Instructure(INST) - 2024 Q1 - Quarterly Results

Financial Highlights and Business Overview Instructure exceeded Q1 2024 guidance with $155.5 million revenue (20.7% growth) and a 41.8% Adjusted EBITDA margin, demonstrating strong operational scale and Parchment integration - CEO Steve Daly highlighted that Q1 results exceeded all guided metrics, demonstrating the platform's durability and operational scale, and noted positive momentum in integrating Parchment[2] Q1 2024 Key Financial Highlights (YoY) | Metric | Q1 2024 Value | Year-over-Year Change | | :--- | :--- | :--- | | Revenue | $155.5 million | +20.7% | | Organic Constant Currency Revenue Growth | N/A | 6.8% | | Subscription and Support Revenue | $144.7 million | +22.1% | | GAAP Net Loss | ($21.1) million | Increased by $9.3M | | GAAP Net Loss Margin | (13.6)% | Decreased 440 bps | | Adjusted EBITDA | $64.9 million | +$16.6M | | Adjusted EBITDA Margin | 41.8% | Expanded 430 bps | - The increase in GAAP Net Loss to $21.1 million was primarily driven by higher interest expense resulting from the acquisition of Parchment[5] Financial Performance Analysis Q1 2024 saw revenue grow 20.7% to $155.5 million, with Non-GAAP Operating Income and Adjusted EBITDA up 34.6%, while the Parchment acquisition increased total debt to $1.17 billion Key Financials (Three months ended March 31) | Metric | 2024 | 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $155.5M | $128.8M | 20.7% | | Loss from Operations | ($6.1M) | ($5.9M) | 2.8% | | Non-GAAP Operating Income* | $63.5M | $47.2M | 34.6% | | GAAP Net Loss | ($21.1M) | ($11.9M) | 78.2% | | Adjusted EBITDA* | $64.9M | $48.3M | 34.6% | | Adjusted EBITDA Margin* | 41.8% | 37.5% | 430 bps | | Remaining Performance Obligations (RPO) | $820.4M | $703.7M | 16.6% | - The Parchment acquisition significantly impacted the balance sheet: cash and equivalents decreased from $344.2 million (Dec 31, 2023) to $89.3 million, while total debt increased from $491.3 million to $1,173.3 million[7] - As of March 31, 2024, the total leverage ratio was 5.1x and the net leverage ratio was 4.7x, with the company on track for a year-end net leverage ratio of 3.4x[7] Second Quarter and Full Year 2024 Guidance Instructure projects Q2 2024 revenue between $166.5 million and $167.5 million, with full-year revenue expected to range from $656.5 million to $666.5 million and Adjusted EBITDA from $271.0 million to $274.0 million Second Quarter 2024 Guidance (in millions) | Metric | Amount | YoY Change | | :--- | :--- | :--- | | Revenue | $166.5 - $167.5 | 27.0% - 27.8% | | Non-GAAP operating income* | $66.0 - $67.0 | 31.6% - 33.6% | | Adjusted EBITDA* | $67.5 - $68.5 | 31.7% - 33.6% | | Non-GAAP net income* | $28.0 - $29.0 | 0.1% - 3.7% | Full Year 2024 Guidance (in millions) | Metric | Amount | YoY Change | | :--- | :--- | :--- | | Revenue | $656.5 - $666.5 | 23.8% - 25.7% | | Non-GAAP operating income* | $265.0 - $268.0 | 26.3% - 27.8% | | Adjusted EBITDA* | $271.0 - $274.0 | 26.5% - 27.9% | | Non-GAAP net income* | $123.0 - $127.0 | (1.5)% - 1.7% | | Adjusted Unlevered Free Cash Flow* | $262.0 - $265.0 | 16.2% - 17.5% | Consolidated Financial Statements This section presents the unaudited Consolidated Balance Sheets, Statements of Operations, and Statements of Cash Flows for Q1 2024, offering a detailed GAAP-based view of the company's financial position and performance Consolidated Balance Sheets Presents the company's assets, liabilities, and equity as of March 31, 2024, highlighting the impact of the Parchment acquisition on key accounts Balance Sheet Summary (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $2,791,479 | $2,157,978 | | Cash and cash equivalents | $83,015 | $341,047 | | Goodwill | $1,858,136 | $1,265,316 | | Intangible assets, net | $654,686 | $399,712 | | Total Liabilities | $1,512,904 | $872,486 | | Long-term debt, net | $1,142,090 | $482,387 | | Deferred revenue | $235,000 | $302,660 | | Total Stockholders' Equity | $1,278,575 | $1,285,492 | - The significant increase in Goodwill, Intangible Assets, and Long-term Debt from Dec 31, 2023, to March 31, 2024, is primarily due to the acquisition of Parchment[7][32] Consolidated Statements of Operations and Comprehensive Loss Details the company's revenues, expenses, and net loss for the three months ended March 31, 2024, showing the impact of increased interest expense Statement of Operations Summary (in thousands, for three months ended March 31) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Total Revenue | $155,455 | $128,843 | | Subscription and support | $144,657 | $118,480 | | Gross Profit | $101,102 | $83,011 | | Loss from Operations | ($6,080) | ($5,914) | | Interest Expense | ($22,596) | ($9,485) | | Net Loss | ($21,125) | ($11,857) | | Net Loss per Share | ($0.15) | ($0.08) | Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for Q1 2024, highlighting the significant cash impact of the Parchment acquisition Statement of Cash Flows Summary (in thousands, for three months ended March 31) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($92,553) | ($80,918) | | Net cash used in investing activities | ($823,612) | ($1,321) | | Net cash provided by financing activities | $662,191 | $766 | | Net decrease in cash | ($254,953) | ($81,172) | - Investing activities were dominated by $821.7 million used for business acquisitions (Parchment), while financing activities included $664.3 million in proceeds from new term debt to fund the acquisition[35] Reconciliation of GAAP to Non-GAAP Measures This section provides detailed reconciliations of non-GAAP financial measures to GAAP, adjusting for items like stock-based compensation and acquisition-related intangibles, to clarify underlying operational performance Reconciliation of Non-GAAP Operating Income Reconciles GAAP Loss from Operations to Non-GAAP Operating Income, adjusting for non-cash and non-recurring items such as stock-based compensation and amortization Reconciliation to Non-GAAP Operating Income (Q1 2024, in thousands) | Description | Amount | | :--- | :--- | | Loss from operations (GAAP) | ($6,080) | | Stock-based compensation | $12,445 | | Transaction costs | $5,615 | | Restructuring costs | $4,930 | | Amortization of acquisition-related intangibles | $43,326 | | Other adjustments | $3,258 | | Non-GAAP operating income | $63,494 | Reconciliation of Adjusted EBITDA Reconciles GAAP Net Loss to Adjusted EBITDA, incorporating adjustments for interest, taxes, depreciation, amortization, stock-based compensation, and other non-recurring costs Reconciliation to Adjusted EBITDA (Q1 2024, in thousands) | Description | Amount | | :--- | :--- | | Net loss (GAAP) | ($21,125) | | Interest, taxes, depreciation & amortization | $60,124 | | Stock-based compensation | $12,445 | | Transaction, restructuring & other costs | $13,797 | | Adjusted EBITDA | $64,944 | Reconciliation of Non-GAAP Net Income Reconciles GAAP Net Loss to Non-GAAP Net Income, primarily by adding back stock-based compensation and amortization of acquisition-related intangibles Reconciliation to Non-GAAP Net Income (Q1 2024, in thousands) | Description | Amount | | :--- | :--- | | Net loss (GAAP) | ($21,125) | | Stock-based compensation | $12,445 | | Amortization of acquisition-related intangibles | $43,326 | | Other adjustments (net of tax effects) | ($1,970) | | Non-GAAP net income | $32,676 | | Non-GAAP net income per diluted share | $0.22 | Reconciliation of Free Cash Flow and Adjusted Unlevered Free Cash Flow Reconciles net cash used in operating activities to Free Cash Flow and Adjusted Unlevered Free Cash Flow, adjusting for capital expenditures and financing-related items Reconciliation to Adjusted Unlevered Free Cash Flow (Q1 2024, in thousands) | Description | Amount | | :--- | :--- | | Net cash used in operating activities | ($92,553) | | Purchases of property and equipment | ($1,881) | | Free cash flow | ($94,426) | | Cash paid for interest & other adjustments | $15,446 | | Unlevered free cash flow | ($78,980) | | Transaction, restructuring & other costs | $13,663 | | Adjusted unlevered free cash flow | ($65,317) | Reconciliation of Organic Constant Currency Revenue Growth Details the calculation of organic constant currency revenue growth by adjusting reported revenue growth for inorganic contributions and foreign currency impacts Organic Constant Currency Revenue Growth (Q1 2024) | Description | Growth Rate | | :--- | :--- | | Reported revenue growth | 20.7% | | Inorganic revenue growth | (14.0%) | | Organic revenue growth | 6.7% | | Impact from foreign currency exchange | 0.1% | | Organic constant currency revenue growth | 6.8% | Reconciliation of Net Debt Provides a reconciliation of net debt and associated leverage ratios, highlighting the significant increase due to the Parchment acquisition Net Debt and Leverage Ratio | Metric | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Net Debt (in thousands) | $1,084,002 | $147,042 | | Gross leverage ratio | 5.1x | 2.3x | | Net leverage ratio | 4.7x | 0.7x | Non-GAAP Financial Measures Definitions This section defines key non-GAAP financial measures, including Non-GAAP Operating Income and Adjusted EBITDA, explaining their use for consistency and comparability by excluding non-cash or non-recurring items, and introduces new organic growth metrics post-Parchment acquisition - The company uses non-GAAP measures to provide consistency and comparability with past financial performance and to assist in comparisons with other companies[15] - Due to the recent acquisition of Parchment, Instructure introduced new non-GAAP measures: Organic Constant Currency Revenue Growth and Organic Constant Currency Subscription and Support Revenue Growth[16] - Key non-GAAP measures are defined, including Non-GAAP Operating Income, Adjusted EBITDA, Non-GAAP Net Income, and Adjusted Unlevered Free Cash Flow, which generally exclude items like stock-based compensation, amortization of acquisition-related intangibles, and various non-recurring costs[18][19][21] Other Information This section includes investor conference call details, a company overview, and standard forward-looking statement disclaimers as required by the Private Securities Litigation Reform Act of 1995 - A conference call to discuss the first quarter 2024 financial results was scheduled for May 8, 2024[11] - Instructure is an education technology company whose Learning Platform supports tens of millions of educators and learners worldwide[14] - The report contains forward-looking statements regarding financial guidance and business strategy, which are subject to risks and uncertainties such as economic conditions, customer spending, and interest rates[28][29]