Instructure Reports Third Quarter 2017 Financial Results

10/30/2017

Q3 2017 Revenue of $42.9 Million, Up 42% Year-Over-Year

SALT LAKE CITY, Oct. 30, 2017 /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, 2017.

Instructure official logo (PRNewsFoto/Instructure)

"We had a solid third quarter, delivering 42% revenue growth while posting continued improvements to our operating margin," said Josh Coates, CEO at Instructure. "Strong adoption of both Canvas and Bridge as well as exceptional customer satisfaction give us confidence in our ability to continue to expand our leadership position."
 
"Earlier this month we introduced our newest HCM module Bridge Perform, a platform for facilitating meaningful employee-manager interaction. We are excited about the positive response we have received to date and look forward to expanding our presence in the HCM market."

Third Quarter Financial Summary


(in thousands, except per share data)






Three Months

Ended September 30,




2017



2016




(unaudited)



(unaudited)


Revenue


$

42,948



$

30,145


Gross Margin









GAAP



71.0

%



71.3

%

Non-GAAP(1)



71.8

%



72.2

%

Operating Loss









GAAP



(12,562)




(12,267)


Non-GAAP(1)



(8,295)




(9,461)


Operating Margin









GAAP



-29.2

%



-40.7

%

Non-GAAP(1)



-19.3

%



-31.4

%

Net loss









GAAP



(12,373)




(12,317)


Non-GAAP(1)



(8,091)




(9,521)


EPS









GAAP


$

(0.42)



$

(0.44)


Non-GAAP(1)


$

(0.27)



$

(0.34)












(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, and the change in fair value of the warrant liability.

Third Quarter 2017 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 – Canvas was selected as the statewide LMS by the Utah Education and Telehealth Network for all public K-12 school districts and charter schools, and by the Wyoming Department of Education for over 100,000 K-12 and higher education students. Within the U.S. higher education market, Canvas was chosen by Tufts University for their 11,000 students. Additionally, the Georgia Institute of Technology and the University of Colorado Boulder chose Canvas as their LMS for their 25,000 and 29,000 students, respectively.
    • International – Canvas was chosen by the Centro de Integração Empresa-Escola (CIEE) for their 36,000 learners and by the Swinburne University of Technology for their 24,000 students. Additionally, the Pontifical Catholic University of Minas Gerais, one of the top private universities in Brazil and one of the largest Catholic universities in the world, selected Canvas for their entire e-learning department of 16,000 students. 
    • Corporate – Bridge Learn was selected by Discovery Communications, Clemson University, and Banco BTG Pactual, a global financial company that specializes in Investment Banking, Wealth Management and Asset Management.

Business Outlook

Today, Instructure issued financial guidance for the fourth quarter and full year 2017. 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, and the change in fair value of the warrant liability (see tables below that reconcile these non-GAAP financial measures to the related GAAP measures).

For the fourth quarter ending December 31, 2017, Instructure expects revenue of approximately $41.0 million to $41.6 million, a non-GAAP net loss of ($8.8) million to ($8.2) million, and non-GAAP net loss per share of ($0.29) to ($0.27) per common share.

For the full year ending December 31, 2017, Instructure expects revenue of approximately $156.0 million to $156.6 million, up from previously stated guidance of $152.9 million to $154.1 million, non-GAAP net loss of ($35.6) million to ($35.0) million, up from ($36.8) million to ($35.8) million, and non-GAAP net loss per share of ($1.21) to ($1.19) per common share, up from ($1.26) to ($1.23).

Conference Call Details:

Instructure will discuss its third quarter 2017 results today, October 30, 2017, via teleconference at 3:00 p.m. Mountain Time / 5:00 p.m. Eastern Time. The call may be accessed at (800) 967-7137, or outside the U.S. at (719) 325-2145, conference ID 5036293. 

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 bit.ly/INSTEarningsCall.

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 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, 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.
  • 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.

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 2017 and for the full year ending December 31, 2017, 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, 2017, which was filed with the Securities and Exchange Commission (the "SEC") on August 2, 2017, 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
Instructure
(866) 574-3127
kgodfrey@instructure.com

Becky Frost
Instructure
(801) 869-5017
press@instructure.com

 

INSTRUCTURE, INC.


CONSOLIDATED BALANCE SHEETS


(in thousands)






September 30,

2017



December 31,

2016




(unaudited)






Assets









Current assets:









Cash and cash equivalents


$

58,716



$

44,539


Short term marketable securities



8,089




23,895


Accounts receivable—net of allowances of $355 and $241 at September 30, 2017 and December 31, 2016 respectively



35,465




18,072


Prepaid expenses



6,935




5,434


Other current assets



918




936


Total current assets



110,123




92,876


Property and equipment, net



20,907




14,733


Goodwill



989




989


Intangible assets, net



731




760


Noncurrent prepaid expenses



1,757




984


Other assets



974




994


Total assets


$

135,481



$

111,336


Liabilities and stockholders' equity (deficit)









Current liabilities:









Accounts payable


$

10,146



$

5,374


Accrued liabilities



13,771




10,905


Deferred rent



897




773


Deferred revenue



109,280




72,747


Total current liabilities



134,094




89,799


Deferred revenue, net of current portion



3,942




3,144


Deferred rent, net of current portion



8,185




8,372


Warrant liability



123




25


Other long term liabilities






32


Total liabilities



146,344




101,372


Commitments and contingencies









Stockholders' equity (deficit):









Common stock



3




3


Additional paid-in capital



223,957




206,442


Accumulated other comprehensive income



(1)




(12)


Accumulated deficit



(234,822)




(196,469)


Total stockholders' equity (deficit)



(10,863)




9,964


Total liabilities and stockholders' equity (deficit)


$

135,481



$

111,336


 

INSTRUCTURE, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share data)






Three Months

Ended September 30,



Nine Months

Ended September 30,




2017



2016



2017



2016




(unaudited)



(unaudited)



(unaudited)



(unaudited)


Revenue:

















Subscription and support


$

37,427



$

25,814



$

100,590



$

68,807


Professional services and other



5,521




4,331




14,381




10,527


Total Net revenue



42,948




30,145




114,971




79,334


Cost of Revenue:

















Subscription and support



9,278




6,312




24,350




17,335


Professional services and other



3,192




2,326




8,729




6,287


Total cost of revenue



12,470




8,638




33,079




23,622


Gross profit



30,478




21,507




81,892




55,712


Operating expenses:

















Sales and marketing



22,129




17,788




62,429




51,989


Research and development



12,577




9,297




34,816




25,832


General and administrative



8,334




6,689




22,941




18,428


Total operating expenses



43,040




33,774




120,186




96,249


Loss from operations



(12,562)




(12,267)




(38,294)




(40,537)


Other income (expense):

















Interest income



84




104




199




236


Interest expense






(31)




(18)




(54)


Change in fair value of warrant liability



(15)




(10)




(98)




52


Other income (expense), net



191




(103)




318




(234)


Total other income (expense)



260




(40)




401





Loss before income taxes



(12,302)




(12,307)




(37,893)




(40,537)


Income tax expense



(71)




(10)




(207)




(109)


Net loss


$

(12,373)



$

(12,317)



$

(38,100)



$

(40,646)


Net loss per common share, basic and diluted


$

(0.42)



$

(0.44)



$

(1.31)



$

(1.47)


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



29,535




28,084




29,120




27,667


 

INSTRUCTURE, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)






Three Months

Ended September 30,



Nine Months Ended

September 30,




2017



2016



2017



2016




(unaudited)



(unaudited)



(unaudited)



(unaudited)


Operating Activities:

















Net loss


$

(12,373)



$

(12,317)



$

(38,100)



$

(40,646)


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

















Depreciation of property and equipment



1,629




946




4,322




2,832


Amortization of intangible assets



71




120




330




284


Amortization of deferred financing costs



8




11




24




34


Change in fair value of warrant liability



15




10




98




(52)


Stock-based compensation



4,267




2,804




11,707




7,701


Other



24




167




(42)




120


Changes in assets and liabilities:

















Accounts receivable, net



37,485




18,091




(17,620)




(13,887)


Prepaid expenses and other assets



51




716




(2,229)




849


Accounts payable and accrued liabilities



5,998




2,606




8,196




4,303


Deferred revenue



6,074




8,666




37,331




32,460


Deferred rent



351




(139)




(63)




(379)


Other liabilities



(32)




(31)




(32)




(361)


Net cash provided by (used in) operating activities



43,568




21,650




3,922




(6,742)


Investing Activities:

















Purchases of property and equipment



(3,875)




(1,512)




(10,830)




(4,922)


Purchases of intangible assets






(15)




(301)




(311)


Proceeds from disposal of property and equipment



12




5




50




23


Purchases of marketable securities



(8,088)







(8,088)




(24,363)


Maturities of marketable securities






(24,363)




23,900




325


Net cash provided by (used in) investing activities



(11,951)




(25,885)




4,731




(29,248)


Financing Activities:

















Proceeds from issuance of common stock from employee equity plans



1,453




1,183




5,769




4,494


Shares repurchased for tax withholdings on vesting of restricted stock



(91)







(214)





Payments of financing costs



(7)







(31)





Net cash provided by financing activities



1,355




1,183




5,524




4,494


Net increase (decrease) in cash



32,972




(3,052)




14,177




(31,496)


Cash, beginning of period



25,744




62,027




44,539




90,471


Cash, end of period


$

58,716



$

58,975



$

58,716



$

58,975


 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP GROSS MARGIN


(in thousands, except percentages)


(unaudited)






Three Months Ended

September 30,



Nine Months Ended

September 30,




2017



2016



2017



2016


GAAP gross profit


$

30,478



$

21,507



$

81,892



$

55,712


Stock-based compensation



372




256




950




722


Non-GAAP gross margin


$

30,850



$

21,763



$

82,842



$

56,434



















GAAP gross margin %



71.0

%



71.3

%



71.2

%



70.2

%

Non-GAAP gross margin %



71.8

%



72.2

%



72.1

%



71.1

%

 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP OPERATING LOSS


(in thousands, except percentages)


(unaudited)






Three Months Ended

September 30,



Nine Months Ended

September 30,




2017



2016



2017



2016


Loss from operations


$

(12,562)



$

(12,267)



$

(38,294)



$

(40,537)


Stock-based compensation



4,267




2,804




11,707




7,701


Reversal of payroll tax expense on secondary stock purchase transactions









(534)




(217)


Amortization of acquisition related intangibles






2







6


Non-GAAP operating loss


$

(8,295)



$

(9,461)



$

(27,121)



$

(33,047)



















GAAP operating margin



-29.2

%



-40.7

%



-33.3

%



-51

%

Non-GAAP operating margin



-19.3

%



-31.4

%



-23.6

%



-42

%

 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP NET LOSS


(in thousands, except per share data)


(unaudited)






Three Months Ended

September 30,



Nine Months Ended

September 30,




2017



2016



2017



2016


Net Loss


$

(12,373)



$

(12,317)



$

(38,100)



$

(40,646)


Stock-based compensation



4,267




2,804




11,707




7,701


Reversal of payroll tax expense on secondary stock purchase transactions









(534)




(217)


Amortization of acquisition related intangibles






2







6


Change in fair value of warrant liability



15




(10)




98




(52)


Non-GAAP net loss


$

(8,091)



$

(9,521)



$

(26,829)



$

(33,208)


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


$

(0.27)



$

(0.34)



$

(0.92)



$

(1.20)


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



29,535




28,084




29,120




27,667


 

INSTRUCTURE, INC.


RECONCILIATION OF 12-MONTH BILLINGS


(in thousands)


(unaudited)






Trailing Twelve Months Ended

September 30,




2017



2016


Total net revenue


$

146,517



$

101,131











Current deferred revenue









Beginning balance



81,563




53,754


Ending balance



109,280




81,563


Net change in current deferred revenue



27,717




27,809











Long term deferred revenue









Beginning balance



3,222




3,996


Ending balance



3,942




3,222


Net change in long term deferred revenue



720




(774)











Total 12-month billings


$

174,954



$

128,166


 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP OPERATING EXPENSES


Three Months Ended September 30, 2017


(in thousands)


(unaudited)






GAAP



Stock-based Compensation Expense



Reversal of Payroll Tax Associated with Equity Transactions



NON-GAAP


Operating expenses:

















Sales and marketing


$

22,129




(1,255)






$

20,874


Research and development



12,577




(1,637)







10,940


General and administrative



8,334




(1,003)







7,331


Total operating expenses


$

43,040




(3,895)






$

39,145


 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP OPERATING EXPENSES


Three Months Ended September 30, 2016


(in thousands)


(unaudited)






GAAP



Stock-based Compensation Expense



Reversal of 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




Nine Months Ended September 30, 2017




(in thousands)




(unaudited)










GAAP



Stock-based Compensation Expense



Reversal of Payroll Tax Associated with Equity Transactions



NON-GAAP




Operating expenses:



















Sales and marketing


$

62,429




(3,405)




256



$

59,280




Research and development


$

34,816




(4,375)




256




30,697




General and administrative


$

22,941




(2,977)




22




19,986




Total operating expenses


$

120,186




(10,757)




534



$

109,963




 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP OPERATING EXPENSES


Nine Months Ended September 30, 2016


(in thousands)


(unaudited)






GAAP



Stock-based Compensation Expense



Reversal of 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 NET LOSS GUIDANCE


(in thousands)


(unaudited)






Three Months Ending

December 31,



Full Year Ending

December 31,




2017



2017



2017



2017




LOW



HIGH



LOW



HIGH


Net loss


$

(13,210)



$

(12,610)



$

(51,320)



$

(50,720)


Stock-based compensation



4,400




4,400




16,110




16,110


Reversal of payroll tax expense on secondary stock purchase transactions









(530)




(530)


Change in fair value of warrant liability



50




50




150




150


Non-GAAP net loss


$

(8,760)



$

(8,160)



$

(35,590)



$

(34,990)


 

INSTRUCTURE, INC.


RECONCILIATION OF NON-GAAP NET LOSS PER COMMON SHARE GUIDANCE


(unaudited)






Three Months Ending

December 31,



Full Year Ending

December 31,




2017



2017



2017



2017




LOW



HIGH



LOW



HIGH


Net loss per common share


$

(0.44)



$

(0.42)



$

(1.75)



$

(1.73)


Stock-based compensation



0.15




0.15




0.55




0.55


Reversal of payroll tax expense on secondary stock purchase transactions









(0.02)




(0.02)


Change in fair value of warrant liability



0.00




0.00




0.01




0.01


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


$

(0.29)



$

(0.27)



$

(1.21)



$

(1.19)


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



29,900




29,900




29,300




29,300


 

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