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spk03: Ladies and gentlemen, thank you for standing by and welcome to Instructure's third quarter 2021 earnings call. At this time, all participants are in a lesson-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that this conference is being recorded. I would like to turn the conference over to your first speaker, April See, Investor Relations.
spk00: April, please go ahead. Good afternoon and welcome to Instructure's third quarter of 2021 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me are Instructure's Chief Executive Officer, Steve Daley, and Chief Financial Officer, Dale Bowen. Before we begin, I'd like to remind you that today's conference call will include forward-looking statements based on the company's current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For discussion of factors that could affect our future financial results in business, please refer to the disclosure in today's earnings release and other reports and filings we file from time to time with the Securities and Exchange Commission. All of our statements are made as of today based on information available to us today, and except as required by law, we assume no obligation to update any such statements. During the call, we will also refer to both GAAP and non-GAAP financial measures. You can find the reconciliation of our GAAP to non-GAAP measures included in our press release, which is posted to the investor relations section of the website. All of our non-revenue financial measures we discussed today are non-GAAP, unless we state that the measure is a GAAP measure. With that, let me turn the call over to Steve.
spk06: Thank you, April. And good afternoon, everyone. Thank you all for joining us for our third quarter 2021 earnings call. During today's call, Dale and I will provide details on our third quarter results and provide an update on 2021 guidance. As you can see, Instructure exhibited strong performance in Q3, which exceeded our previously communicated guidance. Third quarter gap revenue was $107.2 million of 31% year over year, while allocated combined receipts, or ACR, was $108.6 million up 24% year over year. As a reminder, we think ACR, which adds back the impact of fair value adjustments to acquired unearned revenue is a better representation of the business as it gives investors better visibility into the underlying health of our business. We delivered this growth while continuing to demonstrate the strength of our business model with 38% adjusted EBITDA margins in the quarter and strong unlevered free cashflow conversion Q3 was another strong quarter for Instructure, and I'm excited about the company's bright future. Our strong Q3 results were fueled by new local wins and the ongoing expansion of existing customer relationships. I couldn't be prouder of these results, which showcased our commitment to growth while maintaining best-in-class margins. We have a diversified business in higher ed, K-12, and international, with leading share in North America and growing share across the world. Our strong growth trajectory is underpinned by the powerful trend of digital transformation in education, very favorable and durable federal funding dynamics, and our mission-critical platform that facilitates teaching and learning for over 30 million Canvas users. I now want to talk about five key highlights from the quarter today. First, our products continue to see high usage, even after most North American K-12 and higher ed students return to the classroom this fall. In Q3, users of Canvas continued to utilize the platform at levels that are significantly higher than pre-pandemic levels. This strong usage reinforces our assessment that the LMS continues to be a core platform for teaching and learning, even as students and teachers return to the classroom and is a cornerstone in the digital transformation of education. Second, in Q3, we saw strength in each of our markets, given strong tailwinds from digital transformation projects and our key differentiators. usability, reliability, scalability, and broad open platform. We continue to win new logos in higher education, replacing incumbent legacy LMS solutions. In the third quarter, Johns Hopkins University announced that it will replace Blackboard with Canvas as the university's learning management system in advance of the 2022-2023 academic school year. Miami Dade College also announced that they are moving from Blackboard to Canvas for the 2022 school year. In each case, ease of use, modern user interface, superior mobile experience, and powerful ability to integrate with third-party tools were key differentiators. Higher education institutions continue to see Instructure and Canvas as the next generation solution as they re-platform for the future. On the K-12 side, we continue to see strong momentum, including securing greenfield wins in districts that are not already using a paid LMS. The value of an enterprise-grade LMS has become increasingly clear as districts recognize the importance of features, uptime, and scalability amidst accelerated digital transformation. For example, a top 10 school district in the U.S. with over 200,000 students chose Canvas as their paid LMS in Q3, even though they had access to a competitor's LMS for no cost. Despite this and their usage of the competitor's student information system, known as the SIS, they chose Canvas because of our demonstrated success in large districts, our superior functionality, and the appeal of our new and well-received Canvas K-5 offering. This is a great example of the continued traction that we are seeing in the K-12 market and a great proof point of how we continue to invest for innovation. We also continue to see outstanding growth in our international markets, with revenue growth in excess of 30% during the third quarter. Third, we continue to see demand building for our products, and this was very evident in our successful InstructureCon customer event last month. We had attendees from over 5,000 institutions join us at InstructureCon, more than five times pre-pandemic levels. At the conference, we introduced new commercial partnerships and several significant new features to our learning platform, including mastery via simplified assessments, which utilize scoring algorithms that enable shorter, more effective assessments, and Canvas for K-5, which add age-appropriate features to Canvas for our youngest learners. More than half of these attendees will meet prospects, highlighting the magnitude of the opportunity ahead of us. Our existing customers continue to adopt additional products beyond just the LMS, demonstrating that we have a large opportunity in our installed base and our platform strategy is working. As a result, a growing percentage of new bookings continues to come from cross-sell opportunities, and a growing percentage of new logo wins include more than one product. One area we see success in cross-selling is our assessment management solutions, or AMS. For example, the Vermont Virtual Learning Cooperative, one of our existing statewide deals, purchased our assessment product this quarter. A key factor in their decision was the integration of the learning management system with the assessment management system. This is not a singular event. In another example, a large district in Tennessee chose our AMS for the same reasons. The need to address the significant learning loss created by the pandemic and a more iterative approach to assessments will continue to fuel the digital transformation of assessment solutions. We believe we are well positioned to help our customers address this very serious issue, and our platform will continue to drive enduring growth through cross-sell, especially as we add more products through organic and inorganic innovation and integrate them within the learning platform. Finally, we continue to use strategic M&A to increase our TAM and rapidly expand our learning platform capabilities. I'm very excited to say that earlier today we announced the acquisition of Kimono, the leading cloud-based provider of education data integration solutions and one of our key partners. Kimono's integration platform enables different applications used in the classroom to share data with, and connect to the school's applications. We believe the value of our platform increases as our partners and customers seamlessly share data between disconnected applications. I'm also excited to mention that the EasySoft integration, now called Impact, is on track and performing well. Earlier this month, we announced the availability of Impact for the K-12 market, opening up the addressable market for a solution previously only available in higher ed. Both EasySoft and Kimono are great examples of our ability to use strategic M&A to accelerate our product roadmap and expand the addressable market to drive durable growth. As we look forward, our M&A pipeline remains strong, and we continue to focus on acquiring companies that will expand our TAM, enhance our platform, and create opportunities for cross-sell into our expansive customer base. In summary, I am confident and optimistic about our business. We believe we are well positioned for durable growth and expanding profitability as a leading platform for teaching and learning in both higher education and K-12. I will now turn the call over to Dale to talk about our financial results and the exciting momentum we are seeing in the business. Thank you, Steve. And thanks again to everyone for joining us today. Before discussing detailed financial results, I'd like to point out that in addition to our GAAP results, I'll be discussing certain non-GAAP results. Our GAAP financial results, along with the reconciliation between GAAP and non-GAAP results, can be found in our earnings release, which is posted in the investor relations section of our website. In the third quarter, we continue to show a combination of durable top-line growth, expanding adjusted EBITDA margins, and strong unlevered free cash flow conversion. Year-to-date, we remain a rule of 60-plus company, with 30% ACR growth and 35% adjusted EBITDA margins. further validating the underlying quality of our business. As Steve mentioned, we generated third quarter 2021 total gap revenue of $107.2 million, up 31% year over year, and ACR of $108.6 million, up 24% year over year. Subscription and support revenue accounted for 90% of our third quarter revenue at $96.2 million, up 31% year over year. primarily as a result of the continued momentum within our core Canvas LMS product, both domestically and internationally, in addition to strong upsell and cross-sell of our other products, especially assessments. Professional services and other revenue accounted for 10% of our third quarter revenue at $11.1 million, up 31% year over year, driven by strong implementation and training services delivery across both our K-12 and higher ed businesses. Deferred revenue at the end of the third quarter was $287.1 million, up 38% from the third quarter of 2020. Remaining performance obligations, or RPO, were $684 million in the third quarter, up 16% year over year. And we expect to recognize revenue on approximately 77% of our RPO over the next 24 months. In discussing the remainder of the income statement, please note that unless otherwise stated, all references to our expenses, operating results, and share counts are on a non-GAAP basis. Please note that when I refer to margins in the upcoming comments, we calculate our margins based upon ACR. Our gross margin profile is very strong, and we maintain healthy margins through our optimized cloud architecture and flexible support structure that is designed to scale and meet customer demands. In the third quarter, our gross profit was $83.5 million, representing a gross margin of 76.9%. This is compared to a gross margin of 71.1% in the third quarter of 2020. Turning now to operating expenses. Sales and marketing expenses for the third quarter were $20.3 million, or 18.7% of ACR, down from 21.9% in the third quarter of 2020. Bookings per rep and the average size of cross-sale deals continue to improve as we build upon the efficiencies we introduced into our go-to-market efforts last fall. Research and development expenses for the third quarter were $13.3 million, or 12.3% of ACR, down from 13% in the third quarter of 2020, even though we have more engineers focusing on the development of our product roadmap than we did a year ago. General and administrative expenses for the third quarter were $9.5 million, or 8.8% of ACR, up from 7.2% in the third quarter of 2020, driven largely by the addition of public company costs in the second half of 2021. Non-GAAP operating income for the third quarter was $40.4 million, representing a 37.2% operating margin, up from 29% margin in the third quarter of 2020. In the third quarter, adjusted EBITDA was $41.3 million, representing a 38% adjusted EBITDA margin up from 30% in the third quarter of 2020. This result was better than our expectations and reflective of both our strong top-line growth and disciplined management of our cost structure. We were pleased with the over 820 basis point and over 800 basis point improvement in operating margins and adjusted EBITDA margins respectively, demonstrating the power and efficiency of our model. Non-GAAP net income for the third quarter was $33.7 million, or net income of 25 cents per share, compared to $24.8 million, or 20 cents per share, a year ago. Turning to the balance sheet and cash flow statement, we ended the third quarter with $231.8 million in cash, cash equivalents, and restricted cash. This is up $157.3 million from the end of the second quarter, The entirety of the $233.1 million of IPO net proceeds were used to pay down debt, so the increase was driven largely by cash collections, which was the highest collection quarter in the company's history. Last week, our strong financial performance enabled us to refinance our outstanding debt facility with a new facility that has highly attractive terms. As part of this refinancing, we paid down approximately $31 million of principal and now have total outstanding debt of $500 million. As a result, we expect that our annual interest expense will be reduced by approximately $18 million per year going forward. Operating cash flow in the third quarter was $161.2 million compared to $100.3 million in the third quarter of 2020. Free cash flow was $160 million in the third quarter compared to $99.5 million in the third quarter of 2020. Our unlevered free cash flow was $172.2 million in the third quarter compared to $120.7 million in the third quarter of 2020. As a reminder, our strong free cash flow conversion is driven by our favorable billing terms, low capital expenditures, and our accumulated tax assets, which we believe will act as a shield for the next several years. I will now conclude the call by providing guidance for Q4 and for the full year of 2021 for ACR, unlevered free cash flow, and adjusted EBITDA. We have provided additional guidance details in our earnings press release. For the fourth quarter of fiscal 2021, we expect ACR in the range of $107.5 million to $108.5 million or a growth rate of 19.1% at the midpoint of the range. I want to make one additional point specific to ACR and Q4. We expect subscription and support revenue to increase sequentially from Q3 to Q4 and professional services revenue to decrease sequentially from Q3 to Q4. This is consistent with the historical trends where we see higher services revenue in Q3 We expect adjusted EBITDA in the range of $38.5 million to $39.5 million, representing an adjusted EBITDA margin of 36.1% at the midpoint of the range. For the full fiscal year 2021, we expect ACR in the range of $410.7 million to $411.7 million, or a growth rate of 26.6% at the midpoint of the range. We expect adjusted EBITDA in the range of $143.6 million to $144.6 million, representing an adjusted EBITDA margin of 35% at the midpoint of the range. We anticipate unlevered free cash flow to be roughly $152 million for the year and adjusted unlevered free cash flow of roughly $164 million. which adjusts for the impact of restructuring transaction and sponsor costs paid in cash. With that, Steve and I are happy to take any of your questions.
spk03: Thank you. As a reminder, to ask a question, you will need to press Start, then the number 1 on your telephone keypad. Again, that will be Start, then the number 1 on your telephone keypad. Your first question comes from the line of Brian Peterson from Raymond James. Your line is open.
spk06: Thanks for taking the questions and congrats on a strong quarter. So, Steve, we want to start out on some of the wins. You mentioned Johns Hopkins and a pretty good-sized win at Miami-Dade. Maybe an update on how your customer conversations are going. And just with potential prospects, I know some of your legacy competitors have had some strategic transactions.
spk07: Any thoughts about how that pipeline looks as we head into 2022?
spk06: Yeah, thanks, Brian, and thanks. We're really, really pleased with Q3. Yeah, the conversations with customers you know, are pretty consistent with what we talked about in the past. You know, some people really just hunkered down during the pandemic. Now they're looking at what they wanted, you know, their platform to look like for the future and recognizing that, you know, the digital transformation of education is, you know, is in full force. So we're seeing, you know, a lot of conversations around, you know, renewals, for competitors that are coming up next year and the year after, starting those evaluations now, really looking for something that scales, you know, particularly as they felt some of the pain during the pandemic, a user interface, a much better user interface, and, you know, you know, and a platform that has, you know, is open in the market. And so a lot of the key value propositions continue to resonate really strongly with the customer base. And we're seeing, you know, RFPs are in our pipeline or up for 22 and 23. Great.
spk08: That's good to hear.
spk06: And maybe just a follow-up on the Kimono acquisition. You know, maybe talk about what that gives you strategically and how some of the maybe overlapping customers use it today.
spk08: And Dale, I'd be curious, you know, any impact on the financials either for 2021 or 2022. Thanks, guys.
spk06: Yeah, I'll take the Kimono. Kimono, I'm really excited about Kimono. As we said in our press release, they were a partner with us. We've worked really closely with them, have great relationships. The cultural fit is really strong between the two companies. What this really does for us, Brian, is two things. One is it allows us, you know, it has technology that we can now have in our control to be able to make sure that all of our integrations with companies student information systems across the industry are seamless and tight so that we can pass information between those systems. We also will continue to expand the capabilities of the platform to include other data besides just this data, and combine that with some technologies that we have. So really, it strengthens what we can offer to our customers. The other piece is it becomes a platform a bus, if you will, or an integration platform, much more robust integrations with our partners. And so the 500 plus partners that we have now, now have access to a lot of that data that's running on their technology, ours as well as other partners. And so it really does strengthen our value proposition to our partners on our platform going forward. And, Brian, in terms of Kimono and the acquisition, it's just a very small tech tuck-in with fantastic technology. It has a de minimis contribution to our Q4 financials. Great. Thanks, guys. Thanks, Brian.
spk03: Thank you. Next up, we have Sterling Audie from J.P. Morgan. Your line is open.
spk02: Hi. This is Mariah Kilcullen on for Sterling. I was hoping you could just talk a little bit about the pipeline of state deals for K-12 following Vermont.
spk06: Oh, sure. So, you know, as we look at the pipeline, you know, I'll talk more broadly about K-12 in general, right? We're still seeing really good pull-through. We're seeing, you know, the digital transformation that really was ignited uh with the pandemic really continues in in uh in the k12 space and there's a lot of money chasing uh you know that's chasing technology to accelerate those digital transformations you know stimulus funding of uh for k12 alone is 190 billion dollars and so we're seeing a lot of interest from our customers uh from in two two areas one is we're still seeing continued lms traction as we go from you know the you know 60 of the market was unvended as they're moving to paid paid lms's as well as a really strong pickup in the assessment side of the business as we come back in person uh really institute or districts are really concerned with learning loss with understanding and helping teachers to help students get back on track and closer to the standards and our technologies in the assessment space are resonating strongly. So pipeline is building nicely. That business is up pretty, very strong, faster than our average growth rate in the assessment space.
spk02: Okay, got it. That makes sense. Thank you. And then if I could just ask a follow-up, can you just give an update on the higher education enrollment and how that's flying for the business?
spk06: yeah um yeah and and thank you for asking that question because i know there's been a lot of uh of noise out there about about enrollments you know this isn't a new trend this is something that uh you know uh enrollments in higher ed have been kind of flattish to downish for several years uh and i think you know the way i'd i'd love you to think about this is you know we're a very different business from most of the businesses in edtech in that for number three reasons really one is First of all, we sit at the center of teaching and learning. And so teachers and students are on our platform multiple hours every day. And we're at the hub that connects teachers, students, parents, administrators. So we're not exposed to one of the users, changes in usage patterns from just one of the users, whether that's number of students or number of teachers, for instance. And we are critical infrastructure for delivering on teaching. So what we're seeing is on our platform, The utilization on a per user basis of our platform last quarter in higher ed was in a few percentage points of utilization last year and was significantly higher than pre-pandemic levels. So again, because we have such a diverse user base, we're less susceptible to changes in one type of user. The second is we also are a much more diversified business. So over half of our revenue comes from K-12 and international. So we're much less susceptible to changes in a single market like higher education. we have a much more predictable, stable, and enduring revenue stream. And then finally, our relationships with those higher education institutions is more of a business-to-business. We're directly contracting with the universities, the institutions, not business-to-consumer, business-to-student. So we sign multi-year deals. We maintain relationships that are not as affected by transient changes in any – in any given year. And as I look at our Q3 renewal cycle, which is our largest quarter of the year, there was no material deviation in churn or downgrades from historical. And so because we are an integral part of the whole pedagogy and the critical infrastructure and digital transformation of education, we're more insulated. So all these factors make us more predictable, stable, and durable, and less susceptible to some of these kind of transient changes that may affect others in the market.
spk02: That'll make a ton of sense. Thank you.
spk06: Thank you.
spk03: Thank you. Next up, we have Josh Baer from Morgan Stanley. Your line is open.
spk04: Great. Thanks for the question, and congrats on a nice quarter. I wanted to double-click on the competitive environment. We're certainly seeing the strength in your results and your guidance and competitive wins, but wanted to just check in on how the Blackboard Anthology merger might impact the competitive landscape and any other changes that you're seeing.
spk06: Yeah. Thanks, Josh. And great question. I'll tell you what we're seeing from our side is people are trying to digest what this means. Our experience and what our customers are telling us is the buying motions are very different for the two different technologies, ones that are focused on the classroom versus ones that are focused on the administration side of the business. And so our customers are really interested They don't necessarily see this as an advantage, and they're just trying to understand what does it mean long-term for our competitor, for Blackboard in the market, and what does that mean from an investment perspective and those types of things. So we haven't seen any significant change in the competitive landscape because of that acquisition.
spk04: Great. And one on margins and investments. I mean, operating margins, 37%. Anything one time or anything to call out this quarter, or is this the right base level of operating expenses upon which to grow? And maybe it would be helpful, just a quick reminder of some of the largest sources of leverage from here at these levels. Thank you.
spk06: Yeah, it's a great question, Josh. So I So we're running on all cylinders right now. We've talked in the past, we spent 2020 refining the business model, and we're not doing anything differently now. We've also talked about being a rule of 50 company and operating within those boundaries, allowing us to invest at different places within the P&L. We think we're in a good spot here, and we think the business is operating at a good, healthy pace. and a good mix of both top line growth and profitability. So let's say we're operating right where we want to be.
spk03: Thank you. Josh? Next up. Oh. Go ahead, Operator. Thank you. Next up we have Fred Havemeyer from Macquarie. Your line is open, sir.
spk07: Hey, thank you. And I'd just like to reiterate, I think, the thought of congratulations on a very strong quarter here. So I think going back to some Blackboard-related items, I hope I'm not going to bore you guys with this, but you highlighted a number of Blackboard wins, and we also saw recently that the SUNY system left Blackboard. From your perspective, is there sort of a disruption going on in the industry or perhaps like a pickup in the cadence of new higher education LMS replacements or valuations with this event? Yeah.
spk06: uh well thanks first of all thanks uh fred we're super happy with the results so what we're seeing we haven't seen uh a hiccup um uh in evaluations we've seen continued you know not a pickup a pickup i'm sorry oh pickup i think it's a hiccup i'm like oh wow no no um yeah i i think what we what we have seen is that um um People are out looking at what are the options. They're not clear what the future holds, and that's kind of what I'm seeing, a little more about uncertainty and just trying to understand what the future is. I wouldn't say there's a meaningful uptick or pickup in the business yet, but a lot of conversations is how I would characterize it.
spk07: Thank you. And then, you know, with respect to your M&A philosophy, how would you consider your appetite for technology tokens versus larger transactions? And is there a way that we should understand how you might balance your pipeline for these two types of transactions?
spk06: Yeah, that's a good question. You know, we have a pretty disciplined approach to M&A, right, and we evaluate it both from a financial as well as a strategic fit. You know, I wouldn't read anything into the fact, Fred, that we've done, you know, kind of two more tuck-in type acquisitions in the last two quarters. I would, you know, I would just read it as that's what came available, that's what, you know, we had to work with. I would, you know, I would just think of it as, you know, we've got the machine, the machines available, you know, when opportunities come available and we can find those, we'll act on them. And we're not biased one way or the other towards, you know, more meaty ones or more of the tech talk.
spk07: Thank you.
spk06: Thanks, Fred.
spk03: Thanks. Thank you. Next up, we have Brent Phil from Jefferies. Your line is open.
spk01: Hi, guys. Thanks for the question. This is David on for Brent. You talked a little bit about the momentum in K through 12. I was hoping you could talk a little bit more, and maybe specifically around the new product that's targeting the K through 5 users. And then maybe to add on to that, could you discuss how you're allocating resources between K through 12 and higher ed, and maybe how you're thinking about international into that mix? Thanks.
spk06: Sure. Thanks, Brent. So K-12 is – we have seen great – we've seen continued interest in our solutions. We highlighted the fact that our – that we signed a customer who could have gotten one of our competitors for free, right, and chose to pay for Canvas because of the power of our solutions. Included in that was the fact that, you know, we have a very, you know, a very differentiated approach to how we interact with the K-5 student, right, and the early learners. And so, you know, we're seeing that as a great opportunity advantage in the selling process. We're seeing it as a great advantage when we're talking about renewals and retaining customers. And as a chance for us to upsell to some of those grades that may not have adopted us early in the, you know, in the buying cycle. So, so it's, it's helping us across, you know, all aspects of our business. When we look at allocating resources, you know, we have, you know, we have dedicated sales teams that are assigned to K-12. And within that, we assign them to the AMS products as well as the learning management products. And again, Again, we go through a rigorous process of looking at opportunities for where to spend our engineering dollars, where the opportunity is, what the return on investment is on those investments, and then we prioritize them against all of those investments. A lot of what we do, frankly, applies to both. higher ed, NK-12, and international, frankly. And so, you know, it really is just a dynamic process for allocating between those kind of three opportunities for us.
spk01: Got it. Thanks, guys. Thanks, David.
spk03: Thank you. Next up, we have Joe Verwillig from Barry Delaney's Open.
spk09: uh great hi everyone um i maybe wanted to go back to the comment that usage is still higher year over year as instruction moves back to an in-person setting is that at all surprising to portions of your customer base maybe just in comparison to how they plan for the fall semester to go and if it is surprising are you seeing any re-prioritization of spending initiatives that might now going forward have to better align with this, you know, how educators are actually approaching the return to in-person instruction?
spk06: Yeah, it's a good question, Joe. uh if you recall when we kind of when we were going through the roadshow we had some primary research that we had done asking that very question you know how do you expect the usage of of the instructor technology post pandemic uh and and it's playing out about what the research showed us so you know from that perspective that was what customers were telling us that they expected that they were still going to use the lms even after the pandemic that had become a critical part of their infrastructure and critical to their delivery on teaching and learning. And so not that they were surprised per se, we are seeing a good pickup in the assessment side of the business and we're seeing dollars allocated to those, but primarily is coming from kind of manual, pen to paper, now implementing automated systems to be able to do assessment. And so that digital transformation has probably accelerated a little bit from what we had heard during the pandemic. And, you know, they're moving budgets around to be able to fund those types of projects.
spk09: Okay, that's great. And maybe my follow-up, just sticking with assessment. Well, I was hoping to maybe just get the splits like you provided last quarter between K-12 and higher ed growth. specifically in K through 12. Any updates on how to think about the growth contribution between what you're seeing in core LMS versus this accelerated traction for assessment that you just referenced?
spk06: Yeah. Dale, you want to hit the growth rates and then we can talk about assessment? Sure. So, Joe, we're seeing growth rates in K-12 about 20 percent for the quarter, And then we're seeing low to mid-teens growth in the high-end space. Stronger than international we're seeing. International is very strong. It's over 30%. Combined, the APAC and EMEA regions are up 20%. And we mentioned this LATAM was growing almost 60% last quarter. That's consistent with what we saw in Q3. Okay. And rather than, you know, we're not going to break out product specifics, but, you know, I will say that the assessment business is growing faster than the overall K-12 business.
spk09: Okay, great. Thank you.
spk03: Thank you. Next up we have Matt VanVleet from BDIG. Your line is open.
spk05: Yeah, thanks for taking the question. Nice job on the quarter, guys. I guess on that last point around the assessments, wondering if you could help us think about what you're hearing from customers for selecting Canvas, you know, is it the option to have the assessments, to have Studio, to have some of these other add-ons in the product roadmap, even if they don't buy them up front as a key rationale for buying? Or do those tend to just be kind of nice to haves, but the core product itself, you know, going feature for feature is still winning standalone?
spk06: Yeah. Yeah, I like that question. It really gets to the competitiveness of the two solutions. You know, the reality is usually we will land with the LMS on its own and on the strength of the LMS. And then, you know, it's usually a cross-sell motion for us to win the LMS. the AMS deal, the assessment management deal. Again, part of the differentiation in that assessment management sale is the fact that it is so tightly integrated with Canvas and that that's a seamless integration and the data is shared and makes it really easy for the teachers and the administrators. So I'd say we win strength in the LMS That integration really helps us in the win when we cross-sell the AMS on top of the LMS.
spk05: Great. And then, you know, you mentioned the strength in the international markets. Does that give you additional confidence in expanding any of the investments, trying to, you know, sort of reach into adjacent countries or regions? Or should we think about, you know, for another year or two, maybe being very focused on where you're at now, really kind of ensuring that that growth continues to accelerate and then sort of reassess from there?
spk06: Yeah, sure. It's a great question. And Matt, we've mentioned before that international is the highest growing part of the business, and we expect to continue to be that way. We are making investments in that part of the business and are evaluating the best way to meet that. We've been specific about the regions that we go into to bring us the highest ROI. And within those regions, we're making investments to continue to grow those parts of business. Yeah, and I would say, Matt, you know, we still have – there's still a lot of room to grow our share in the countries that we've targeted. And so, you know, our strategy will be to continue to focus there, make sure we've put enough wood behind the arrow to, you know, replicate the success we've had in the U.S. in those specific markets.
spk05: All right, wonderful. Thank you for taking my questions.
spk03: Thank you. Once again, in order to ask a question, please press star, then the number one on your telephone keypad. Again, that will be star, then the number one on your telephone keypad. Your next question comes from the line of Terry Tillman from Truist. Your line is open.
spk06: Yeah, thanks for taking my questions. Hi, Steve, Dale, and April. Most of my questions have been answered. But first, I guess congratulations on the quarter. It was a strong quarter. But I do still have actually a couple questions, so you're not going to get off that easy. On the pricing side, we've gotten further into kind of what was in some cases probably a nice-to-have tool that was viewed that way with an LMS. to now it's mission critical. Plus, there's been a lot that's been added to the Instructure platform, and some of these token acquisitions add more value. What are you seeing in terms of getting out of or further through the pandemic, girls, uptime performance versus competitors on pricing from an FTE standpoint on net new deals? You know, is it steady?
spk09: Is it increased? Is it down, whether it's higher at our K-12? I'm going to add a follow-up.
spk06: Yeah, no, we still we, you know, in the higher ed space, we still continue to see, you know, pricing improvement in that space and our ability to hold price. Again, we've never won a deal being the low price category. solution and really coming out of the pandemic, the institutions recognize that you get what you pay for and they're looking for the best in breed. We're seeing that same trend in K-12. We highlighted the one in the prepared remarks where they could have gotten cannabis for free through the state and they chose to invest with us. um holding steady in in k-12 price uh and um uh and continuing to see strength from a cross-sell perspective in k-12 particularly the ams pricing you said you had more than one though terry yeah i should get off mute next time yeah sorry about that uh yeah It's only 546. We have about 14 minutes left. I have six more. No, I'm kidding. Just one more for me. On InstructureCon, it sounded like, I mean, in a virtual world, you do usually see higher attendance. Hopefully, they're actually participating or watching on their desktop or their screen. But I'm curious, you know, whether it was you talked about evolving commercial relationships. So anything more you could kind of provide there and or with the higher attendance, did this become a bigger selling event than in the past in terms of driving pipeline? Thank you. Yeah, so from a technology perspective, some of our relationships that we've strengthened with Google or Microsoft were key parts of the interest that we saw. We have some really cool technologies that we've integrated that we shared during a StructureCon company called InSpace, for instance. So we're seeing that the whole ecosystem there's a big draw with our customer base around the ecosystem and the power that comes when you integrate with the Instructure Learning Platform. And as I said in the prepared remarks, about half of our attendees were prospects. So yes, the importance of this also, not just as a customer event, but as a lead generation event is much more significant than it was before the pandemic. Can I add some to that, Steve? It's, Gary, you've been to these before, and you know that the users of our system are our biggest advocates. And so we think only good things happen when we bring people that love our product together with people who are looking at our product. Yep, understood. Thanks. Thanks, Gary.
spk03: Thank you. I have a question. It comes from the line of Stephen Sheldon from William Blair. The line is open.
spk08: Hi, this is actually Pat McAuley on for Stephen. But once again, nice quarter, guys. So I just wanted to go back to Kimono. I understand that this has been a longtime partner, and I just wanted to ask if there's any way you can quantify how much overlap there might be with with Canvas and Kimono's 27,000 schools. And then as a follow-up to that, if you expect this to provide additional cross-selling opportunities for the remainder or just how you're thinking about that in general.
spk06: Yeah. The, you know, the... Komodo, you know, Komodo partnered with a number of partners besides us and some big partners out there. So, you know, we don't look at the value of this as, you know, bringing us necessarily a new customer base as much as what it does is it allows us to seamlessly integrate with other technologies in the space. And so there's a very long tail of student information systems out there in the K-12 space, for instance, that this technology allows us to seamlessly integrate. So we're agnostic to whatever student information system is being used by our customers. And there's power in that in the selling process with us from a Canvas perspective, being able to come in with that message. Also, longer term, the opportunity really presents itself in how we integrate and the value that we bring to our partners that integrate on the Canvas platform. And so, again, what it does is it creates a much more sticky platform with our customers as well as you know, the opportunity to partner with more partners longer term. So that's how we're looking at the value and how that, you know, that's going to accrue to our overall business.
spk08: Got it. That's helpful. Thank you. And then one more quick one here. So on impact, you've talked about this a little bit, but last quarter you mentioned you were seeing kind of an early pipeline build for that solution. And I just wanted to ask if you have any incremental updates at this point on traction, feedback, and or attach rates you're seeing with that solution.
spk06: Yeah, it's still early in the sales cycle, but the pipeline continues to build. As I mentioned in the prepared remarks, we We came out with a version for K 12, so we started to get a lot of pull from that segment of the market. This is historically has been a easy software is really targeted at. Um, at higher ed. So as the impact, um, you know, we, we, we made some tweaks to the product really, uh, made a fit for purpose for K 12. And so, uh, again, we just announced that, um, availability. So it's still, it's still early days, Pat, to, to be able to quantify that, but we're really optimistic, uh, about, you know, um, the opportunities it presents for 2022. Great.
spk08: Great. Thank you. Thank you all, and again, nice quarter.
spk06: Thank you.
spk08: Thanks.
spk03: Thank you. Presenters, there are no further questions at this time. I will turn the call over back to our CEO, Mr. Steve Daley, for any closing remarks.
spk06: Sir? Thank you, operator, and thank you, everybody, for joining us. We, you know, I'm really excited about the momentum that we're seeing in the business. We continue to be a key part of that digital transformation of education. We've got the right products. the right strategy and the right team to driving during growth. So I want to also thank all of our employees for the hard work that they do to amplify the power of teaching and to all those educators that are making a difference in students' lives. And we look forward to speaking with you all again in another quarter. So thank you.
spk03: Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining us on All This Connect.
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