| Description of Business and Summary of Significant Accounting Policies | 1. Description of Business and Summary of Significant Accounting Policies Organization On March 24, 2020, Instructure Parent, L.P. (“TopCo”) acquired 100 percent of Instructure, Inc.’s equity. Instructure Intermediate Holdings I, Inc. was a wholly-owned subsidiary of TopCo and was formed on January 14, 2020 by Thoma Bravo for the purpose of purchasing Instructure, Inc. and had no operations prior to the Take-Private Transaction. On May 26, 2021, Instructure Intermediate Holdings I, Inc. changed its name to Instructure Holdings, Inc. As a result of the Take-Private Transaction, the accompanying consolidated financial statements are presented in two distinct periods to indicate the application of two different bases of accounting between the periods presented and are therefore not comparable. The periods prior to March 31, 2020 includes all of the accounts of Instructure, Inc. (Predecessor) and the periods beginning April 1, 2020 include all of the accounts of Instructure Holdings, Inc. (Successor). For accounting purposes, the “Acquisition Date” for the Take-Private Transaction has been designated as March 31, 2020, as the operating results and change in financial position for the intervening period from March 24, 2020 to March 31, 2020 is not material. Except as otherwise stated, the financial information, accounting policies, and activities of the Successor and the Predecessor are referred to as those of the Company. See Note 3—Acquisitions for further information. Instructure, Inc. was incorporated in the state of Delaware 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, and Singapore. Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation. On July 9, 2021, the Company effected a 126,239.815 -for-1 stock split of its issued and outstanding shares of common stock and made comparable and equitable adjustments to its equity awards in accordance with the terms of the awards. The par value of the common stock was not adjusted as a result of the stock split. Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retrospectively, where applicable, to reflect this stock split. In connection with the stock split, on July 9, 2021, the Company’s board of directors and stockholders approved the Certificate of Amendment to the Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 2,000 shares to 500,000,000 shares and to increase the number of authorized shares of preferred stock from zero shares to 50,000,000 shares. No preferred stock has been issued or outstanding. On July 26, 2021, the Company completed its IPO of 12,500,000 shares of common stock at an offering price of $ 20.00 per share. The Company received net proceeds of $ 234.0 million after deducting underwriting discounts and commissions. On August 19, 2021, the underwriters partially exercised their over-allotment option and purchased an additional 1,675,000 shares of common stock at the offering price of $ 20.00 per share. The Company received additional net proceeds of $ 31.4 million after deducting underwriting discounts and commissions. Use of Estimates The preparation of the 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, valuation of stock-based compensation and common stock, acquisition related estimates, our assessment for impairment of goodwill, intangible assets, and other long-lived assets, the standalone selling price of performance obligations 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 (“CODMs”), which are our chief executive officer and chief financial officer, in deciding how to allocate resources and assess performance. Our CODMs 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 on the consolidated financial statements. Net Loss Per Share Attributable to Common Stockholders Basic net loss per share attributable to common stockholders for the year ended December 31, 2021, the Successor 2020 Period, the Predecessor 2020 Period, and year ending December 31, 2019 is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock are considered to be common stock equivalents in the Predecessor 2020 Period and year ended December 31, 2019, and restricted stock units are considered to be common stock equivalents in the year ended December 31, 2021, Predecessor 2020 Period, and the year ended December 31, 2019. There were no restricted stock units outstanding during the Successor 2020 Period. 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):
Successor Predecessor
Year Ended December 31, Period from Period from Year Ended December 31,
2021 2020 2020 2019
Numerator:
Net loss $ ( 88,679 ) $ ( 177,981 ) $ ( 22,203 ) $ ( 80,819 )
Denominator:
Weighted-average common shares outstanding—basic 132,387 126,235 38,369 36,892
Total weighted-average common shares 132,387 126,235 38,369 36,892
Dilutive effect of share equivalents resulting from — — — —
Weighted-average common shares outstanding-diluted 132,387 126,235 38,369 36,892
Net loss per common share, basic and diluted $ ( 0.67 ) $ ( 1.41 ) $ ( 0.58 ) $ ( 2.19 ) For the year ended December 31, 2021, Successor 2020 Period, Predecessor 2020 Period, and the year ended December 31, 2019 , we incurred net losses and, therefore, the effect of our outstanding options to purchase common stock, restricted stock units, and common stock through 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):
Successor Predecessor
Year Ended December 31, Period from Period from Year Ended December 31,
2021 2020 2020 2019
Options to purchase common stock — — 470 601
Restricted stock units 4,723 — 2,116 2,584
Employee stock purchase plan 176 — — 14
Total 4,899 — 2,586 3,199 Concentration of Credit Risk, Significant Customers and International Operations Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash, cash equivalents and accounts receivable. We deposit cash with high credit quality financial institutions, which at times, may exceed federally insured amounts. We have not experienced any losses on our deposits. We perform ongoing credit evaluations of our customers’ financial condition and generally require no collateral from our customers. We review the expected collectability of accounts receivable and record a provision for credit losses for amounts that we determine are not collectible. There were no customers with revenue as a percentage of total revenue exceeding 10% for the periods presented. As of December 31, 2021 and 2020, our largest customer's outstanding net accounts receivable balance as a percentage of the total outstanding net accounts receivable balance represente d 10.5 % and 11.3 %, respectively. There were no other customers with outstanding net accounts receivable balances as a percentage of the total outstanding net accounts receivable balance greater than 10% as of December 31, 2021 and 2020. Cash and Cash Equivalents We consider all short-term highly liquid investments purchased with original maturities of three months or less at the time of acquisition to be cash equivalents. Provision for Credit Losses Provision for credit losses consist of bad debt expense associated with our accounts receivable balance. These losses are recorded in general and administrative in our consolidated statements of operations. We are exposed to credit losses primarily through our receivables from customers. We develop estimates to reflect the risk of credit loss which are based on historical loss trends adjusted for asset specific attributes, current conditions and reasonable and supportable forecasts of the economic conditions that will exist through the contractual life of the financial asset. We monitor our ongoing credit exposure through an active review of collection trends. Our activities include monitoring the timeliness of payment collection, managing dispute resolution and performing timely account reconciliations. Our provisions for credit loss balances at December 31, 2021 and 2020 were $ 0.8 million and $ 0.9 million, respectively. The following is a roll-forward of our provision for credit losses (in thousands):
Balance Charged to Deductions (1) Balance at
Provision for Credit Losses
Year ended December 31, 2021 $ 902 232 ( 319 ) $ 815
Successor 2020 Period $ — 1,006 ( 104 ) $ 902
Predecessor 2020 Period $ 871 323 ( 163 ) $ 1,031
Year ended December 31, 2019 $ 1,092 377 ( 598 ) $ 871 (1) Deductions include actual accounts written-off, net of recoveries and revaluations. Property and Equipment and Intangible Assets Property and equipment are stated at cost less accumulated depreciation. Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized. Repairs and maintenance costs that do not extend the useful life or improve the related assets are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or over the related lease terms (if shorter). The estimated useful life of each asset category is as follows:
Estimated
Computer and office equipment 2 - 3 years
Purchased software 2 - 3 years
Furniture and fixtures 2 - 5 years
Capitalized software development costs 3 years
Leasehold improvement and other Lesser of lease term or useful life Certain costs incurred to develop software applications used in the cloud-based learning, assessment, development and engagement system are capitalized and included in property and equipment, net on the consolidated balance sheets. Capitalizable costs consist of (1) certain external direct costs of materials and services incurred in developing or obtaining internal-use software; and (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the project. These costs generally consist of internal labor during configuration, coding and testing activities. Research and development costs incurred during the preliminary project stage, or costs incurred for data conversion activities, training, maintenance and general and administrative or overhead costs, are expensed as incurred. Costs that cannot be separated between the maintenance of, and relatively minor upgrades and enhancements to, internal-use software are also expensed as incurred. Costs incurred during the application development stage that significantly enhance and add new functionality to the cloud-based learning, assessment, development and engagement system are capitalized as capitalized software development costs. Capitalization begins when: (1) the preliminary project stage is complete; (2) management with the relevant authority authorizes and commits to the funding of the software project; (3) it is probable the project will be completed; (4) the software will be used to perform the functions intended; and (5) certain functional and quality standards have been met. Acquired finite-lived intangibles are amortized on a straight-line basis over the estimated useful life of the asset, which ranges from three to ten years . When there are indicators of potential impairment, we evaluate recoverability of the carrying values of property and equipment and intangible assets by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds our estimated undiscounted future net cash flows, an impairment charge is recognized based on the amount by which the carrying value of the asset exceeds the fair value of the asset. We did not incur any impairment charges during the periods presented. Leases We enter into operating lease arrangements for real estate assets related to office space. Consistent with the Financial Accounting Standards Board's (“FASB”) Accounting Standards Codification (“ASC”) 842, Leases (“Topic 842”), the Company determines if an arrangement conveys the right to control the use of the identified asset in exchange for consideration. Operating leases are included as right-of-use assets and lease liabilities in the consolidated balance sheets. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease payments consist of the fixed payments under the arrangements. Variable costs, such as maintenance and utilities based on actual usage, are not included in the measurement of right-of-use assets and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs. As the implicit rate of the Company’s leases is not determinable, the Company uses an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Lease expense is recognized on a straight-line basis over the lease term. Fair Value Our short-term financial instruments include cash equivalents, accounts receivable, accounts payable and accrued liabilities and are carried on the consolidated financial statements as of December 31, 2021 and 2020 at amounts that approximate fair value due to their short-term maturity dates. Goodwill Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Goodwill is not subject to amortization, but is tested annually for impairment within our fourth fiscal quarter using an October 1 measurement date or more frequently if there are indicators of impairment. Management considers the following potential indicators of impairment: (1) significant underperformance relative to historical or projected future operating results; (2) significant changes in our use of acquired assets or the strategy of our overall business; (3) significant negative industry or economic trends; and (4) a significant decline in our stock price for a sustained period. We operate under one reporting unit and, as a result, evaluate goodwill impairment based on our fair value as a whole. Our current year impairment test did not result in any impairment of the goodwill balance. Refer to Note 8—Assets and Liabilities Held for Sale for additional information regarding impairment of goodwill. We did not recognize any additional impairment charges in any of the periods presented. We have no other intangible assets with indefinite useful lives. 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 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. Unbilled receivable balances as of December 31, 2021 and 2020 were $ 0.8 million and $ 0.8 million, respectively. 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 our learning 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 is generally recognized on a ratable basis over the contract term. Payments from customers are primarily due annually in advance. 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. 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. 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. Cost of Revenue Cost of subscription revenue consists primarily of our managed hosting provider and other third-party service providers, employee-related costs including payroll, benefits and stock-based compensation expense for our operations and customer support teams, amortization of capitalized software development costs and acquired technology, and allocated overhead costs, which we define as rent, facilities and costs related to information technology, or IT. Cost of professional services and other revenue consists primarily of personnel costs of our professional services organization, including salaries, benefits, travel, bonuses and stock-based compensation, as well as allocated overhead costs. Service Availability Warranty We warrant to our customers: (1) that commercially reasonable efforts will be made to maintain the online availability of the platform for a minimum availability in a trailing 365-day period (excluding scheduled outages, standard maintenance windows, force majeure, and outages that result from any technology issue originating from any customer or user); (2) the functionality or features of the platform may change but will not materially degrade during any paid term; and (3) that support may change but will not materially degrade during any paid term. To date, we have not experienced any significant losses under these warranties. Advertising Costs Advertising costs are expensed as incurred and are included in sales and marketing expenses. Advertising expenses totaled $ 8.3 million, $ 5.5 million, $ 1.2 million, and $ 12.5 million for the year ended December 31, 2021, Successor 2020 Period, Predecessor 2020 Period and year ended December 31, 2019, respectively. Stock-Based Compensation Successor Before our IPO, we determined the grant date fair value for all unit-based awards granted to employees and nonemployees by using an option-pricing model. As of June 30, 2021, our equity was not publicly traded and there was no history of market prices for our units. Thus, estimating grant date fair value required us to make assumptions, including the value of our equity, expected time to liquidity, and expected volatility. Stock-based compensation costs for granted units were recognized as expense over the requisite service period, which was generally the vesting period for awards, on a straight-line basis for awards with only a service condition. For granted units subject to performance conditions, the Company recorded expense when the performance condition became probable. Forfeitures were accounted for as they occurred. Subsequent to our IPO in July 2021, we account for all awards granted to employees and nonemployees using a fair value method. Stock-based compensation is recognized as an expense and is measured at the fair value of the award. The measurement date for employee awards is generally the date of the grant. Stock-based compensation costs are recognized as expense over the requisite service period, which is generally the vesting period for awards, on a straight-line basis for awards with only a service condition. Forfeitures are accounted for as they occur. We use the closing price of our common stock as reported on the New York Stock Exchange for the fair value of restricted stock units (“RSUs”) granted. We use the Black-Scholes option pricing model to determine the fair value of purchase rights issued to employees under our 2021 Employee Stock Purchase Plan (“2021 ESPP”). The Black-Scholes option pricing model is affected by the price of our common stock and a number of assumptions, including the award’s expected life, risk-free interest rate, the expected volatility of the underlying stock and expected dividends. These assumptions are estimated as follows: • Fair Value of Our Common Stock. We rely on the closing price of our common stock as reported by the New York Stock Exchange on the date of grant to determine the fair value of our common stock. • Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes option pricing model on the implied yield available on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. • Expected Term. For the 2021 ESPP, we have used an expected term of 0.6 years for the first offering period and will use an expected term of 0.5 years for subsequent offering periods. • Volatility. For the first offering period, we estimate the price volatility factor based on the historical volatilities of our comparable companies as we do not have a sufficient trading history for our common stock. To determine our comparable companies, we consider public enterprise cloud-based application providers and select those that are similar to us in size, stage of life cycle, and financial leverage. Beginning with the second offering period we will begin using the trading history of our own common stock to determine expected volatility. • Expected Dividend Yield. We have not paid and do not expect to pay dividends for the foreseeable future. Predecessor For the Predecessor 2020 Period and year ended December 31, 2019 ( “ Predecessor Periods ” ), we accounted for all stock options and awards granted to employees and nonemployees using a fair value method. Stock-based compensation was recognized as an expense and measured at the fair value of the award. The measurement date for employee awards was generally the date of the grant. Stock-based compensation costs were recognized as expense over the requisite service period, which was generally the vesting period for awards, on a straight-line basis for awards with only a service condition. Forfeitures were accounted for as they occurred. During the Predecessor Periods, we used the then closing price of our common stock as reported on the New York Stock Exchange for the fair value of RSUs granted as at that time our common stock was publicly traded. During the Predecessor Periods, we used the Black-Scholes option pricing model to determine the fair value of stock options issued to our employees, as well as purchase rights issued to employees under our 2015 Employee Stock Purchase Plan (“2015 ESPP”). The Black-Scholes option pricing model is affected by the price of our common stock and a number of assumptions, including the award’s expected life, risk-free interest rate, the expected volatility of the underlying stock and expected dividends. These assumptions are estimated as follows: • Fair Value of Our Common Stock. We relied on the closing price of our common stock as reported by the New York Stock Exchange on the date of grant to determine the fair value of our common stock. • Risk-Free Interest Rate. We based the risk-free interest rate used in the Black-Scholes option pricing model on the implied yield available on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. • Expected Term. We estimated the expected term for stock options using the simplified method due to the lack of historical exercise activity for our Company. The simplified method calculated the expected term as the mid-point between the vesting date and the contractual expiration date of the award. For the 2015 ESPP, we used an expected term of 0.5 years to match the offering period. • Volatility. For the first offering period, we estimated the price volatility factor based on the historical volatilities of our comparable companies as we did not have a sufficient trading history for our common stock. To determine our comparable companies, we considered public enterprise cloud-based application providers and select those that are similar to us in size, stage of life cycle, and financial leverage. We applied this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price became available in connection with our initial IPO (as defined herein). For the remaining offering periods of the 2015 ESPP, we used the trading history of our own common stock to determine expected volatility. • Expected Dividend Yield. We have not paid and do not expect to pay dividends for the foreseeable future. In connection with the Take-Private Transaction on March 31, 2020, and except for certain executives, outstanding equity awards (inclu ding under the 2015 Plan, the Portfolium 2014 Plan and the 2015 ESPP) (each as defined herein), whether vested or unvested, were cancelled and replaced with the right to receive the Cash Replacement Awards (as defined herein). Business Combinations We estimate the fair value of assets acquired and liabilities assumed in a business combination. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and as a result, actual results may differ from estimates. Foreign Currency The functional currency of our foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities denominated in a foreign currency are remeasured into U.S. dollars at the exchange rates in effect at the balance sheet dates. Income and expense accounts are remeasured on the date of the transaction using the exchange rate in effect on the transaction date. Non-monetary assets, liabilities, and equity transactions are converted at historical exchange rates in effect at the time of the transaction. Foreign currency transaction gains and losses are recorded in other income (expense), net on the consolidated statements of operations. Research and Development With the exception of capitalized software development costs, research and development costs are expensed as incurred. Risks and Uncertainties We are subject to all of the risks inherent in an early stage business. These risks include, but are not limited to, a limited operating history, new and rapidly evolving markets, dependence on the development of new services, unfavorable economic and market conditions, changes in level of demand for our services, and the timing of new application introductions. If we fail to anticipate or to respond adequately to technological developments in our industry, changes in customer or supplier requirements, or changes in regulatory requirements or industry standards, or any significant delays in the development or introduction of services, our business could be harmed. Income Taxes We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carryforwards. Management must make assumptions, judgments and estimates to determine our current provision for income taxes and our deferred tax assets and liabilities. We record a valuation allowance to reduce our deferred tax assets to th |
