Instructure Reports First Quarter 2018 Financial Results

SALT LAKE CITY, April 30, 2018 /PRNewswire/ -- Instructure, Inc. (NYSE: INST), a leading software-as-a-service (SaaS) technology company that makes software that makes people smarter, today announced its financial results for the first quarter ended March 31, 2018.

Instructure official logo (PRNewsFoto/Instructure)

"We had a strong start to the year as we delivered 39% year-over-year revenue growth and continued substantial improvements to our operating margin," said Josh Coates, CEO at Instructure. "During the quarter we expanded our customer base across our products, experiencing solid traction with both new customers and cross selling to existing customers."

First Quarter Financial Summary

 

(in thousands, except per share data)

 
   
   

Three Months
Ended March 31,

 
   

2018

   

2017

 
   

(unaudited)

   

(unaudited)

 

Revenue

 

$

47,991

   

$

34,472

 

Gross Margin

               

GAAP

   

70.9

%

   

71.9

%

Non-GAAP(1)

   

72.5

%

   

72.6

%

Operating Loss

               

GAAP

   

(12,133)

     

(11,603)

 

Non-GAAP(1)

   

(7,085)

     

(8,230)

 

Operating Margin

               

GAAP

   

-25.3

%

   

-33.7

%

Non-GAAP(1)

   

-14.8

%

   

-23.9

%

Net loss

               

GAAP

   

(11,868)

     

(11,601)

 

Non-GAAP(1)

   

(6,942)

     

(8,221)

 

EPS

               

GAAP

 

$

(0.37)

   

$

(0.40)

 

Non-GAAP(1)

 

$

(0.21)

   

$

(0.29)

 

___________

(1)  Non-GAAP financial measures exclude stock-based compensation, reversal of estimated accruals related to payroll taxes on secondary stock purchase transactions, amortization of acquisition related intangibles, the change in fair value of the warrant liability and the change in fair value of the contingent earn-out liability.

First Quarter 2018 Business Highlights

  • Instructure continued to expand its customer base in the first quarter. A few highlights include:
    • U.S. Higher Education and K-12 Schools – Within the U.S. higher education market, Canvas was selected by Mississippi State University for their 18,000 students. With the addition of four schools and almost 45,000 students within the San Diego Community College District, Canvas is used in 113 of the 114 community colleges in California. Additionally, the Chesterfield County Public Schools in Virginia chose Canvas and Gauge for their 60,000 K-12 students and educators.
    • International – Canvas was chosen by the University of Oxford for their entire 44 university colleges and permanent private halls, and their 24,000 students. Under Instructure's preferred supplier agreement with SUNET, the organization responsible for Sweden's University Computer Network, four additional universities selected Canvas. Now, over 100,000 Swedish students will use Canvas as their LMS.
    • Corporate – Bridge was selected by Ancestry.com, the largest for-profit genealogy company, and Superion, a provider of public sector software and services. Additionally, Optiv, a cyber security solutions provider, selected Bridge Learn and Arc for a large extended enterprise use case. Guardian Life, one of the largest mutual life insurance companies, and FranklinCovey, a management consultant firm, chose Practice to easily train their financial representatives and their remotely distributed implementation and sales groups, respectively.

Business Outlook

Today, Instructure issued financial guidance for the second quarter and full year 2018. The financial guidance discussed below is on a non-GAAP basis, except for revenue, and excludes stock-based compensation expense, reversal of payroll tax expense on secondary stock purchase transactions, amortization of acquisition related intangibles, the change in fair value of the warrant liability, and the change in fair value of the contingent earn-out liability (see tables below that reconcile these non-GAAP financial measures to the related GAAP measures). On January 1, 2018, Instructure adopted Accounting Standards Codification (ASC) 606 "Revenue from Contracts with Customers" using the full retrospective transition method.

For the second quarter ending June 30, 2018, Instructure expects revenue of approximately $49.1 million to $49.7 million, a non-GAAP net loss of ($9.2) million to ($8.6) million, and non-GAAP net loss per common share of ($0.27) to ($0.25).

For the full year ending December 31, 2018, Instructure expects revenue of approximately $204.5 million to $209.5 million, as compared to previously stated guidance of $203.5 million to $209.5 million, non-GAAP net loss of ($32.0) million to ($30.0) million, up from ($32.3) million to ($30.3) million, and non-GAAP net loss per common share of ($0.94) to ($0.88), up from ($1.03) to ($0.97).

Conference Call Details:

Instructure will discuss its first quarter 2018 results today, April 30, 2018, via teleconference at 3:00 p.m. Mountain Time / 5:00 p.m. Eastern Time. The call may be accessed at (800) 289-0438 or (323) 794-2423, passcode 5736897. 

The live webcast of the call can be accessed at the Instructure Investor Relations website at ir.instructure.com. A replay of the call will be available at the same web address approximately two hours following the conclusion of the live event. You may register for the live webcast at http://bit.ly/INST_Q12018EarningsCall.

Non-GAAP Financial Measures

In this press release and related conference call, Instructure's non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating loss, non-GAAP operating margin, non-GAAP net loss, non-GAAP net loss per share, non-GAAP free cash flow and 12-month billings are not presented in accordance with GAAP and are not intended to be used in lieu of GAAP presentations of results of operations.

Management presents these non-GAAP financial measures because it considers them to be important supplemental measures of performance. Management uses the non-GAAP financial measures for planning purposes, including analysis of the company's performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management also believes that the non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company's financial and operational performance. However, these non-GAAP financial measures have limitations as an analytical tool and are not intended to be an alternative to financial measures prepared in accordance with GAAP. We intend to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics.

Non-GAAP measures exclude stock-based compensation, payroll taxes related to secondary stock purchase transactions or the reversal of such expense due to the retirement of the liability, amortization of acquisition related intangibles, the change in fair value of the warrant liability, and the change in fair value of the contingent earn-out liability. We believe investors may want to exclude the effects of these items in order to compare our financial performance between time periods:

  • Stock-based compensation - Although stock-based compensation is an important aspect of the compensation of our employees and executives, management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business. Unlike cash compensation, the value of equity awards is determined using a complex formula that incorporates factors, such as market volatility and forfeiture rates that are beyond our control.
  • Reversal of estimated accruals related to payroll taxes on secondary stock purchase transactions – Prior to our IPO, operating expenses included employer payroll tax-related items on employee sales of securities to investors. The amount of employer payroll tax-related items on these transactions was dependent on the fair market value of our stock. Beginning in the second quarter of 2016, operating expenses included the reversal of such payroll tax expense due to the reduction of the estimated liability, which will continue to occur in the second quarter of each year.
  • Amortization of acquisition related intangibles - Expense for the amortization of acquisition related intangibles is a non-cash item, and we believe that the exclusion of this expense provides for a useful comparison of our operating results to prior periods.
  • Change in fair value of the warrant liability - Under GAAP, we are required to record mark-to-market adjustments for the change in fair value of the liability for warrants issued in connection with term debt and our credit facility. This expense or gain is excluded from management's assessment of our operating performance because management believes that these non-cash items are not indicative of ongoing operating performance.
  • Change in fair value of the contingent earn-out liability - Under GAAP, we are required to record mark-to-market adjustments for the change in the fair value of the earn-out liability for contingent consideration related to an acquisition. The expense or gain recognized is excluded from management's assessment of our operating performance because management believes that these non-cash items are not indicative of ongoing operating performance.

Forward-Looking Statements

This press release contains, and statements made during the above referenced conference call will contain, "forward-looking" statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding the company's financial guidance for the second quarter of 2018 and for the full year ending December 31, 2018, the company's growth, customer demand and application adoption, the company's research and development efforts and future application releases, and the company's expectations regarding future revenue, expenses, cash flows and net income or loss. These statements are not guarantees of future performance, but are based on management's expectations as of the date of this press release and assumptions that are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements. Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements include the following: risks associated with anticipated growth in Instructure's addressable market; competitive factors, including changes in the competitive environment, pricing changes, sales cycle time and increased competition; Instructure's ability to build and expand its sales efforts; general economic and industry conditions; new application introductions and Instructure's ability to develop and deliver innovative applications and features; Instructure's ability to provide high-quality service and support offerings; risks associated with international operations; and macroeconomic conditions. These and other important risk factors are described more fully in the Annual Report for the year ended December 31, 2017, which was filed with the Securities and Exchange Commission (the "SEC") on February 15, 2018, and other documents filed with the SEC and could cause actual results to vary from expectations. All information provided in this press release and in the conference call is as of the date hereof and Instructure undertakes no duty to update this information except as required by law.

About Instructure

Instructure, Inc. is a leading software-as-a-service (SaaS) technology company that makes software that makes people smarter. With a vision to help maximize the potential of people through technology, Instructure created Canvas, Gauge, Arc and Bridge to enable organizations everywhere to easily develop, deliver and manage engaging face-to-face and online learning experiences. To date, Instructure has connected millions of instructors and learners at more than 3,000 educational institutions and corporations throughout the world. Learn more about Canvas for higher ed and K-12, and Bridge for the corporate market, at www.Instructure.com.

Contacts:
Keaton Godfrey
Manager, Investor Relations
Instructure
(866) 574-3127
[email protected]

Becky Frost
Senior Director, Public Relations
Instructure
(801) 869-5017
[email protected]

INSTRUCTURE, INC.

 

CONSOLIDATED BALANCE SHEETS

 

(in thousands)

 
   

March 31,
2018

   

December 31,
2017

 
   

(unaudited)

   

(unaudited)

 

Assets

               

Current assets:

               

Cash and cash equivalents

 

$

136,733

   

$

35,693

 

Short term marketable securities

   

     

5,697

 

Accounts receivable—net of allowances of $322 and $318 at March 31, 2018 and December 31, 2017, respectively

   

25,515

     

34,312

 

Prepaid expenses

   

9,493

     

11,492

 

Deferred commissions

   

6,994

     

7,086

 

Other current assets

   

1,616

     

2,419

 

Total current assets

   

180,351

     

96,699

 

Property and equipment, net

   

27,115

     

23,926

 

Goodwill

   

12,354

     

12,354

 

Intangible assets, net

   

8,288

     

9,048

 

Noncurrent prepaid expenses

   

3,121

     

2,939

 

Deferred commissions, net of current portion

   

11,040

     

11,160

 

Other assets

   

487

     

497

 

Total assets

 

$

242,756

   

$

156,623

 

Liabilities and stockholders' equity

               

Current liabilities:

               

Accounts payable

 

$

6,439

   

$

2,892

 

Accrued liabilities

   

12,501

     

13,702

 

Deferred rent

   

986

     

936

 

Deferred revenue

   

77,671

     

99,773

 

Total current liabilities

   

97,597

     

117,303

 

Deferred revenue, net of current portion

   

1,436

     

1,889

 

Deferred rent, net of current portion

   

10,523

     

9,201

 

Other long term liabilities

   

775

     

1,286

 

Total liabilities

   

110,331

     

129,679

 

Commitments and contingencies

               

Stockholders' equity:

               

Common stock

   

3

     

3

 

Additional paid-in capital

   

368,247

     

250,899

 

Accumulated other comprehensive income

   

     

(1)

 

Accumulated deficit

   

(235,825)

     

(223,957)

 

Total stockholders' equity

   

132,425

     

26,944

 

Total liabilities and stockholders' equity

 

$

242,756

   

$

156,623

 

 

INSTRUCTURE, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in thousands, except per share data)

 
   

Three Months
Ended March 31,

 
   

2018

   

2017

 
   

(unaudited)

   

(unaudited)

 

Revenue:

               

Subscription and support

 

$

43,200

   

$

31,554

 

Professional services and other

   

4,791

     

2,918

 

Total Net revenue

   

47,991

     

34,472

 

Cost of Revenue:

               

Subscription and support

   

10,391

     

7,105

 

Professional services and other

   

3,594

     

2,575

 

Total cost of revenue

   

13,985

     

9,680

 

Gross profit

   

34,006

     

24,792

 

Operating expenses:

               

Sales and marketing

   

23,188

     

18,227

 

Research and development

   

14,660

     

11,182

 

General and administrative

   

8,291

     

6,986

 

Total operating expenses

   

46,139

     

36,395

 

Loss from operations

   

(12,133)

     

(11,603)

 

Other income (expense):

               

Interest income

   

238

     

76

 

Interest expense

   

(9)

     

(14)

 

Other income, net

   

175

     

23

 

Total other income (expense), net

   

404

     

85

 

Loss before income taxes

   

(11,729)

     

(11,518)

 

Income tax expense

   

(139)

     

(83)

 

Net loss

 

$

(11,868)

   

$

(11,601)

 

Net loss per common share, basic and diluted

 

$

(0.37)

   

$

(0.40)

 

Weighted average shares used to compute net loss per share, basic and diluted

   

32,370

     

28,727

 

 

INSTRUCTURE, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in thousands)

 
   

Three Months
Ended March 31,

 
   

2018

   

2017

 
   

(unaudited)

   

(unaudited)

 

Operating Activities:

               

Net loss

 

$

(11,868)

   

$

(11,601)

 

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation of property and equipment

   

2,013

     

1,237

 

Amortization of intangible assets

   

763

     

142

 

Amortization of deferred financing costs

   

7

     

6

 

Change in fair value of warrant liability

   

(122)

     

7

 

Stock-based compensation

   

4,744

     

3,373

 

Other

   

65

     

2

 

Changes in assets and liabilities:

               

Accounts receivable, net

   

8,720

     

5,297

 

Prepaid expenses and other assets

   

2,623

     

(5,518)

 

Accounts payable and accrued liabilities

   

2,068

     

(1,522)

 

Deferred revenue

   

(22,555)

     

(18,274)

 

Deferred rent

   

1,372

     

(139)

 

Deferred commissions

   

212

     

(759)

 

Other liabilities

   

(389)

     

 

Net cash used in operating activities

   

(12,347)

     

(27,749)

 

Investing Activities:

               

Purchases of property and equipment

   

(4,847)

     

(3,145)

 

Purchases of intangible assets

   

     

(290)

 

Proceeds from disposal of property and equipment

   

26

     

15

 

Maturities of marketable securities

   

5,700

     

13,900

 

Net cash provided by investing activities

   

879

     

10,480

 

Financing Activities:

               

Proceeds from common stock offerings, net of offering costs

   

109,803

     

 

Proceeds from issuance of common stock from employee equity plans

   

2,832

     

1,038

 

Shares repurchased for tax withholdings on vesting of restricted stock

   

(127)

     

(42)

 

Net cash provided by financing activities

   

112,508

     

996

 

Net increase (decrease) in cash

   

101,040

     

(16,273)

 

Cash, beginning of period

   

35,693

     

44,539

 

Cash, end of period

 

$

136,733

   

$

28,266

 

 

INSTRUCTURE, INC.

 

RECONCILIATION OF NON-GAAP GROSS MARGIN

 

(in thousands, except percentages)

 

(unaudited)

 
   

Three Months Ended
March 31,

 
   

2018

   

2017

 

GAAP gross profit

 

$

34,006

   

$

24,792

 

Stock-based compensation

   

422

     

231

 

Amortization of acquisition related intangibles

   

342

     

 

Non-GAAP gross margin

 

$

34,770

   

$

25,023

 
                 

GAAP gross margin %

   

70.9

%

   

71.9

%

Non-GAAP gross margin %

   

72.5

%

   

72.6

%

 

INSTRUCTURE, INC.

 

RECONCILIATION OF NON-GAAP OPERATING LOSS

 

(in thousands, except percentages)

 

(unaudited)

 
   

Three Months Ended
March 31,

 
   

2018

   

2017

 

Loss from operations

 

$

(12,133)

   

$

(11,603)

 

Stock-based compensation

   

4,744

     

3,373

 

Amortization of acquisition related intangibles

   

692

     

 

Change in fair value of contingent earn-out liability

   

(388)

     

 

Non-GAAP operating loss

 

$

(7,085)

   

$

(8,230)

 
                 

GAAP operating margin

   

-25.3

%

   

-33.7

%

Non-GAAP operating margin

   

-14.8

%

   

-23.9

%

 

INSTRUCTURE, INC.

 

RECONCILIATION OF NON-GAAP NET LOSS

 

(in thousands, except per share data)

 

(unaudited)

 
   

Three Months Ended
March 31,

 
   

2018

   

2017

 

Net Loss

 

$

(11,868)

   

$

(11,601)

 

Stock-based compensation

   

4,744

     

3,373

 

Amortization of acquisition related intangibles

   

692

     

 

Change in fair value of warrant liability

   

(122)

     

7

 

Change in fair value of contingent earn-out liability

   

(388)

     

 

Non-GAAP net loss

 

$

(6,942)

   

$

(8,221)

 

Non-GAAP net loss per common share, basic and diluted

 

$

(0.21)

   

$

(0.29)

 

Weighted average common shares used in computing basic and diluted net loss per common share

   

32,370

     

28,727

 

 

INSTRUCTURE, INC.

 

RECONCILIATION OF FREE CASH FLOW

 

(in thousands)

 

(unaudited)

 
   

Three Months Ended
March 31,

 
   

2018

   

2017

 

Net cash used in operating activities

 

$

(12,347)

   

$

(27,749)

 

Purchase of property and equipment and intangibles

   

(4,847)

     

(3,435)

 

Proceeds from disposals of property and equipment

   

26

     

15

 

Free cash flow

 

$

(17,168)

   

$

(31,169)

 

 

INSTRUCTURE, INC.

 

RECONCILIATION OF 12-MONTH BILLINGS

 

(in thousands)

 

(unaudited)

 
   

Trailing Twelve Months Ended
March 31,

 
   

2018

   

2017

 

Total net revenue

 

$

174,493

   

$

123,840

 
                 

Total Deferred revenue

               

Beginning balance

   

56,362

     

41,540

 

Ending balance

   

79,107

     

56,362

 

Net change in current deferred revenue

   

22,745

     

14,822

 
                 

Total 12-month billings

 

$

197,238

   

$

138,662

 

 

INSTRUCTURE, INC.

 

RECONCILIATION OF NON-GAAP OPERATING EXPENSES

 

Three Months Ended March 31, 2018

 

(in thousands)

 

(unaudited)

 
   

GAAP

   

Stock-based
Compensation
Expense

   

Amortization
of acquired
intangibles

   

Change in
fair value
of
contingent
earn-out
liability

   

NON-GAAP

 

Operating expenses:

                                       

Sales and marketing

 

$

23,188

     

(1,348)

     

(350)

     

   

$

21,490

 

Research and development

   

14,660

     

(1,894)

     

     

   

$

12,766

 

General and administrative

   

8,291

     

(1,080)

     

     

388

   

$

7,599

 

Total operating expenses

 

$

46,139

     

(4,322)

     

(350)

     

388

   

$

41,855

 

 

INSTRUCTURE, INC.

 

RECONCILIATION OF NON-GAAP OPERATING EXPENSES

 

Three Months Ended March 31, 2017

 

(in thousands)

 

(unaudited)

 
   

GAAP

   

Stock-based
Compensation
Expense

   

Amortization
of acquired
intangibles

   

Change in
fair value
of
contingent
earn-out
liability

   

NON-GAAP

 

Operating expenses:

                                       

Sales and marketing

 

$

18,227

     

(955)

     

     

   

$

17,272

 

Research and development

   

11,182

     

(1,232)

     

     

   

$

9,950

 

General and administrative

   

6,986

     

(955)

     

     

   

$

6,031

 

Total operating expenses

 

$

36,395

     

(3,142)

     

     

   

$

33,253

 

 

INSTRUCTURE, INC.

 

RECONCILIATION OF NON-GAAP NET LOSS GUIDANCE

 

(in thousands)

 

(unaudited)

 
   

Three Months Ending
June 30,

   

Full Year Ending
December 31,

 
   

2018

   

2018

   

2018

   

2018

 
   

LOW

   

HIGH

   

LOW

   

HIGH

 

Net loss

 

$

(14,475)

   

$

(13,875)

   

$

(57,000)

   

$

(55,000)

 

Stock-based compensation

   

5,900

     

5,900

     

24,185

     

24,185

 

Reversal of payroll tax expense on secondary stock purchase transactions

   

(1,225)

     

(1,225)

     

(1,225)

     

(1,225)

 

Amortization of acquisition related intangibles

   

600

     

600

     

2,550

     

2,550

 

Change in fair value of warrant liability

   

     

     

(120)

     

(120)

 

Change in fair value of contingent earn-out liability

   

     

     

(390)

     

(390)

 

Non-GAAP net loss

 

$

(9,200)

   

$

(8,600)

   

$

(32,000)

   

$

(30,000)

 

 

INSTRUCTURE, INC.

 

RECONCILIATION OF NON-GAAP NET LOSS PER COMMON SHARE GUIDANCE

 

(unaudited)

 
   

Three Months Ending
June 30,

   

Full Year Ending
December 31,

 
   

2018

   

2018

   

2018

   

2018

 
   

LOW

   

HIGH

   

LOW

   

HIGH

 

Net loss per common share

 

$

(0.42)

   

$

(0.40)

   

$

(1.67)

   

$

(1.61)

 

Stock-based compensation

   

0.17

     

0.17

     

0.71

     

0.71

 

Reversal of payroll tax expense on secondary stock purchase transactions

   

(0.04)

     

(0.04)

     

(0.04)

     

(0.04)

 

Amortization of acquisition related intangibles

   

0.02

     

0.02

     

0.07

     

0.07

 

Change in fair value of warrant liability

   

     

     

(0.00)

     

(0.00)

 

Change in fair value of contingent earn-out liability

   

     

     

(0.01)

     

(0.01)

 

Non-GAAP net loss per common share, basic and diluted

 

$

(0.27)

   

$

(0.25)

   

$

(0.94)

   

$

(0.88)

 

Non-GAAP weighted average common shares used in computing basic and diluted net loss per common share (in thousands)

   

34,500

     

34,500

     

34,200

     

34,200

 

 

 

SOURCE Instructure