UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of July 31, 2024, there were
Instructure Holdings, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2024
INDEX
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Page |
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Item 1. |
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3 |
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3 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
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4 |
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5 |
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7 |
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9 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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38 |
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Item 4. |
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39 |
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Item 1. |
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40 |
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Item 1A. |
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40 |
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Item 2. |
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41 |
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Item 3. |
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41 |
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Item 4. |
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41 |
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Item 5. |
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41 |
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Item 6. |
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42 |
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In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Instructure,” and the “Company” refer to Instructure Holdings, Inc. and its wholly-owned subsidiaries.
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
INSTRUCTURE HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
(unaudited)
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June 30, |
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December 31, |
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2024 |
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2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Funds held on behalf of customers |
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Accounts receivable—net |
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Prepaid expenses |
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Deferred commissions |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Right-of-use assets |
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Goodwill |
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Intangible assets, net |
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Noncurrent prepaid expenses |
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Deferred commissions, net of current portion |
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Deferred tax assets |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Customer fund deposits |
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Accrued liabilities |
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Lease liabilities |
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Long-term debt, current |
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Deferred revenue |
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Total current liabilities |
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Long-term debt, net of current portion |
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Deferred revenue, net of current portion |
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Lease liabilities, net of current portion |
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Deferred tax liabilities |
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Other long-term liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes.
3
INSTRUCTURE HOLDINGS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share amounts)
(unaudited)
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Three months ended |
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Six months ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue: |
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Subscription and support |
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$ |
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$ |
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$ |
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$ |
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Professional services and other |
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Total revenue |
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Cost of revenue: |
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Subscription and support |
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Professional services and other |
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Total cost of revenue |
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Gross profit |
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Operating expenses: |
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Sales and marketing |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Interest income |
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Interest expense |
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( |
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Other income (expense) |
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( |
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Loss on extinguishment of debt |
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Total other income (expense), net |
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( |
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( |
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( |
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Loss before income taxes |
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( |
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( |
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( |
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Income tax benefit |
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Net loss and comprehensive loss |
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$ |
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$ |
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$ |
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$ |
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Net loss per common share, basic and diluted |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Weighted average common shares used in computing basic and diluted net loss per common share |
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See accompanying notes.
4
INSTRUCTURE HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except per share amounts)
(unaudited)
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Common |
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Stock, $0.01 |
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Additional |
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Total |
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Par Value |
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Paid-In |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balances at March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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Vesting of restricted stock units |
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( |
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— |
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— |
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Shares withheld for tax withholding on vesting of restricted stock units |
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( |
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( |
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( |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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Balances at June 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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Common |
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Stock, $0.01 |
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Additional |
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Total |
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Par Value |
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Paid-In |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balances at March 31, 2023 |
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$ |
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$ |
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$ |
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Vesting of restricted stock units |
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( |
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— |
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— |
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Shares withheld for tax withholding on vesting of restricted stock units |
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( |
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( |
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( |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balances at June 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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See accompanying notes.
5
INSTRUCTURE HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except per share amounts)
(unaudited)
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Common |
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Stock, $0.01 |
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Additional |
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Total |
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Par Value |
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Paid-In |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balances at December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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Vesting of restricted stock units |
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( |
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— |
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— |
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Purchase of ESPP shares |
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— |
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Shares withheld for tax withholding on vesting of restricted stock units |
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( |
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( |
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( |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balances at June 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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Common |
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Stock, $0.01 |
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Additional |
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Total |
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Par Value |
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Paid-In |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balances at December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Vesting of restricted stock units |
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( |
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— |
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— |
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Purchase of ESPP shares |
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— |
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Shares withheld for tax withholding on vesting of restricted stock units |
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( |
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( |
) |
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( |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balances at June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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See accompanying notes.
6
INSTRUCTURE HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
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Six months ended |
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2024 |
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2023 |
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Operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation of property and equipment |
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Amortization of intangible assets |
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Amortization of deferred financing costs |
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Stock-based compensation |
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Deferred income taxes |
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( |
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( |
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Right-of-use assets |
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Other |
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Changes in assets and liabilities: |
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Accounts receivable—net |
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( |
) |
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( |
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Prepaid expenses and other assets |
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( |
) |
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( |
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Deferred commissions |
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( |
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Accounts payable and accrued liabilities |
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( |
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Deferred revenue |
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Lease liabilities |
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( |
) |
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( |
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Other liabilities |
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( |
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( |
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Net cash used in operating activities |
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( |
) |
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( |
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Investing activities: |
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Purchases of property and equipment |
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( |
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( |
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Proceeds from sale of property and equipment |
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Business acquisitions, net of cash received |
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( |
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Net cash used in investing activities |
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( |
) |
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( |
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Financing activities: |
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Proceeds from issuance of common stock from employee equity plans |
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Shares repurchased for tax withholdings on vesting of restricted stock units |
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( |
) |
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( |
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Proceeds from issuance of term debt, net of discount |
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Payments for financing costs |
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( |
) |
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Advances from revolving credit facility |
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Change in customer fund deposits |
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Repayments on long-term debt |
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( |
) |
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( |
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Net cash provided by (used in) financing activities |
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( |
) |
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Foreign currency impacts on cash, cash equivalents, restricted cash, and funds held on behalf of customers |
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( |
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Net decrease in cash, cash equivalents, restricted cash, and funds held on behalf of customers |
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( |
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( |
) |
Cash, cash equivalents, restricted cash, and funds held on behalf of customers, beginning of period |
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||
Cash, cash equivalents, restricted cash, and funds held on behalf of customers, end of period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow disclosure: |
|
|
|
|
|
|
||
Cash paid for taxes |
|
$ |
|
|
$ |
|
||
Cash paid for interest on outstanding debt |
|
$ |
|
|
$ |
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Capital expenditures incurred but not yet paid |
|
$ |
|
|
$ |
|
||
See accompanying notes.
7
INSTRUCTURE HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
The following provides a reconciliation of cash, cash equivalents, restricted cash, and funds held on behalf of customers to the amounts reported on the condensed consolidated balance sheets. Restricted cash has been disclosed in Other assets as it is associated with letters of credit obtained to secure office space from our various lease agreements (in thousands):
|
|
|
|
|
|
|
||
|
|
As of June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Funds held on behalf of customers |
|
|
|
|
|
|
||
Total cash, cash equivalents, restricted cash, and funds held on behalf of customers |
|
$ |
|
|
$ |
|
||
See accompanying notes.
8
INSTRUCTURE HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Description of Business and Basis of Presentation
Company and Background
Instructure Holdings, Inc. (the “Company,” “Instructure,” “we,” “our,” or “us”) is an education technology company dedicated to elevating student access, amplifying the power of teaching, and inspiring everyone to learn together. Instructure’s platform delivers a next-generation learning management system (“LMS”), robust assessments for learning, actionable analytics, and engaging, dynamic content. Instructure offers its platform through a Software-as-a-Service, or SaaS, business model. The Company was founded in September 2008. We are headquartered in Salt Lake City, Utah, and have wholly-owned subsidiaries in the United Kingdom, Australia, the Netherlands, Hong Kong, Sweden, Brazil, Mexico, Hungary, Ireland, Canada, Singapore, and the Philippines.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) applicable to interim periods, under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management, we have prepared the accompanying unaudited condensed consolidated financial statements on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the fiscal year ended December 31, 2023, and these condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2024. The year-end balance sheet data was derived from audited financial statements, but the interim condensed consolidated balance sheet included in this Form 10-Q does not include all disclosures required under U.S. GAAP. Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted under the rules and regulations of the SEC.
These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 21, 2024 (the “2023 10-K”).
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Such estimates, which we evaluate on an on-going basis, include provisions for credit losses, useful lives for property and equipment and intangible assets, valuation allowances for net deferred income tax assets, acquisition related estimates, our assessment for impairment of goodwill, intangible assets, and other long-lived assets, the standalone selling price of performance obligations, timing of professional services revenue recognition, and the determination of the period of benefit for deferred commissions. We base our estimates on historical experience and on various other assumptions which we believe to be reasonable.
Operating Segments
We operate in a single operating segment: cloud-based learning management, assessment and performance systems. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the chief operating decision makers (“CODM”), which are our chief executive officer and chief financial officer, in deciding how to allocate resources and assess performance. Our CODM evaluate our financial information and resources and assess the performance of these resources on a consolidated basis. Since we operate in one operating segment, all required financial segment information can be found in the condensed consolidated financial statements.
2. Summary of Significant Accounting Policies
A summary of the Company’s significant accounting policies is discussed in “Note 1 – Description of Business and Summary of Significant Accounting Policies” of the 2023 10-K. There have been no significant changes to these policies during the six months ended June 30, 2024, except as noted below.
9
Revenue Recognition
We generate revenue primarily from two main sources: (1) subscription and support revenue, which is comprised of SaaS fees from customers accessing our learning platform and usage of our credential management platform, and from customers purchasing additional support beyond the standard support that is included in the basic SaaS fees; and (2) related professional services revenue, which is comprised of training, implementation services and other types of professional services. Consistent with ASC 606, Revenue from Contracts with Customers, revenue is recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The timing of revenue recognition may differ from the timing of invoicing our customers. We record an unbilled receivable, which is included within accounts receivable—net on our consolidated balance sheets, when revenue is recognized prior to invoicing.
We determined revenue recognition through the following steps:
The following describes the nature of our primary types of revenue and the revenue recognition policies and significant payment terms as they pertain to the types of transactions we enter into with our customers.
Subscription and Support
Subscription and support revenue is derived from fees from customers to access and use our learning platform and our credential management platform, and support beyond the standard support that is included with all subscriptions. The terms of our subscriptions do not provide customers the right to take possession of the software. Subscription and support revenue from our learning platform is generally recognized on a ratable basis over the contract term. Payments from customers are primarily due annually in advance. Subscription and support revenue from our credential management platform is generally recognized based on the proportion of credentials transferred to the total estimated credentials to be transferred over the contract period. Customers choose to access and use the credential management platform through subscription contracts by committing to guaranteed minimum payments with excess volume billed in arrears, or through transactional contracts where payment generally occurs once an order is placed. The Company records pass through fees for transactional contracts on a net revenue basis, as the Company does not have control over the credential and is therefore acting as the agent.
Professional Services and Other
Professional services revenue is derived from implementation, training, and consulting services. Our professional services are typically considered distinct from the related subscription services as the promise to transfer the subscription can be fulfilled independently from the promise to deliver the professional services (i.e., customer receives standalone functionality from the subscription and the customer obtains the intended benefit of the subscription without the professional services). Professional services arrangements are billed in advance, and revenue from these arrangements is typically recognized over time as the services are rendered, using an efforts-expended input method. Implementation services also include nonrefundable upfront setup fees, which are allocated to the remaining performance obligations.
Contracts with Multiple Performance Obligations
Many of our contracts with customers contain multiple performance obligations. We account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (“SSP”) basis. We determine the SSP based on our overall pricing objectives by reviewing our significant pricing practices, including discounting practices, geographical locations, the size and volume of our transactions, the customer type, price lists, our pricing strategy, and historical standalone sales. SSP is analyzed on a periodic basis to identify if we have experienced significant changes in our selling prices.
10
Deferred Commissions
Sales commissions earned by our sales force, as well as related payroll taxes, are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be generally four years. We determined the period of benefit by taking into consideration our customer contracts, our technology and other factors. Amortization of deferred commissions is included in sales and marketing expenses in the accompanying consolidated statements of operations and comprehensive loss.
Deferred Revenue
Deferred revenue consists of billings and payments received in advance of revenue recognition generated by our subscription and support services and professional services and other, as described above.
Funds Held on Behalf of Customers and Customer Fund Deposits
Funds held on behalf of customers and customer fund deposits represent cash received or in-transit from credential requestors via third-party credit card processors and other payment methods. The Company generally remits payment to customers within 30 to 60 days following the purchase of a credential. Funds held on behalf of customers represent the total amount due to customers, and as such, a liability for the same amount is recorded to customer fund deposits. The funds held on behalf of customers are not available for general business use by the Company.
Recent Accounting Pronouncements
Issued accounting pronouncements
In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280), which updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the CODM and included within each reported measure of a segment's profit or loss. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements and related notes.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740), which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements and related notes.
3. Net Loss Per Share
A reconciliation of the denominator used in the calculation of basic and diluted net loss per share is as follows (in thousands, except per share amounts):
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2024 |
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2023 |
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Numerator: |
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Net loss |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Denominator: |
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Weighted-average common shares outstanding—basic |
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Dilutive effect of share equivalents resulting from unvested restricted stock units and shares for issuance under employee stock purchase plan |
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||||
Weighted-average common shares outstanding—diluted |
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Net loss per common share, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
11
For the three and six months ended June 30, 2024 and 2023, we incurred net losses and, therefore, the effect of our restricted stock units (“RSUs”) and of shares issuable under the employee stock purchase plan were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive.
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Three months ended |
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Six months ended |
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2024 |
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2023 |
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2024 |
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2023 |
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||||
Restricted stock units |
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|
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|
||||
Shares issuable under employee stock purchase plan |
|
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|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
4. Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Computer and office equipment |
|
$ |
|
|
$ |
|
||
Capitalized software development costs |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Leasehold improvements and other |
|
|
|
|
|
|
||
Total property and equipment |
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
||
Accumulated amortization for capitalized software development costs was $
12
5. Acquisitions
2024 Acquisitions
On February 1, 2024, we acquired all outstanding shares of PCS Holdings, LLC (“Parchment”), the world's largest academic credentialing platform and network. By adding Parchment to the Instructure Learning Platform, we provide a verifiable and comprehensive digital passport of achievement records and outcomes for learners.
At the time of the acquisition, we recorded a provisional net deferred tax liability of $
The following table summarizes the preliminary estimated fair values of the consideration transferred, assets acquired and liabilities assumed as of the date of the Parchment acquisition (in thousands):
Consideration transferred |
|
|
|
|
Cash paid |
|
$ |
|
|
Escrow |
|
|
|
|
Total purchase consideration |
|
$ |
|
|
|
|
|
|
|
Identifiable assets acquired |
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
Funds held on behalf of customers |
|
|
|
|
Accounts receivable |
|
|
|
|
Prepaid expenses and other assets |
|
|
|
|
Property and equipment |
|
|
|
|
Right-of-use assets |
|
|
|
|
Intangible assets: developed technology |
|
|
|
|
Intangible assets: trade name |
|
|
|
|
Intangible assets: customer relationships |
|
|
|
|
Total assets acquired |
|
$ |
|
|
|
|
|
|
|
Liabilities assumed |
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
|
|
Customer fund deposits |
|
|
|
|
Lease liabilities |
|
|
|
|
Deferred revenue |
|
|
|
|
Deferred tax liabilities |
|
|
|
|
Other liabilities |
|
|
|
|
Total liabilities assumed |
|
$ |
|
|
Goodwill |
|
|
|
|
Total purchase consideration |
|
$ |
|
|
The following unaudited pro forma condensed combined financial information (in thousands) presents the results of operations of Instructure as if the Parchment acquisition occurred as of January 1, 2023. The unaudited pro forma results may not necessarily reflect actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations. The unaudited pro forma results reflect the elimination of historical intangible amortization expense incurred by Parchment and the step-up amortization adjustments for the fair value of intangible assets acquired, the elimination of historical interest expense incurred by Parchment on its debt and the incurrence of interest expense related to the issuance of debt in connection with the Parchment acquisition, and transaction expenses, nonrecurring post-combination compensation expense and the related adjustment to the income tax provision.
|
|
Three months ended |
|
|
Six months ended |
|
||||||
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
13
Actual revenue and net income recorded on Instructure's condensed combined statement of operations and comprehensive loss for Parchment during the three months ended June 30, 2024 was $
On July 1, 2024, Instructure closed the acquisition of
For all periods presented, the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired is recorded as goodwill, of which $
14
6. Goodwill and Intangible Assets
Goodwill activity was as follows (in thousands):
|
|
Total |
|
|