating profitability, Q3 adjusted EBITDA loss was $0.4 million or negative 0.8% margin compared to a loss of $0.3 million or negative 0.7% margin in the same period last year. For the year-to-date, adjusted EBITDA loss was $3.3 million, trending significantly better than our previous guidance for fiscal 2023.
I would highlight that adjusted EBITDA was impacted by favorable foreign exchange fluctuations of $0.9 million and $1.8 million for the 3- and 9-month periods ended October 31, '22. As a result of continued cost optimization and a measured prioritization of investments, combined with favorable fluctuations in foreign exchange rates, we updated our guidance for fiscal 2023 to reflect improved adjusted EBITDA. We are now expecting adjusted EBITDA loss in the range of $4 million to $6 million rather than previous guidance of adjusted EBITDA loss in the range of $6 million to $8 million.
Our revenue guidance for fiscal '23 remains unchanged. Moving on, cash flow from operating activities increased to $8.1 million this quarter versus $3.5 million in the same period in the prior year. Year-to-date, cash flow from operating activities increased to $9.1 million this year versus $4.1 million in the same period in the prior year. In Q3, free cash flow grew to $7.3 million or 17% margin, up from $3.2 million or 8% margin in the same period last year. Year-to-date free cash flow increased to $7.2 million versus $3.4 million in the same period in the prior year.
We are pleased with these results as we accelerate our path toward profitability. We finished the quarter in a very strong financial position with no debt and the $118.0 million in cash, up from $114.7 million at the start of this fiscal year. In an uncertain economic environment, our strong balance sheet and ability to generate free cash flow gives us additional stability and flexibility. I will now turn it back to John for closing comments.
Thanks, Josh. I'm really proud of how the team has quickly pivoted to the new operating model of balanced growth and profitability. This model positions us to have the flexibility to make the right investments as we look to the future. I spent a lot of time in the field lately in the near-term macroeconomic conditions aside, my interactions with clients and prospects reinforce that the long-term opportunity is strong. The big transformations that we're expecting to happen in agitations are occurring and the momentum in the market is picking up.
And in corporate, leaders I speak bit understand the importance of upskilling and the need to prioritize investments in better learning platforms and experiences, and this is critical to improve productivity, sharpen their competitive advantage and is essential for the future of the company. I'm energized by the long-term opportunity in front of us and confident we have the right products, the right road map and the right team to execute on our strategy. We appreciate your interest and support and with that, we'd be happy to take your questions. Over to you, operator.
[Operator Instructions] And our first question today goes to Daniel Chan of TD Securities.
John, you mentioned the report, you guys mentioned the report that said you're winning the 55% of the global deployments for higher ED. What do you think is driving that success? Anything specific on those platform improvements do you think is driving outsized demand there? And do you think, given this traction, do you think it accelerates further?
Well, I think, first of all, we're seeing 55% of the new options in North America and Europe as a really good indicator. If you actually look at some of the other data coming out with EdTech is showing 70% of the new adoptions in the North American market going to T12. These are good indicators that we're making good progress on differentiating from the competition. So the things that are standing up for me are a better cloud story with the ability to have no downtime for maintenance windows, responsive design on mobile. The innovation track is still playing very well with giving a student to nudge at the right time to keep them on the right traffic with success.
And ultimately, at the end of the day, what a lot of our clients are looking for today are the ability to support multiple different use cases, not just face-to-face on the classroom in the restroom or on the campus, but also to support online learning, professional development for their staff, they go through transformation and change management, reaching out to learners that are looking to upscale in the workplace.
So going beyond the traditional student to supporting the workplace learning that's required. These are all big growth sectors for a lot of our clients as they pivot back to this new model post pandemic, and we see tremendous opportunity to continue to grow there. We are highly differentiated when clients are looking to support all those different use cases. And as we continue to invest in our technology, we're also pulling away from our competitor set with tools like quizzing and assessment, making it easier to use. These are all things that are very compelling folks that are making a decision today. Thanks for the question.
Yes, that's helpful, John. You mentioned that you're winning 70% new adoptions in the North American market. How does that translate into your international opportunities, just given that a lot of your competitors are saying that it's the fastest-growing segment. So just wondering what that implies for your national growth strategy.
Yes. I think the key difference is our growth is organic and mostly coming from new logo ads as we're adding new clients to the platform. That's where we're seeing increased win rate. And we're seeing a similar profile in terms of our ability to win in international markets. So for example, we've become #1 in the Netherlands. We've become #1 in [indiscernible] Colombia, in Singapore and other markets globally. And that ability for us to win the top 2 universities enabled us to spread into K-12 and corporate implementation. So it's a great strategy for us to continue to pursue that is rest of the world is a big opportunity where most of our competitors are largely focused on M&A as a driver for growth. So being able to sell more things to existing clients. But we do see similar win rates in many of the markets that we're competing in globally.
That's good to hear. And then final question. You mentioned that sales cycles continue to be extended, but just wondering directionally, whether that's improving at all?
We're still seeing some impact there, it's a good question. I think the macroeconomic conditions have elongated some of the sales cycles, especially for some corporate and some education purchases. I still see the deals getting done, it's just taking a little longer to get them through the traditional process. They're taking more time to just validate and make sure they're making the right choices, making sure that the investment is still going to have the return on investment that they're looking for.
But in all cases, as we implement our technology, we're traditionally saving the client money. We're helping them retain more learners or more employees, helping them navigate some of the tough challenges they're going through. So it is a compelling investment. It just like all the investment choices being made right now, people are just getting them through a bit more scrutiny.
And the next question goes to Doug Taylor of Canaccord.
A couple of questions on the guidance you provided. You've kept the range the same in terms of the width of it for EBITDA, which suggests EBITDA should take a loss should take a step back or higher loss in Q4 than was seen in Q3. Now can you square that up with the timing of your headcount reductions and things like that and what would lead to that sort of dynamic?
Yes. Thanks for the question, Doug. You're right.
Well, go ahead Josh.
Yes. You're right that the reduction in force starts to have an impact on our financials in Q4. In Q4, there are some year-end activities that drive the OpEx up a little bit higher. So there's some timing there. The other thing, too, is in Q3, there was some foreign exchange impact on our expenses. So most notably, our Canadian workforce is quite large. And so when the USD strengthened, it has an impact on our USD converted expenses. So we're not, at this point, forecasting that to occur necessarily in Q4, but certainly, foreign exchange could have an impact as well.
Okay. And then one more question on guidance, perhaps for Josh. I'll reiterate a question that was asked you of Melissa last quarter and give you a cut at it. And as fiscal '23 comes to a close here, and you've reiterated your fiscal '25 guidance, how should we think about fiscal '24 as a stepping point between those 2 because you're clearly making progress on the bottom line, but it's still it's a wide river across. Any help there would be great.
Yes, you'll see you can expect a step improvement. So we talked in the past about profitability occurring in fiscal '24. And you'll see a step improvement from where we are today to the fiscal '25 target operating model. On the revenue side, you'll see sort of in line with that range but we'll certainly be speaking to that in more depth in next quarter's earnings call.
And the next question goes to Maxim Matushansky of RBC Capital Markets.
I wanted to start with the RFP activity in particular. You said in the prepared remarks you saw market improvement of RFP activity. Has that pace come back to pre-pandemic levels and do you see the changes in the macroeconomic environment on things like labor and inflation impacting that activity particularly in the higher end K-12 side or is that mostly just on the corporate?
So we're seeing RFP activity across all of our markets. It's still not up to pre-pandemic levels at this stage, but we are seeing a nice jump up. It's in some of these markets, as you can imagine, it's just taking time to digest the change coming out of the pandemic and figuring out what their new requirements are going to be. I think it's really safe to say that across our client base, K-12, higher ed and corporate, folks are moving up that adoption curve going from just simply trying to cobble together some digital tools to survive the pandemic to now trying to figure out how do I optimize for better outcomes, better see retention, which is critical for a lot of our clients in education, better learning outcomes to get folks back on the right track, better engagement with students to get some wording again.
The big issue, as I visited a lot of clients, dozens of the clients, this fall setting that's their #1 concern is getting seen reengaged back on campus. And then also looking at growth opportunities. So a lot of our clients are serving markets beyond traditional campus-based learning, how do I actually build a great upskilling strategy with companies that are in the region, provide continuing education, provide online learning, I think folks that are looking for that next step in their career.
Those are big growth opportunities for clients. So that all, I think, bodes very well in terms of setting ourselves up for great opportunities ahead, but still not yet back up to pre-pandemic levels. And we talk to a lot of folks in education, they're just seeing a bit of a generational change in leadership. There's been churn in leaders and those leadership ranks get rebuilt. I think you're going to see the RFP activity and the market continue to tick up back towards pre-pandemic levels.
Got it. That's helpful. And then just on your hiring plans, can you maybe update us on how the onboarding of the sales reps you've already hired is going and how that fits into your growth plans in terms of having the capacity to execute on the growth you've laid out?
That's a great question again. So we've done a great job of building up the team. We've got the capacity we need to deliver on the plan that we have. We'll continue to add a few reps as we look into the next year and continue to build the capacity for fiscal '24 and beyond but right now, we've got a great team. The onboard is doing really well. We've got a great you can imagine, we're very good at onboarding with having a learning platform and winning 1 of the top 3 in North America for the last 3 now almost 4 years in a row. And so our team has done on a good job making sure that folks get up to speed quickly. And I think that sets ourselves up for good success as we look into the future.
And especially as people come back to market and especially as we capture the new opportunities that are emerging as folks move up that adoption are going into better online learning experiences, providing better employee onboarding, better employee up skilling better employee development opportunities. These are really good macro environments for us to be hiring sales folks into.
Great. And finally, just on the geographic results in Canadian growth seemed to slow this quarter, and U.S the rest of the world is more resilient, and that's probably partially explained by FX. But is there anything else to call out in terms of what's causing those geographical dynamics?
No. I think FX is probably the thing that's been the most impactful for markets outside of the U.S. And if you look beyond that, we did spend time earlier in the year to build out the sales and marketing capacity. But we remain very optimistic about what we're seeing in the rest of the world. I think need a quarter or 2 to really dig in to see the progress there as we've made those investments, but I'm optimistic about the future for international. This to the Netherlands and to the U.K. in the last month that really underscored for me that clients are really trying to invest now to capture the opportunities on the upskilling that we talked about earlier, but also to support better online experiences for their students.
And they're also using our technologies in a new way to deliver exams to deliver online learning in new ways that all community speaks to a great opportunity ahead for the team there. But I think it's going to take a little bit of time just to continue to translate the sales reps that we've onboarded, driving execution in the sales pipeline to delivering the results that we're all looking for.
Our next question goes to Thanos Moschopoulos of BMO Capital Markets.
John, have you been seeing any competitive response to your share gains in higher ed competitors getting more aggressive with pricing or anything tactics or is it pretty status quo in that regard?
We haven't seen a major change in any of the response to the market. We've seen them change sources for data that they use for articulating their own market share statistics and to talk more about the market share they have versus the market share they're gaining. But that's more architecture, if you will, versus a product response. I think from a product perspective, which is really what folks have got to look at, we're really play the sense, and I can pass it over to Steve the investments that we're making into our product to make sure that we've got a world-class winning experience that are second to none the reason why we're winning more.
And secondly, we've got a world-class services organization that's delivering outstanding support to our clients, making sure that they get implemented really well, making sure we're building on great online offerings and making sure that when they call the support debt, they're adding great answers. That's a great community for them to engage and care support, if you will, as well, too. This was not easy to replicate. They're going to take significant investment from our competitors and some of the things that we're investing in, in terms of learning outcomes next-generation learning models that's going to take them many, many years to catch up. And so as we continue to make these investments, I think it gives us an opportunity to pull even further away. So we're looking to build on the momentum that we've articulated already. Stephen, do you want to add anything to that?
No, I think that's right. I think if you look at our strategy and the launch of Creator+ and our very deep focus on ensuring the learning moment to digital courseware creation, through delivery on bright space through leaner measurement and outcomes on performance plus through findability a way for that upskilling and reskilling learner, it just speaks to the focus of our execution, the focus of the value that we're bringing to our customers. And to John's point, we think that really differentiates us competitively. But more importantly, we're truly solving our customers' problems for learning in all markets, and we'll continue to do that.
Okay, great. In terms of the workforce reduction, was that focused on a couple of specific areas or has that just been trimming across the board?
Yes. I mean we really.
Go ahead, John.
Yes. In that case, we really looked at it from a strategic lens of how do we really ensure the business is focused operating efficiently for growth and really positioned to deliver the products and services to address the needs of our markets. Workforce reductions are always difficult. Detailers are a wonderful community of people, but we did the reduction on strategically to ready the business for the future.
Okay. Great. And then just finally, receivables came down a fair bit relative to the prior quarter. Is there a seasonal dynamic there on need to call out in terms of the reduction in DSOs.
Yes, nothing to really call out there, Thanos, it's just really some seasonality and timing of collections.
And the next question goes to Christian Sgro of Eight Capital.
Could you comment on the pace of implementations as you roll out across larger wins like Sun or BC, how those are progressing at what pace relative to our expectations to the outset?
The implementation is across not only K-12 in cases like BC and higher ed, in case of SUNY. And other big, large implementations in corporate that are going on our way right now are all going very well. I think the team is doing a great job. That's showing up in the services line growth as we deliver projects as we deliver implementations, we start to recognize that revenue. And I'm very proud of what the team is doing. These not easy implementation.
And in case one, it's the largest, most comprehensive university system in all of North America project is going really well. BC, they've got a lot of work to do in terms of delivering great online experiences and in-class experiences across the province of BC, also supporting professional development. I think the team is doing a good job there, and we'll continue to see progress there build over the course of the next few quarters. And - but SUNY is tracking really well. And I think that was your specific question as well to you.
That's helpful, John. I'll ask one more question on Creator+. I know it's still early on since the launch, but is there any feedback you've received thus far on Creator+? And maybe just walk us through how you think of the upsell opportunity there?
Yes. So that's a great one. And I'll let Steve and Josh jump in here, too, in a second, but I've actually watched their clients to present Creator+ to other clients at a regional event that we did in South Carolina that was blown away. These clients have taken this product even in the early access version at that time and have demonstrated how they could really build exceptionally high-quality professional development in that pure penetration. And how what surprised me was it wasn't just replacing 1 or 2 other tools they had line of sight for replacing 3 or 4 tools to support better online course creation. And clients themselves, we're articulating the value prop, including the fact that it works on mobile, the fact that it's accessible. These are things that just weren't possible with some of the other tools that they have been using.
And so as you can imagine, the clients in a whole level, K-12, higher ed and corporate really want to build engaging experiences for folks. I'd say the #1 concern folks have today as people checking out and not engaging at the black screen that show up on Zoom, if you will, so using that high engagement environment and putting that power of that creation into the hands of more and more people, it's going to make a real difference so that they don't have to know how to code to create these great experiences. We are seeing a pipeline build around Peterson launched as post quarter, and we are seeing clients close. So that all, I think, shapes up well as we continue to put more investment integrator costs to continue to drive the attach rate across all of our base. So it's early days, but I think there's a really good indicator that we've got a great product there for clients at K-12, higher ed and corporate. Stephen, do you want to add anything to add or?
No, I think it's another example of us being very focused on our customers and what they need from us. And to John's point, one of the critical needs in all markets is learner engagement and driving down the complexity of creating natively digital portions, whether it's to extend the classroom or for online or blended learning. We built that in close partnership with customers. It was an incredible launch, and we're very excited about what's to come.
And the next question goes to Brian Peterson of Raymond James.
So Stephen, first, congratulations on your promotion. I wanted to understand, you're welcome. But I wanted to understand, Stephen and John, you guys are both really passionate about this business. Stephen, you're stepping up, it sounds like you're taking more responsibility. I'd love to understand maybe how some of the roles or things may change and where are you guys spending more of your time?
Yes. I mean, I'm happy to jump in, but there's no better person than John Baker to lead detail through its growth and to really help drive the future of EdTech. I think the combination of John and I give us the scale and opportunity to both have that market-leading impact and to also drive a very efficient and effective operation as we grow. It is truly a partnership. And I think it's a 2 for one in terms of the how we're dividing up the responsibilities John, do you want to add John, you're a little muffled, I don't know if anyone else is having trouble hearing him.
Can you hear me?
Yes, I hear you.
Can you hear me better there now?
Yes. we got...
I think the quick answer is Stephen and I are really well line. There's no question that Stephen is going to have a lot of value as we look at unifying our operational excellence across the organization, everything from our revenue engine to product to services. We're trying to act as one company and having a leader that's as Stephen's caliber to help drive the operations across the organization. It's going to be great.
It's going to allow me to have more time to spend with clients, with folks like you with other stakeholders across the organization and continue to stay focused on the future and helping to bring some of these new products whether it's way for creators or other ideas to life. So I'm very excited about this. I think Steven was a great partner along with Josh and Anna and everybody else on the team. This is going to be a great new year for us as a company.
That's great to hear. I want to ask a follow-up on the RFP and the volume that you're seeing. I'd be curious what that mix looks like? I think there's been some traditional share donors in the space, but as kind of the cloud adoption migrates up, have we seen more, I'd say, cloud deals into kind of the RFP activity or is it kind of the traditional on-premise deals that are still coming up for a bit.
So we are seeing more cloud opportunities coming up than on-prem. I'm not seeing I haven't seen any on-prem recently, folks looking for their own solution to run on site so that's very positive. It's very rare.
Yes, maybe what you're saying from.
Yes. Are you seeing any existing or any potential customers coming to market that already have a cloud solution in place versus an on-premise to cloud migration as kind of a key catalyst for going to market.
Yes. So the quick answer is yes. We're seeing not only transitions from legacy systems are on-prem, but we're also now seeing transitions from cloud providers. All of our competitors are seeing transition to D2L today, some of which were cloud offerings in the past. So and again, it's fine that adoption or going from just using a cloud offering to support the basics in the traditional model to now wanting to support online learning, supporting professional development, a wide range of use cases and also looking for better outcomes, better assessment, better usability that's an opportunity for them to make a shift to D2L.
So not only can we catch some on the shift to from on-prem to cloud, but we can also catch them as they move up that adoption from digitizing just covering things together now looking for better outcomes and ultimately trying to transform the experience. And that's playing out. We're seeing now conversions from all of our editors cloud offerings to D2L.
Yes. And just to add to that, I think another key ingredient is the power of our services offering, whether it's long-term advisory services for optimizing pedagogy or technical integration, to episodic services to really design and create engaging and effective courseware. Clearly, the platform is leading the way to everything John said, and the services are also helping our customers accelerate their digital transformation post-pandemic into what is now a blended world.
We're not just speaking to K-12 or higher ed here again, it's also reached in the corporate. Most of the CEOs that I've been speaking to have not been happy with what we've been doing from a learning and development perspective during the pandemic. And they are now looking for better ways to do onboarding, better ways to do upscaling, better ways to engage their employees and learning in the way that they're working today. So we see this across the board, education and corporate.
[Operator Instructions] And our next question is from John Shao of National Bank.
So John, you mentioned the elongated sales cycle, but is it hitting across your 3 major second K2 higher added corporate or you see more one seen hitting more than others?
It's really in pockets in each of the 3 segments. If you look at some of the larger opportunities that we're working, they're taking more time to get through the process than they would have in the past. And so that is sitting across all 3 segments. That said, we're still seeing some deals going through very fast every client, but there are still pockets of clients we're just taking a bit more time. I'm still confident that they will complete their process. I'm so confident that we'll see positive outcomes there, it's just that again, one of these things we're folks are just being a little bit more measured with their spend and making sure that their investments through the right ones. And I still think that we've got a really compelling ROI for our clients so that they do eventually make that call to make that implementation, if you will. Just taking a bit more time.
Okay. Great. And my other question is I understand FX has been a headwind for growth in Q3, but how should we think about FX on the current quarter in terms of the direction and magnitude of impact.
Yes. So we provide constant currency. Yes. Yes, sure. We provide constant currency reporting, John. So you can see the magnitude of impact it's had on our results via the constant currency reporting. So at this point, I'd just direct you to that.
Thank you. We have no further questions. I'll now hand back to John for any closing remarks.
I want to thank you for joining us on the call today. We're looking forward to updating you following our Q4 our year-end results. And I just wish you a happy day. Thank you, everybody.
Thank you. This now concludes today's call. Thank you so much for joining. You may now disconnect your lines.