Executive Summary

Q4 2023 revenue was $135.4M (+8.5% YoY) with Adjusted EBITDA of $56.5M (41.7% margin) and non-GAAP diluted EPS of $0.23; management said results exceeded the high end of guidance for revenue, Adjusted EBITDA, and Adjusted Unlevered FCF .
Remaining Performance Obligations (RPO) reached $833.5M (+9.7% YoY), while deferred revenue ended at ~$302.7M; management expects ~75% of RPO to convert to revenue within 24 months .
2024 guidance (includes 11 months of Parchment) implies 23.5%–25.4% revenue growth ($655–$665M) and 24.4%–26.7% Adjusted EBITDA growth ($266.5–$271.5M); non-GAAP net income is guided lower YoY, reflecting higher interest expense from the acquisition financing .
Street consensus (S&P Global) was unavailable at time of writing; we cannot assess beat/miss vs estimates. Notably, the quarter beat internal guidance and cross-sell bookings accelerated (+49% YoY), while higher-ed deal cycles remained elongated—a key swing factor into 2024 .

What Went Well and What Went Wrong

What Went Well
- Exceeded high end of Q4 guidance for revenue, Adjusted EBITDA, and Adjusted Unlevered FCF; CEO: “we exceeded the high end of our guidance range… reflecting our unrelenting focus and the strength of our model” .
- Cross-sell momentum: +49% YoY increase in cross-sell bookings in Q4; management sees ~$1B cross-sell potential excluding Parchment, with platform modules ramping into the 8,000+ customer base .
- Durable cash generation: Q4 operating cash flow $36.7M (vs $17.0M in Q4’22), Adjusted Unlevered FCF $51.3M (vs $29.3M); year-end net leverage 0.7x Net Debt/Adjusted EBITDA .
What Went Wrong
- Higher-ed deal cycles elongated globally; management expects this to be temporary but acknowledged continued stretching in Q4 and into Q1 .
- Professional services revenue declined YoY (-1.7%) in Q4 given international channel evolution; management also flagged mix shifts from direct services to partners in emerging markets, a near-term growth headwind .
- 2024 non-GAAP net income guided down 11.5%–15.5% YoY due primarily to acquisition-related interest expense; net leverage expected ~3.4x at YE 2024 before expected deleveraging .

Financial Results

Revenue, profitability, and EPS (GAAP/non-GAAP)

Metric	Q4 2022	Q3 2023	Q4 2023
Revenue ($USD Millions)	$124.7	$134.9	$135.4
Adjusted EBITDA ($USD Millions)	$48.6	$58.2	$56.5
Adjusted EBITDA Margin (%)	39.0%	43.2%	41.7%
GAAP Operating Margin (%)	-3.0%	3.4%	0.2%
Non-GAAP Operating Income ($USD Millions)	$46.5	$57.0	$55.4
Non-GAAP Diluted EPS ($)	$0.20	$0.25	$0.23

Notes: Company said Q4 results exceeded the high end of internal guidance for revenue and Adjusted EBITDA .

Segment revenue mix

Metric	Q4 2022	Q3 2023	Q4 2023
Subscription & Support Revenue ($M)	$114.5	$123.1	$125.4
Professional Services & Other Revenue ($M)	$10.2	$11.8	$10.0
Total Revenue ($M)	$124.7	$134.9	$135.4

KPIs and operating metrics

KPI	Q4 2022	Q3 2023	Q4 2023
RPO ($USD Millions)	$760.1	$862.9	$833.5
Deferred Revenue (Total, $M)	$289.4	$347.1	$302.7
Cash from Operations ($M)	$17.0	$182.6	$36.7
Adjusted Unlevered FCF ($M)	$29.3	$200.1	$51.3
Cash, Cash Equivalents & Restricted Cash ($M)	$190.3	$308.6	$344.2
Net Leverage (Net Debt / Adjusted EBITDA, x)	—	0.88x (TTM at Q3)	0.7x (YE 2023)
Non-GAAP Gross Margin (%)	77.5%	78.3%	78.1%

Guidance Changes

Q1 2024 and FY 2024 guidance issued (no prior 2024 guidance to compare)

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	Q1 2024	N/A	$153.8–$154.8	New
Non-GAAP Operating Income ($M)	Q1 2024	N/A	$55.9–$56.9	New
Adjusted EBITDA ($M)	Q1 2024	N/A	$57.3–$58.3	New
Non-GAAP Net Income ($M)	Q1 2024	N/A	$20.0–$21.0	New
Revenue ($M)	FY 2024	N/A	$655.0–$665.0	New
Non-GAAP Operating Income ($M)	FY 2024	N/A	$260.5–$265.5	New
Adjusted EBITDA ($M)	FY 2024	N/A	$266.5–$271.5	New
Non-GAAP Net Income ($M)	FY 2024	N/A	$105.5–$110.5	New
Adjusted Unlevered FCF ($M)	FY 2024	N/A	$259.5–$264.5	New

Guide vs actual (Q4 2023 guidance given on 10/30/23 vs results)

Metric	Period	Previous Guidance (Q3 release)	Actual	Result
Revenue ($M)	Q4 2023	$133.3–$135.3	$135.4	Above high end
Adjusted EBITDA ($M)	Q4 2023	$53.0–$55.0	$56.5	Above high end
Non-GAAP Net Income ($M)	Q4 2023	$32.5–$34.5	$33.2	In range

Earnings Call Themes & Trends

Topic	Q-2 (Q2 2023)	Q-1 (Q3 2023)	Current (Q4 2023)	Trend
AI initiatives	Launched AI marketplace; Khan Academy partnership; previewed AI directions at InstructureCon	Announced AI betas (course/content creation, semantic search, NL analytics)	Several AI solutions in beta; analytics likely a paid add-on; focus on cost/privacy models	Moving from preview → beta; early monetization path emerging
Higher-ed sales cycles	Pipeline strong; no elongation flagged	“Slowdown in timing of deal close” across higher ed	Elongation persisted into Q1; concentrated in higher ed globally	Elongated, stabilizing
K-12 & ESSER backdrop	“Green shoots” and strong bookings; assessment traction	Cross-sell in K-12 (assessment) continued	ESSER funds available; budgets shifting to nonrecurring (implementation/training) aiding transitions	Supportive; mix shift
Cross-sell momentum	Upsell/cross-sell strength across Mastery, Catalog, Credentials	$1B+ cross-sell opportunity; platform wins	Cross-sell bookings +49% YoY in Q4	Accelerating
Credentials/Parchment	Credentialing top-of-mind (e.g., Duke win)	Announced Parchment acquisition; $115M 2024 revenue; +$2B TAM	Closed early Feb; ARR growth high single digits for combined business; 2024 includes 11 months	Strategic integration underway
International & channels	Building channel; early APAC wins; fastest-growing region	Channel success (e.g., Philippines); partner enablement	Focusing on fewer partners; short-term services-to-channel mix depresses services revenue	Channel deepening

Management Commentary

Strategic positioning: “We surpassed the long-term margin targets we established in 2021… best-in-class operational efficiency and financial discipline” and “have never been more excited about our ability to elevate teaching and learning” entering 2024 with Parchment .
Margin/cash discipline: CFO: “Gross profit was $105.7M (78.1% margin)… Opex 37.2% of revenue, down 310 bps YoY… Adjusted EBITDA margin 41.7% (+270 bps YoY)” .
Capital allocation/leverage: “We financed [Parchment] with cash and incremental debt… net leverage at YE 2024 expected ~3.4x; expect to delever rapidly as we grow EBITDA and generate cash flow” .
Market outlook: “K-12 markets continue to be resilient as stimulus funding is available this buying season” while higher ed sales cycles are elongated but believed to be temporary .

Q&A Highlights

Higher-ed cycles: Elongation confined to higher ed globally; management views it as temporary; K-12 expected to grow faster near term .
Parchment impact: Combined ARR growth in high single digits 2023→2024; FY24 revenue includes 11 months of Parchment; synergies in G&A drive margin expansion into 2025 .
AI monetization: Early betas in course creation, search, analytics; analytics likely a paid add-on; focus on gross margin impact and privacy requirements .
LearnPlatform: Strong K-12 demand; planning higher ed beta in 2H; supports districts’ edtech rationalization as ESSER winds down .
International/channel: Doubling down on fewer, deeper partners; near-term services-to-channel mix shift may depress services growth, but long-term GTM scalability improves .

Estimates Context

Wall Street consensus from S&P Global was unavailable at time of analysis due to data mapping constraints for INST; therefore, we cannot provide a formal beat/miss vs Street. Management indicated Q4 results beat the high end of internal guidance on revenue and Adjusted EBITDA .

Key Takeaways for Investors

Cross-sell flywheel is working: +49% YoY cross-sell bookings and multi-product wins (assessment, credentials, analytics) support durable expansion within the 8,000+ customer base .
2024 set up: Revenue guide +24.5% at midpoint, with margin expansion (Adj EBITDA margin ~40.8% midpoint); non-GAAP net income step-down reflects higher interest expense from Parchment financing, not core operations .
Watch higher-ed deal cycles: Elongation remains the main headwind; evidence suggests stability rather than deterioration; K-12 demand and international channel provide offsets .
Cash and deleveraging: Strong cash conversion (Q4 OCF $36.7M, Adj U-FCF $51.3M) and 0.7x YE23 leverage provide flexibility; expect deleveraging from ~3.4x by YE24 as synergies and cash flow accrue .
Parchment expands TAM and buyer access: Adds relationships with registrars/admissions and workforce linkages; integration should widen moat in credentials and pathways (dual enrollment/course sharing), creating mid-term cross-sell catalysts .
AI optionality: Rapid progress from previews to betas; analytics likely first monetizable module; focus on low-cost delivery and privacy suggests potential for incremental, margin-friendly revenue streams .
Near-term trading lens: Positive internal beat, robust FY24 top-line guide, and cross-sell acceleration are supportive; monitor Street estimate revisions (once available), higher-ed cycle duration, and updates on Parchment synergy realization.

INSTRUCTURE HOLDINGS, INC. (INST)·Q4 2023 Earnings Summary