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spk15: Thank you for standing by and welcome to Instructure's first quarter 2024 earnings call. At this time, all participants are in a listen-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 now like to turn the conference over to your first speaker, Matthew Wells, Senior Vice President, Investor Relations. Matthew, please go ahead.
spk03: Good afternoon and welcome to Instructure's first quarter 2024 earnings conference call. We will be discussing first quarter results and updated guidance as announced in our press release published earlier today. And to accompany the discussion, we've uploaded an earnings presentation to our investor relations website. I encourage you to review this presentation alongside our prepared remarks. On the call today, we have Instructure's chief executive officer, Steve Daley. and Chief Financial Officer Peter Walker. Before we begin, I'd like to remind you that today's conference call and earnings presentation will include forward-looking statements. These statements are subject to risks and uncertainties that may cause our results to differ materially from listed expectations. For discussion of factors that could affect our future financial results in business, Please refer to the disclosure in today's earnings press release and our Form 10-Q and other reports and filings we file with the Securities and Exchange Commission. All statements are made as of today based on information available to us as of today, and we assume no obligation to update any such statements except as required by law. During the call, we will also refer to both GAAP and non-GAAP financial measures. You can find a reconciliation of our gap to non-gap measures in our earnings press release, which is posted to the investor relations section of our website. And with that, let me turn the call over to Steve.
spk10: Thank you, Matt. And thank you all for joining our first quarter 2024 earnings call. I'd also like to thank everyone who attended our investor day earlier this year. For those that did attend, I hope that our team's passion for the business, the opportunity ahead of us to grow, and our commitment to educators and lifelong learners resonated. Kicking it off on slide four, as shared during Investor Day, our vision is to be the ecosystem that powers learning for a lifetime and turns that learning into opportunities. As the vertical software leader in education, we are well positioned to connect learners across their lifelong learning journey. Anchoring the ecosystem is the Canvas LMS, the market share leader in North America. We are invested in a mission to create real outcomes for learners, whether they are a traditional degree seeker or a non-traditional learner. We believe the investments we are making across the Instructure platform, our go-to-market structure, and partner ecosystem position us as a company to deliver long-term, durable growth. And I'm excited by the plan we set to become a $1 billion revenue company by 2028. Turning to slide five, I'll discuss first quarter highlights. Total revenue of $155.5 million increased 20.7% year over year, including 6.8% organic constant currency revenue growth. Subscription and support revenue of $144.7 million increased 22.1%, including 7.6% organic constant currency subscription and support revenue growth. As a reminder, organic constant currency growth rates exclude the impact of our acquisition of Parchment. Parchment revenue exceeded our expectations and grew double digits year over year. In the first quarter, pro forma annual recurring revenue for the combined and structure and parchment business grew in the high single digits year over year. In addition, annual recurring revenue growth from our core and growth solutions was in line with our medium term targets. As we move to discuss profitability, adjusted EBITDA of $64.9 million grew 34.6% year over year, and adjusted EBITDA margin expanded significantly to 41.8% this quarter, as we benefited from continued scale in the business and a shift in our spending to later this year. We exceeded the high end of our guidance ranges across all guided metrics, and we are positively revising our fiscal year 2024 outlook accordingly. Peter will take you through the details of our quarterly performance and full year outlook shortly. We also continue to innovate in areas that will have the highest impact for teachers, students, and educators. As early leaders in the LMS space, customer-centric innovation is at our DNA, and we are taking a similar approach to refining the AI-enabled solutions that we highlighted during our Investor Day. Early indications from beta customers have been positive, and we continue to engage our community around how to best enhance their day-to-day while driving positive student outcomes. We are excited to showcase our innovation at InstructureCon 2024, taking place July 9th through the 12th in Las Vegas. During the event, we will share customer success stories, highlight product enhancements, and spotlight some of our most impactful student outcomes. Turning to slide six, as a scaled vertical software company, we are in the enviable position of having a large, loyal, and referenceable customer base. These customers are asking us to solve more problems for them and our investment in our growth businesses has created a massive cross-sell opportunity that we are only just starting to monetize. Our expertise and laser focus on the needs of our education customers have contributed to our world-class margins as we remain focused on operational excellence. We have created a business model that allows us great flexibility to invest in growth opportunities both organically and through M&A. In summary, We believe that the mission-critical nature of the Instructure platform, our diversified product portfolio, our world-class business model, and the large markets that we operate in position us to grow durably and profitably. Flipping to slide seven, throughout the quarter in conversations with customers and partners, we continue to pick up on recurring themes that underpin the value we deliver. First, there continues to be a level of uncertainty in our markets as schools and universities are developing strategies to retain and attract more learners in an environment that has changing funding commitments and regulatory pressure. As our customers are grappling with these challenges, they continue to come to Instructure to help them navigate their important digital transformations. RFP activity remains high, even as decision making remains elongated. This gives us confidence that these macro headwinds are temporary. Second, the consolidation and optimization of technology resources continues to be a high priority, and the LMS is the natural place for consolidations to happen. Customers are pulling us into more broad-based digital transformation discussions and seeing Structure as a platform for consolidating their tech stack. This is a long-term trend, and we believe our expanding portfolio of products, especially our EdTech effectiveness solutions, as well as the extensive reach of our partner ecosystem, position us as the partner of choice for consolidation. Third, the continued shift to nontraditional and certification programs is increasing the addressable market of learners that we and our customers can reach. We continue to see traction with our existing customers adopting our non-traditional solutions, and I'm particularly pleased with the progress we are seeing from our newly created professional learning customer teams. With the addition of Parchment, we believe we are the only edtech platform that can provide a complete end-to-end solution for both traditional and non-traditional learners. Turning to customer highlights in the quarter on slide eight, I'm excited to share a handful of standout wins that demonstrate the breadth of our offering and the diversity of our customer base. While the decision-making environment in our core North American LMS markets remains elongated, customers are turning to us as a key strategic partner. Despite these near-term headwinds, we continue to win significant new logos such as the University of Alberta and a competitive win back at Tampa Union High School District. The University of Alberta selected Instructure as the learning management system of the future. Canvas LMS, studio credentials, and additional platform solutions will power the university's education footprint across over 40,000 learners. This was a notable win for our team as we displaced the legacy competitor in the Canadian market. Tempe Union High School District is a district that left us in 2019, decided to return to Instructure as its LMS platform after a lackluster experience with another provider. Canvas LMS stood out based on an improved user experience and excellent services and support across the platform. Across the growth areas of our business, we continue to see positive momentum internationally in Parchment and non-traditional and professional learning. Adelaide University, located in Australia, selected Canvas LMS studio and credentials as a platform to power learning across more than 50,000 learners. Our platform offerings were aligned with Adelaide's ambitious mission focused on preparing students for a skills-focused future, and to meet their students where they are in their educational journey. The value of Instructure's broad portfolio, including the addition of Parchment, is evident with the University of Notre Dame. Already a Canvas LMS and Parchment customer, they selected Parchment's comprehensive learner record to support a more comprehensive and accessible learner record to help students and staff better manage their credentials and their learning journey. And as I mentioned earlier, I'm encouraged by the traction our professional learning teams are gaining in this new focus market. The Indiana Association of Realtors selected Canvas LMS and Studio to power training and education of realtors in the state of Indiana. Past experience and familiarity with the instructor platform strongly resonated with the more than 15,000 members of the association. Moving to slide nine, our Q1 results demonstrate the durability of our business model. and the breadth of our platform offerings. As a leader in the LMS space, we are well positioned to serve as the educational platform of the future while delivering growth and profitability at scale. And as Peter will explain, we feel confident in our ability to deliver continued margin expansion while making investments in growth in the second half of the year. In summary, I'm excited about the business as we enter the prime buying season. Our ecosystem of educators, partners, and students is unparalleled. And with the addition of Parchment, we have further enhanced our position as the platform of choice for modern learning. We also continue to thoughtfully innovate across our ecosystem by engaging educators and partners to deliver the most impactful solutions. All of this is done while continuing to drive world-class margins. I'm really proud of our team across the world that makes this all possible. With that, I will now turn the call over to Peter to discuss the financials in more detail.
spk07: Thanks, Steve, and good afternoon, everyone. Before discussing financial results, I'd like to remind everyone that in addition to our GAAP results, I'll be discussing certain non-GAAP results. Our GAAP 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. Turning to slide 11, in the first quarter, we delivered a strong combination of durable revenue growth and compounding profitability and we exceeded all quarterly guided metrics. Total revenue grew 20.7% to $155.5 million with organic constant currency revenue growth of 6.8%, which excludes the impact of parchment. FX headwinds for the quarter of approximately 10 basis points were de minimis. Subscription and support revenue outpaced total revenue growth, growing 22.1% to $144.7 million with organic constant currency subscription and support revenue growth of 7.6%, which excludes the impact of parchment. Subscription and support revenue accounted for 93% of total revenue in the quarter, 110 basis point increase over the first quarter of prior year. Professional services and other revenue, which now accounts for just 7% of total revenue, grew 4.2% year over year to 10.8 million. Deferred revenue at the end of the first quarter was $235 million, up 8.9% year-over-year. Remaining performance obligations of $820.4 million increased 16.6% year-over-year, and we expect to recognize 76% of RPO over the next 24 months. Let's turn to slide 12. As discussed during investor day, our growth strategy is focused on our core and growth businesses. This strategy diversifies our growth algorithm and positions us to deliver pro forma annual recurring revenue growth in the high single digits for the combined and structure and parchment businesses in the first quarter. We are also positioned to deliver medium-term organic annual recurring revenue growth of 9% to 11%, powering our path to $1 billion in revenue by 2028 and $1 billion in annual recurring revenue exit velocity. In discussing the remainder of the income statement, please note that unless otherwise stated, all references are on a non-GAAP basis. Turning to slide 13, our gross margin profile remains very strong, reflecting the flywheel of a greater share of recurring revenue coupled with continued platform scale, underpinned by operational excellence and investments in our cloud platform to more efficiently deliver solutions across our customer base. In the first quarter, our non-GAAP gross profit margin expanded 103 basis points year-over-year to 79%. Subscription and support non-GAAP gross margin expanded 60 basis points year-over-year to 82%. Turning to slide 14, operating leverage continues to grow as the organization scales. This positions us to continue expanding profitability ahead of revenue growth. In Q1, we saw some benefit from a shift in the seasonality of investments, and as such, we expect to reinvest approximately half of this profitability upside in the remainder of the year. Non-GAAP operating income of $63.5 million delivered margins of 40.8% expanded 422 basis points year over year. And similarly, adjusted EBITDA of 64.9 million delivered margins of 41.8%, expanding 432 basis points year-over-year. Non-GAAP net income of 32.7 million increased 17.2% year-over-year, driven by expanded profitability in the quarter. Operating cash flow was negative 92.6 million compared to negative 80.9 million last year. primarily due to 12 million of early collections in Q4 of last year that I discussed during our Q4 earnings call and higher interest expense from the acquisition of Parchment. Unlevered free cash flow of negative 79 million and adjusted unlevered free cash flow of negative 65.3 million were in line with expectations and similar to prior year. Let's turn to slide 15 to cover the balance sheet and leverage metrics. We ended the first quarter with $89.3 million in cash, cash equivalents, restricted cash, and funds held on behalf of customers. The decrease in cash of $255 million from year end 2023 is driven by funding of the Parchment acquisition. Our first quarter net leverage ratio was 4.7 times. However, this calculation only captures two months of Parchment's adjusted EBITDA. If we calculate the leverage ratio using the prior 12 months of Parchment's adjusted EBITDA, the leverage ratio would have been lower in the first quarter. We are on track for year-end net leverage ratio of approximately 3.4 times, consistent with the guidance we provided at Investor Day. Our capital allocation priorities remain unchanged since our IPO, investing in organic revenue growth, pursuing M&A, and maintaining a healthy balance sheet. I will now discuss Q2 guidance and our updated four-year outlook. Turning to slide 16, in the second quarter, we expect revenue in the range of $166.5 to $167.5 million, growing 27.4% year-over-year at the midpoint. We expect adjusted EBITDA in the range of $67.5 to $68.5 million, resulting in margins of 40.7% at the midpoint and expansion of 160 basis points year-over-year. Turning to slide 17. For the full year, we are raising our guidance to reflect the full Q1 revenue beat and an incremental raise. We now expect revenue in the range of $656.5 to $666.5 million, growing 24.8% year-over-year at the midpoint. This includes organic constant currency revenue growth of 5% at the midpoint consistent with initial expectations and excluding the impact of our acquisition of parchment. We also expect pro forma and recurring revenue in the high single digits for the combined and structure and parchment business. Turning to adjusted EBITDA, we expect full year adjusted EBITDA in the target range of 271 to 274 million with margins of 41.2% at the midpoint, an expansion of 79 basis points year over year. The 3.5 million of adjusted EBITDA raise reflects a partial flow through of Q1 results and reinvestment and growth initiatives in the remainder of the year. We expect adjusted unlevered free cash flow in the range of 262 million to 265 million, reflecting margins of 39.8% and a raise of 1.5 million at the midpoint. This represents an increase of 17% year-over-year at the midpoint, or 29% when adjusted for 12 million of early collections in Q4 of last year. Turning to slide 19, we are reaffirming our medium-term target shared at Investor Day. As the business evolves toward our medium-term targets, We view annual recurring revenue and subscription and support revenue as the growth engine that will power our target of $1 billion in revenue by 2028 and $1 billion in annual recurring revenue exit velocity. We believe as the platform scales, we are well positioned to continue expanding margins. This concludes our prepared remarks. At this time, operator, please open up the line for questions.
spk15: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And your first question comes from the line of Brian Peterson with Raymond James. Please go ahead.
spk01: Hi. This is Jessica on for Brian today. So I just want to start off with, with the end of the 2023-2024 school year, what budget priorities are you hearing so far for school districts and higher education institutions for next school year? Like outside of the core elements, what products are resonating with schools looking to address pain points?
spk13: Thanks, Jessica.
spk10: It's, as we go into the, you know, the budgeting process within, you asked specifically about higher ed, I think, it's very similar to what we've been talking about, right? They're looking at what is their long-term strategy from a digital transformation perspective? How are they going to address more learners than just the traditional, you know, matriculating students that are coming on campus to get a degree? And what are some of the you know, some of the key investments that they're going to have to make in order to effectively address that population. So we see, you know, we see continued investment in, you know, tech consolidation. We see, you know, we see them evaluating where, which budgets they're going to tap into to improve and increase their tech value, you know, their tech investments. You heard at our investor day, moving some of that money from kind of physical locations into the tech funds. And then they're looking at, you know, what is the impact of enrollment trends? And again, how do we reach more learners as part of those enrollment trends that we're seeing? So very similar conversations that we've been having over the last six to nine months.
spk01: All right. Thanks for that. And also, then double-clicking on parchment, what milestones are you focusing on for integrating parchment into the overall infrastructure business during 2024? Like, how has parchment been integrating into go-to-market and cross-sell, and what are customers interested in with parchment so far in early responses? Thanks.
spk10: Yeah. Yes, it's an area that we're very focused on. And just to be clear, there are ongoing integration efforts, particularly in the back office. And so G&A integration is happening. We're very focused on bringing them onto our systems this year. Our plan has been to run the go-to-market separate as a way to understand the buying centers, understand where the synergies are. I'm encouraged, anecdotally, as I've been out talking with customers, they've been very positive about bringing the two companies together. We've, you know, I was with one of our consortia just about two or three weeks ago and we were having conversations and it was sparking interest where they were wanting to introduce our parts, you know, our partsman salespeople to the registrars because they can see some of the benefits of bringing both, you know, the delivery of learning with the evidence of learning. So we're early signals are positive, but we're going to give ourselves the year to make some of the decisions about how those, you know, how the two teams come together and what that structure looks like going into 2025. Got it. Thanks.
spk15: Your next question comes from the line of Noah Herman with JP Morgan. Please go ahead.
spk05: Hey guys, thanks for taking the questions. Just maybe first on the go-to-market, I know starting January of this year, you sort of rolled out a new sales organization to two different motions, both land and expand teams. Just curious to see what the progress has been there on that front and maybe, you know, what sort of ending are we in, in terms of this go-to-market transition?
spk10: Yeah, thanks, Noah. Good to hear from you. I'm very pleased with the progress that we're seeing. I have seen a level of collaboration. I've seen a level of engagement, particularly in what we call drive teams, which are the expand teams within the existing customers. We're seeing a lot more lead generation from our CSMs and from the teams that are in very close with the customers. We've seen a lot more collaboration between sales and customer experience. So I'm encouraged. Q1 is not usually a very predictive quarter for us, right, as the buying season starts to really crank up in Q2 and Q3. But I'm encouraged by what I see from a pipeline build. I'm encouraged from the feedback that I'm getting from our customers about the unified approach that we're taking with the customer. So You know, still early innings, but we should, you know, we are, I'm pleased with the progress.
spk05: Yeah, no, that's great to hear. In your prepared remarks, you also called out that you were actually able to realize some additional savings in the quarter, and you plan to incrementally invest in different areas going forward. Just curious, what are some of those incremental investments you're making as we approach the bulk of the buying season? Thanks.
spk07: Yeah, hey Noah, thanks for the question. So specifically, there's program spend and some technology infrastructure spend that we shifted into the back half of the year, particularly on the program spend. We just believe there'll be a higher ROI on executing that in the back half of the year.
spk15: Your next question comes from the line of Josh Baer with Morgan Stanley. Please go ahead.
spk14: Great. Thanks for the question. Just in regard to all the breakouts as far as the growth businesses that we have, thinking about ARR for 2023 and the growth CAGRs looking ahead, it doesn't necessarily paint the picture of like what's really contributing this year or next year versus in three or four years. So I was hoping for a little bit of color. Obviously, parchment is one of the bigger assets within the growth businesses growing double digits. So that's going to be a big contributor. But maybe you could walk through platform ecosystem, the non-traditional like assessments, international. What's really going to help move the needle this year versus maybe in a few years?
spk07: Yeah, Josh, thanks for the question. So, you know, we're really pleased with Q1 performance and pro forma ARR growth in the high single digits in line with our expectations. And then ARR growth from our core and our growth businesses were in line with our medium term target. So I'd say kind of everything that we shared at Investor Day we're on track with. We've obviously made a big effort to improve disclosure at Investor Day and even in today's call. So, you know, we're not going to comment on each of the individual areas beyond the client wins that we spoke about today, et cetera. But over time, you know, we'll continue to look to improve disclosure even further.
spk14: Okay, got it. I was just wondering if you have any update on the gross retention rates. Just wondering, you know, how that's trending at this point. Thanks.
spk07: yeah so we do not provide that metric on on a quarterly basis and our main selling season right really kicks in in uh q2 q3 etc when all of our renewals happen etc so you know i would say you know we go in the year feeling uh very positive about our gross retention rates okay thanks your next question comes from the line of stephen shelton with william blair
spk15: Please go ahead.
spk20: Hey, thanks for taking my questions. I wanted to follow up on Noah's earlier question and ask about some other changes you've made to the sales process. I think you started doing more bundling and packaging this year. And just curious how impactful that change has been. I know the first quarter isn't a massive sales quarter, but as we think about the key selling season coming up over the next couple months, How impactful do you think this change could be to the breadth of solutions you're including in contracts, given what you've seen so far this year?
spk10: Yeah, you know, Steven, to your point, you know, it is early and, you know, Q1 is not the big selling season for us. But what I can color commentary I can give you is we feel good about the pipeline that's building around those bundles. As you may have noticed in the prepared remarks, those wins were multiple product wins. So in some cases, those were the bundles that we sold. In some cases, they were a mix of products. But we are finding encouraging success in our conversations about being able to walk in to a sales opportunity, and rather than just having a conversation about what LMS are we going to use, it is about the bigger, full platform solution. And so we feel good. We've been able to still have world-class win rates, and we've done a number of deals that, again, are multi-product. They give me, you know, again, good trend with, you know, Q2 and Q3 will be more predictive for us.
spk20: Got it. Yeah, that's helpful. And this is a follow-up. It sounds like you're continuing to see elongated sales cycles in higher ed. So I'm curious if that's gotten any better or worse relative to what you've been seeing in recent quarters. And generally, what could it take for that pressure in the ecosystem to ease?
spk10: Yes. You know, we haven't seen any material change, Stephen, in the kind of the length of cycle and those types of things. Again, Q1 is not a great predictive quarter for us. One of the, you know, institutions are just starting to get their budgets for next year. And as they start to digest what that looks like and what they have left for this year, I believe that's going to be a catalyst for some of these decisions to be made. Again, you know, time will tell, but, you know, I'm cautiously optimistic.
spk06: All right, great.
spk17: Thank you.
spk15: Next question comes from the line of Joe Verlink with Bayard. Please go ahead.
spk08: Great. Hi, everyone. I wanted to ask about some of the big wins and the high growth areas and specifically the non-traditional opportunities. Are those a byproduct of some of the go-to-market changes and having dedicated sales coverage there? Or are we actually just seeing still that your product is well-suited for those opportunities? So if the product is currently speaking for itself and the go-to-market coverage is going to drive benefits more later on perhaps?
spk10: It's a good question, Joe. I would say we are seeing, I'm encouraged, right? So the fact that we now have a sales team, we have a marketing and CSM team that are 100% focused on this part of the market for us is starting to pay dividends for us even now. I do think that, you know, this is our first quarter with that dedicated sales team. And so I do think that, you know, There's more to come there, but I'm happy with the progress that we've made so far. Now, the product fit, as we mentioned in our investor day, there's been a lot of inbound requests prior to having a dedicated sales team that we've just been kind of catching. And so we do believe we have a good product fit here, but I am encouraged by the focus that's there and the team that's executing on that.
spk08: Okay, that's helpful. And then the bridge between reported and organic growth and the earnings release, that's great. That should be a best practice. I'm wondering if you can parse out the M&A contribution within RPO in the quarter.
spk07: Yeah, so I appreciate the question. So taking a look at RPO, we obviously had a strong growth rate of 17% year over year. The instructor business growth rate was double digits. The remaining portion is from Parchment, but I think it's important to remind you that about a third of Parchment's business is subscription, so it would impact RPO, and two-thirds is transactional.
spk08: Okay, that's great.
spk06: Thank you very much.
spk15: Your next question comes from the line of Ryan Donald with Needham. Please go ahead.
spk19: Hey, this is Matt Shea. I'm for Ryan. Thanks for taking the question. I think our biggest takeaway coming out of the recent ASU GSB conference was just this rationalization of, of a vendor sprawl that the K-12 market in particular is going to have to go through post ESSER funding. So just curious, I know it's early in the selling season, but just curious if you guys are starting to see that demand for your learn platform products, or if you're ultimately changing kind of how you position that this selling season, just with that, that funding cliff and rationalization coming. And then would love just an update with the Learn Platform on the higher ed side, if you guys are still on pace to roll out that beta in the second half of those institutions and any early signs of demand.
spk10: Yeah, I heard the same thing at ASU GSV, Matt, and we saw, and we've seen it in the market. Uh, in fact, every conversation that I, you know, anecdotally again that I've had, um, it's, it's an easy conversation to have with the superintendent or, um, uh, you know, a leader within, because there is a, there is still massive sprawl of, of, of apps in particularly in the K-12 space. And so it is, it is resonating. The value proposition is resonating. We have, um, a dedicated team that's, um, that continues to work on positioning and ensure that we've got the best opportunity to penetrate those opportunities. From a higher ed perspective, that is one of those unrealized opportunities that we're working on. We are securing design partners right now and working, so we are on track to be in beta. for the second half of the year and expect that to be a long-term growth driver for us, particularly in the ed tech effectiveness space.
spk19: Got it. That's good to hear. And then maybe just thinking about higher ed enrollment over the next 6, 12, 18 months. Obviously, we have this FASFA fiasco going on, but we did just cross the quote-unquote National College Decision Day. Just curious if you guys are starting to hear anything from your college partners on what their enrollment looks like for the next, you know, six, 12 months or any other signals that are kind of informing your outlook there.
spk10: It's a little bit early for us to get that feedback. As you said, we're just kind of getting past that deadline. And, you know, there is a lot of, you know, FAFSA is, you know, causing some some vibration, if you will, some uncertainty, but at the same time, it feels like they're getting that fixed. I would say the trends, you know, we saw a little bit of a firming of trends this last year. And so as we talk to our higher ed institutions, they are, you know, one focused on that, but also focused on how do we reach more and more learners? You know, the long-term trend is still, how do we bring more learners onto our, you know, into our institution? and reach more of the world, if you will.
spk18: Thanks, guys.
spk17: Operator?
spk11: Operator?
spk16: Your next question?
spk11: So we're ready for our next question.
spk15: All right. Our next question comes from the line of George Kurosawa with Citi. Please go ahead.
spk02: Hi. I'm on for Steve Enders. Thanks for taking the question here. You called out some parchment coming in a little better than expected. Maybe just double click on that, kind of what seemed to be working early on here.
spk10: Yeah. Well, there's a couple things. I think that the need for their products is just as important as it's been for their traditional awards products. So we saw some good traction within awards. In addition, the Pathways products are gaining more and more traction. We see there are some conversations that we're able to open up as a combined company that give me some encouragement for the pipeline build in the future that's coming. So I do feel good about bringing these two companies together, being able to be the only one that can marry the delivery of learning with the evidence of learning, and then how that can become a much more rich experience, and then a record that will follow the student their comprehensive learner record, that message is really resonating and is holding more power as the combined companies than either of us could have standalone.
spk02: That's great, Keller. And I think you've alluded a few times on the call to, you know, next quarter being the start of the, you know, the bigger selling season. Maybe you just could kind of, you know, compare and contrast what you're seeing on the pipeline side relative to last year and, you know, how that informs your confidence going into the season.
spk10: Yeah, you know, as we look at the pipeline for this quarter and for Q3, as we keep track of that, we are, you know, we're trending as was expected. So with our overall new business, we're seeing the growth that we expected in the pipeline. And then we, you know, from a renewal perspective, we feel very confident about the renewals, you know, that we've highlighted in our guidance.
spk02: Great. Thanks for taking the questions.
spk15: Your next question comes from the line of Devin L. with KeyBank Capital Market. Please go ahead.
spk09: Great. Thanks for taking my question. First one I have is on the win-back. Congrats on that one. I know you talked about you guys winning there mainly on the customer service perspective, but I just want to get a little bit more context on that deal. What solutions did they tack on? And I'm just kind of curious if there are more of these win-back deals in the pipeline in the near term.
spk10: Yeah, it was a nice win for us. It's always good when you can bring somebody back into the fold that left. So as I mentioned in my remarks, they had left us in 2019. They were enticed away from us. And after their experience over the last three or four years, they came back. And the feedback that they gave us was the usability and the experience that they that they have with Canvas wasn't matched with the other solutions, as well as the level of service and support that they got was a differentiator for us against our competition. So it is a sweet feeling to have those win-backs. And just to be clear, that is nice. Our biggest opportunity is there's still quite a bit of greenfield out there with Canvas and still a big part of the market that's still kind of cobbling together free tools. And that's where we believe the biggest growth opportunity for us is over the next several years.
spk09: Got it. Appreciate the context there. And then a quick one for Peter. Macro. seems to have like downtick in the past 90 days with rates, you know, looking to remain elevated longer, but sounds like the headwinds are facing in higher ed is quite consistent, you know, from prior quarter. So my question here is, you know, any changes around the macro assumptions being built into your full year guide versus when you initially set the outlook quarter ago, just any changes there?
spk07: Yeah, I appreciate the question. You know, our view is there's been no material changes to the macro environment since we last spoke. So there's been no changes in our guide as a result of that. We really need to get into, you know, our core buying season and that'll tell us if there's a change in the macro.
spk09: Okay, thank you.
spk10: You know, I would add there, George, that, you know, again, this market is less sensitive to the bigger economic macro trends that are out there, right? The macro backdrop is more related to enrollments and some of these, you know, tuition and those types of things than it is the big economic macro. But the nice thing is because we are a trusted partner, because we're in talking longer term, that this is part of a bigger longer-term digital transformation strategy, we get visibility pretty early in, you know, in those macro trends. So that's why you kind of see that consistent, you know, consistently we're talking about the same trends is because we got early view into those changes that were happening.
spk18: Thanks. Appreciate the call, Ed.
spk15: Your next question comes from Terry Tillman with 3Leaf Securities. Please go ahead.
spk04: Great, thanks. This is Connor for Terry. Appreciate you taking the questions. Steve, you mentioned the partner ecosystem a few times in the prepared remarks. You're at 900% partners now. Could you just give us an update on their ability to either directly or indirectly influence business revenue for Instructure?
spk10: Sure, yes, it is a it's good to hear from you, Connor. It's good. It is a it is a nice competitive mode, if you will, because of the size, because of the breadth. Whenever we walk into an opportunity, we're seeing it as a competitive advantage for us in the selling process. So, for instance, I think we talked about it a quarter or two ago, for instance, when we won Montana University System. That was because of technology that was integrated just into Canvas that allowed us to learn to win that deal. We see it in some of the examples that I gave in my prepared remarks where We had technology integrations that allowed us to differentiate against the competition. So it does continue to be one of those competitive advantages that would be really difficult for our competition to replicate as we go into a selling opportunity. And we did announce in the quarter as well collaboration with Lucidcharts where their tools are integrated into Canvas and available to our customers for free as part of the purchase of the LMS. And so, again, the advantage that we have as being the market leader by having a huge network of students and teachers that are on our platform gives us some of these advantages that make us more competitive in a selling process.
spk04: Yeah. I appreciate that. Maybe just as a quick follow-up, the University of Manchester win in the UK last quarter, I think you called out specifically, that would be more of a lighthouse win for the region. I'm just curious on how you've seen the activity play out so far post that deal.
spk10: Yeah, it is. It's one of those institutions that, you know, other institutions, particularly in the UK, look towards. And, you know, our MIA team are, you know, very happy with the outcome there. or we're using it as part of our, you know, as part of our selling process. We're still, you know, we're early days with them. And so we'll be able to leverage them even more going into the future. But it really does validate our international strategy and the success that we're seeing internationally.
spk18: Great. Thank you.
spk15: Your next question comes from the line of Matt VanVleet with BTIG. Please go ahead.
spk12: Great. Thanks for taking the question. I guess there is more and more attention on the nontraditional learner. Curious on what the pipeline looks like for catalog and maybe even studio as whether it's universities or other programs, look at how to create a tech stack that is maybe more margin-friendly to the institutions themselves and how much attention you're getting on building out that type of program for them?
spk10: Yeah, that's one of the areas that I'm particularly pleased with in this last quarter. We're seeing – we saw – good performance out of that part of the business. And it is, to your point, it's about, you know, it's about a bundle of products. It's a number of products that go into that. It's, you know, it's pricing strategies, it's position, you know, positioning and marketing that we do in that space is make, is bringing more opportunity. So when I look at, you know, kind of Q2, Q3 pipeline, it looks really good. We're encouraged that we can hit our you know, that we can hit our commitments, uh, from, from that, um, uh, from a non-traditional.
spk12: And then as you look towards the prime selling season here coming up, um, how much do you think about, uh, overall deal sizes, uh, early indications from customers in terms of how much budget's available versus longer term plans to have more of a land and expand approach? Any early thoughts on kind of what you're seeing in the pipeline from a deal size perspective?
spk10: Yeah, I would say, Matt, that what we're seeing in our discussions, and part of the reason why some of these deals are elongating is because they're much more strategic discussions than we've had in the past, because we are talking about, you know, overall revenue for an institution, right? How do they go attract more of these non-traditional learners? It becomes, we end up calling much higher in the organization. So from that perspective, we are encouraged about, you know, the size of deal when we do get into these conversations, you know, counteract by the fact that it takes longer to have those conversations higher up in the organization. Now, it's counteracted a little bit. The reason I was hesitating just a little bit, Matt, was because, you know, at the same time, we also created a middle market focus in our go-to-market. So, you know, we are at the same time calling on a segment of the market that is a little bit smaller that, you know, historically we've been, we haven't called on, we haven't had a dedicated team to call on. And so they kind of balance out each other. But I would say when we are having these strategic discussions, they are obviously it ends up being a bigger sale for us.
spk17: All right. Very helpful. Thank you.
spk15: That concludes our Q&A session. I will now turn the conference back over to Steve Daly, CEO, for closing remarks.
spk10: Thank you, everybody, for joining us today. Our exceptional first quarter and updated fiscal year guidance was driven by our increasing competitive advantage, our strong execution, and our expanding profitability. We head into the remainder of 2024 with meaningfully enhanced scale, a broader portfolio of products, and a retooled go-to-market strategy focused on delivering durable growth at scale. I personally couldn't be more excited about our ability to elevate teaching and learning for students and educators while creating value for shareholders. Thank you for joining us.
spk15: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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