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Edited Transcript of INST earnings conference call or presentation 29-Jul-19 9:00pm GMT

Q2 2019 Instructure Inc Earnings Call

Salt Lake City Aug 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Instructure Inc earnings conference call or presentation Monday, July 29, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel Tucker Goldsmith

Instructure, Inc. - CEO & Director

* Natalia Kanevsky

Instructure, Inc. - VP of IR

* Steven B. Kaminsky

Instructure, Inc. - CFO

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Conference Call Participants

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* Bhavin S. Shah

Crédit Suisse AG, Research Division - Research Analyst

* Brett Anthony Knoblauch

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Brian Christopher Peterson

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Brian Jeffrey Schwartz

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

* Eric Carlos Lemus

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Hannah Rudoff

D.A. Davidson & Co., Research Division - Research Analyst

* Joshua Christopher Reilly

Needham & Company, LLC, Research Division - Associate

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Presentation

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Operator [1]

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Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Instructure's Q2 2019 Earnings Conference Call. (Operator Instructions)

Ms. Natalia Kanevsky, Instructure's Vice President of Investor Relations, you may begin the conference.

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Natalia Kanevsky, Instructure, Inc. - VP of IR [2]

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Good afternoon, everyone, and thank you for joining us on today's quarterly earnings conference call. Today's call is being hosted by Dan Goldsmith, CEO; and Steve Kaminsky, CFO.

Before we begin, I'd like to remind you that today's conference call may 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 a discussion of factors that could affect our future financial results and business, please read the disclosure in today's earnings release and the other reports and filings we may file from time to time with the Securities and Exchange Commission. All our statements are made as of today based on information available to us as of today, and except as required by law, we assume no obligation to update any such statements.

The content of today's conference call is Instructure's property and cannot be reproduced or transcribed without our prior written consent.

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 our website. All of the nonrevenue financial measures we will discuss today are non-GAAP unless we state that the measure is a GAAP measure.

Now I'd like to turn the call over to Instructure CEO, Dan Goldsmith.

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [3]

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Thank you, Natalia, and good afternoon, everyone. Instructure's mission of helping people grow from the first day of school to the last day of work is resonating with our growing customer base of more than 30 million people. Q2 was another solid quarter for Instructure as we grew our business and introduced new capabilities with our Canvas Learning Management and Bridge Employee Development platforms.

In Q2, we delivered $62.9 million in revenue, representing 26% year-over-year growth. I am pleased with our performance during the first half of 2019. We introduced new features and products, expanded partnerships, and we welcomed Portfolium and MasteryConnect into the Instructure family.

We have filled key executive positions this year, including bringing on Marta DeBellis as Chief Marketing Officer, Jennifer Goldsmith as Chief Strategy Officer, and most recently, Frank Maylett, EVP of Global Sales. Frank brings more than 20 years of experience in sales and expanding SaaS businesses. With the addition of these leaders, the buildout of our senior executive team is now complete.

Earlier this month, we held our annual InstructureCon event in Long Beach, California. We hosted over 3,000 attendees from more than 1,200 institutions and 70 partners. We introduced new features to our Canvas Learning Management Platform, and our existing and prospective customers are excited about these capabilities.

We announced expanded partnerships as well. For example, we are working with Amazon Web Services and Apple, enabling access to their educational content directly through Canvas. We also shared the success of our integration efforts with MasteryConnect and Portfolium, who already feel like natural members of the Instructure family.

We are growing revenue and increasing Instructure's market share across K-12 and higher education. In Q2, we added many new customers. Some select highlights from the quarter include Rowan University, Global Learning and Partnerships, in New Jersey, will expand its use of Canvas with 50,000 additional learners. Canvas displaced longtime incumbent Blackboard at the University of Cincinnati, East Carolina University and the University of Alabama for a total of 79,000 learners. In K-12, Charleston County School District in South Carolina and Oxnard Union High School District in California will use Canvas for a total of 41,000 learners.

Shelby County School District in Tennessee, one of the largest districts in the United States, will use the innovative assessment capabilities of MasteryConnect for its 89,000 learners as will Hampton City Schools in Virginia with its 16,000 learners. North Orange County Community College District in Southern California and East Carolina University will offer access to Portfolium for more than 100,000 learners, helping students move from school to work.

In Q2, key international education wins across the regions include Netherlands' Maastricht University; Aalen University in Germany; North West Regional College in Northern Ireland; SynLab, Europe's leader in diagnostic services in France; and in Sweden, Uppsala University and Gävle Kommun for K-12 and higher education are all moving to Canvas for a combined total of 75,000 learners.

In Australia, the Education Centre of Australia, the Sydney Boys High School and the College of Law all chose Canvas. And finally, Escola Superior de Propaganda e Marketing, a higher education institution in Brazil, will now use Canvas instead of Blackboard for 15,000 learners.

Internationally, we continue to mature our go-to-market strategy. We are pursuing new opportunities with prospects who are using SaaS and open-source solutions, and we are learning to unlock the patterns for success in existing and new countries as we continue to expand.

Now let's turn our attention to Bridge. In June, we hosted our first stand-alone Bridge conference in Park City, where heads of talent and HR joined us to discuss employee development. During the event, we announced the expanded Bridge Employee Development Platform with new products that include Career for career pathing and Engage for measuring employee sentiment and engagement. With these additions, Bridge is now a comprehensive solution for companies to use as they invest in their most important asset: their people.

During BridgeCon, we also shared recent research that we conducted with Harris Poll. One notable finding is that nearly 70% of U.S. employees say they are likely or somewhat likely to leave their current jobs for companies that invest in employee development. Organizations are looking for ways to further develop their employees, and as they do, they are turning to Bridge for a solution. We have evolved from a corporate LMS into a full employee development platform for corporations, and our customers and prospects have embraced this change.

In Q2, we continue to make progress with Bridge. Key highlights include Mutual of Omaha; Waze, a Google company; and one of the world's largest animation studios all launched Bridge projects within their organizations. We signed American Express, who will use Bridge for 10,000 contractor trainees. TELUS International will expand its use of Bridge for employee development and added 40,000 employees across 10 countries.

And as the academic and professional worlds converge, we continue to see opportunities and adoption of Bridge in education. Tulane University, Colorado State University and Western Governors University are a few examples of Canvas customers buying or expanding Bridge for the development of their faculty and staff. As we evaluate the success of the Bridge business, we are monitoring win rates, attach rates and significant deals. Our Q2 results demonstrate progress against all these metrics.

During the first 6 months in my role, I have spent considerable time with customers in schools, in the workplace and at our events. I'm taking the time to review our business, which will allow us to weigh our investments, evaluate growth opportunities and ultimately make the right changes moving forward.

We are improving the efficiency of our business through a series of ongoing initiatives, such as growing engineering talent in Budapest. We are making solid progress on our strategy, executing to our plan and strengthening the foundation of our team and our products. With this in mind, we look forward, excited by the prospects for the second half of 2019 and beyond.

I would like to take this opportunity to thank our customers, partners and employees for their continued support and commitment to Instructure and our mission.

I'll now turn it over to Steve.

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Steven B. Kaminsky, Instructure, Inc. - CFO [4]

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Thanks, Dan. And thanks, everyone, for joining us today. As Dan mentioned, we delivered a solid Q2 with healthy revenue growth. Let me provide some additional details on our Q2 financials.

Total revenue grew 26% year-over-year to $62.9 million of which subscription revenue was $57.3 million. This healthy revenue growth is a direct result of customer growth, the contributions from our recent acquisitions and net revenue retention of over 100%.

International revenue as a percent of the total was 20%. As a reminder, this quarter, our total revenue includes the contribution from our 2 acquisitions, which is almost entirely domestic revenue. If you were to exclude that revenue, international revenue as a percent of total for the quarter would've been essentially equivalent to Q1. 12-month rolling billings at the end of Q2 was $257.3 million, up 20% from the second quarter of 2018, also calculated on a rolling 12-month basis. This also includes incremental billings from our 2 acquisitions, which added to the growth rate.

For the remainder of my commentary, unless otherwise noted, I will discuss non-GAAP results, and all EPS numbers are on a per-common-share basis.

Gross margin in Q2 was 71.3%. As we discussed last quarter, gross margin was impacted modestly year-over-year by our recent acquisitions. Q2 total operating expense was $50.8 million. This represents, as a percent of revenue, a decrease of 800 basis points compared to last year. Of the 800 basis point decrease, the majority was related to the change in compensation policy we discussed last quarter, partially offset by the incremental expense of our 2 acquisitions. After accounting for those adjustments, we realized a 230 basis point improvement related to operational efficiencies. Our operating loss was $5.9 million.

GAAP net loss for Q2 was $20.7 million as compared to $12.5 million in the same period a year ago. Non-GAAP net loss for Q2 was $6 million, which is $0.08 per share lower than Q2 of last year.

Turning to the balance sheet. We ended the quarter in line with our expectations of $47.5 million in cash, cash equivalents and marketable securities. Free cash flow for the second quarter of 2019 was negative $17.1 million. Additionally, we remain on track to reach approximately breakeven for free cash flow for the full year.

As we have been talking to investors over the last quarter, we've received requests for additional color surrounding our recent compensation philosophy change, so let me now provide a bit more granularity. In looking at our expectations for full year 2019, the year-over-year increase in stock-based comp is a direct result of 4 factors. The first factor is incremental headcount growth, which is a component of business as usual.

The second component is the equity portion of CEO and executive compensation. As a reminder, our prior CEO, Josh Coates, did not receive any equity grants. This was normalized when Dan joined the company. And as Dan has mentioned, we have added to the executive ranks which contribute to incremental stock-based compensation.

A third component is additional headcount from our recent acquisitions of Portfolium and MasteryConnect. Combined, these factors account for slightly less than half of the expected year-over-year increase in stock-based compensation. The remainder is related to the overall change in compensation philosophy implemented for 2019.

Let me end my remarks with a discussion around our expectations for the third quarter and full year. For the third quarter, we expect revenue in the range of $67.7 million to $68.3 million; non-GAAP net loss of $7.4 million to $6.8 million; and non-GAAP net loss per common share of $0.20 to $0.18.

For the full year, we expect revenue in the range of $258 million to $260 million as compared to our previous guidance of $257 million to $260 million. We expect non-GAAP net loss of $24 million to $21.5 million as compared to previously stated guidance of $25 million to $21.5 million and a non-GAAP net loss per common share of $0.65 to $0.58 as compared to previously stated guidance of $0.68 to $0.58.

Included in our full year GAAP net loss is $60.3 million for stock-based compensation, a slight increase from last quarter. The slight increase is due to finalizing the accounting for the MasteryConnect acquisition and the addition of the 2 executive hires that were made since our last call. For calculating EPS, we expect our shares to be 37.2 million for the third quarter and 36.8 million for the full year.

In summary, we delivered a solid quarter, and we're well positioned as we head into our important and busy third quarter. With that, let's open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Brian Swartz with Oppenheimer.

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Brian Jeffrey Schwartz, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [2]

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Dan, just wanted to ask you about the domestic business in the quarter. It looks like it had a bounceback here from the first quarter, even when I strip out the contribution from the acquisitions. Just wondering if you can dive a little bit deeper into what you're seeing here on the domestic side. Just wondering if any big deals swung that performance in the quarter and any other commentary they have on the U.S. business.

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [3]

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Brian, thanks for the question. So no, actually the -- things are going basically as expected this year. As we mentioned, we are leaning into more proactive demand generation, and we're seeing some good signs from that, but I don't think there's anything -- any outliers in either direction right now sort of business as usual and as expected through the first half of the year.

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Brian Jeffrey Schwartz, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [4]

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Fair enough. And then other questions I wanted to ask you, Dan, is we get a lot of questions on just what's happening with the pricing side of the market, and I don't know if you wanted to go back, say, 3 years or 5 years or whatever the time horizon is. What are you seeing in terms of pricing on that core Canvas product set? And then I guess I do realize that's going to vary based on engagement, but any commentary just on overall trends would certainly be helpful. And then also, if you could comment on what you're seeing on the renewals in terms of like-for-like renewal on that proceeding pricing?

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [5]

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Yes, Brian, I mean just pricing is sort of as usual as well. I wish I had more exciting answers for you here. The -- one of the things that we focus on is having very consistent and fair pricing in the market. So from our perspective, there's really nothing strange from a pricing perspective. Now as we add more products to our educational portfolio, obviously, we're seeing some different sales cycles with things like MasteryConnect and Portfolium, and there's less of a sort of standard price point in the market for areas like student success. But in general, the pricing and the pricing levels are remaining very consistent and standard for us.

I don't know, Steve, do you want to comment any more as well?

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Steven B. Kaminsky, Instructure, Inc. - CFO [6]

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Yes, so just to answer the second part of your question the -- Brian, the renewals are coming in as we would have expected. This is always the time of year where, if something slips by a week or 2, that's very typical because there's such an incredibly high volume, especially on the education side of our business. However, there's nothing unusual happening. The renewal rates are very consistent with prior years, and we're seeing pretty typical activity.

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Brian Jeffrey Schwartz, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [7]

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Last question from me, and then I'll pass it off. Just wanted to ask about efficiency gains and the margin outperformance, I guess, in the quarter. I did hear on the commentary, it does seem that you're happy with what you're seeing so far in the trends on your productivity. Can you talk, Dan, maybe about what sort of initiatives that you're starting to put in place here that continued to improve that operational efficiency over time? And is there anything else that's maybe going on there that to maybe remove some of the over [haves] that can maybe even push forward those margin improvements even better than what we saw in the results here this afternoon?

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [8]

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So Brian, technically that's 2 questions, but that's all right. So on the operational efficiency side, just a couple quick comments. We're continuing to pursue a number of mechanisms that drives efficiencies within our business and optimize what we're doing. Some of those fall to the bottom line, but a lot of those are looking at how we can invest in the business or just driving some optimizations so we can be more impactful. Some of those are optimizing customer service. We've actually implemented in our piloting a part-time working model. We've shifted -- we have some resources in Budapest as well. We've a variable cost model for CS. We talked about Budapest a number of times, both on the engineering side and the support site. We're looking at some of our vendor contracts as well to look at costs.

And then to the later part of your question, yes, there's absolutely work that we are actively doing to make sure 2 things on the headcount side: one, for rightsizing, the teams and the span and control for managers to make sure that they're right size to how we're managing our customer base and sales efforts. The second thing is ensuring that we have the right people in the organization. So we brought in a lot of great talent over the past 6 months or so. One of the things that I'm especially proud of is where we are with the senior executive team now with the hiring of Frank Maylett most recently, who's coming into the organization as an overall head of Global Sales. We're bringing in some really great talent into the company.

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Operator [9]

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Your next question comes from Brad Zelnick with Credit Suisse.

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Bhavin S. Shah, Crédit Suisse AG, Research Division - Research Analyst [10]

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This is Bhavin on for Brad. Dan, we heard a lot of positive buzz surrounding the potential of DIG at InstructureCon. Can you just provide us with an update on how you guys are thinking about monetizing that opportunity and any updated thoughts on potential time line?

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [11]

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Yes, so from a DIG perspective -- DIG, first and foremost, I want to be clear, DIG is really the codename for the initiative that we have around data and analytics, data science and then machine learning. We will have products that release over time in these areas, but we continue to reiterate, it's relatively early days. We have some -- we're in the PVT phase, the product validation tour phase. We're making some great progress working with a number of universities and are getting fantastic feedback.

There's not a lot of details to share right now other than we're looking to get this right. I think data -- and data and industries like education and vertical market present a really great opportunity for us to make a big impact on the industry as well as introduce new products.

So when we look towards it through the end of this year and continued experimentation and beta efforts, we look towards next year when we might see more considering products and product releases.

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Bhavin S. Shah, Crédit Suisse AG, Research Division - Research Analyst [12]

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That's helpful. And just a quick follow-up. I know it's early, but can you just speak about the performance of your recent acquisitions, how have they performed relative to your initial expectations?

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [13]

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Great question. So every day that goes by with an acquisition, generally, you know more and more around how smooth the acquisition was. You can only see it sort of in arrears. And with MasteryConnect and Portfolium both, we're very pleased with where they are. They're delivering on what we expected within the business, and we're also pleased to see some interesting contracts come forward, some large districts for MasteryConnect, some Portfolium deals, not only Portfolium-led, but Portfolium into Canvas schools as well. We highlighted some of those on the calls.

So it's still early days for both of those. We're pleased with the field execution. We're pleased with the results that are right on the mark with our expectations, and we're still working on a number of elements around product integration for both solutions, so stay tuned for more product advances over the next 6 to 9 months.

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Operator [14]

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Your next question is from Scott Berg with Needham & Company.

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Joshua Christopher Reilly, Needham & Company, LLC, Research Division - Associate [15]

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This is Josh on for Scott. So we spoke to some customers at InstructureCon migrating from Moodle to Canvas. Accelerating these migrations have taken some time. Do you think there's any specific driver like total cost of ownership savings or simplifying their IT structure with more cloud products accelerating this? Or what are you hearing from these customers?

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [16]

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Yes, Moodle is open source, and a lot of organizations buy generically in the open source as sort of a perceived free model, which means that their budget allocation and organization around open source solutions is different than your traditional purchase solution or SaaS solution. It takes more effort and resource. You don't get the benefits of ongoing innovation in the same way. You've got to manage a lot of the ability and security of the platform.

And what we found in many cases is that the total cost of ownership, like you alluded to, is really the key to selling into that Moodle audience now more the open source prospects. We still have some work to do there, but every quarter, we see healthy progress around converting customers over to SaaS. It's a TCO sale, and we need to keep working along those lines.

The other thing is Moodle is much more prevalent in the international space, and so the other element with international is that education is market by market. There's not really many regional or more global educational organizations. So in addition to us being what articulates strong TCO conversion of Canvas, which we're able to, it's also just establishing credibility momentum in markets as we expand into places like France and Spain and the DACH region.

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Joshua Christopher Reilly, Needham & Company, LLC, Research Division - Associate [17]

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Okay, great. And then just one more from me. Also, at InstructureCon, you mentioned that the company is hiring the greatest number of engineers and developers for Canvas in company history. How should we think about the pace of these hires and implications for OpEx growth throughout the rest of the year?

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [18]

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Yes, Steve, do you want to comment?

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Steven B. Kaminsky, Instructure, Inc. - CFO [19]

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Yes, so we've taken a close look at that. And if you look at -- in the prepared remarks, I mentioned, there was a 230 basis point operational efficiency improvement of the total 800 basis point decrease year-over-year. If you look at the details, engineering actually is relatively stable. It actually went up by some number of tens of basis points, but it was relatively stable, versus both G&A and sales and marketing, which went down year-over-year, again, once you remove the effect of the compensation change and the 2 acquisitions. So I think that's where it shows up. So it's going to leverage more slowly. This is very consistent with what we've been saying for several years that R&D of the 3 major categories of OpEx will leverage the most slowly over time as we continue to make investments in our products.

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [20]

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The other thing to mention, too, is we're already getting strong productivity out of Budapest, so when you look at the global cost profile of our R&D function, we're able to apply a lot more resources at a much better cost profile within the business. So that's a contributing factor to us unlocking that potential.

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Operator [21]

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Your next question is from Eric Lemus with SunTrust.

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Eric Carlos Lemus, SunTrust Robinson Humphrey, Inc., Research Division - Associate [22]

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Nice job on the quarter. You talked about in the prepared remarks some of these holdouts schools that finally made the switch over to Canvas. If you look at some of the schools and those opportunities that are up for bid now and under RFP, do you think there's more of a willingness for those schools to switch solutions or stay with the current legacy solutions they already have?

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [23]

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So it varies, but in general, as time passes, I think there's more and more pressure for organizations to switch solutions. Their legacy solutions are not keeping pace with innovation and expectations for teachers and students. That being said, there's also some resistance just in terms of prioritizations within institutions as well where they might be looking at their current LMS solutions saying, "hey, this is good enough. It's not -- it may not be wonderful. It's good enough though, and it's stable," and so we have other priorities.

With the addition of MasteryConnect and Portfolium as well as the additional advances that we introduced during InstructureCon within core Canvas, we are able to increase the value proposition of Canvas as a learning platform, and we are seeing some good moves forward in our pipeline and opening deals.

The other piece of the sales motion is some organizations just don't understand the power of Canvas, and so they've gotten into a pattern of pressing the renew button over and over again, and so with us leaning more in to the market, we're starting to see opportunities created that would have never come to market before.

So I don't think there's generally an inclination or something happening in the market that is driving organizations to consider moving where they haven't been before. We're creating more of that demand and understand the different dynamics of change to create the value proposition for these organizations.

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Eric Carlos Lemus, SunTrust Robinson Humphrey, Inc., Research Division - Associate [24]

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Great. That's really helpful, Dan. Next question on Canvas Conference. There was obviously a lot of themes and a lot of product to digest at the conference that you presented to the customers, whether that be the data analytics, the acquisitions, switch content editor, et cetera. But when you talk to customers and you look back, what do you think actually garnered the most amount of excitement from customers and prospects from the conference?

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [25]

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Bettina Love was -- generated a lot of excitement. Was one of our speakers. She was phenomenal. I don't know if you were there for that. Although Malcolm Gladwell and Dan Heath were a hit as well, but I think you're asking more about garnered excitement about the Canvas platform.

So I think that there's really 2 or 3 things that had gained a lot of excitement out of what we were doing. We had updates on analytics. We released a lot of capability. We're about to release a lot of capabilities around analytics in the platform that allow institutions to -- and teachers to look at more student-based analytics, course analytics, usage analytics within Canvas, so it unlocks a lot a lot more potential for those constituencies to understand impact and change and opportunity. So that was a big thing.

We made enhancements to some of our communications and group capabilities in Canvas, which people are very excited about. And then I think the third thing is some of the integrations -- it was a little more subtle, but the integrations that we're doing with MasteryConnect and Portfolium also generate a lot of excitement.

Our discussions around data science and ML, codename DIG, is something that got a lot of dialogue. And what we've talked about there is sort of bringing into the open a transparent dialogue around the use of data and education. So that got a lot of traction, and we'll be continuing conversations as well.

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Operator [26]

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(Operator Instructions) Your next question comes from Brian Peterson with Raymond James.

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Brian Christopher Peterson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [27]

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So maybe just wanted to hit on the longer-term growth opportunity for the Canvas business. You've had some interesting strategic M&A. I'm just curious how we should be thinking about the right way to look at that growth profile longer term.

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [28]

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Hey, Brian. So you're -- I'm sorry, I just want to make sure I understand your question. You want to understand the longer-term growth profile for Canvas?

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Brian Christopher Peterson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [29]

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Yes, just -- obviously, there have been a significant amount of share gains in the past. You've made some M&A. As we look at the growth profile potentially longer term, how should we think about the growth? Is that 20%? Is it high single digits? I'm just looking to get maybe a range on that.

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [30]

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Yes, I can't talk to a specific range. I know you'd love me to comment on that. What I can say is our prospects for growth and maintaining and accelerating growth moving forward are much greater than they were even 6 months ago. We were really focused on core educational LMS, and as we looked to broaden our impact on education introducing new solutions, we're seeing not only the expansion of the TAM in education and the opportunities that we're already seeing come through the acquisitions and the organic growth of our product offerings and education, and there will be more of those to come, but we're also seeing those acquisitions and new product capabilities make core Canvas LMS more competitive. In fact, there were a handful of deals this past quarter that, with the addition of MasteryConnect, would not have even come to the market or maybe not have come our way in the past. So that's probably the best I could describe it right now. We're going to continue with that layered growth strategy. That will give us a great opportunity for sustained revenue growth over time.

The only other element I'd add to that, Brian, is the international opportunity as well. We're -- as I mentioned in my remarks, we're expanding into additional markets, especially in Europe as well as some in Asia Pac. It takes a little time to get in the rhythm and groove of how those markets operate, but they represent more and more opportunity for us to drive growth.

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Brian Christopher Peterson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [31]

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Got it. And maybe just as a follow-up on the Bridge business. Just obviously, some high-profile logos this quarter. Is there anything that you can share on sales cycles and how those have changed over the last couple of quarters?

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [32]

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Yes, good question, Brian. So couple of things. We're still in the early phases. We introduced the employee development platform with the expansion adding Engage for employee voice and sentiment and Career for career pathing as well as expanding capabilities of the mobile offering within Bridge as well just about 8 weeks ago. It was at the beginning of June, so it's still early days for that. But we're actually pleased with the number of the employee development wins coming in. The employee development wins coming in, even over the last 8 weeks, and that speaks to the attach rate on deals. We're seeing attach rate is one of our key 3 key metrics come into play, so we're really pleased with the employees development suite driving that forward.

We've always talked about significant deals as well. My excitement is pretty tempered around where we are. So we're really happy to welcome organizations like American Express to the Instructure and Bridge family, but we want to be very measured in understanding whether these data points are creating a trend or not and give it a couple more quarters.

In terms of our progress, we've also stood up our sales team. As you know, Brian, we've gone through a lot of changes within our sales team over the last 6 months as well. So hitting late Q2 into Q3, we feel much more sort of stable with our Bridge team filled and up and running and sort of at speed with pipeline. So we're going to continue to watch attach rates, watch significant deals, which is sort of logos and sizes, and then we're also watching win rates. And as I mentioned in the remarks, we've made progress on all 3 of those metrics this past quarter.

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Operator [33]

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Your next question is from Rishi Jaluria with D.A. Davidson.

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Hannah Rudoff, D.A. Davidson & Co., Research Division - Research Analyst [34]

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This is Hannah on for Rishi. Just starting off, it's nice to see that you've built out the exec team. I was just wondering if you could talk about maybe the top-3 priorities you have for Frank.

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [35]

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Oh, great -- Hannah, great question. So yes, so Frank coming in, 3 priorities. So let me start with a -- the global fabric of our sales methodology. So first and foremost, as we've been establishing the team, we want to make sure we have a strong and diligent sales methodology and execution process. Frank has built global teams in the past. He builds very strong sales cultures and teams. So one of the first things that he's going to be focused on is our sales methodology and our execution.

The other thing that sort of Frank is going to be focusing on with the team is to ensure that we have good approaches for key deals, key prospects and key markets. So we're being very strategic in getting ahead of opportunities as early as possible. So that's a big second piece of what Frank will be focusing on as well.

And then the other thing is, Frank will be working very closely as part of the overall executive team to ensure that the connectivity across sales and marketing with product and services is very well-connected. Historically, we may have had some disconnects or some working models that have not been as coordinated as we've been going through the presales process. Frank has done a great job in his previous companies on these factors, but that will be the third one.

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Hannah Rudoff, D.A. Davidson & Co., Research Division - Research Analyst [36]

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Great. That's super helpful. And then on the Bridge side, I was wondering if you could speak a little about your M&A philosophy, build versus buy, and any capabilities you're still looking to build out on that?

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [37]

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With regards to Bridge specifically or overall within the company?

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Hannah Rudoff, D.A. Davidson & Co., Research Division - Research Analyst [38]

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Through Bridge, specifically.

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [39]

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So we have a lot of product right now. We've put a good amount of investment into Bridge as a product. We wanted to reach this milestone of BridgeCon, launching our employee development platform. And although there's much more to do in terms of fleshing out capabilities and working with key customers, right now, we have a lot of product to get out -- to market on.

Inorganic broadly within the company will be part of our profile moving forward, but it really is based upon sort of the opportunity for us to accelerate and enhance the business, across the business, whether it'd be in the edu space or in Bridge. But at this time with Bridge in the corporate space, we have a lot of products, so now it's about execution and growth.

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Operator [40]

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Your next question comes from Brett Knoblauch with Berenberg Capital Markets.

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Brett Anthony Knoblauch, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [41]

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Another Bridge-related question. You previously provided guidance that over 500 companies are using Bridge, and I was just wondering if you could provide any update to that number and if you're seeing any significant change in the size of companies that are adopting Bridge. It seems that you guys constantly keep disclosing larger and larger -- your contract wins like with AmEx and TELUS. I was wondering if you could provide any details on that.

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [42]

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Yes. So let's see, on the first one, we have not released -- we've grown a good amount since we released that 500 number. Steve, what is that, probably about...?

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Steven B. Kaminsky, Instructure, Inc. - CFO [43]

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That was, I believe, on the Q4 call last year.

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Daniel Tucker Goldsmith, Instructure, Inc. - CEO & Director [44]

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Yes, so Q4 last year, it was probably around 500. So we continue to grow. We're not releasing an updated customer count number right now. It's something we can consider moving forward, but we're making steady progress.

Regarding large deals and logos, we're starting with the introduction of the employee development platform, the introduction of our enterprise selling team and us are growing and maturing and solidifying some of our sales motions. We're seeing a few things happen. And I mentioned the 3 main elements earlier: win rates, attach rates and significant deals. But our ability to learn how to land and expand is something that we're continuing to build muscle memory around. And in fact, when you look at AmEx or some of the other logos we mentioned, those are great examples of where we now have MSAs in place and the ability to work within those companies demonstrates success at those company level with a lot more that we can do within those organizations.

Then there's organizations like TELUS and others that have been Bridge customers for some time now that, as we introduce new products, have continued to adopt and expand. So my commentary right now is really the fact that we're continuing to embrace and learn some of these new patterns, and we're seeing some good and positive results.

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Operator [45]

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Ladies and gentlemen, this does conclude today's Q&A period and call. At this time, you may now disconnect. Thank you.