Instructure Reports Third Quarter 2016 Financial Results

10/31/2016

Q3 2016 Revenue of $30.1 Million, Up 44% Year-Over-Year

SALT LAKE CITY, Oct. 31, 2016 /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 third quarter ended September 30, 2016.

Instructure official logo (PRNewsFoto/Instructure)

"This quarter we delivered solid top line growth and made continued progress on our path toward profitability," said Josh Coates, CEO at Instructure.  "We continue to enjoy strong adoption of Canvas across the globe and are encouraged by the positive response to Bridge. We remain focused on product innovation to bring even more value to our customer base, attract new customers and grow our total market opportunity."



Three Months

Ended September 30,




2016



2015


Revenue


$

30,145



$

20,894


Gross Margin









GAAP



71.3

%



67.5

%

Non-GAAP(1)



72.2

%



67.9

%

Operating Loss









GAAP



(12,267)




(10,103)


Non-GAAP(1)



(9,461)




(9,088)


Net loss









GAAP



(12,317)




(10,212)


Non-GAAP(1)



(9,501)




(9,188)


EPS









GAAP(2)


$

(0.44)



$

(1.60)


Non-GAAP(1)(2)


$

(0.34)



$

(0.43)






(1)

Non-GAAP financial measures exclude stock-based compensation, payroll taxes related to secondary stock purchase transactions, amortization of acquisition related intangibles, and the change in fair value of the warrant liability.

(2)

Q3 2016 and Q3 2015 GAAP share count was 28.1M and 6.4M, respectively, due to the conversion of redeemable convertible preferred shares into common stock, which occurred on the closing of Instructure's IPO on November 18, 2015.  Non-GAAP share count assumes the conversion of the redeemable convertible preferred shares to common stock occurred at the beginning of the annual period.

 

Third Quarter 2016 Business Highlights

  • Instructure continued to grow its customer base in the third quarter. A few highlights include:
    • US Higher Education and K-12 Schools – Canvas was selected by Brigham Young University and by the University of Nebraska. Additionally, Orange County Public School District in Florida, the 9th largest school district in the US, and Kent School District, the 4th largest district in Washington selected Canvas for their LMS solution.
    • International – Canvas was chosen by TIAS in the Netherlands, the business school of Tilburg University, and by the Brisbane Grammar School in Australia.
    • Corporate – Bridge was selected by various companies across the finance, manufacturing and healthcare industries, including Delta Dental of Washington and Movement Mortgage.

Business Outlook

Today, Instructure issued financial guidance for the fourth quarter and full year 2016. The financial guidance discussed below is on a non-GAAP basis, except for revenues, and excludes stock-based compensation expense, reversal of payroll tax expense on secondary stock purchase transactions, amortization of acquisition related intangibles, and the change in fair value of the warrant liability (see table below which reconciles these non-GAAP financial measures to the related GAAP measures).

For the fourth quarter ending December 31, 2016, Instructure expects revenue of approximately $30.4 million to $31.0 million, non-GAAP net loss of ($12.4) million to ($11.9) million, and non-GAAP net loss per share of ($0.44) to ($0.42).

For the full year ending December 31, 2016, Instructure expects revenue of approximately $109.7 million to $110.3 million, revised modestly from previously stated guidance of $110.8 million to $112.0 million, non-GAAP net loss of ($45.6) million to ($45.1) million, up from ($49.0) million to ($47.5) million, and non-GAAP net loss per share of ($1.64) to ($1.62), up from ($1.75) to ($1.70).

Conference Call Details:

Instructure will discuss its third quarter 2016 results today, October 31, 2016, via teleconference at 2:30 p.m. Mountain Time / 4:30 p.m. Eastern Time. The call may be accessed at (877) 857-6173 or (719) 325-4940, passcode 3571577.  A live webcast, as well as replay, of the conference call will be accessible at Instructure's investor relations website, http://ir.instructure.com.

Non-GAAP Financial Measures

In this release, Instructure's non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating loss, non-GAAP operating margin, non-GAAP net loss, 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.

These 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, and the change in fair value of the warrant 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. Stock-based compensation from the employee sale of securities to investors, prior to our IPO, at a price above the current fair market value was dependent on our fair value assumptions and other factors that were beyond our control.
  • Accrual or reversal of payroll taxes related to secondary stock purchase transactions - In prior periods, operating expenses included employer payroll tax-related items on employee sales of securities to investors prior to our IPO. The amount of employer payroll tax-related items on these transactions was dependent on the fair market value of our stock. In the current period, operating expenses included the reversal of such payroll tax expense due to the reduction of the estimated liability.
  • 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.

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 2016 and for the full year ending December 31, 2016, 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 for the quarter ended June 30, 2016, which was filed with the Securities and Exchange Commission (the "SEC") on August 3, 2016 and other documents filed with the SEC and could cause actual results to vary from expectations. All information provided in this 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 2,000 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:
Erin Kasenchak
Instructure
(866) 574-3127
ekasenchak@instructure.com

Lisa Laukkanen
The Blueshirt Group
(415) 217-4967
Lisa@BlueshirtGroup.com

Heather Erickson
Instructure
(866) 574-3127
press@instructure.com

 


INSTRUCTURE, INC.


CONSOLIDATED BALANCE SHEETS


(in thousands)






September 30,

2016



December 31,

2015




(unaudited)






Assets









Current assets:









Cash and cash equivalents


$

58,975



$

90,471


Short term marketable securities



24,334




325


Accounts receivable—net of allowances of $269 and $225 at September 30, 2016 and December 31, 2015, respectively



23,087




9,523


Prepaid expenses



4,572




5,010


Other current assets



472




614


Total current assets



111,440




105,943


Property and equipment, net



13,805




11,732


Goodwill



989




989


Intangible assets, net



471




444


Noncurrent prepaid expenses



622




749


Other assets



1,027




1,203


Total assets


$

128,354



$

121,060


Liabilities and stockholders' equity









Current liabilities:









Accounts payable


$

5,977



$

3,912


Accrued liabilities



10,873




8,852


Deferred rent



708




541


Deferred revenue



81,563




49,384


Total current liabilities



99,121




62,689


Deferred revenue, net of current portion



3,222




2,941


Deferred rent, net of current portion



8,532




9,078


Warrant liability



35




331


Other long term liabilities



36




402


Total liabilities



110,946




75,441


Commitments and contingencies









Stockholders' equity:









Common stock



3




4


Treasury stock






(1)


Additional paid-in capital



200,961




188,517


Accumulated other comprehensive income



(9)





Accumulated deficit



(183,547)




(142,901)


Total stockholders' equity



17,408




45,619


Total liabilities and stockholders' equity


$

128,354



$

121,060


 


INSTRUCTURE, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share data)


(unaudited)






Three Months

Ended September 30,



Nine Months

Ended September 30,




2016



2015



2016



2015


Revenue:

















Subscription and support


$

25,814



$

17,609



$

68,807



$

43,557


Professional services and other



4,331




3,285




10,527




7,839


Total Net revenue



30,145




20,894




79,334




51,396


Cost of Revenue:

















Subscription and support



6,312




4,907




17,335




12,520


Professional services and other



2,326




1,887




6,287




4,717


Total cost of revenue



8,638




6,794




23,622




17,237


Gross profit



21,507




14,100




55,712




34,159


Operating expenses:

















Sales and marketing



17,788




13,172




51,989




38,303


Research and development



9,297




6,525




25,832




17,441


General and administrative



6,689




4,506




18,428




18,475


Total operating expenses



33,774




24,203




96,249




74,219


Loss from operations



(12,267)




(10,103)




(40,537)




(40,060)


Other income (expense):

















Interest income



104




6




236




13


Interest expense



(31)




(28)




(54)




(72)


Change in fair value of warrant liability



(10)




(9)




52




(536)


Other income (expense), net



(103)




(52)




(234)




(161)


Total other income (expense)



(40)




(83)







(756)


Loss before income taxes



(12,307)




(10,186)




(40,537)




(40,816)


Income tax expense



(10)




(26)




(109)




(40)


Net loss


$

(12,317)



$

(10,212)



$

(40,646)



$

(40,856)


Deemed dividend to investors












(632)


Net loss attributable to common stockholders


$

(12,317)



$

(10,212)



$

(40,646)



$

(41,488)


Net loss per common share attributable to common stockholders, basic and diluted


$

(0.44)



$

(1.60)



$

(1.47)



$

(6.61)


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



28,084




6,381




27,667




6,279


 

INSTRUCTURE, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)


(unaudited)






Three Months

Ended September 30,



Nine Months

Ended September 30,




2016



2015



2016



2015


Operating Activities:

















Net loss


$

(12,317)



$

(10,212)



$

(40,646)



$

(40,856)


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

















Depreciation of property and equipment



946




737




2,832




1,873


Amortization of intangible assets



120




77




284




232


Amortization of deferred financing costs



11




22




34




54


Change in fair value of warrant liability



10




9




(52)




536


Stock-based compensation



2,804




1,012




7,701




7,699


Other



167




54




120




165


Changes in assets and liabilities:

















Accounts receivable, net



18,091




16,938




(13,887)




(3,229)


Prepaid expenses and other assets



716




(570)




849




(3,021)


Accounts payable and accrued liabilities



2,606




(449)




4,303




3,496


Deferred revenue



8,666




11,957




32,460




25,796


Deferred rent



(139)




125




(379)




504


Other liabilities



(31)




(24)




(361)




(285)


Net cash used in operating activities



21,650




19,676




(6,742)




(7,036)


Investing Activities:

















Purchases of property and equipment



(1,512)




(1,324)




(4,922)




(4,463)


Purchases of intangible assets



(15)







(311)





Proceeds from disposal of property and equipment



5




35




23




53


Purchases of marketable securities



(24,363)




(303)




(24,363)




(1,456)


Maturities of marketable securities









325




500


Net cash used in investing activities



(25,885)




(1,592)




(29,248)




(5,366)


Financing Activities:

















Proceeds from exercise of redeemable convertible preferred stock warrants












250


Proceeds from issuance of common stock from employee equity plans



1,183




135




4,494




246


Payments of line of credit financing costs












(32)


Repayment of capital lease obligations






(57)







(207)


Net cash provided by financing activities



1,183




78




4,494




257


Net decrease in cash



(3,052)




18,162




(31,496)




(12,145)


Cash, beginning of period



62,027




(29,823)




90,471




43,915


Cash, end of period


$

58,975



$

(11,661)



$

58,975



$

31,770


 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP GROSS MARGIN


(in thousands, except percentages)


(unaudited)






Three Months Ended

September 30,



Nine Months Ended

September 30,




2016



2015



2016



2015




(unaudited)



(unaudited)










GAAP gross profit


$

21,507



$

14,100



$

55,712



$

34,159


Stock-based compensation



256




94




722




209


Non-GAAP gross margin


$

21,763



$

14,194



$

56,434



$

34,368



















GAAP gross margin %



71.3

%



67.5

%



70.2

%



66.5

%

Non-GAAP gross margin %



72.2

%



67.9

%



71.1

%



66.9

%

 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP OPERATING LOSS


(in thousands)


(unaudited)






Three Months Ended

September 30,



Nine Months Ended

September 30,




2016



2015



2016



2015




(unaudited)



(unaudited)










Loss from operations


$

(12,267)



$

(10,103)



$

(40,537)



$

(40,060)


Stock-based compensation



2,804




1,012




7,701




7,699


Payroll tax expense on secondary stock purchase transactions












1,327


Reversal of payroll tax expense on secondary stock purchase transactions









(217)





Amortization of acquisition related intangibles



2




3




6




7


Non-GAAP operating loss


$

(9,461)



$

(9,088)



$

(33,047)



$

(31,027)



















GAAP operating margin



-41

%



-48

%



-51

%



-78

%

Non-GAAP operating margin



-31

%



-43

%



-42

%



-60

%

 


INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP NET LOSS


(in thousands)


(unaudited)






Three Months Ended

September 30,



Nine Months Ended

September 30,




2016



2015



2016



2015




(unaudited)



(unaudited)










Net Loss


$

(12,317)



$

(10,212)



$

(40,646)



$

(40,856)


Stock-based compensation



2,804




1,012




7,701




7,699


Payroll tax expense on secondary stock purchase transactions












1,327


Reversal of payroll tax expense on secondary stock purchase transactions









(217)





Amortization of acquisition related intangibles



2




3




6




7


Change in fair value of warrant liability



10




9




(52)




536


Non-GAAP net loss


$

(9,501)



$

(9,188)



$

(33,208)



$

(31,287)


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


$

(0.34)



$

(0.43)



$

(1.20)



$

(1.47)


Non-GAAP weighted average common shares used in computing basic and diluted net loss per common share(1)



28,084




21,358




27,667




21,256








(1)

Non-GAAP weighted average common shares used in computing basic and diluted net loss per common share on a non-GAAP basis assumes that the redeemable convertible preferred shares that converted to common shares upon execution of our IPO were outstanding for the full year.

 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP WEIGHTED AVERAGE SHARES OUTSTANDING


(in thousands)


(unaudited)






Three Months Ended

September 30,



Nine Months Ended

September 30,




2016



2015



2016



2015




(unaudited)



(unaudited)










GAAP weighted average common shares, basic and diluted



28,084




6,381




27,667




6,279


Effect of redeemable convertible preferred stock conversion (assuming converted shares were outstanding for the full year)






14,977







14,977


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



28,084




21,358




27,667




21,256


 

INSTRUCTURE, INC.


RECONCILIATION OF 12-MONTH BILLINGS


(in thousands)


(unaudited)






Trailing Twelve Months Ended

September 30,




2016



2015


Total net revenue


$

101,131



$

65,132











Current deferred revenue









Beginning balance



53,754




33,201


Ending balance



81,563




53,754


Net change in current deferred revenue



27,809




20,553











Long term deferred revenue









Beginning balance



3,996




2,719


Ending balance



3,222




3,996


Net change in long term deferred revenue



(774)




1,277











Total 12-month billings


$

128,166



$

86,962


 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP OPERATING EXPENSES


Three Months Ended September 30, 2016


(in thousands)


(unaudited)






GAAP



Stock-based
Compensation
Expense



Payroll Tax
Associated
with Equity
Transactions



Amortization
of acquired
intangibles



NON-GAAP


Operating expenses:





















Sales and marketing


$

17,788




(775)









$

17,013


Research and development



9,297




(1,022)







(2)




8,273


General and administrative



6,689




(751)










5,938


Total operating expenses


$

33,774




(2,548)







(2)



$

31,224


 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP OPERATING EXPENSES


Three Months Ended September 30, 2015


(in thousands)


(unaudited)






GAAP



Stock-based
Compensation
Expense



Payroll Tax
Associated
with Equity
Transactions



Amortization
of acquired
intangibles



NON-GAAP


Operating expenses:





















Sales and marketing


$

13,172




(346)









$

12,826


Research and development



6,525




(344)







(2)




6,179


General and administrative



4,506




(228)










4,278


Total operating expenses


$

24,203




(918)







(2)



$

23,283


 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP OPERATING EXPENSES


Nine Months Ended September 30, 2016


(in thousands)


(unaudited)






GAAP



Stock-based
Compensation
Expense



Payroll Tax
Associated
with Equity
Transactions



Amortization
of acquired
intangibles



NON-GAAP


Operating expenses:





















Sales and marketing


$

51,989




(2,219)




57






$

49,827


Research and development



25,832




(2,742)




57




(6)




23,141


General and administrative



18,428




(2,018)




103







16,513


Total operating expenses


$

96,249




(6,979)




217




(6)



$

89,481


 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP OPERATING EXPENSES


Nine Months Ended September 30, 2015


(in thousands)


(unaudited)






GAAP



Stock-based
Compensation
Expense



Payroll Tax
Associated
with Equity
Transactions



Amortization
of acquired
intangibles



NON-GAAP


Operating expenses:





















Sales and marketing


$

38,303




(768)









$

37,535


Research and development



17,441




(871)







(7)




16,563


General and administrative



18,475




(5,851)




(1,327)







11,297


Total operating expenses


$

74,219




(7,490)




(1,327)




(7)



$

65,395


 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP NET LOSS PER COMMON SHARE





















Three Months Ending

December 31,



Full Year Ending

December 31,




2016



2016



2016



2016




LOW



HIGH



LOW



HIGH


Net loss per common share


$

(0.54)



$

(0.52)



$

(2.01)



$

(1.99)


Stock-based compensation



0.10




0.10




0.38




0.38


Reversal of payroll tax expense on secondary stock purchase transactions



-




-




(0.01)




(0.01)


Amortization of acquisition related intangibles



0.00




0.00




0.00




0.00


Change in fair value of warrant liability



(0.00)




(0.00)




(0.00)




(0.00)


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


$

(0.44)



$

(0.42)



$

(1.64)



$

(1.62)


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



28,300




28,300




27,800




27,800


 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP NET LOSS


(in thousands)





















Three Months Ending

December 31,



Full Year Ending

December 31,




2016



2016



2016



2016




LOW



HIGH



LOW



HIGH


Net loss


$

(15,280)



$

(14,780)



$

(55,926)



$

(55,426)


Stock-based compensation



2,880




2,880




10,581




10,581


Reversal of payroll tax expense on secondary stock purchase transactions



-




-




(217)




(217)


Amortization of acquisition related intangibles



3




3




9




9


Change in fair value of warrant liability



(3)




(3)




(55)




(55)


Non-GAAP net loss


$

(12,400)



$

(11,900)



$

(45,608)



$

(45,108)


 

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