Instructure Holdings Inc (INST) Q1 2024 Earnings Call Transcript Highlights: Robust Revenue ...

• Total Revenue: $155.5 million, up 20.7% year-over-year.

• Subscription and Support Revenue: $144.7 million, up 22.1% year-over-year.

• Adjusted EBITDA: $64.9 million, increased 34.6% year-over-year.

• Adjusted EBITDA Margin: Expanded to 41.8%.

• Net Income (Non-GAAP): $32.7 million, up 17.2% year-over-year.

• Deferred Revenue: $235 million, up 8.9% year-over-year.

• Remaining Performance Obligations: $820.4 million, up 16.6% year-over-year.

• Operating Cash Flow: Negative $92.6 million.

• Unlevered Free Cash Flow: Negative $79 million.

• Adjusted Unlevered Free Cash Flow: Negative $65.3 million.

• Q2 Revenue Guidance: $166.5 million to $167.5 million.

• Full Year Revenue Guidance: Raised to $656.5 million to $666.5 million.

• Full Year Adjusted EBITDA Guidance: $271 million to $274 million.

• Adjusted Unlevered Free Cash Flow Guidance: $262 million to $265 million.

Release Date: May 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Instructure Holdings Inc reported a total revenue of $155.5 million, marking a 20.7% increase year-over-year.

• Subscription and support revenue grew by 22.1% to $144.7 million, demonstrating strong organic growth.

• Adjusted EBITDA of $64.9 million grew 34.6% year-over-year, with a significant margin expansion to 41.8%.

• The company successfully integrated the acquisition of Parchment, which exceeded revenue expectations and contributed to double-digit growth.

• Instructure Holdings Inc is on track to achieve a $1 billion revenue target by 2028, supported by robust annual recurring revenue growth and strategic acquisitions.

Negative Points

• Despite overall growth, the company experienced elongated decision-making cycles in its core North American LMS markets.

• Operating cash flow was negative $92.6 million, primarily due to early collections in the previous quarter and higher interest expenses from the Parchment acquisition.

• The company faces ongoing macroeconomic uncertainties and regulatory pressures in the education sector.

• There is a need for continuous investment in technology and program spend, which could impact short-term profitability.

• Instructure Holdings Inc is still in the process of fully integrating Parchment's go-to-market and cross-sell strategies, which could pose challenges in realizing full synergy benefits.

Q & A Highlights

Q: What budget priorities are school districts and higher education institutions focusing on for the next school year? A: Steve Daly, President & CEO of Instructure Holdings Inc, highlighted that institutions are concentrating on long-term digital transformation strategies, tech consolidation, and addressing enrollment trends to reach more learners beyond traditional students.

Q: Can you discuss the integration milestones for Parchment into Instructure's overall business for 2023? A: Steve Daly mentioned that back-office integration efforts are ongoing, with a focus on aligning systems. The go-to-market strategies are being kept separate initially to better understand synergies and customer centers, with positive early feedback from customers about the merger.

Q: What progress has been made with the new sales organization structure introduced in January? A: Steve Daly expressed satisfaction with the new structure, noting improved collaboration and engagement, especially within the expand teams. Early indicators from Q1 are promising, although the more predictive quarters for this change are Q2 and Q3.

Q: What are the incremental investments being planned following the realized savings in Q1? A: Peter Walker, CFO, mentioned that the savings would be reinvested in program spend and technology infrastructure in the latter half of the year, anticipating higher ROI from these investments.

Q: How is the integration of Parchment progressing, particularly in terms of customer response and cross-selling opportunities? A: Steve Daly reported positive early responses from customers, with integration efforts focused on back-office functions. The company is taking a cautious approach to merging the go-to-market teams, planning to make more definitive moves in 2025.

Q: What impact have the new bundling and packaging changes in the sales process had so far? A: Steve Daly noted that while it's still early, there is a positive trend in the pipeline for bundled product offerings. These changes are helping to facilitate discussions about broader platform solutions rather than individual products.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.