Instructure(INST) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION (Unaudited) Condensed Consolidated Financial Statements Q2 2022 revenue grew 22.5% to $114.6 million, net loss improved to $(12.9) million, total assets $2.15 billion Condensed Consolidated Balance Sheets Balance Sheet Highlights (in thousands) | Account | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $83,234 | $164,928 | | Goodwill | $1,203,979 | $1,194,221 | | Total assets | $2,145,171 | $2,133,782 | | Deferred revenue (current) | $269,655 | $240,936 | | Long-term debt, net | $492,506 | $493,263 | | Total liabilities | $870,683 | $859,397 | | Total stockholders' equity | $1,274,488 | $1,274,385 | Condensed Consolidated Statements of Operations and Comprehensive Loss Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $114,577 | $93,567 | $228,039 | $187,547 | | Gross profit | $72,179 | $52,593 | $144,630 | $100,939 | | Loss from operations | $(6,628) | $(11,965) | $(10,315) | $(36,499) | | Net loss | $(12,919) | $(21,693) | $(18,464) | $(54,764) | | Net loss per share, diluted | $(0.09) | $(0.17) | $(0.13) | $(0.43) | Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(57,540) | $(52,367) | | Net cash provided by (used in) investing activities | $(22,863) | $28,405 | | Net cash provided by (used in) financing activities | $1,138 | $(52,457) | | Net decrease in cash | $(81,556) | $(76,419) | | Cash, cash equivalents, and restricted cash, end of period | $87,596 | $74,534 | Notes to Condensed Consolidated Financial Statements Key notes detail the 2021 IPO, recent acquisitions, credit facility refinancing, revenue segmentation, and stock-based compensation - On April 13, 2022, the company acquired Concentric Sky, Inc. for a total purchase consideration of $21.3 million, which was rebranded to 'Canvas Credentials', adding $9.8 million to goodwill[44][45] - In October 2021, the company entered into a new credit agreement for a $500.0 million senior secured term loan and a $125.0 million senior secured revolving credit facility, with $498.8 million outstanding as of June 30, 2022[58][62] - For the six months ended June 30, 2022, 100% of revenue was generated from Education customers, with 21% from outside the United States[65] - As of June 30, 2022, the company expects to recognize approximately $783.7 million of revenue from remaining performance obligations, with about 74% expected over the next 24 months[67] - Total stock-based compensation expense was $9.4 million for Q2 2022 and $18.9 million for the six months ended June 30, 2022[81] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses H1 2022 revenue growth, narrowed net loss, increased Adjusted EBITDA, and liquidity management Results of Operations Revenue Change (in thousands) | Period | 2022 Revenue | 2021 Revenue | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Three months ended June 30 | $114,577 | $93,567 | $21,010 | 22% | | Six months ended June 30 | $228,039 | $187,547 | $40,492 | 22% | - Revenue growth was driven by an increase in new customers, growth from existing customers through upselling and cross-selling, and contributions from recent acquisitions[136][138] - Gross margin for the six months ended June 30 improved to 63% in 2022 from 54% in 2021, with the cost of subscription and support revenue decreasing by $4.6 million[139][142] - Operating expenses for the six months ended June 30, 2022 increased across all categories compared to the prior year, mainly due to higher personnel-related costs[146][149][152] Liquidity and Capital Resources - As of June 30, 2022, principal sources of liquidity were cash, cash equivalents, and restricted cash totaling $87.6 million[161] - The company believes existing cash, its Senior Term Loan, and cash from operations will be sufficient to meet working capital and capital expenditure needs for at least the next 12 months[162] - Net cash used in operating activities was $(57.5) million for the first six months of 2022, compared to $(52.4) million in the same period of 2021, with cash flows subject to seasonal fluctuations[165][166][175] - In October 2021, the company entered a new credit agreement for a $500.0 million Senior Term Loan and a $125.0 million Senior Revolver, with $498.8 million outstanding on the term loan as of June 30, 2022[170][173] Non-GAAP Financial Measures Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Loss | $(12,919) | $(21,693) | $(18,464) | $(54,764) | | Adjustments... | ... | ... | ... | ... | | Adjusted EBITDA | $39,808 | $31,198 | $83,362 | $63,758 | Free Cash Flow (in thousands) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $8,619 | $6,365 | $(57,540) | $(52,367) | | Purchases of property and equipment | $(2,082) | $(1,196) | $(3,415) | $(1,607) | | Free cash flow | $6,551 | $5,184 | $(60,919) | $(53,950) | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency fluctuations and interest rate changes on its Senior Term Loan, with no derivative hedging - The company has foreign currency risk related to operating expenses denominated in currencies like the euro and Australian dollar, but most sales are in U.S. dollars[206] - Interest rate risk stems from the $498.8 million outstanding on the Senior Term Loan, which bears interest at 2.75% plus a variable applicable rate (0.52% at June 30, 2022)[208] - A hypothetical 10% change in foreign currency exchange rates would not have had a material impact on the condensed consolidated financial statements for the periods presented[206] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting - The CEO and CFO concluded that as of the end of the quarter, disclosure controls and procedures were effective at a reasonable assurance level[210] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[211] PART II. OTHER INFORMATION Legal Proceedings The company faces a class action lawsuit from February 2021 regarding its Take-Private Transaction, alleging breach of fiduciary duties - A class action lawsuit was filed in February 2021 against Instructure Holdings, LLC, Thoma Bravo entities, and certain former directors and officers concerning the Take-Private Transaction[215] - The complaint alleges breach of fiduciary duties and aiding and abetting such breaches, seeking unspecified damages, which the company believes lack merit[215][216] Risk Factors No material changes have occurred in the risk factors from those detailed in the 2021 10-K - No material changes have occurred in the risk factors from those detailed in the 2021 10-K[217] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report Default Upon Senior Securities No default upon senior securities to report Mine Safety Disclosures No mine safety disclosures to report Other Information No other information to report Exhibits The report includes corporate governance documents, CEO/CFO certifications, and Inline XBRL data files as exhibits - Filed exhibits include corporate governance documents, CEO/CFO certifications (Sections 302 and 906), and XBRL financial data[223]