Instructure Reports Third Quarter 2018 Financial Results
SALT LAKE CITY, Oct. 29, 2018 /PRNewswire/ -- Instructure, Inc. (NYSE: INST), a leading software-as-a-service (SaaS) technology company in education, learning and employee development, today announced its financial results for the third quarter ended September 30, 2018.
"We delivered a solid third quarter with $55.2 million in revenue and realized meaningful year-over-year improvements to our operating margin," said Josh Coates, CEO at Instructure. "During the quarter, we had great success executing against our long-term strategy of providing a more robust suite of Bridge offerings as well as winning key deals in the extended enterprise space."
Third Quarter Financial Summary
(in thousands, except per share data)
Three Months
Ended September 30,
2018 2017
(unaudited) (unaudited)
Revenue $
55,239 $
43,203
Gross Margin
GAAP 70.8 71.0
% %
Non-GAAP(1) 72.5 71.9
% %
Operating Loss
GAAP (11,956) (11,628)
Non-GAAP(1) (5,672) (7,361)
Operating Margin
GAAP -21.6 -26.9
% %
Non-GAAP(1) -10.3 -17.0
% %
Net loss
GAAP (11,472) (11,471)
Non-GAAP(1) (5,188) (7,219)
EPS
GAAP $
(0.33) $
(0.39)
Non-GAAP(1) $
(0.15) $
(0.24)
___________
(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
liability.
Third Quarter 2018 Business Highlights
-- Instructure continued to expand its customer base in the third quarter.
A few highlights include:
-- U.S. Higher Education and K-12 Schools - In Texas, Frisco
Independent School District and the University of Texas at Arlington
chose Canvas for their 36,000 and 40,000 students, respectively.
Oklahoma State, with close to 30,000 students and faculty, selected
Canvas and Arc. Fresno State switched to Canvas for their 20,000
students. Additionally, Montgomery County Public Schools, the 17th
largest school district in the U.S., selected Practice to train
28,000 faculty and staff.
-- International Education - Canvas was selected by the University
College Cork in Ireland for their 17,000 students and Lund
University in Sweden for their almost 27,000 students. The Faculdade
das Américas (FAM) in Brazil with 20,000 students and the
Pontifical Catholic University of Chile with 31,000 students also
switched to Canvas. Additionally, De La Salle University, one of the
top institutions in the Philippines, selected Canvas for their
16,000 students.
-- Corporate - Vivint, a provider of smart home technology, expanded
their relationship to include the full Bridge suite of Learn,
Perform, Practice and Arc for their entire workforce of 17,000
employees. MassMutual Life Insurance selected Bridge Learn for their
25,000 field agents. Divisions of StubHub, the largest ticket
marketplace, and Fiserv, a leader in financial services technology,
chose Bridge Learn and Arc because of their ease of use. And
finally, a division of a global, multi-billion dollar consumer goods
company in the United Kingdom selected Bridge Learn and Arc to train
channel and distribution partners.
Business Outlook
Today, Instructure issued financial guidance for the fourth 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 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 fourth quarter ending December 31, 2018, Instructure expects revenue of approximately $55.2 million to $56.2 million, a non-GAAP net loss of ($5.8) million to ($4.8) million, and non-GAAP net loss per common share of ($0.16) to ($0.14).
For the full year ending December 31, 2018, Instructure expects revenue of approximately $208.5 million to $209.5 million, as compared to previously stated guidance of $205.1 million to $209.5 million, non-GAAP net loss of ($26.2) million to ($25.2) million, up from ($31.8) million to ($29.8) million, and non-GAAP net loss per common share of ($0.76) to ($0.74), up from ($0.93) to ($0.87).
Conference Call Details
Instructure will discuss its third quarter 2018 results today, October 29, 2018, via teleconference at 3:00 p.m. Mountain Time / 5:00 p.m. Eastern Time. The call may be accessed at (800) 239-9838 or (323) 994-2093, passcode 1015715.
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_Q32018EarningsCall.
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 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 liability - Under GAAP, we are
required to record mark-to-market adjustments for the change in the fair
value of the 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 fourth 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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, which was filed with the Securities and Exchange Commission (the "SEC") on August 1, 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 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 4,000 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
Director, Investor Relations
Instructure
(866) 574-3127
kgodfrey@instructure.com
Becky Frost
Sr. Director, Corporate Communications
Instructure
(801) 869-5017
becky@instructure.com
INSTRUCTURE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2018 2017
(unaudited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $
111,031 $
35,693
Short term marketable securities 60,390 5,697
Accounts receivable-net of allowances
of $730 and $318 at
September 30, 2018 and December 31,
2017, respectively 47,510 34,312
Prepaid expenses 11,114 11,492
Deferred commissions 8,126 7,086
Other current assets 1,803 2,419
Total current assets 239,974 96,699
Property and equipment, net 27,024 23,926
Goodwill 12,354 12,354
Intangible assets, net 6,936 9,048
Noncurrent prepaid expenses 4,075 2,939
Deferred commissions, net of current
portion 11,292 11,160
Other assets 526 497
Total assets $
302,181 $
156,623
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $
11,458 $
2,892
Accrued liabilities 14,345 13,702
Deferred rent 1,303 936
Deferred revenue 136,179 99,773
Total current liabilities 163,285 117,303
Deferred revenue, net of current
portion 2,494 1,889
Deferred rent, net of current portion 10,437 9,201
Other long term liabilities 20 1,286
Total liabilities 176,236 129,679
Commitments and contingencies
Stockholders' equity:
Common stock 3 3
Additional paid-in capital 385,789 250,899
Accumulated other comprehensive loss (12) (1)
Accumulated deficit (259,835) (223,957)
Total stockholders' equity 125,945 26,944
Total liabilities and stockholders'
equity $
302,181 $
156,623
INSTRUCTURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months
Nine Months
Ended September 30, Ended September 30,
2018 2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:
Subscription and support $
49,235 $
38,290 $
137,539 $
103,557
Professional services and other 6,004 4,913 15,754 12,663
Total Net revenue 55,239 43,203 153,293 116,220
Cost of Revenue:
Subscription and support 12,149 9,278 33,324 24,350
Professional services and other 3,989 3,245 11,397 8,908
Total cost of revenue 16,138 12,523 44,721 33,258
Gross profit 39,101 30,680 108,572 82,962
Operating expenses:
Sales and marketing 25,641 21,397 73,670 58,596
Research and development 15,601 12,577 45,110 34,816
General and administrative 9,815 8,334 26,306 22,941
Total operating expenses 51,057 42,308 145,086 116,353
Loss from operations (11,956) (11,628) (36,514) (33,391)
Other income (expense):
Interest income 761 84 1,528 199
Interest expense (25) (54) (18)
Other income (expense), net (177) 205 (531) 253
Total other income, net 559 289 943 434
Loss before income taxes (11,397) (11,339) (35,571) (32,957)
Income tax expense (75) (132) (307) (383)
Net loss $
(11,472) $
(11,471) $
(35,878) $
(33,340)
Net loss per common share, basic and
diluted $
(0.33) $
(0.39) $
(1.06) $
(1.14)
Weighted average shares used to
compute net loss
per
share, basic and diluted 34,895 29,535 33,934 29,120
INSTRUCTURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months
Nine Months
Ended September 30, Ended September 30,
2018 2017 2018 2017
(unaudited) (unaudited) (unaudited) (unaudited)
Operating Activities:
Net loss $
(11,473) $
(11,471) $
(35,878) $
(33,340)
Adjustments to reconcile net loss to net cash used
in
operating activities:
Depreciation of property and equipment 2,320 1,629 6,438 4,322
Amortization of intangible assets 673 71 2,112 330
Amortization of deferred financing costs 5 8 15 24
Change in fair value of mark-to-market
liabilities 15 (1,266) 98
Stock-based compensation 5,683 4,267 16,102 11,707
Other 142 24 (757) (42)
Changes in assets and liabilities:
Accounts receivable, net 45,993 37,219 (14,011) (17,270)
Prepaid expenses and other assets (1,550) 167 (168) (1,868)
Accounts payable and accrued liabilities 7,231 5,999 10,241 8,197
Deferred revenue 6,147 6,053 37,011 35,692
Deferred rent (233) 351 1,603 (63)
Deferred commissions (240) (732) (1,172) (3,833)
Other liabilities (32) (32)
Net cash provided by operating activities 54,698 43,568 20,270 3,922
Investing Activities:
Purchases of property and equipment (1,498) (3,875) (8,888) (10,830)
Purchases of intangible assets (301)
Proceeds from disposal of property and equipment 26 12 78 50
Purchases of marketable securities (43,729) (8,088) (92,170) (8,088)
Maturities of marketable securities 32,150 37,850 23,900
Net cash provided by (used in) investing
activities (13,051) (11,951) (63,130) 4,731
Financing Activities:
Proceeds from common stock offerings, net of
offering costs 109,789
Proceeds from issuance of common stock from
employee equity plans 1,511 1,453 8,760 5,769
Shares repurchased for tax withholdings on vesting
of restricted stock (78) (91) (333) (214)
Payments for financing costs (7) (18) (31)
Net cash provided by financing activities 1,433 1,355 118,198 5,524
Net increase in cash 43,080 32,972 75,338 14,177
Cash, beginning of period 67,951 25,744 35,693 44,539
Cash, end of period $
111,031 $
58,716 $
111,031 $
58,716
INSTRUCTURE, INC.
RECONCILIATION OF NON-GAAP GROSS MARGIN
(in thousands, except percentages)
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
2018 2017 2018 2017
GAAP gross profit $
39,101 $
30,680 $
108,572 $
82,962
Stock-based compensation 603 372 1,578 950
Amortization of acquisition
related intangibles 332 1,007
Reversal of payroll tax
expense on secondary stock
purchase
transactions (49)
Non-GAAP gross margin $
40,036 $
31,052 $
111,108 $
83,912
GAAP gross margin % 70.8 71.0 70.8 71.4
% % % %
Non-GAAP gross margin % 72.5 71.9 72.5 72.2
% % % %
INSTRUCTURE, INC.
RECONCILIATION OF NON-GAAP OPERATING LOSS
(in thousands, except percentages)
(unaudited)
Three Months
Nine Months
Ended September 30, Ended September 30,
2018 2017 2018 2017
Loss from operations $
(11,956) $
(11,628) $
(36,514) $
(33,391)
Stock-based compensation 5,683 4,267 16,102 11,707
Reversal of payroll tax
expense on secondary stock
purchase
transactions (1,225) (534)
Amortization of acquisition
related intangibles 601 1,895
Change in fair value of
contingent earn-out
liability (1,144)
Non-GAAP operating loss $
(5,672) $
(7,361) $
(20,886) $
(22,218)
GAAP operating margin -21.6 -26.9 -23.8 -28.7
% % % %
Non-GAAP operating margin -10.3 -17.0 -13.6 -19.1
% % % %
INSTRUCTURE, INC.
RECONCILIATION OF NON-GAAP NET LOSS
(in thousands, except per share data)
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
2018 2017 2018 2017
Net loss $
(11,472) $
(11,471) $
(35,878) $
(33,340)
Stock-based compensation 5,683 4,267 16,102 11,707
Reversal of payroll tax
expense on secondary stock
purchase
transactions (1,225) (534)
Amortization of acquisition
related intangibles 601 1,895
Change in fair value of
warrant liability (15) (122) (98)
Change in fair value of
contingent earn-out
liability (1,144)
Non-GAAP net loss $
(5,188) $
(7,219) $
(20,372) $
(22,265)
Non-GAAP net loss per common
share,
basic and
diluted $
(0.15) $
(0.24) $
(0.60) $
(0.76)
Weighted average common
shares used in computing
basic and diluted net
loss per common share 34,895 29,535 33,934 29,120
INSTRUCTURE, INC.
RECONCILIATION OF FREE CASH FLOW
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Net cash provided by
operating activities $
54,698 $
43,568 $
20,270 $
3,922
Purchase of property
and equipment and
intangibles (1,498) (3,875) (8,888) (11,131)
Proceeds from
disposals of property
and equipment 26 12 78 50
Free cash flow $
53,226 $
39,705 $
11,460 $
(7,159)
INSTRUCTURE, INC.
RECONCILIATION OF 12-MONTH BILLINGS
(in thousands)
(unaudited)
Trailing Twelve Months Ended
September 30,
2018 2017
Total net
revenue $
198,020 $
147,874
Total
deferred
revenue
Beginning
balance 110,328 83,581
Ending
balance 138,673 110,328
Net change
in current
deferred
revenue 28,345 26,747
Total
12-month
billings $
226,365 $
174,621
INSTRUCTURE, INC.
RECONCILIATION OF NON-GAAP OPERATING EXPENSES
Three Months Ended September 30, 2018
(in thousands)
(unaudited)
Stock-based Reversal of Amortization Change in
Compensation Payroll Tax of fair value
Expense Associated of
with Equity contingent
Transactions earn-out
GAAP liability NON-GAAP
acquired
intangibles
Operating expenses:
Sales and marketing $
25,641 (1,385) (269) $
23,987
Research and development 15,601 (2,026) 13,575
General and administrative 9,815 (1,669) 8,146
Total operating expenses $
51,057 (5,080) (269) $
45,708
INSTRUCTURE, INC.
RECONCILIATION OF NON-GAAP OPERATING EXPENSES
Three Months Ended September 30, 2017
(in thousands)
(unaudited)
Stock-based Reversal of Amortization Change in
Compensation Payroll Tax of fair value
Expense Associated of
with Equity contingent
Transactions earn-out
GAAP liability NON-GAAP
acquired
intangibles
Operating expenses:
Sales and marketing $
21,397 (1,255) $
20,142
Research and development 12,577 (1,637) 10,940
General and administrative 8,334 (1,003) 7,331
Total operating expenses $
42,308 (3,895) $
38,413
INSTRUCTURE, INC.
RECONCILIATION OF NON-GAAP OPERATING EXPENSES
Nine Months Ended September 30, 2018
(in thousands)
(unaudited)
Stock-based Reversal of Amortization Change in
Compensation Payroll Tax of fair value
Expense Associated of
with Equity contingent
Transactions earn-out
GAAP liability NON-
acquired
intangibles GAAP
Operating expenses:
Sales and marketing $
73,670 (4,404) 430 (888) $
68,808
Research and development 45,110 (5,953) 616 39,773
General and administrative 26,306 (4,167) 130 1,144 23,413
Total operating expenses $
145,086 (14,524) 1,176 (888) 1,144 $
131,994
INSTRUCTURE, INC.
RECONCILIATION OF NON-GAAP OPERATING EXPENSES
Nine Months Ended September 30, 2017
(in thousands)
(unaudited)
Stock-based Reversal of Amortization Change in
Compensation Payroll Tax of fair value
Expense Associated of
with Equity contingent
Transactions earn-out
GAAP liability NON-
acquired
intangibles GAAP
Operating expenses:
Sales and marketing $
58,596 (3,405) 256 $
55,447
Research and development 34,816 (4,375) 256 30,697
General and administrative 22,941 (2,977) 22 19,986
Total operating expenses $
116,353 (10,757) 534 $
106,130
INSTRUCTURE, INC.
RECONCILIATION OF NON-GAAP NET LOSS GUIDANCE
(in thousands)
(unaudited)
Three Months Ending Full Year Ending
December 31, December 31,
2018 2018 2018 2018
LOW HIGH LOW HIGH
Net loss $
(12,490) $
(11,490) $
(48,370) $
(47,370)
Stock-based compensation 6,100 6,100 22,200 22,200
Reversal of payroll tax
expense on secondary stock
purchase
transactions (1,230) (1,230)
Amortization of acquisition
related intangibles 600 600 2,500 2,500
Change in fair value of
warrant liability (120) (120)
Change in fair value of
contingent liability (1,140) (1,140)
Non-GAAP net loss $
(5,790) $
(4,790) $
(26,160) $
(25,160)
INSTRUCTURE, INC.
RECONCILIATION OF NON-GAAP NET LOSS PER COMMON SHARE GUIDANCE
(unaudited)
Three Months Ending Full Year Ending
December 31, December 31,
2018 2018 2018 2018
LOW HIGH LOW HIGH
Net loss per common share $
(0.35) $
(0.33) $
(1.41) $
(1.39)
Stock-based compensation 0.17 0.17 0.65 0.65
Reversal of payroll tax
expense on secondary stock
purchase
transactions (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 liability (0.03) (0.03)
Non-GAAP net loss per common
share, basic and diluted $
(0.16) $
(0.14) $
(0.76) $
(0.74)
Non-GAAP weighted average
common shares used in
computing basic and diluted
net loss per common share
(in thousands) 35,200 35,200 34,200 34,200
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