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INSTRUCTURE HOLDINGS, INC. (INST)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 revenue was $155.5M, up 20.7% YoY, with subscription and support revenue $144.7M (+22.1% YoY); adjusted EBITDA was $64.9M (41.8% margin), exceeding all guided metrics and prompting a raise to FY 2024 guidance .
  • GAAP net loss widened to $21.1M (−13.6% margin) on higher interest expense tied to the Parchment acquisition; operating cash flow was −$92.6M due to seasonal billing and prior-quarter early collections .
  • Management highlighted Parchment revenue exceeding expectations, early traction in nontraditional learning and bundling, and reiterated a path to $1B revenue by 2028; elongated decision cycles in higher ed persist but are viewed as temporary .
  • FY 2024 guidance raised: revenue to $656.5–$666.5M, adjusted EBITDA to $271.0–$274.0M, non-GAAP net income to $123.0–$127.0M, and adjusted unlevered FCF to $262.0–$265.0M; Q2 revenue guided to $166.5–$167.5M and adj. EBITDA to $67.5–$68.5M .

What Went Well and What Went Wrong

What Went Well

  • Revenue growth and margin expansion: Q1 revenue +20.7% YoY to $155.5M and adjusted EBITDA margin expanded 430 bps to 41.8%; non-GAAP gross margin improved to 79.0% (+103 bps YoY) .
  • Parchment and platform momentum: Parchment revenue grew double digits and exceeded expectations; pro forma ARR for combined businesses grew high single digits; bundling and cross-sell showed pipeline strength in nontraditional learning .
  • Strategic wins validating international and professional learning strategy: University of Alberta, Adelaide University, Notre Dame CLR, and Indiana Association of Realtors wins expanded Canvas + credentials footprint .

Management quotes:

  • “We exceeded the high end of our guidance ranges across all guided metrics, and we are positively revising our fiscal year 2024 outlook accordingly.”
  • “Parchment revenue exceeded our expectations and grew double digits year-over-year.”
  • “Adjusted EBITDA...41.8%...as we benefited from continued scale...and a shift in our spending to later this year.”

What Went Wrong

  • GAAP loss widened: Net loss −$21.1M and margin −13.6% driven by higher interest expense from acquisition financing; net leverage rose to 4.7x TTM adj. EBITDA (including only two months of Parchment EBITDA in the ratio) .
  • Operating cash flow seasonality: CFO was −$92.6M, impacted by Q4 early collections and higher interest costs post-acquisition; adjusted unlevered FCF was −$65.3M, similar to prior year .
  • Elongated sales cycles: Higher ed decision cycles remain elongated globally, delaying closings despite elevated activity; management plans to reinvest ~half of Q1 profitability upside in 2H to drive growth .

Financial Results

MetricQ3 2023Q4 2023Q1 2024
Revenue ($USD Millions)$134.9 $135.4 $155.5
GAAP EPS (Basic & Diluted)−$0.04 −$0.04 −$0.15
Non-GAAP Diluted EPS ($)$0.25 $0.23 $0.22
Adjusted EBITDA ($USD Millions)$58.2 $56.5 $64.9
Adjusted EBITDA Margin (%)43.2% 41.7% 41.8%
Non-GAAP Gross Margin (%)78.3% 78.1% 79.0%
GAAP Gross Margin (%)64.8% 64.7% 65.0%
Non-GAAP Operating Margin (%)42.3% 40.9% 40.8%
GAAP Net Loss Margin (%)−4.1% −4.3% −13.6%

Segment revenue

SegmentQ3 2023Q4 2023Q1 2024
Subscription & Support ($M)$123.1 $125.4 $144.7
Professional Services & Other ($M)$11.8 $10.0 $10.8

KPIs and balance sheet

KPI / MetricQ3 2023Q4 2023Q1 2024
Remaining Performance Obligations ($M)$862.9 $833.5 $820.4
Deferred Revenue (Total, $M)$347.1 $302.7 $235.0
Cash, Cash Equivalents + Restricted + Funds Held ($M)$308.6 $344.2 $89.3
Total Debt ($M)$487.4 (LT net of discount) $491.3 $1,173.3
Net Leverage Ratio (x)0.88x (Q3, net debt/TTM adj. EBITDA) 0.7x (year-end) 4.7x (incl. 2 months Parchment EBITDA)
Cash From Operations ($M)$182.6 $36.7 −$92.6

Guidance Changes

MetricPeriodPrevious Guidance (as of 2/20/24)Current Guidance (as of 5/8/24)Change
Revenue ($M)FY 2024$655.0–$665.0 $656.5–$666.5 Raised
Non-GAAP Operating Income ($M)FY 2024$260.5–$265.5 $265.0–$268.0 Raised
Adjusted EBITDA ($M)FY 2024$266.5–$271.5 $271.0–$274.0 Raised
Non-GAAP Net Income ($M)FY 2024$105.5–$110.5 $123.0–$127.0 Raised
Adjusted Unlevered FCF ($M)FY 2024$259.5–$264.5 $262.0–$265.0 Raised
Revenue ($M)Q2 2024N/A$166.5–$167.5 New
Adjusted EBITDA ($M)Q2 2024N/A$67.5–$68.5 New
Non-GAAP Operating Income ($M)Q2 2024N/A$66.0–$67.0 New
Non-GAAP Net Income ($M)Q2 2024N/A$28.0–$29.0 New

Notes: Management expects to reinvest approximately half of the Q1 profitability upside during the remainder of the year, supporting growth initiatives .

Earnings Call Themes & Trends

TopicQ3 2023 (10/30/23)Q4 2023 (2/20/24)Q1 2024 (5/8/24)Trend
AI/technologyAI beta launched for course creation, semantic search, natural-language analytics; ecosystem partners enabling quick, safe AI Continued AI beta; positive feedback; exploring monetization paths for analytics “Refining AI-enabled solutions” with positive beta signals; showcase at InstructureCon 2024 Building features; early adoption expanding
Higher ed sales cyclesElevated RFPs but elongated closings in higher ed globally Elongation persists; viewed as temporary; K-12 resilient with ESSER tailwind No material change; decision-making remains elongated; cautiously optimistic Still elongated; pipeline constructive
Parchment integrationAnnounced deal; ~$115M 2024 revenue expected; TAM +$2B; high retention, double-digit growth Closed 2/1/24; ARR high single-digit growth; G&A synergies planned; leverage to 3.4x YE Revenue exceeded expectations; customers positive; cross-sell synergies emerging Performing above plan
International/EMEAWins (CFRE, partner momentum); strategy to displace legacy systems Manchester “lighthouse” win; more partners; channel expansion Wins at University of Alberta and Adelaide University International traction rising
Nontraditional learningEarly wins; AWS Academy scale-up; catalog/credentials interest Board of Regents credential win; nontraditional demand growing Dedicated teams gaining traction; pipeline strong for Catalog/Studio bundles Nontraditional contributing more
K-12 edtech effectivenessLearnPlatform interest rising; NC data privacy legislation driving adoption ESSER funds supporting implementations; cross-sell acceleration Customers rationalizing app sprawl; higher-ed Learn beta planned for 2H Growing demand

Management Commentary

  • Strategic vision: “Our vision is to be the ecosystem that powers learning for a lifetime...I’m excited by the plan we set to become a $1 billion revenue company by 2028.”
  • Quarter highlights: “Total revenue of $155.5 million increased 20.7% YoY...adjusted EBITDA of $64.9 million...41.8% margin...We exceeded the high end of our guidance ranges across all guided metrics.”
  • Margin and reinvestment: “We expect to reinvest approximately half of this profitability upside in the remainder of the year.”
  • Market backdrop: “RFP activity remains high even as decision-making remains elongated...These macro headwinds are temporary.”
  • Parchment synergy: “Bringing both the delivery of learning with the evidence of learning...early signals are positive.”

Q&A Highlights

  • Budget priorities: Institutions reallocating toward tech consolidation and nontraditional learners; moving funds from physical to tech, addressing enrollment trends .
  • Go-to-market upgrades: New land/expand motions, stronger CSM-led lead generation, early pipeline build; bundling expected to broaden contracts in selling season .
  • Parchment integration: Focused on back-office integration in 2024; running GTM separately to identify synergies; early customer interest connecting delivery and evidence of learning .
  • LearnPlatform and app rationalization: K-12 rationalizing vendor sprawl post-ESSER; higher ed beta planned 2H for edtech effectiveness; strong pipeline build .
  • Pipeline/renewals: Pipeline tracking as expected for Q2/Q3; confidence in renewals; deal sizes growing with strategic, higher-level discussions .

Estimates Context

  • We attempted to retrieve Wall Street consensus estimates (EPS, revenue, EBITDA) via S&P Global for INST, but the CIQ mapping was unavailable at the time of query. As a result, we cannot provide beat/miss vs S&P Global consensus for Q1 2024. Comparisons to guidance are provided instead [SpgiEstimatesError: Missing CIQ mapping for ticker 'INST'].

Key Takeaways for Investors

  • Durable growth with rising margins: Strong Q1 topline (+20.7% YoY) and adjusted EBITDA margin (41.8%) underscore operating leverage; FY guidance raised across revenue, margins, and FCF .
  • Parchment is a catalyst: Exceeded revenue expectations, expanding TAM and opening new buyer relationships; early synergies in credentials and pathways support ARR growth and deleveraging plan to ~3.4x YE .
  • Near-term headwinds manageable: GAAP loss and negative CFO reflect interest and seasonality; management plans targeted reinvestment and continues to view higher ed sales-cycle elongation as temporary .
  • Cross-sell and bundling: Multiproduct wins and bundles are gaining traction; nontraditional learning and edtech effectiveness (LearnPlatform) are becoming meaningful growth drivers .
  • International momentum: Lighthouse wins (Manchester) and new logos (Alberta, Adelaide) validate platform differentiation; channel strategy to drive broader reach .
  • Watch Q2 seasonality: Prime selling season in Q2/Q3; guidance implies continued margin resilience and revenue acceleration while reinvesting for growth .
  • AI narrative strengthening: Beta features progressing with pragmatic monetization paths (analytics add-on), enhancing platform stickiness over time .

Additional Relevant Press Releases (Q1 timeline)

  • FY/Q4 press release with initial FY 2024 guidance (2/20/24) .
  • Q1 results press release embedded in 8-K (5/8/24) with raised FY guidance .