- Earnings call transcript Q3 2022

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Instructure's Third Quarter 2022 Earnings Call. [Operator Instructions]. I would now like to turn the conference over to your first speaker, April Scee, Investor Relations. April, please go ahead.

April Scee

Good afternoon, and welcome to Instructure's Third Quarter 2022 Earnings Call.

the market in closed discussing issued press be the after today. will results our announced release We With me are and Chief Instructure's Chief Executive Officer, Bowen. Officer, Dale Financial Steve Daly;

conference to Before our I'd current actual uncertainties, materially. number expectations. are differ based remind of call statements company's will forward-looking results to you on we may the include like and that subject begin, These significant statements forward-looking and today's a risks

business, please a reports future and Commission. For from of financial today's with in Exchange could factors and time Securities the file other to our affect refer earnings discussion that we time and disclosure to and the results release filings,

All any information we by of today law, of us such are no as based as obligation to required statements. available assume our update on today statements made to and except

will financial non-GAAP During refer the measures. call, we GAAP to both and also

find You website. release, of measures press to GAAP our Relations can of in Investor posted the included reconciliation the section is non-GAAP which our in the

All With of the GAAP Steve. measures, a are today, turn is measure state discuss measure. unless we we let call non-GAAP, over that me the to our that, non-revenue financial

Stephen Daly

XXXX April, for Thank joining everyone. Thank our good call. you for third all and you, afternoon, quarter earnings us

Instructure metrics from positions. I another today's and as for in market for guidance. the the digital benefit and reputation all dynamics, of exceeding full strong overview provide we updated federal will innovation across quarter, funding third performance education, strong our third guidance our transformation fourth the Dale During favorable delivered call, of and XXXX year quarter an provide company results quarter and leading

non-GAAP with gross to our allocated up our back growth we the the up in or We million, optimize ACR, underlying margin strength better XX.X% XX while combined third to adjustments of receipts acquired third-party million, business. adds was demonstrate roughly Third of quarter ACR, unearned revenue quarter, GAAP as investors revenue a $XXX.X improve the growth model visibility costs We impact value delivered gives year-over-year our business support the up which XX.X% our XX.X% into technology think of of fair year-over-year. continuing this points $XXX.X the operations. basis of year-over-year, efficiency was while and

XX.X% results Third a $XX.X quarter continued about as the education that and adjusted employees proud strategy EBITDA both thank ACR I'd gross operating to to margin margin and further and things: now the results K-XX, education opportunities. like of X lines. markets, of and dedication. leverage EBITDA million, grew their and demonstrated adjusted higher international year-over-year continued the XX.X% we our these nontraditional progress on our I'm future penetrating is want across for evidence our working to review platform our excited

in focused are Canvas, businesses, this leader and platform. with expanded offerings the all of continued K-XX displacing segment our go-to-market new month set North across strength international Market the as share higher districts K-XX. driving First, market. firm XX% of last Classroom education that ListEdTech onto and Starting of research America reported the bringing are Google our using and logos

to this We continue achievement of are see rates. proud win and high

to Our of pipeline XX% to ESSER with funds budgets for healthy projects Education. are invested as be robust digital remains very transformation and according yet Department ever, the of

and retirements are cycles impacting teacher K-XX decision-making slowing term. strained capacity record However, sales and near

the in products Instructure to continue classroom learning This platform, the decision-makers and foreseeable platform ever. the future. critical confident for we that role in favorable to post-pandemic share Instructure gain to will more the of validates we We for the essential remain from continue in environment because plays hand, era. remain are other K-XX hear funding the we the our demand long-term than the expect On K-XX

a large place to Canvas to learning Schools, a XXX further live. converted Canvas a a we already implementation is of district-wide example, Instructure For K-XX pilot platform the with in Wichita district Public expand student once with plan program

Now than as turning ease education select higher a market to American rates use, experience. North more XX% superior of platform education. to high higher flexibility remain Win institutions share. continue management Canvas Canvas user and leading is learning for scalability, with

Texas, Impact. to of larger the a the using power selected engaging the San of of long-term And learning LMS, our after Impact to and platform Catalog was During Canvas, one quarter, University Canvas already long its process, with of decided as our Canvas Antonio UTSA a because product. relationship migrate our and combining Studio, replacing evaluation competitors.

XX% opportunity education to we growth nearly expect education LMS opportunity. legacy American systems, ahead, providing institutions U.S. still of as remain higher use strong North of Looking higher plenty the in

of business the year-over-year. Finally, up international the part the third XX.X% quarter, during fastest-growing remains

Our ratio focuses connectivity, a of market we Ireland, direct, where to strong high on a to device and go markets narrow where student is spend on like international education. group a there propensity

learning world-class interoperability. process after its lengthy platform to During evaluation experience of the Instructure selected and user University a due the quarter, unrivaled Galway

As enter markets we to of of international you enables growth, are momentum, resellers. gaining and know, adding a channel cost-effectively new and us also the program address we January that and year, in XX launched tier value-added this next

single education ahead, Looking international that we digits. market have the higher is share the LMS in

legacy, as business ahead. segment upgrade continue institutions believe drive durable year this fastest-growing to source will sluggish to We We growth expect segment the international in on-premise open systems. from continue and remain the our to

our I Second, success of to strategy. growing talk want platform the about

are to both strategy quarter, Since with of well by upsell. traction gained facilitated further the success learning sell our Instructure strong instructional positioned LMS, workflows cross modules. are During with XX% cross-sell additional and platform an we

competitive several curriculum due process, assessments MasteryConnect an existing a Provident During School onto after the examples, saw to Canvas quarter, added including RFP to which ability district. base and across scale Elevate District, the we our the and

Education, a state with adding saw districts contract. for win to implementations We Studio Iowa the also of meaningful more and also Department including their

meaningful Looking ahead, see early we are innings opportunity. and still on in the cross-sell

roughly $XXX a existing base. represents million alone cross-sell our portfolio in product current opportunity Our customer

and the increasingly development every organic in and of we connect to expand market. platform M&A and addressable through continue teaching our aspect as learning We expect investing

opportunities. nontraditional believe excited universities and will growth, when the seeing. you education those increasingly credentials, are wanted Canvas, Studio to address successes X beyond allows the not individuals combined it. I about are investments but on we durable We Finally, we Catalog, with early long-term walls, and to traction within to with our update only contribute also

their us harness We looking are institutions also market. that to innovative addressable are seeing strong education that interest from nontraditional expand opportunities to

and power the market our power advance long-time innovation Thunderbird's opportunities on has customer and ASU a focus XX% creatively this including Arizona to and initiative, to leaders the we global are many landscape of proud of online prosperity to learners improve of Management's the whom one empower $XXX aims and estimated We influence is during global will address School billion This to quarter, million world education, mission which to languages strategic nontraditional initiative a global XX this Canvas Instructure, through higher online chosen and the University. now education ability in ASC's $X the advances to in mission Our worldwide ASU's opportunity. believe advancing sustainable has strategy we and to ways wins in equitable to across are changing be drove globe, State women. we education share several Thunderbird different learners our initiative. and address been offer

In confident North journey about certifications our does challenges worldwide and the certification. partnership growth our business. PeopleCert, and its with the their believe application, us majority business business management facing, customers a cost-effectively to positions business XXX,XXX its growth. summary, across system as and leading on am I ability learners Canvas Even a as helps deliver a PeopleCert training of strategy, their higher with America that provider optimistic this world due assessments had education across PeopleCert new K-XX our leading of their also Canvas to international with chose and learning for are professional to and market we enter large the We that the our markets. us scale part of durable digital K-XX the share U.S. in win growing of transformation and diversification long-term outside will to chose shares

addition, the will already margins. In about results. drive Dale to financial talk continuous believe enhanced industry-leading we profitability turn to quarter will I focus over on third improvement our call now our versus our

Dale Bowen

to Thank for joining and today. everyone you, us thanks again Steve,

Before GAAP our discussing to results. detailed I'll financial results, addition in results, to discussing point I'd out that be non-GAAP certain like

Relations non-GAAP Instructure section release, strong financial of GAAP unique our and Investor website. Our results, posted combination along the margins. best-in-class between results reconciliation both GAAP in our can found display the growth in of organic and which a to continues is with be earnings

our XX.X% further business. XX.X% adjusted we remained a rule validating third underlying XX-plus quality the of quarter growth XXXX, the ACR company margins, EBITDA and For of with of

As ACR of generated up XX.X% million, and of $XXX.X quarter Steve $XXX.X mentioned, up total we XXXX year-over-year. XX.X% revenue third million, year-over-year GAAP

impact to As XX.X% of a our the a Subscription continued $XXX.X obligations our XX.X% of the revenue at In in and and revenue over Please primarily value our delivery driven strong months. performance our note momentum refer comments, third within based for up the our quarter, third acquired we otherwise and the margins business. services other up health year-over-year by better of operating recognized revenue third cross-sell adjustments all $XX.X million, unless higher both at a I revenue underlying XX% XX Deferred and third revenue, to strong education unearned we the next million, and of investors domestically other into training to reminder, our calculate was that Professional LMS so approximately year-over-year, XX.X% revenue RPO were of quarter quarter it expenses, remainder third our margins share fair of support of the visibility the from million, XX% on the count internationally, basis. for in XXXX. at discussing are statement, result business. quarter the $XXX.X provides up million products. upcoming non-GAAP quarter accounted Remaining ACR. that ACR adds XX.X% RPO revenue references upsell on when and and accounted product, of in the $XXX.X of back XX.X% stated, services our up or in to addition the core end Canvas year-over-year, note upon please results income of implementation as

and quarter was is architecture representing demand with to million, a the of Our cloud In flexible our of a XX.X% gross strong meet XX.X%. optimized support gross our gross margin This of XXXX. remains third to gross scales that quarter, to in the structure margin third customer compared profile $XX.X demands. very profit margin

was of from quarter now of quarter adjusted line quarter operating third third the Turning our XXXX. invested or operating in product XXXX XX.X% marketing margin, a strong were our the management X.X% or road in growth or in third the in income for expenses. XX.X% both for a XX.X% the expectations XXXX. for of were XX.X% and $X.X XX.X% top quarter ACR, $XX.X better ambitious in and third than in third of million Research was third up the representing result quarter ACR, up expenses $XX.X adjusted from expenses million, the up to XX.X% XXXX. third and quarter of XXXX. as $XX.X structure. million, General $XX.X the ACR, to third third down disciplined from operating the margin representing Sales quarter from reflective pursue third million from of up for of In of our and of This and cost XX.X% EBITDA our was map. quarter engineering million headcount we the expenses administrative quarter Non-GAAP X.X% the of quarter, were margin, EBITDA development XX.X%

adjusted net point and of are year per demonstrating million share $XX.X million improvement in basis and compared $XX.X operating ago. with of income We net margins for third pleased to the quarter income EBITDA per model. or roughly Non-GAAP efficiency or $X.XX the power the a our XX share was $X.XX margins,

in debt cash balance in cash quarter debt, to a the adjusted cash, net of to X.Xx cash and months $XXX.X XX Turning statement. restricted ratio. We $XXX.X equivalents and EBITDA flow resulting third million net discount, with million of sheet and ended the trailing long-term

the the business collections the with cash vast reminder, quarters. a quarters invoiced and the in As in timing is third highly and and fourth majority of of collected seasonal annual second our fees third during license

quarter flow cash the and quarter was of and compared million year. during lower was XXXX. million in million third $XXX.X in third to in $XXX.X million year XXXX. the our of quarter are during cash first result, a cash half quarter of the third the cash third As to half of grew $XXX.X the the second Free compared $XXX.X the significantly balances the Operating in flow flows

million $XXX.X compared free XXXX. of third the in $XXX.X quarter adjusted third to cash Our quarter million the unlevered was in flow

the our which favorable expenditures as next reminder, flow will EBITDA. As the I shield now accumulated conclude adjusted several capital for is conversion the ACR and our XXXX full we terms, year flow cash a cash our and fourth will strong act believe for of low the for guidance free driven quarter years. by billing free a by tax updated providing guidance and for call unlevered assets,

We have provided press guidance earnings details our additional release. in

a We the at of quarter rate expect in of range million million fourth to X.X% growth the XXXX or ACR $XXX.X the of midpoint $XXX.X range.

guidance. a our million prior growth rate for the to to rate divestiture, our XXXX is XX% midpoint. XX% year ACR We $XXX.X guidance Normalizing of or range $X.X a midpoint and full up of ACR year fiscal full the versus Bridge guidance increase million raising are at our at million the $XXX.X the growth

XXXX, As in ACR million a corporate February contributed business. of $X XXXX. Bridge, we first of of approximately reminder, LMS Bridge during quarter our sold the

We adjusted margin EBITDA expect the of of XX.X% million the EBITDA range quarter $XX.X in range. midpoint the representing to fourth of million, $XX.X an at adjusted

year For EBITDA prior to we of adjusted adjusted million increase XX.X% range the XXXX, expect the million, an the guidance. million the range representing midpoint versus $X.X of $XXX.X the EBITDA at in fiscal full a and margin of $XXX.X

third-party XXXX year gross costs. margins we growth guidance fiscal continue optimize and to increased EBITDA our Our as stronger higher reflects adjusted technology

dedication summarize, team free our the allowed XXXX full and to $XXX.X cash business, adjusted international To strength a million We in our in guidance the flow to education nontraditional us down unlevered year exceptional million. of deliver quarter. adjusting to of of profitability range again efforts the also industry-leading our third $XXX.X balanced our are and growth

momentum offset us to and backdrop gaining where top ed of business, K-XX. by has diversification is the teaching are of increasing performance helping to of are this. as students business our and proud higher win to educational quickly market as anticipated, particularly decision-making the share disproportionate are backdrop, class slowed improves. in less And both in the and returning a current We line a when learning than our of positions now This platform highlighted well share, we choice. The

With versus are questions. our already that, In take believe drive our continuous enhanced any addition, to we industry-leading and on focus Steve profitability your improvement will I margins. happy of

Operator

[Operator Instructions].

Baer Our come with the from question will of Stanley. Morgan Josh first line

Joshua Baer

And M&A the question platform is the and on strategy.

are all you willingness up environment? Just which to budget you touch wondering dollars when think student -- about that in of areas And the potential spend grab, on seeing are current you could the If portfolio? the sell, per attractive what how would outside great. M&A most current for be and valuation then

Stephen Daly

like? with an still the It's of And Josh. interesting questions, first are areas look start a question, Great I'll very that environment couple what though us Yes. to from there are active. does your current was perspective. M&A which second pretty

a valuations public seen down, got as of I of on. would coming necessarily coming isn't activity markets. are companies. the not lot with different So in We're down going engaged say lot as quickly we've we've a expectation

good -- So of our such very we're I there's of still I that a more able And frothy is bit really and got still said, those a little say. like a But a position and opportunities. to we're such we've be a would little sheet expectations, excited lot in bit to busy, react opportunities. there's balance to

K-XX for we and ed. some assessment build -- nontraditional we're that our looking a that areas can last where building that area broaden of within platform success we there's there and new And opportunity continue assessments today is kind add areas like we're to reach that. in in. in We're to a kind always in to have and can are we us lot to that months of X out then still -- that we higher to is we're we've technology or do build interested in buy there, we're looking of online don't still that things lot tuck-ins even that X the can a help a Now think of done think but quickly. couple we we Student tech an the more platform in

of really on lot be act a to able we about good those our and opportunity, So to feel position things.

Operator

Your line next question Macquarie. come will the from Havemeyer of with Fred

Frederick Havemeyer

the And the Congratulations on education I get in noting the levels year some merger. both there's reporting Anthology there. of and after in Blackboard strong been on context the players a And K-XX wanted quarter shutdown Think we're K-XX about seeing for love and here. certain I'd planning shifts to some some market. market. you're ask, higher Edmodo certainly a the in of some to what

wondering all I'm in the offered market conversations So some the market having you're of opened points? or additional at shifted these have up dynamics disruption share any

Stephen Daly

hear position, based to space. picture factor help U.S. from -- the about within that. some Fred. dynamics how It the had Good digital within the Edmodo really that huge talking position in on that a U.S. a I it's I we outside We're K-XX K-XX, changed the not We're say see was Yes. of in platform Yes, say there transformation. you, still would can talking wouldn't of bigger still lot a their about

big change And so as I wouldn't go. say there's the far conversations been a as

-- digital seeing these a in now, the mentioned And K-XX things with as there. Blackboard next we're we but We pipeline a either a since or RFP was pickup acquired activity. interesting, they're for year change our Anthology see say installations, any saw -- while transformation, focus lot education. wouldn't As well. I a that that dealing there's in lot the Fred, on platform remarks, It's are main We've a of right on of a by kind competitors seen of of we're replacing in still of Blackboard. lot Moodle still in kind in the going and higher we been outside is Anthology.

And that having Anthology in portfolio. so wins been we good activity success and feel about the that we've against and the the pipeline our

feel change X a So of the X where we pretty over ton seen competitively, last good dynamics sit months. in to the about I haven't

Frederick Havemeyer

be that ESSER your on you're contextualize and schools focused follow-up here. I'm play ESSER general a out... and might you where curious, how just and how And just in seeing to K-XX that your funding deploying could clients could continue funding

Stephen Daly

question. Good go Yes. ahead.

Frederick Havemeyer

if it's any product particular assessment, if LMS, focus? it's Just there's if

Stephen Daly

Yes. It's the this. as The of on dig sub lot in with a now. right been right with dealing a now. districts we there's interesting shortages, in, -- lot collective administrators having are really There's They're going lot press bargaining -- there's they're and with agreements. dealing about classes. are a with They're teacher dealing just K-XX dealing

spent the government. they're as of so they've The and see a are we're plans ESSER as been a LMS foundation been demonstrated And competing submitted seeing getting federal fast as -- we as now. the because of success get to But They've funds been we budgeted spent strategy, have approved transformation they in still thought the -- these lot there. market-leading priorities. -- the digital for share not would other our

where a us. innings. assessment starting money And big prove We're the ultimately, a is going needing come That's to still huge a are it's opportunity of role. learning deal. big what Fred, right? right? And in the loss, technologies that's But part But and addressing is districts play where is is Assessment in go, a for early tutoring. like doing, I'm things to working, critical towards

of long-term expire. funds of another is we've this couple So got again, -- we trend, a ESSER years they before and

future. part strategies that's of that, think be the do -- -- going we it's key in to that those So a

Operator

will with the Joe Your come next of line Baird. question Vruwink from

Joseph Vruwink

guidance comment sales period then Great because manifesting season? selling cycles the this Steve, peak think quarter end looks does second K-XX and to your Is go model looks I development up how new is since And the sounded your back in on this good. post fine. good, quarter in all the RPO biggest the ago

seeing just that more So it plan, ed is we're offset it? is behind in the but higher international case K-XX than

Stephen Daly

right? current say, Joe, the about would of fact digital being of was -- wasn't I in mean continued. a There priorities we in talked sales call lot I That environment. the funding last earnings the spent, Yes. sales cycle, kind transformation has that for our competing ESSER

to make capacity We to they decisions. continue struggling -- the see are just with

of performance to classroom. quarter. our confident the near-term As in quarter. of next the this in getting in system But kind freed we K-XX up kind do said, technologies buy with our this guidance as pleased a of you we're see kind We're money the challenges for transient

a the our for -- we still are the about we be foundation good feel are long-term are part the ed so markets consistent continues feel we of good to of And we from successful. us, where also And kind growth about higher international and business. and that of -- performer

So able where to raise I were guidance. confidence we feel about are that that we and we good fact the in and have the guidance

Joseph Vruwink

then quick for moving Okay. Great. flow one just a free cash Dale. is And down? Why guidance the

Dale Bowen

Yes.

our know, a of go a and So noisy unlevered this There's a you is ins number. free bit into of a cash of number and that outs. metric as lot flow things Joe,

just So with let hit just a few highlights. me

cycles. First, some sales the has Steve mentioned got K-XX this, longer

We're really Another well there. high performing element is ed.

takedowns competitive our of next year. begin that wins are Some

really our one with just year. we unlevered then unlevered keep in cash the currency free end that in pleased to mind remains we've but last guide business. the conversion the our XXX% flow. RPO, evidenced But of you'll overall, That the got see cash So flow. free we're not as current impacting just changes that necessarily some international is And

Operator

from the will next of question line Brian with Your Raymond Peterson come James.

Brian Peterson

there. focus on to we you kind to do thoughts into And any bit a is I love about head would appreciate could cycles. the on of I maybe So as where feel like commentary more sales I that Steve, XXXX. pipeline. all get little want strongest

Stephen Daly

Yes.

the in So for yes, we're thanks are for our the Brian. middle question, planning right of XXXX. And -- we

ask it question. with pipeline give to you we if So are... any But a guidance, even we're going sneaky not you

Brian Peterson

I'll do best. my

Stephen Daly

you nicely. So know, pipeline are do. lengths is we The Yes. seeing we're is That's building just why to deal love always that What time close is more in the lengthening. you. K-XX a I lengthening, right?

the we So to able aren't now. about feel is there. right the a just going to good They're close of deals. those where be pipeline deals capacity It's away. still question But our

Brian Peterson

of a you maybe aware macro, guys we're How And the about follow-up. and talent become are available immune quarters, in in but certain think areas. to it. last investing And thinking investing much it's philosophy of very macro? a I your lot have the is your over that high in the also business margins. of Got I couple we're your end all current seeing any business just the less didn't to changed And market know what that? kind on thoughts the but on thoughts

Stephen Daly

No. is for say little to -- a your to the been hire us, in labor Yes. the it's I point, recent market months. It easier would

a have kind made a of very We're focused We of investment investments. looking number strategy. -- we've

of years, the X capacity. quota added our We've R&D last over engineers You lot a look our spending. at

We continue to in invest quota capacity.

those continue continue feel know in top to to while that to will business, margins. be able our right, investment based being disciplined investments to can to we we expand investments. continue what line going make the and It we're the So approach, to right growth We durable make on still targeted. our very

growth our like expand those we're So while margins. to able being on we still impinging feel don't

Operator

will line the come from question of Tillman next Securities. with Your Terrell Truist

Joseph Meares

Terry. for This Meares Joe on is

or you higher was quarter. whether growth a angle. this international international X us or from just the rates? your over not the a the ed, in bit higher XX.X% great of are K-XX what And ed grew hit in give for to The business growth ACR of that grew question less qualitatively portions maybe medium expectations different than terms K-XX then term greater or XX%. kind want these Just XX%? of Could of

Stephen Daly

Yes.

pleased we our the that and We board. see growth So seeing markets. to in each we're across continue we're success the with of

consistent And the are win to #X rates XX%. of ASU. be performer. future for continues in trending and ed kind still more we We're share K-XX. nontraditional, importantly, made Our the into like our higher growth ed Higher now with reaching market above that announcement foundation

overall. So about those we feel good

It's Our -- to the in it's the a international as we really K-XX related macro, And sales in talked we are seeing lengthening headwinds some cycles market. to about. are capacity higher not really currency spend.

thinking the we still fastest-growing term, market, last as X be high single-digit think way about which on that it. the about kind American we a time, way long still the quarterly and mix double-digit between to So Joe. of slower expect almost international we the is faster basis. low change feel our be we And or talked for grower. business, long I to about that's grown the market that's And right But to to North would think going in between is has it term our

Joseph Meares

it market macro low still white to you the is helpful. as Super is RFPs? And just slowdown still about the that have, fact said much guys macro, there as the given share growth the then I space think worry is the a you Or in that trajectory single-digit not follow-up just you're on that much. there having so any international business. I mean,

Stephen Daly

our But say, think those increases times. into enrollments again, by less ed would a challenge business uncertain of macroeconomic during time, trends, labor kind the an we has Yes. traditionally economic right? K-XX go I in been actually impacted when higher obviously I and is for shortage historically, us.

so we're do kind those going things. we be against think insulated And of to

And strength which I growth is seeing, right? is the is think is perspective dollar putting the rates short everybody pressure from just on currency, the those international challenge what term. of U.S. else us biggest an the for in

Joseph Meares

level. Congrats this on present

Operator

line VanVliet of Matt from come BTIG. will question with next Your the

Matthew VanVliet

seeing It were new are new slow, probably those you're a either deeper. or relative if cross-sell some if Curious sort expansion I K-XX the a cross-sell your to curious in little any but the at seeing spend difference net from digging progressing. guess into looking deals to how customers sounds the customers, existing market of of net much like traction? just a of better propensity is

Stephen Daly

of some right examples The new Yes, used into our it's selling existing always and we which you're -- is cross-sell, question. easier. the demonstrated a of with base, kind good and the net right, that

with new I into of the there's of teachers balanced don't think to disrupt trying the And they are it's introduce kind things a we're reluctance teachers, want to the short when so on fact at that do. kind what this right, to point, right? classroom

and So as to get stuff. these where try teacher trying with some collective board all seeing the now bargain of we're cycles agreements, it's shortages that kind of pretty of deal lengthening to through and across that say, they're kind

Matthew VanVliet

party as you midterm then of the the opening make these should switching either feel that or or potentially here next the we state-by-state week, like of whether of Anything level any at look state will that some cycles, elections closely controller, Congress projects any of? pushed monitoring on a forward you're more may in national level. we up issues, be it's some getting of towards and be sales basis And issues difference the Okay. do aware

Stephen Daly

districts comes Well, just the more some -- just really and focused -- I -- through to and having think and on it clarity, are the what down it having getting the some now. stability right, right

power happens the in these quickly regardless stability, behind student party with political biggest can determinant is going of student -- everybody get get outcomes frankly, outcome teachers can classrooms. forward. We spent. the going ESSER outcome we the we more how good cycle and can if that's and get sales of to so funds -- And And get be perspective, parties more can what -- can

one -- related to do see will that way not anything midterms specifically or the we don't we the other. like effect So

Operator

Your of Sheldon next comes Stephen from line William with question the Blair.

Stephen Sheldon

kind heading renewal, K-XX relative to came school the or historically major up changes of to they ed ask given, either new about like Any wanted was in I think I heavier First, as what look seen year. what contracts it quarter. you've rates, renewal higher retention into gross just for a

Just any detail there?

Stephen Daly

our take Yes. really Stephen, customer -- and they're we we've of investment and really our care and our teams really in pretty in good that plugged success reputation of we're customers. proud the make

mutes of any BXB reduced changes the haven't with ed fashion retention. of our dramatic of We're we substantial contract a any model, higher gross We seen kind kind type enrollments, in in there. way business changes

while are that the some we been been cycles may of in deals through space, to continue. some So they're massive, see renewal and the expect K-XX it's state we've we on And -- downgrades, renewing. we not

we so seen retention on gross side. the changed haven't anything And dramatically

Stephen Sheldon

I follow international to sounds well. just expectations up like sounds continues your working to it like Good Got the hear. that to outperform partnerships it. are channel on it given the want side, and

that there direct given more is partnerships, do even traction building terms capacity of that in more in expanding just regions. to select success, feed sales you can So

are Just thinking you that? how about

Stephen Daly

a felt can't we marginal was plan put return. keep Yes. We've a is You could we get right? -- that plan dollars execute. place you limit that in -- the at just There a that we throwing it,

partners to the before up, this that in quota enabling the to we're through is bookings feel -- the able is start partners good those our deep we feel channel right, that countries the channel we're perspective, I've like amount then good, investments after, from we perspective, the we up. about pipelines those We're the that that training direct in those -- the direct making we're signing to XX-month partners. already a feel partners capacity. And going we're be international building. So the capacity investment signing our are of this mean, We've seen and we got first see sell. for number right adding from channel that from said But pay really of some is come off. quarter, we've I quota

so with our far. pleased we're So progress

Operator

will come from with Brent the Thill of question next Jefferies. Your line

David Lustberg

Brent. This right, enrollment. impacts decline enrollment. in X% of Obviously, higher We ask X the a saw to have Dave report paid higher is contracts on X guys little basis to you recent ed the bit about ed years, annual in wanted a I noncancelable. Lustberg of upfront for is your

ability So grow higher be just into the might XXXX, impact about your revenue, that potential which talk about should potentially enrollment? for XXX? recession talk then to thinking impacts obviously, declines in enrollment ed would how And helpful. just how model Like be that good

Stephen Daly

so probably better We It's is, right, this about It's what to swings enrollments are certain right? X% than Yes. dampened extent, think David. be the to down the see everybody question, bit when a X% -- going pandemic. won't you. way And to a during it is was last word, was good the were a enrollments hear better is good year. massive little a actually -- decline from was The in the you're insulated to -- thinking we

So it does roll you. given into our guidance that we've

into we've account. QX, Going those taken all that into -- downgrades

thing reduction going degree-seeking like that kind seeing whole people the are that market addressing isn't is data. traditional nontraditional right, the of in our to students or the that education isn't investments down, a important that going enrollments. like we're a of somebody What in right? included number in And think an I is of set ASU new though seeking is PeopleCert, with enrollment

us, it's matter are, net in long -- doesn't learners a will it for we So meet which where the at. -- they're learners term the wherever

feel just in that. about because prospects ed do our good term we of so growth higher And longer

David Lustberg

think That's the guys than On customers today. for more may. maybe helpful. cross-sell, know million $XXX the if one a cross-sell me, customer called XX, just I excuse in have I or you XXs you high more product X using -- And maybe me, it said average are about guys I opportunity. past,

as that different doing little sell the of talk cross-sell, some have would in how about pointed what's I helpful. But do Just can realistically be products many think best? schools, different you bit and ultimately, districts look you you that assessment. we these products think forward, into a you

Stephen Daly

there's Yes. We're in -- sell David, going but lot hundreds of we a opportunity. to

products X that could K-XX. or X we whether have it's ed today We cross-sell, higher or

big past, assessment our about we've talked selling carry average solutions As prices. the in

of product. you're an days we percent revenue X And board still And that cross-sell. outsized than has success more that in early right, as on get it's seeing impact there. across have So in increase. the XX-some kind the an We're we're

of So number the this customers grew quarter.

there. there's of lot again, opportunity a of success to still sell those seeing we're more But products. So

Operator

will question of Your come Citigroup. line the Steve next with Enders from

Steven Enders

and that higher R&D in are focused and of kind and where in the what's just the you're making investments to could ask want in that go biggest into it how portfolio? Great. that map area you product current I the of terms fits about the guess potentially road ed and on I there.

Stephen Daly

Yes.

investing we've continue one been is in couple past that over the of will nontraditional that to area So space. years

Studio good we a Concentric that or like the acquired are of So for investment progress. to growth where address we're certifications. and that organic really right, and Sky Badgr are in impacts and is deal our we're Again, deal, nontraditional. areas Catalog our Those about products feel investments ASCO, newly we PeopleCert continuing make just signed the because investing lot with our with to

to of and you marry platform the continue that idea together as assessments, system the integration the the We a by make investments we to you student be set learning management able now student. help teachers with how to solutions have and with rich in bring data teach the to

against both -- address make intuitive, higher differentiate and our we we're us us to integration the more we're really in allow that's customers. continues our the continuing competition, investments K-XX, again, to use, advance ed needs ed so it big making to, -- Core of those, it higher easier And within for but to to evolving is K-XX then make make but and in the platform. Canvas and And to area our and

Steven Enders

I the continue leverage the and And Okay. is we what and opportunity quarter see there. some profile. maybe kind be about more areas the thinking are much good key of on kind there other room margin of the up of showed But Great. should in mean, That's we incremental how -- helpful. that guide. here where just that driving maybe that could to kind

Stephen Daly

said on You out maybe a... just -- you thinking cut about

Steven Enders

terms to margin what little the a bit and you're there? we more some see profile in that the could opportunity of maybe that drive Yes, just leverage are showing, the of areas some incremental

Stephen Daly

Yes.

the there's of teams in with providers. costs to our are So optimize our continuing and I our engineering to and margins. our reduce infrastructure room operations on still gross focused kind very hosting third-party think

customers make to support program to our and cost in systems continue drive We help our down support to investments well. customer as

room. have We

at the to direct in effective And leverage get we costs channel a along. all the and efficient there's good to a that is marketing to continue business leader, gain we that believe, sales of way our market get Again, in kind we how bunch investment, cycle sale We share happens of such we spend. as much adding into go is the deals a come get and this without market and looks virtuous then we're scale model. this more referential that as we and our the

get areas can profitability from a believe leverage P&L we perspective. number in So there's the more we of where a

Operator

call Daly, remarks. back no are closing to at further turn I'll time. the Steve for There questions this CEO, over

Stephen Daly

Well, for right. us All joining today. you, thank everybody,

our work our So to we in in to We're helping bring are you education share all employees, just I our to performance. all. Instructure. and super confident excited ability of look revenue with that both future, about happy and the wanted with and the thank success do the We're in you forward grow world. to continuing we future our margins partners to our our our the our customers And for important

So thank you.

Operator

Ladies and gentlemen, that you does conclude today's meeting. joining. for all Thank

now disconnect. You may

Instructure (INST) 2 Nov 222022 Q3 Earnings call transcript