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D2L CEO John Baker, seen here in 2020, was not immediately available for comment.GEOFF ROBINS/The Globe and Mail

Another Canadian technology company has struggled to complete its initial public offering.

Online learning software provider D2L Corp. of Kitchener, Ont., filed to go public earlier this month, setting a price range of $19 to $21 per share on a proposed $200-million offering on the Toronto Stock Exchange

But D2L has cut the pricing and deal size in an effort to get the IPO done. D2L announced Thursday it had priced the deal at $17 per subordinate share, and would raise just $150-million, confirming details in a Globe and Mail report Wednesday. The repricing happened after the company received about $300-million worth of orders for the stock, according to a source familiar with the deal. That’s less than the $1-billion-plus in orders Vancouver decision analytics software company Copperleaf Technologies Inc. received for its IPO earlier this fall.

When D2L and its underwriters chose to cut the deal size to reflect the demand for the offering, they decided to lower the share price in step as an incentive to institutions that had agreed to buy into the deal to carry through, one of the sources said. The shares are set to start trading next Wednesday under the ticker symbol DTOL.

The Globe and Mail is not identifying the source because they are not authorized to discuss the matter.

D2L CEO John Baker declined to comment.

An unprecedented 17 technology companies have gone public on the TSX since July, 2020, compared with just 12 in the 11 years ended December, 2019. While some of the 17 have soared in value, the performance over all has been uneven. The Globe and Mail reported last week the average return for tech sector IPOs in the past year was minus 2.4 per cent, based on when each started trading, while the corresponding average stock market return was 16 per cent. Many newly public Canadian tech companies now trade well below their issue prices.

That includes investor relations software provider Q4 Inc., which slashed the pricing and size of its IPO last Friday to $12 per share and $100-million. Despite that, the shares opened below $12 on their debut Monday and only reached the issue price for the first time in Wednesday afternoon trading.

Two other Canadian technology companies are also in the process of going public, E Automotive Inc. and Sharethrough Inc., giving Canadian technology investors a lot to choose from.

D2L has benefited from a shift to digital learning during the COVID-19 pandemic, and said in its prospectus it experienced a 200-per-cent boost in new bookings in the early months of the global health crisis compared with 2019 levels. The question is whether the boost is temporary or a permanent shift.

D2L’s US$71.3-million of revenue in the six months ended July 31 was 18.9 per cent higher than the same period a year earlier, according to its prospectus. But revenue in its 2021 fiscal year ended Jan. 31 of US$126.4-million was just 15.4 per cent above the previous year’s level, and in the prepandemic year before that, ended Jan. 31, 2020, it edged up only 5.8 per cent.

Meanwhile, D2L’s operating earnings are relatively low for a software company growing slowly – at less than 20 per cent a year – and hoping to attract a high valuation from investors. The company’s adjusted earnings before interest, taxes, depreciation and amortization in the first half of this fiscal year were just 2.6 per cent of revenue. In D2L’s 2021 and 2020 fiscal years, adjusted EBITDA was 4.8 per cent and negative 0.6 per cent of revenue, respectively.

One investment professional whose firm decided to pass on the IPO told The Globe and Mail that growth in D2L’s learning management software segment wasn’t as attractive as expansion in other categories of software. The source added that D2L’s pre-COVID-19 revenue growth and margins were weak, so there is little sense of what financial performance might be after the pandemic eases. The Globe and Mail is not identifying the source because they are not authorized to discuss the matter publicly.

Because D2L’s prospectus only covers the prior three years of financial performance – as is typical for IPO filings – investors don’t get a longer-term view of how revenue growth and margins looked before that. For example, D2L recently completed its shift to offering its software through a cloud-based subscription model, a move that typically weighs on financial results while companies make the transition.

D2L initially looked to raise gross proceeds of $143.3-million, and another $57-million for shares from an employee trust. The latter was meant to fund payment of income tax and other statutory deductions related to the distribution of subordinate voting shares to some employees, and to repay a company loan by D2L to a company affiliated with the CEO.

Mr. Baker, founded the company in 1999 while he was studying at University of Waterloo. He controls 100 per cent of the company’s 27.4 million multiple voting shares, which carry 10 votes apiece, compared with one vote each per subordinate voting share. He would maintain voting control following the IPO, according to the prospectus.

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