Instructure(INST) - 2023 Q4 - Annual Results

Financial Highlights and Business Overview Q4 & Full Year 2023 Performance Summary The company achieved record full-year 2023 revenue of $530.2 million and Adjusted EBITDA of $214.2 million - Expanded scale and reach by acquiring Parchment, the world's leading credentialing platform[1] Full Year 2023 Financial Highlights (vs. FY 2022) | Metric | FY 2023 | YoY Change | | :--- | :--- | :--- | | Revenues | $530.2M | +11.6% | | Net Loss | ($34.1M) | Slight improvement | | Adjusted EBITDA* | $214.2M | +19.3% | | Adjusted EBITDA Margin* | 40.4% | +270 bps | | Cash Flow from Operations | $164.0M | +16.9% | | Adjusted Unlevered Free Cash Flow* | $225.5M | +29.9% | Fourth Quarter 2023 Financial Highlights (vs. Q4 2022) | Metric | Q4 2023 | YoY Change | | :--- | :--- | :--- | | Revenues | $135.4M | +8.5% | | Net Loss | ($5.8M) | Comparable | | Adjusted EBITDA* | $56.5M | +16.1% | | Adjusted EBITDA Margin* | 41.7% | +270 bps | | Cash Flow from Operations | $36.7M | > +100% | | Adjusted Unlevered Free Cash Flow* | $51.3M | +74.8% | Management Commentary Management highlights strong Q4 performance exceeding guidance, driven by strategic execution and the Parchment acquisition - Q4 results exceeded the high end of guidance for Revenue, Adjusted EBITDA, and Adjusted Unlevered Free Cash Flow[5] - The acquisition of Parchment is expected to meaningfully enhance scale, broaden the product portfolio, and provide access to new buyers[5] Balance Sheet and Cash Flow Summary The company maintained a strong balance sheet with $344.2 million in cash and a net leverage ratio of 0.7x Balance Sheet and Leverage (as of Dec 31, 2023) | Metric | Amount | | :--- | :--- | | Cash, Cash Equivalents & Restricted Cash | $344.2M | | Total Debt | $491.3M | | Net Leverage Ratio (Net Debt to Adj. EBITDA) | 0.7x | Full Year 2023 Cash Flow Performance (vs. FY 2022) | Metric | FY 2023 | YoY Change | | :--- | :--- | :--- | | Cash Flow from Operations | $164.0M | +16.9% | | Adjusted Unlevered Free Cash Flow | $225.5M | +29.9% | Financial Guidance Q1 2024 Guidance For Q1 2024, the company anticipates revenue between $153.8 million and $154.8 million First Quarter 2024 Guidance | Metric (in millions) | Guidance Range | | :--- | :--- | | Revenue | $153.8 - $154.8 | | Non-GAAP Operating Income* | $55.9 - $56.9 | | Adjusted EBITDA* | $57.3 - $58.3 | | Non-GAAP Net Income* | $20.0 - $21.0 | Full Year 2024 Guidance The company expects full-year 2024 revenues between $655.0 million and $665.0 million Full Year 2024 Guidance | Metric (in millions) | Guidance Range | | :--- | :--- | | Revenue | $655.0 - $665.0 | | Non-GAAP Operating Income* | $260.5 - $265.5 | | Adjusted EBITDA* | $266.5 - $271.5 | | Non-GAAP Net Income* | $105.5 - $110.5 | | Adjusted Unlevered Free Cash Flow* | $259.5 - $264.5 | - The company is unable to provide a reconciliation for forward-looking non-GAAP measures to GAAP measures without unreasonable effort due to the difficulty in forecasting certain items[2][10] Consolidated Financial Statements (GAAP) Consolidated Balance Sheets Total assets were $2.16 billion as of December 31, 2023, with a significant increase in cash and cash equivalents Key Balance Sheet Items (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $341,047 | $185,954 | | Goodwill | $1,265,316 | $1,266,402 | | Intangible assets, net | $399,712 | $542,679 | | Total Assets | $2,157,978 | $2,153,489 | | Liabilities & Equity | | | | Deferred revenue (current) | $291,784 | $275,564 | | Long-term debt, net | $486,400 | $490,484 | | Total Liabilities | $872,486 | $877,362 | | Total Stockholders' Equity | $1,285,492 | $1,276,127 | Consolidated Statements of Operations Full-year 2023 revenue grew 11.6% to $530.2 million, while the operating loss improved to $3.2 million Statement of Operations Summary - Full Year (in thousands) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Subscription and support revenue | $485,516 | $430,661 | | Total revenue | $530,210 | $475,194 | | Gross profit | $343,895 | $302,900 | | Total operating expenses | $347,113 | $319,380 | | Loss from operations | ($3,218) | ($16,480) | | Net loss | ($34,078) | ($34,242) | | Net loss per share, basic and diluted | ($0.24) | ($0.24) | Consolidated Statements of Cash Flows Net cash from operating activities for 2023 increased to $164.0 million, up from $140.3 million in 2022 Statement of Cash Flows Summary - Full Year (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $164,016 | $140,271 | | Net cash used in investing activities | ($5,890) | ($115,291) | | Net cash used in financing activities | ($5,697) | ($1,714) | | Net increase in cash | $153,942 | $21,113 | Non-GAAP Financial Measures and Reconciliations Definitions of Non-GAAP Measures The company defines non-GAAP measures used to evaluate operating performance and enhance comparability - The company uses non-GAAP measures to provide consistency and comparability with past financial performance and other companies[15] - Key non-GAAP measures defined include: - Non-GAAP Operating Income - Non-GAAP Net Income - Adjusted EBITDA & Adjusted EBITDA Margin - Adjusted Unlevered Free Cash Flow - Non-GAAP Gross Profit & Non-GAAP Gross Profit Margin - Net Debt[18][19][20] Reconciliation of GAAP to Non-GAAP Measures This section provides detailed reconciliations of GAAP results to non-GAAP measures for key financial metrics Reconciliation of Non-GAAP Operating Income Reconciliation of GAAP Loss from Operations to Non-GAAP Operating Income (in thousands) | Description | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Income (loss) from operations (GAAP) | $224 | ($3,780) | ($3,218) | ($16,480) | | Stock-based compensation | $10,575 | $10,856 | $44,196 | $39,779 | | Amortization of acquisition-related intangibles | $35,731 | $34,520 | $142,965 | $136,710 | | Transaction costs | $5,857 | $4,206 | $15,512 | $9,123 | | Other non-recurring costs | $2,956 | $630 | $10,162 | $3,365 | | Non-GAAP operating income | $55,377 | $46,511 | $209,764 | $173,882 | Reconciliation of Adjusted EBITDA Reconciliation of GAAP Net Loss to Adjusted EBITDA (in thousands) | Description | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss (GAAP) | ($5,767) | ($5,723) | ($34,078) | ($34,242) | | Interest on outstanding debt | $11,382 | $8,257 | $42,022 | $24,591 | | Income tax (benefit) expense | $459 | ($1,013) | ($4,258) | ($8,132) | | Depreciation & Amortization | $1,305 | $1,348 | $4,788 | $4,498 | | Stock-based compensation | $10,575 | $10,856 | $44,196 | $39,779 | | Amortization of acquisition-related intangibles | $35,731 | $34,520 | $142,965 | $136,710 | | Other adjustments | $5,789 | ($1,331) | $22,588 | $16,385 | | Adjusted EBITDA | $56,473 | $48,624 | $214,213 | $179,591 | Reconciliation of Free Cash Flow Reconciliation to Adjusted Unlevered Free Cash Flow (in thousands) | Description | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $36,715 | $17,003 | $164,016 | $140,271 | | Less: Purchases of property and equipment | ($1,232) | ($1,342) | ($5,940) | ($6,321) | | Free cash flow | $35,491 | $15,663 | $158,126 | $133,993 | | Adjustments (Interest, stock comp, transaction costs, etc.) | $15,802 | $13,682 | $67,363 | $39,552 | | Adjusted unlevered free cash flow | $51,293 | $29,345 | $225,489 | $173,545 | Reconciliation of Non-GAAP Net Income Reconciliation of GAAP Net Loss to Non-GAAP Net Income (in thousands) | Description | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss (GAAP) | ($5,767) | ($5,723) | ($34,078) | ($34,242) | | Stock-based compensation | $10,575 | $10,856 | $44,196 | $39,779 | | Amortization of acquisition-related intangibles | $35,731 | $34,520 | $142,965 | $136,710 | | Other adjustments & tax effects | ($7,307) | ($11,273) | ($28,247) | ($31,602) | | Non-GAAP net income | $33,232 | $28,380 | $124,836 | $110,645 | | Non-GAAP net income per share, diluted | $0.23 | $0.20 | $0.86 | $0.77 | Other Information Forward-Looking Statements The report contains forward-looking statements regarding financial guidance and strategy, subject to various risks - The press release includes forward-looking statements concerning financial guidance for Q1 and FY 2024, company growth, and business strategy[25] - Important risk factors cited include: - Continued economic uncertainty (inflation, high interest rates, recession concerns) - Reduced customer spending - Geopolitical instability - Failure to continue recent growth rates - Changes in government funding for education institutions[26] Conference Call Information A conference call was held to discuss Q4 and full-year 2023 financial results on February 20, 2024 - A conference call was held on February 20, 2024, at 5:00 PM Eastern Time to discuss the financial results[11] - A live audio webcast and a replay are available on Instructure's investor relations website[12][13]