10-Q 1 inst-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-40647

 

Instructure Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

84-4325548

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

6330 South 3000 East, Suite 700

Salt Lake City, UT 84121

(Address of principal executive offices, including zip code)

(800) 203-6755

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

INST

New York Stock Exchange

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 7, 2024, there were 145,927,863 shares of the registrant’s common stock outstanding.

 


Instructure Holdings, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2024

INDEX

 

 

 

Page

 

 

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements (unaudited)

 

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

4

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

34

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

35

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

36

 

 

 

 

 

Item 1A.

 

Risk Factors

 

36

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

 

 

 

 

Item 3.

 

Default Upon Senior Securities

 

36

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

36

 

 

 

 

Item 5.

 

Other Information

 

36

 

 

 

 

Item 6.

 

Exhibits

 

36

 

 

 

 

SIGNATURES

 

38

 

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Instructure,” and the “Company” refer to Instructure Holdings, Inc. and its wholly-owned subsidiaries.

2


PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

INSTRUCTURE HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

(unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,015

 

 

$

341,047

 

Funds held on behalf of customers

 

 

5,286

 

 

 

 

Accounts receivable—net

 

 

52,273

 

 

 

67,193

 

Prepaid expenses

 

 

68,592

 

 

 

12,082

 

Deferred commissions

 

 

12,764

 

 

 

13,705

 

Other current assets

 

 

4,207

 

 

 

4,797

 

Total current assets

 

 

226,137

 

 

 

438,824

 

Property and equipment, net

 

 

14,084

 

 

 

13,479

 

Right-of-use assets

 

 

10,021

 

 

 

9,002

 

Goodwill

 

 

1,858,136

 

 

 

1,265,316

 

Intangible assets, net

 

 

654,686

 

 

 

399,712

 

Noncurrent prepaid expenses

 

 

3,241

 

 

 

4,182

 

Deferred commissions, net of current portion

 

 

12,865

 

 

 

13,816

 

Deferred tax assets

 

 

6,842

 

 

 

6,739

 

Other assets

 

 

5,467

 

 

 

6,908

 

Total assets

 

$

2,791,479

 

 

$

2,157,978

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

12,773

 

 

$

23,589

 

Customer fund deposits

 

 

5,286

 

 

 

 

Accrued liabilities

 

 

33,576

 

 

 

23,760

 

Lease liabilities

 

 

6,837

 

 

 

7,513

 

Long-term debt, current

 

 

6,615

 

 

 

4,013

 

Deferred revenue

 

 

223,175

 

 

 

291,784

 

Total current liabilities

 

 

288,262

 

 

 

350,659

 

Long-term debt, net of current portion

 

 

1,142,090

 

 

 

482,387

 

Deferred revenue, net of current portion

 

 

11,825

 

 

 

10,876

 

Lease liabilities, net of current portion

 

 

11,795

 

 

 

9,246

 

Deferred tax liabilities

 

 

53,246

 

 

 

14,420

 

Other long-term liabilities

 

 

5,686

 

 

 

4,898

 

Total liabilities

 

 

1,512,904

 

 

 

872,486

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, par value $0.01 per share; 500,000 shares authorized as of March 31, 2024 and December 31, 2023; 145,928 and 145,207 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.

 

 

1,459

 

 

 

1,452

 

Additional paid-in capital

 

 

1,633,221

 

 

 

1,619,020

 

Accumulated deficit

 

 

(356,105

)

 

 

(334,980

)

Total stockholders’ equity

 

 

1,278,575

 

 

 

1,285,492

 

Total liabilities and stockholders’ equity

 

$

2,791,479

 

 

$

2,157,978

 

 

See accompanying notes.

3


INSTRUCTURE HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts)

(unaudited)

 

 

Three months ended
March 31,

 

 

 

2024

 

 

2023

 

Revenue:

 

 

 

 

 

 

Subscription and support

 

$

144,657

 

 

$

118,480

 

Professional services and other

 

 

10,798

 

 

 

10,363

 

Total revenue

 

 

155,455

 

 

 

128,843

 

Cost of revenue:

 

 

 

 

 

 

Subscription and support

 

 

46,312

 

 

 

38,810

 

Professional services and other

 

 

8,041

 

 

 

7,022

 

Total cost of revenue

 

 

54,353

 

 

 

45,832

 

Gross profit

 

 

101,102

 

 

 

83,011

 

Operating expenses:

 

 

 

 

 

 

Sales and marketing

 

 

59,256

 

 

 

50,850

 

Research and development

 

 

27,536

 

 

 

23,702

 

General and administrative

 

 

20,390

 

 

 

14,373

 

Total operating expenses

 

 

107,182

 

 

 

88,925

 

Loss from operations

 

 

(6,080

)

 

 

(5,914

)

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

2,508

 

 

 

1,341

 

Interest expense

 

 

(22,596

)

 

 

(9,485

)

Other income (expense)

 

 

(1,835

)

 

 

76

 

Loss on extinguishment of debt

 

 

(189

)

 

 

 

Total other income (expense), net

 

 

(22,112

)

 

 

(8,068

)

Loss before income taxes

 

 

(28,192

)

 

 

(13,982

)

Income tax benefit

 

 

7,067

 

 

 

2,125

 

Net loss and comprehensive loss

 

$

(21,125

)

 

$

(11,857

)

Net loss per common share, basic and diluted

 

$

(0.15

)

 

$

(0.08

)

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

 

 

145,455

 

 

 

143,112

 

 

See accompanying notes.

 

4


INSTRUCTURE HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except per share amounts)

(unaudited)

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

Stock, $0.01

 

 

Additional

 

 

 

 

 

Total

 

 

 

Par Value

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2023

 

 

145,207

 

 

$

1,452

 

 

$

1,619,020

 

 

$

(334,980

)

 

$

1,285,492

 

Vesting of restricted stock units

 

 

624

 

 

 

6

 

 

 

(6

)

 

 

 

 

 

 

Purchase of ESPP shares

 

 

166

 

 

 

2

 

 

 

3,226

 

 

 

 

 

 

3,228

 

Shares withheld for tax withholding on vesting of restricted stock units

 

 

(69

)

 

 

(1

)

 

 

(1,567

)

 

 

 

 

 

(1,568

)

Stock-based compensation

 

 

 

 

 

 

 

 

12,548

 

 

 

 

 

 

12,548

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(21,125

)

 

 

(21,125

)

Balances at March 31, 2024

 

 

145,928

 

 

$

1,459

 

 

$

1,633,221

 

 

$

(356,105

)

 

$

1,278,575

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

Stock, $0.01

 

 

Additional

 

 

 

 

 

Total

 

 

 

Par Value

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2022

 

 

142,917

 

 

$

1,429

 

 

$

1,575,600

 

 

$

(300,902

)

 

$

1,276,127

 

Vesting of restricted stock units

 

 

440

 

 

 

5

 

 

 

(5

)

 

 

 

 

 

 

Purchase of ESPP shares

 

 

173

 

 

 

2

 

 

 

3,293

 

 

 

 

 

 

3,295

 

Shares withheld for tax withholding on vesting of restricted stock units

 

 

(51

)

 

 

(1

)

 

 

(1,278

)

 

 

 

 

 

(1,279

)

Stock-based compensation

 

 

 

 

 

 

 

 

9,693

 

 

 

 

 

 

9,693

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,857

)

 

 

(11,857

)

Balances at March 31, 2023

 

 

143,479

 

 

$

1,435

 

 

$

1,587,303

 

 

$

(312,759

)

 

$

1,275,979

 

 

 

5


INSTRUCTURE HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three months ended
March 31,

 

 

 

2024

 

 

2023

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(21,125

)

 

$

(11,857

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation of property and equipment

 

 

1,343

 

 

 

1,203

 

Amortization of intangible assets

 

 

43,326

 

 

 

35,749

 

Amortization of deferred financing costs

 

 

1,026

 

 

 

294

 

Stock-based compensation

 

 

12,445

 

 

 

9,635

 

Deferred income taxes

 

 

(7,851

)

 

 

(3,059

)

Right-of-use assets

 

 

(644

)

 

 

991

 

Other

 

 

1,307

 

 

 

181

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

24,349

 

 

 

7,629

 

Prepaid expenses and other assets

 

 

(52,461

)

 

 

(39,557

)

Deferred commissions

 

 

1,892

 

 

 

944

 

Accounts payable and accrued liabilities

 

 

(10,446

)

 

 

(7,177

)

Deferred revenue

 

 

(85,138

)

 

 

(73,658

)

Lease liabilities

 

 

1,443

 

 

 

(1,912

)

Other liabilities

 

 

(2,019

)

 

 

(324

)

Net cash used in operating activities

 

 

(92,553

)

 

 

(80,918

)

Investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,881

)

 

 

(1,327

)

Proceeds from sale of property and equipment

 

 

8

 

 

 

6

 

Business acquisitions, net of cash received

 

 

(821,739

)

 

 

 

Net cash used in investing activities

 

 

(823,612

)

 

 

(1,321

)

Financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock from employee equity plans

 

 

3,228

 

 

 

3,295

 

Shares repurchased for tax withholdings on vesting of restricted stock units

 

 

(1,568

)

 

 

(1,279

)

Proceeds from issuance of term debt, net of discount

 

 

664,319

 

 

 

 

Change in customer fund deposits

 

 

(795

)

 

 

 

Repayments on long-term debt

 

 

(2,993

)

 

 

(1,250

)

Net cash provided by financing activities

 

 

662,191

 

 

 

766

 

Foreign currency impacts on cash, cash equivalents, restricted cash, and funds held on behalf of customers

 

 

(979

)

 

 

301

 

Net decrease in cash, cash equivalents, restricted cash, and funds held on behalf of customers

 

 

(254,953

)

 

 

(81,172

)

Cash, cash equivalents, restricted cash, and funds held on behalf of customers, beginning of period

 

 

344,208

 

 

 

190,266

 

Cash, cash equivalents, restricted cash, and funds held on behalf of customers, end of period

 

$

89,255

 

 

$

109,094

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

Cash paid for taxes

 

$

1,015

 

 

$

181

 

Interest paid

 

$

15,446

 

 

$

8,096

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Capital expenditures incurred but not yet paid

 

$

231

 

 

$

186

 

 

See accompanying notes.

 

6


INSTRUCTURE HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

The following provides a reconciliation of cash, cash equivalents, restricted cash, and funds held on behalf of customers to the amounts reported on the condensed consolidated balance sheets. Restricted cash has been disclosed in Other assets as it is associated with letters of credit obtained to secure office space from our various lease agreements (in thousands):

 

 

 

 

 

 

 

 

 

 

As of March 31,

 

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,015

 

 

$

104,758

 

Restricted cash

 

 

954

 

 

 

4,336

 

Funds held on behalf of customers

 

 

5,286

 

 

 

 

Total cash, cash equivalents, restricted cash, and funds held on behalf of customers

 

$

89,255

 

 

$

109,094

 

 

See accompanying notes.

7


INSTRUCTURE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of Business and Basis of Presentation

Company and Background

Instructure Holdings, Inc. (the “Company,” “Instructure,” “we,” “our,” or “us”) is an education technology company dedicated to elevating student access, amplifying the power of teaching, and inspiring everyone to learn together. Instructure’s platform delivers a next-generation learning management system (“LMS”), robust assessments for learning, actionable analytics, and engaging, dynamic content. Instructure offers its platform through a Software-as-a-Service, or SaaS, business model. The Company was founded in September 2008. We are headquartered in Salt Lake City, Utah, and have wholly-owned subsidiaries in the United Kingdom, Australia, the Netherlands, Hong Kong, Sweden, Brazil, Mexico, Hungary, Ireland, Canada, and Singapore.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) applicable to interim periods, under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management, we have prepared the accompanying unaudited condensed consolidated financial statements on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the fiscal year ended December 31, 2023, and these condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2024. The year-end balance sheet data was derived from audited financial statements, but the interim condensed consolidated balance sheet included in this Form 10-Q does not include all disclosures required under U.S. GAAP. Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted under the rules and regulations of the SEC.

These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 21, 2024 (the “2023 10-K”).

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Such estimates, which we evaluate on an on-going basis, include provisions for credit losses, useful lives for property and equipment and intangible assets, valuation allowances for net deferred income tax assets, acquisition related estimates, our assessment for impairment of goodwill, intangible assets, and other long-lived assets, the standalone selling price of performance obligations, timing of professional services revenue recognition, and the determination of the period of benefit for deferred commissions. We base our estimates on historical experience and on various other assumptions which we believe to be reasonable.

Operating Segments

We operate in a single operating segment: cloud-based learning management, assessment and performance systems. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the chief operating decision makers (“CODM”), which are our chief executive officer and chief financial officer, in deciding how to allocate resources and assess performance. Our CODM evaluate our financial information and resources and assess the performance of these resources on a consolidated basis. Since we operate in one operating segment, all required financial segment information can be found in the condensed consolidated financial statements.

 

2. Summary of Significant Accounting Policies

A summary of the Company’s significant accounting policies is discussed in “Note 1 – Description of Business and Summary of Significant Accounting Policies” of the 2023 10-K. There have been no significant changes to these policies during the three months ended March 31, 2024, except as noted below.

8


Revenue Recognition

We generate revenue primarily from two main sources: (1) subscription and support revenue, which is comprised of SaaS fees from customers accessing our learning platform and usage of our credential management platform, and from customers purchasing additional support beyond the standard support that is included in the basic SaaS fees; and (2) related professional services revenue, which is comprised of training, implementation services and other types of professional services. Consistent with ASC 606, Revenue from Contracts with Customers, revenue is recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The timing of revenue recognition may differ from the timing of invoicing our customers. We record an unbilled receivable, which is included within accounts receivable—net on our consolidated balance sheets, when revenue is recognized prior to invoicing.

We determined revenue recognition through the following steps:

Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, we satisfy a performance obligation

The following describes the nature of our primary types of revenue and the revenue recognition policies and significant payment terms as they pertain to the types of transactions we enter into with our customers.

Subscription and Support

Subscription and support revenue is derived from fees from customers to access and use our learning platform and our credential management platform, and support beyond the standard support that is included with all subscriptions. The terms of our subscriptions do not provide customers the right to take possession of the software. Subscription and support revenue from our learning platform is generally recognized on a ratable basis over the contract term. Payments from customers are primarily due annually in advance. Subscription and support revenue from our credential management platform is generally recognized based on the proportion of credentials transferred to the total estimated credentials to be transferred over the contract period. Customers choose to access and use the credential management platform through subscription contracts by committing to guaranteed minimum payments with excess volume billed in arrears, or through transactional contracts where payment generally occurs once an order is placed. The Company records pass through fees for transactional contracts on a net revenue basis, as the Company does not have control over the credential and is therefore acting as the agent.

Professional Services and Other

Professional services revenue is derived from implementation, training, and consulting services. Our professional services are typically considered distinct from the related subscription services as the promise to transfer the subscription can be fulfilled independently from the promise to deliver the professional services (i.e., customer receives standalone functionality from the subscription and the customer obtains the intended benefit of the subscription without the professional services). Professional services arrangements are billed in advance, and revenue from these arrangements is typically recognized over time as the services are rendered, using an efforts-expended input method. Implementation services also include nonrefundable upfront setup fees, which are allocated to the remaining performance obligations.

Contracts with Multiple Performance Obligations

Many of our contracts with customers contain multiple performance obligations. We account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (“SSP”) basis. We determine the SSP based on our overall pricing objectives by reviewing our significant pricing practices, including discounting practices, geographical locations, the size and volume of our transactions, the customer type, price lists, our pricing strategy, and historical standalone sales. SSP is analyzed on a periodic basis to identify if we have experienced significant changes in our selling prices.

9


Deferred Commissions

Sales commissions earned by our sales force, as well as related payroll taxes, are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be generally four years. We determined the period of benefit by taking into consideration our customer contracts, our technology and other factors. Amortization of deferred commissions is included in sales and marketing expenses in the accompanying consolidated statements of operations and comprehensive loss.

Deferred Revenue

Deferred revenue consists of billings and payments received in advance of revenue recognition generated by our subscription and support services and professional services and other, as described above.

Funds Held on Behalf of Customers and Customer Fund Deposits

Funds held on behalf of customers and customer fund deposits represent cash received or in-transit from credential requestors via third-party credit card processors and other payment methods. The Company generally remits payment to customers within 30 to 60 days following the purchase of a credential. Funds held on behalf of customers represent the total amount due to customers, and as such, a liability for the same amount is recorded to customer fund deposits. The funds held on behalf of customers are not available for general business use by the Company.

Recent Accounting Pronouncements

Issued accounting pronouncements

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280), which updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the CODM and included within each reported measure of a segment's profit or loss. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements and related notes.

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740), which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements and related notes.

 

3. Net Loss Per Share

 

A reconciliation of the denominator used in the calculation of basic and diluted net loss per share is as follows (in thousands, except per share amounts):

 

 

 

Three months ended
March 31,

 

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

(21,125

)

 

$

(11,857

)

Denominator:

 

 

 

 

 

 

Weighted-average common shares outstanding—basic

 

 

145,455

 

 

 

143,112

 

Dilutive effect of share equivalents resulting from unvested restricted stock units and shares for issuance under employee stock purchase plan

 

 

 

 

 

 

Weighted-average common shares outstanding—diluted

 

 

145,455

 

 

 

143,112

 

Net loss per common share, basic and diluted

 

$

(0.15

)

 

$

(0.08

)

 

10


 

For the three months ended March 31, 2024 and 2023, we incurred net losses and, therefore, the effect of our restricted stock units (“RSUs”) and of shares issuable under the employee stock purchase plan were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive. The following table contains share totals with a potentially dilutive impact (in thousands):

 

 

 

 

 

 

 

 

 

 

Three months ended
March 31,

 

 

 

2024

 

 

2023

 

Restricted stock units

 

 

5,618

 

 

 

6,656

 

Shares issuable under employee stock purchase plan

 

 

33

 

 

 

28

 

Total

 

 

5,651

 

 

 

6,684

 

 

 

4. Property and Equipment

Property and equipment consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Computer and office equipment

 

$

6,157

 

 

$

5,437

 

Capitalized software development costs

 

 

14,870

 

 

 

13,556

 

Furniture and fixtures

 

 

1,189

 

 

 

1,153

 

Leasehold improvements and other

 

 

4,485

 

 

 

6,270

 

Total property and equipment

 

 

26,701

 

 

 

26,416

 

Less accumulated depreciation and amortization

 

 

(12,617

)

 

 

(12,937

)

Total

 

$

14,084

 

 

$

13,479

 

Accumulated amortization for capitalized software development costs was $5.5 million and $4.7 million at March 31, 2024 and December 31, 2023, respectively. Amortization expense for capitalized software development costs for the three months ended March 31, 2024 and March 31, 2023 was $0.8 million and $0.6 million, respectively, and is recorded within subscription and support cost of revenue on the condensed consolidated statements of operations and comprehensive loss.

11


 

5. Acquisitions

2024 Acquisitions

On February 1, 2024, we acquired all outstanding shares of PCS Holdings, LLC (“Parchment”), the world's largest academic credentialing platform and network. By adding Parchment to the Instructure Learning Platform, we provide a verifiable and comprehensive digital passport of achievement records and outcomes for learners.

At the time of the acquisition, we recorded a provisional net deferred tax liability of $46.6 million in purchase accounting due to the step up in book basis of intangible assets as a result of the stock acquisition. We expect the net deferred tax liability to decrease as book amortization expense is recognized on the acquisition-related intangible assets. The conclusions below will remain provisional until the Parchment tax returns are filed.

The following table summarizes the preliminary estimated fair values of the consideration transferred, assets acquired and liabilities assumed as of the date of the Parchment acquisition (in thousands):

 

Consideration transferred

 

 

 

Cash paid

 

$

831,264

 

Escrow

 

 

2,000

 

Total purchase consideration

 

$

833,264

 

 

 

 

 

Identifiable assets acquired

 

 

 

Cash and cash equivalents

 

$

5,445

 

Funds held on behalf of customers

 

 

6,081

 

Accounts receivable

 

 

9,746

 

Prepaid expenses and other assets

 

 

3,331

 

Property and equipment

 

 

212

 

Right-of-use assets

 

 

375

 

Intangible assets: developed technology

 

 

45,800

 

Intangible assets: trade name

 

 

12,500

 

Intangible assets: customer relationships

 

 

240,000

 

Total assets acquired

 

$

323,490

 

 

 

 

 

Liabilities assumed

 

 

 

Accounts payable and accrued liabilities

 

$

9,676

 

Customer fund deposits

 

 

6,081

 

Lease liabilities

 

 

430

 

Deferred revenue

 

 

17,478

 

Deferred tax liabilities

 

 

46,574

 

Other liabilities

 

 

2,807

 

Total liabilities assumed

 

$

83,046

 

Goodwill

 

 

592,820

 

Total purchase consideration

 

$

833,264

 

For all periods presented, the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired is recorded as goodwill, of which $235.0 million is expected to be deductible for tax purposes from the Parchment acquisition. The goodwill generated from acquisition transactions is attributable to the expected synergies to be achieved upon consummation of the business combination and the assembled workforce values. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. Amortization of developed technology is included in subscription and support cost of revenue expenses in the accompanying consolidated statements of operations and comprehensive loss. Amortization of customer relationships and trade names is included in sales and marketing expenses in the accompanying consolidated statements of operations and comprehensive loss. Amortization of non-compete agreements is included in research and development expenses in the accompanying consolidated statements of operations and comprehensive loss.

12


The following unaudited pro forma condensed combined financial information (in thousands) presents the results of operations of Instructure as if the Parchment acquisition occurred as of January 1, 2023. The unaudited pro forma results may not necessarily reflect actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations. The unaudited pro forma results reflect the elimination of historical intangible amortization expense incurred by Parchment and the step-up amortization adjustments for the fair value of intangible assets acquired, the elimination of historical interest expense incurred by Parchment on its debt and the incurrence of interest expense related to the issuance of debt in connection with the Parchment acquisition, and transaction expenses, nonrecurring post-combination compensation expense and the related adjustment to the income tax provision.

 

 

 

Three months ended
March 31,

 

 

 

2024

 

 

2023

 

Total revenue

 

$

165,513

 

 

$

153,257

 

Net loss

 

$

(22,410

)

 

$

(33,824

)

Actual revenue and net loss recorded on Instructure's condensed combined statement of operations and comprehensive loss for Parchment during the three months ended March 31, 2024 was $18.0 million, and $2.5 million, respectively.

6. Goodwill and Intangible Assets

Goodwill activity was as follows (in thousands):

 

 

Total

 

Balance as of December 31, 2023

 

$

1,265,316

 

Additions - see Note 5. “Acquisitions”

 

 

592,820

 

Balance as of March 31, 2024

 

$

1,858,136

 

 

Intangible assets consisted of the following (in thousands):

 

 

Weighted-Average
Remaining
Useful Life

 

March 31, 2024

 

 

December 31, 2023

 

 

 

 

 

Gross

 

 

Accumulated Amortization

 

 

Net

 

 

Gross

 

 

Accumulated Amortization

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

0 Months

 

$

21

 

 

$

(21

)

 

$

 

 

$

21

 

 

$

(21

)

 

$

 

Trade names

 

68 Months

 

 

138,600

 

 

 

(52,984

)

 

 

85,616

 

 

 

126,100

 

 

 

(49,336

)

 

 

76,764

 

Developed technology

 

31 Months

 

 

371,100

 

 

 

(250,499

)

 

 

120,601

 

 

 

325,300

 

 

 

(232,662

)

 

 

92,638

 

Customer relationships

 

81 Months

 

 

691,400

 

 

 

(242,959

)

 

 

448,441

 

 

 

451,400

 

 

 

(221,123

)

 

 

230,277

 

Non-compete agreements

 

20 Months

 

 

50

 

 

 

(22

)

 

 

28

 

 

 

50

 

 

 

(17

)

 

 

33

 

Total

 

 

$

1,201,171

 

 

$

(546,485

)

 

$

654,686

 

 

$

902,871

 

 

$

(503,159

)

 

$

399,712

 

Amortization expense for intangible assets was $43.3 million for the three months ended March 31, 2024, and $35.7 million for the three months ended March 31, 2023.

Based on the recorded intangible assets at March 31, 2024, estimated amortization expense is expected to be as follows (in thousands):

 

 

 

Amortization

 

 

 

Expense

 

Years Ending December 31,

 

 

 

Remainder of 2024

 

$

141,551

 

2025

 

 

146,021

 

2026

 

 

125,918

 

2027

 

 

86,180

 

2028

 

 

63,231

 

Thereafter

 

 

91,785

 

Total

 

$

654,686

 

 

13


7. Credit Facility

On October 29, 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, (the “2021 Credit Agreement”) governing our senior secured credit facilities (the “Senior Secured Credit Facilities”), consisting of a $500.0 million initial senior secured term loan facility (the “Senior Term Loan”) and a $125.0 million senior secured revolving credit facility (the “Senior Revolver”). The proceeds from the Senior Secured Credit Facilities were used, in addition to cash on hand, to (1) refinance, in full, all existing indebtedness under our initial credit agreement entered into in March of 2020 with a syndicate of lenders and Golub Capital Markets LLC (the “2021 Refinancing”), (2) pay certain fees and expenses incurred in connection with the entry into the 2021 Credit Agreement and the Refinancing, and (3) finance working capital needs of the Company and its subsidiaries for general corporate purposes.

All of the Company’s obligations under the Senior Secured Credit Facilities are guaranteed by the subsidiary guarantors named therein. The Senior Revolver includes a $10.0 million sublimit for the issuance of letters of credit. Any issuance of letters of credit will reduce the amount available under the Senior Revolver. As of March 31, 2024, we had no outstanding borrowings under our Senior Revolver.

The Senior Term Loan has a seven-year maturity and the Senior Revolver has a five-year maturity. Commencing June 30, 2022, we were required to repay the Senior Term Loan portion of the Senior Secured Credit Facilities in quarterly principal installments of 0.25% of the aggregate original principal amount of the Senior Term Loan at closing, with the balance payable at maturity. We are also required to pay an unused commitment fee to the lenders under the Senior Revolver at the Applicable Commitment Fee of the average daily unutilized commitments. The Applicable Commitment Fee ranges from 0.40% to 0.50% subject to the Company’s Consolidated First Lien Net Leverage Ratio.

On June 21, 2023, we entered into the first amendment to the 2021 Credit Agreement (the “Amended 2021 Credit Agreement”) whereby all borrowings denominated in U.S. dollars and that incur interest or fees using the Eurocurrency Rate, which are determined by reference to the London Interbank Offered Rate (“LIBOR”), have been replaced with the Secured Overnight Financing Rate (“SOFR”). For SOFR loans, the loans denominated in dollars now bear interest at the Adjusted Term SOFR Rate, which is equal to the Term SOFR Reference Rate, as published by the CME Term SOFR Administrator, plus the Term SOFR Adjustment as dictated by the interest rate period elected by the Company. The Term SOFR Adjustment ranges from 0.11448% to 0.42826% per annum. The Applicable Rate (x) for the Initial Term Loans remains at 2.75% per annum for SOFR loans and (y) for the Revolving Credit Facility remains at 2.50% per annum with applicable step downs. The transition from LIBOR to SOFR became effective on July 5, 2023. All other terms and conditions in place under the 2021 Credit Agreement on the effective date of the Amended 2021 Credit Agreement remained unchanged and in full effect.

The Amended 2021 Credit Agreement contains a financial covenant solely with respect to the Senior Revolver. If the outstanding amounts under the Senior Revolver exceed 35% of the aggregate amount of the Senior Revolver commitments, we are required to maintain at the end of each fiscal quarter a Consolidated Net Leverage Ratio of not more than 7.75 to 1.00. As of March 31, 2024, there was no amount outstanding under the Senior Revolver. The Company had $125.0 million of availability under the Senior Revolver as of March 31, 2024.

On February 1, 2024, we entered into the second amendment to the 2021 Credit Agreement as previously amended by the Amended 2021 Credit Agreement (the “Amended 2023 Credit Agreement”), by and among the Company and certain of its subsidiaries, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders named therein. Pursuant to the Amended 2023 Credit Agreement, among certain other amendments, the lenders agreed, severally and not jointly, to extend additional 2023 Incremental Term Loans (the “2023 Incremental Term Loans”) to Instructure under the 2021 Credit Agreement in an aggregate principal amount equal to $685.0 million. The Company used the proceeds of the 2023 Incremental Term Loans, borrowed under the 2021 Credit Agreement, to finance (i) the cash consideration for the acquisition of Parchment, and (ii) fees and costs incurred in connection with the acquisition and related transactions. The Senior Secured Credit Facilities, together with the Amended 2023 Credit Agreement, comprise our amended senior secured credit facilities (the “Amended Senior Secured Credit Facilities”).

As a result of the 2023 Incremental Term Loans, the Company capitalized $4.4 million and $16.3 million of debt discount costs incurred in connection with the Amended 2023 Credit Agreement in long-term debt, current and long-term debt, net of current portion, respectively, on the condensed consolidated balance sheets. The Company recognized $1.0 million of amortization of debt discount costs for the three months ended March 31, 2024 and $0.2 million for the three months ended March 31, 2023, which is recorded as interest expense in the accompanying condensed consolidated statements of operations and comprehensive loss. At March 31, 2024 and December 31, 2023, the Company had an aggregate principal amount outstanding of $1,173.3 million and $491.3 million, respectively, under the Amended Senior Secured Credit Facilities, bearing interest at 8.35% and 8.68%, respectively. The Company had $24.6 million and $4.9 million of unamortized debt discount costs at March 31, 2024 and December 31, 2023, respectively, which is recorded as a reduction of the debt balance on the Company’s condensed consolidated balance sheets.

14


As a result of the 2021 Refinancing, the Company capitalized $0.2 million and $0.8 million of deferred issuance costs incurred in connection with the Senior Revolver in other current assets and other assets, respectively, on the condensed consolidated balance sheets. The Company recognized $47.0 thousand of amortization of debt issuance costs for the three months ended March 31, 2024 and $47.0 thousand for the three months ended March 31, 2023, which is recorded as interest expense in the accompanying condensed consolidated statements of operations and comprehensive loss. The Company had $0.5 million of unamortized debt issuance costs at March 31, 2024 and December 31, 2023, which are included in other current assets and other assets on the Company’s condensed consolidated balance sheets.

The Amended Senior Secured Credit Facilities contain customary negative covenants. At March 31, 2024, the Company was in compliance with all applicable covenants pertaining to the Amended Senior Secured Credit Facilities.

The maturities of outstanding debt as of March 31, 2024 are as follows (in thousands):

 

 

Amount

 

Years Ending December 31,

 

 

 

Remainder of 2024

 

$

8,979

 

2025

 

 

11,972

 

2026

 

 

11,972

 

2027

 

 

11,972

 

2028

 

 

1,128,362

 

Thereafter

 

 

 

Total

 

$

1,173,257

 

 

8. Revenue

We have one operating segment, which is our cloud-based learning, assessment, development and engagement systems. Our customers consist of K-12 and Higher Education institutions that purchase our Canvas LMS, which includes assessments, analytics, learning content, and credentials. The following table presents the Company’s disaggregated revenues by geographic region, based on the physical location of the customer (in thousands):

 

 

 

 

 

 

 

 

 

 

Three months ended
March 31,

 

 

 

2024

 

 

2023

 

 

 

 

 

United States

 

$

126,510

 

 

$

102,596

 

Foreign

 

 

28,945

 

 

 

26,247

 

Total revenue

 

$

155,455

 

 

$

128,843

 

Percentage of revenue generated outside of the United States

 

 

19

%

 

 

20

%

Deferred Revenue and Performance Obligations

During the three months ended March 31, 2024, 81% of revenue recognized was included in our deferred revenue balance at December 31, 2023. During the three months ended March 31, 2023, 93% of revenue recognized was included in our deferred revenue balance at December 31, 2022.

Transaction Price Allocated to the Remaining Performance Obligations

As of March 31, 2024, approximately $820.4 million of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 76% of our remaining performance obligations over the next 24 months, with the balance recognized thereafter.

Concentration of Credit Risk, Significant Customers and Provision for Credit Losses

There were no customers with revenue as a percentage of total revenue exceeding 10% for the periods presented.

As of March 31, 2024 and December 31, 2023 there were no customers with outstanding net accounts receivable balances as a percentage of total outstanding net accounts receivable greater than 10%.

Our provisions for credit loss balances at March 31, 2024 and December 31, 2023 were $1.8 million and $2.0 million, respectively.

 

15


9. Deferred Commissions

Deferred commissions primarily consist of sales commissions that are capitalized as incremental contract origination costs and were $25.6 million and $27.5 million as of March 31, 2024 and December 31, 2023, respectively. Amortization expense for deferred commissions was $4.7 million for the three months ended March 31, 2024, and $4.8 million for the three months ended March 31, 2023. There was no impairment of deferred commissions during these periods.

 

10. Stock-Based Compensation

As of March 31, 2024 and December 31, 2023, there were 500,000,000 shares of common stock authorized. As of March 31, 2024 and December 31, 2023, there were 145,927,863 and 145,207,497 shares of common stock issued and outstanding, respectively.

Employee Equity Plans

The Instructure Parent, LP Incentive Equity Plan (the “2020 Plan”) was terminated in July 2021 in connection with the Company’s initial public offering (the “IPO”). As of the IPO date 6,126,802 unvested incentive units were exchanged for 3,496,739 RSUs under the 2021 Plan. These RSUs will generally vest in 11 equal quarterly installments commencing September 1, 2021.

In July 2021, our board of directors adopted the 2021 Omnibus Incentive Plan (the “2021 Plan”) and no shares remain available for issuance under the 2020 Plan. A total of 18,000,000 shares of the Company's common stock were initially reserved for issuance under the 2021 Plan. Pursuant to the terms of the 2021 Plan, the share reserve increased by 5,808,300 shares in January 2024. As of March 31, 2024, we had 24,034,135 shares of common stock available for future grants under the 2021 Plan.

In July 2021, our board of directors adopted, and our stockholders approved the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which allows eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. Each new offering period begins on or about March 1 and September 1 and is approximately six months in duration. On each purchase date, eligible employees will purchase our common stock at a price per share equal to 85% of the lesser of (1) the fair market value of our common stock on the offering date or (2) the fair market value of our common stock on the purchase date. A total of 1,900,000 shares of the Company’s common stock were initially reserved for issuance under the 2021 ESPP. Pursuant to the terms of the 2021 ESPP, the share reserve increased by 1,452,075 shares in January 2024. As of March 31, 2024, 5,304,954 shares of common stock were available for purchase under the 2021 ESPP.

During the three months ended March 31, 2024, we granted 1,739,348 RSUs to employees under the 2021 Plan. Each RSU entitles the recipient to receive one share of the Company’s common stock upon vesting. The RSUs are subject to time-based service requirements and generally vest over a four-year service period. The grant date fair value of the RSUs granted during the three months ended March 31, 2024 ranged from $21.45 to $25.41, which represents the closing stock price for the underlying common stock on the respective grant dates, with an aggregate fair value of $42.8 million.

The following two tables present stock-based compensation by award type and where the stock-based compensation expense was recorded in our condensed consolidated statements of operations and comprehensive loss (in thousands):

 

 

 

 

 

 

 

 

 

Three months ended
March 31,

 

 

 

2024

 

 

2023

 

 

 

 

 

Restricted stock units

 

 

12,048

 

 

 

9,599

 

Shares issuable under employee stock purchase plan

 

 

397

 

 

 

411

 

Total stock-based compensation

 

$

12,445

 

 

$

10,010

 

 

 

 

 

 

 

 

 

 

 

Three months ended
March 31,

 

 

 

2024

 

 

2023

 

 

 

 

 

Subscription and support cost of revenue

 

$

565

 

 

$

379

 

Professional services and other cost of revenue

 

 

644

 

 

 

414

 

Sales and marketing

 

 

3,114

 

 

 

2,528

 

Research and development

 

 

3,840

 

 

 

3,174

 

General and administrative

 

 

4,282

 

 

 

3,515

 

Total stock-based compensation

 

$

12,445

 

 

$

10,010

 

 

16


Restricted Stock Units

The following table summarizes the activity of RSUs for the three months ended March 31, 2024 (in thousands, except per unit amounts):

 

 

 

RSUs

 

 

Weighted Average Grant Date Fair Value Per Unit

 

Unvested and outstanding at December 31, 2023

 

 

4,470

 

 

$

23.68

 

Granted

 

 

1,739

 

 

 

24.60