Q3 2019 Earnings Call
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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 then Goldsmith <unk> Oh, yes, if kaminski CFO before we begin I'd like to remind you that today's conference call will include forward looking statements based on the Companys current expectations. These forward looking statements are subject to.
Most significant risks and uncertainties actual results may differ materially for discussion this doctor that could affect future financial results and business was referred to the disclosure in todays earnings release and the other reports and filings.
From time to time with the Securities and Exchange Commission, although statements made as of today based on information available to us as of today and except as required by law unless you have no obligation to update any such statements. The content of today's conference call in stretches property and cannot be reproduced or transcribed without prior written consent joined.
Called well also referred to both GAAP and non-GAAP financial measures you can find there with installation of our GAAP to non-GAAP measures included in our press release, which is both its an investor relations section of website all of the non dove into financial measures will discuss today, a non-GAAP unless we state the demand is a GAAP measure.
Now I'd like to trying to go over constructor CEO Dan Goldsmith.
Thank you know it's always good afternoon, everyone. During today's call, we'll update you on our progress towards our business goals expand on our ongoing efforts to manage cost share more details around our strategic planning upcoming analyst day.
Q3 was a solid waterfront structure, we delivered $68.3 million and revenue representing 24% year over year correct.
We exceeded our previously issued guidance for non-GAAP net income by $2.9 million now I'd like to share details on how key areas of our business are performing.
Domestic campus is progressing nicely on track to deliver results in line with our outlook for the year.
So while some analysts had been reporting a sharp slowdown in higher Ed elements switches, we're not seeing that trend in our domestic camus bookings.
Our high at domestic bookings are on track to be up this year over last year at the same time internationally. We are seeing delays in a number of opportunities that are pushing some bookings into 2020. For example, you cannot Australia a set of large public tenders plan for this year have been pushed out beyond 2019.
Globally when rates remained strong for campus so by continuing our expansion into markets, such as Spain, France in Southeast Asia, We're confident in our ability to drive growth and manage pipeline risk.
That's reconnecting portfolios are both delivering the results we anticipated at the time of acquisition and improving our overall competitive position mcamis.
Walbridge bookings continue to grow, especially with our employee development solutions introduced over the summer, it's still not delivering at the level I wanted to be at increasing our focus on efforts on employee development opportunities, where we are seeing higher when rates attach rates and larger deals will help us drive growth moving forward.
On past earnings calls, we've outlined a list of customers have chosen canvas and bridge during the quarter.
We've heard from many of you that is better to have a few select examples on earnings calls that demonstrate progress in the market rather than a comprehensive list of wins, we will publish a list of key customer wins on structure block following each earnings call.
Printing University is the most recent Ivy League institution to join the Instructure family. The University was looking to move to a more intuitive bus learning management platform that can support faculty teaching goals expand learning activities and improve assessment strategies and this was selected as the best choice after an extensive.
Evaluation process that included input from students faculty and staff with the addition of for instance, we are happy to announce the campus has now been adopted by all Ivy League schools Hillsborough County, a third K 12 district with approximately 200000 students in Florida that is selected canvas the school board valued camus his ability.
To meet the needs of students will also offering powerful tools for administrators and teachers. This key wins solidifies our presence in large school districts in Florida, and better positions us to when other districts in the future.
I recently attended our canvas kind of that in Barcelona, and met with customers and prospects for across the region. It was nice to see everyone was excited about the new capabilities, we are introducing as part of our learning management platform.
And this is already the solution of choice at all top 10, U.S. business goals and we are excited to see similar progress with the international business schools.
When APC business and marketing school, one of the most prestigious institutions in Spain decided to switch from middle They ran two competing pilot simultaneously in the end DC chose canvas not only because it is the best technology platform, but also because they valued the community canvas team that will guide.
Interestingly enough AC is also looking to use canvas for student engagement post graduation.
We are excited they seek joined the ranks father top universities in EMEA, using camus, such as enthusiasm, France, and Oxford Syeed in England in Southeast Asia at the technological Institute of the Philippines management academic leadership and faculty selected canvas for both campuses covering senior high school to graduate school.
This is another great example of our ability to establish anchor schools in markets around the world.
At the edge caused conference just two weeks ago, we announced portfolio is now seamlessly integrated into the Camus user experience students, while lifelong access to their folio, where they can organize learning assets connect with other folio users and carry content to help showcase their skills to potential employers their personal folio.
We'll follow them throughout their academic and professional lines, serving as an expanded resume.
In addition, educators can now access integrated portfolio capabilities for institutions directly from the canvas learning management platform.
With deeper integration is now easier for institutions to procure camison portfolio together.
Our canvas current events in Sydney in Barcelona, good interest for portfolio in EMEA and APAC regions with a number of customers already asking to implement portfolio in the coming year.
On the employee development side, we recently announced the addition of bridge connect to our bridge employee development platform, which offers employees the ability to more easily connect with co workers join skill communities and identify potential mentors skulk, Andy a consumer electronics company attended our bridge kind of ends in June they selected bridge seen the value.
Our employee development solution to address their need to transition from annual to quarterly views enable monthly career development discussions between managers and employees and build stronger onboarding programs for new hires.
Our third quarter results are solid and despite some of the headwinds with international canvas and bridge. We're pleased with our progress now Steve will talk through the financials and following his remarks I will provide details on our December analyst day strategic planning work.
Thanks, Dan and thanks, everyone for joining us today.
As Dan mentioned, we delivered another solid quarter in Q3 with healthy year over year revenue growth and improvements to the bottom line.
Total revenue grew 24% year over year to $68.3 million, which subscription revenue was 61 point ninemillion.
The year over year revenue growth as a result of customer growth and continued that revenue retention of over 100%.
While we were pleased with our revenue growth in the quarter currency headwinds from GBP and eight you de had a larger impact relative to prior periods.
The Q3 impact was approximately $300000, which is equal to the total foreign exchange impacts for the first half of this year.
For further context in 2018, the impact was less than $100000.
As a percent of total international revenue was 19% growing 25% year over year.
As a reminder, or total revenue for the third quarter includes the contribution from our two acquisitions, which is almost entirely domestic revenue.
12 month Rolling billings at the end of Q3 was $272.4 million up 20% from third quarter of 2018 also calculated on a rolling 12 month basis.
If we exclude the billings contribution from acquisitions billings on a rolling 12 month basis was $252.8 million up nearly 12% from last year.
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 Q3 was 72.2% essentially flat year over year, an up 91 basis points as compared to last quarter.
Q3 total operating expense was $53 million. This represents as a percent of revenue a decrease of 500 basis points compared to last year.
Excluding the impact of acquisitions and the change in compensation policy 149 basis points of that decrease was related to controlling costs.
Our operating loss was $3.7 million as compared to 5.7 million in the same period a year ago.
GAAP net loss for Q3 was $20.9 million as compared to 11.5 million in the same period a year ago.
non-GAAP net loss for Q3 was $4 million, which is $2.9 million or eight cents per share better than our previous expectations.
Turning to the balance sheet, we ended the quarter well with $127.2 million in cash cash equivalents in marketable securities.
Free cash over the third quarter 2019 was $79.7 million.
Let me in my remarks around our expectations for the fourth quarter and full year.
For the fourth quarter, we expect revenue in the range of 67.8 million to $68.8 million.
In Q4, we expect a larger currency impact than we saw in Q3 of approximately 400 to $500000, which is included in today's guidance.
We anticipate non-GAAP net loss of 6.4 million to $5.4 million and non-GAAP net loss per common share of 17 to 14 cents.
For the full year, we expect revenue in the range of 257.1 million to $258.1 million down from our previous guidance of 258 million to $260 million.
This change is driven both by business performance that Dan mentioned earlier and the cumulative effect of foreign exchange impact of approximately $1 million for the year.
We expect non-GAAP net loss of 20.5 million to $19.5 million an improvement to previously stated guidance of 24 million to $21.5 million.
And a non-GAAP net loss per common share a 56 to 53 cents as compared to previously stated guidance of 65 to 58 cents.
For calculating EPS, we expect our shares to be 37.7 million for the fourth quarter and 36.9 million for the full year.
The improvements to our Q4 in 2019 bottom line will be driven primarily by our continued focus on managing costs.
We also expect a decrease of 2019 stock based compensation expenses from previously stated 60.3 million to $57.5 million.
Our cash position is healthy and our free cash flow forecast has improved.
We now expect to reach positive free cash flow by yearend.
On a personal note I want to take this opportunity to update everyone on discussions I've been having with Dan regarding my intent to retire.
It has been something I had been contemplating for sometime.
While there is no set timetable Dan and I have started the conversation regarding a succession and transition plan.
Let me now turn it back to Dan for closing comments and to look at our upcoming analyst day.
I would like to thank Steve for his more than seven years of service to infrastructure.
Steve has been integral to the growth and success of Instructure census, starting days.
After the board and our employees I want to express appreciation for his dedication and his passion for our business teams and how we're transforming education, Steve is build a tremendous finance team in program and I'm grateful that he's willing to stay with us through this transition.
Since taking on the role as CEO earlier this year I've worked to getting my arms around in structures business challenges and opportunities. While it takes time to understand the company. It also takes time to define the right strategy and then time to implement change.
Sure as an incredible business built over the last decade with campus. However, the organization has not involved in the right way to support a company going from startup to IPO to scale over the past month. My focus has been on establishing a strong team managing the business well all at the same time determining the strategic plan for that.
Future of the company Hi, along with our management team in board have worked closely with external advisors on our strategy and we've met with large investors representing over 40% of our stock base seeking input on structures future.
During our analyst day on December 3rd we will share details on our strategic plan. The agenda will include presentations from our management team, how we run the company moving forward financial goals and focus areas for growth, we will share how sales marketing and product teams will be more effective and efficient tied to metrics such as attribution and.
On costs and you'll hear from our board regarding governance updates and changes.
In the meantime, I would like to share some updates on our strategic planning work than previous some of our progress we are already making.
First I would like to address stock based compensation.
Based on Investor input and our business review, we recognize that the compensation policy put in place for this year has not yielded the benefits we expected nor has it been well received by investors as a result, we're making a meaningful shift in our stock based comp approach.
As Steve mentioned would be better than expected on SBC for 2019. Additionally, we have built our plan for next year based on managing share issuances in order to limit overall share count growth to no more than 2.5%. This will also result in the absolute SBC dollars coming down significantly year over year.
We are advancing our strategy by increasing our focus on education canvas as a platform provides a fantastic opportunity for us to expand greatly within our existing customers that we will capitalize on our unique ability to introduce add on products new offerings in education to drive revenue growth Tam expansion high attach rates and.
Lower customer acquisition cost portfolio mastery connect are examples of this and we are already realizing the benefits of these solutions being connected to campus.
During our analyst day, you'll hear more about in structures bigger opportunities and plans to ignite growth moving forward in education.
Turning to bridge, we are engaged in a strategic review of the business, we've begun to take steps to reorganize our teams such that bridge operates independently from our education business.
Bridge will be able to operate a streamlined cost structure appropriate to the stage of the business and the management team can increase its focus more on campus and our growth opportunities in education.
Lastly, we are working on finalizing our 2020 budget and our strategic plan. This year, our strategic planning process included deeper detailed financial modeling the multiyear view the process has allowed us to set financial goals from structure that are both near term and long term supported by a clear plan for execution.
On December 3rd we will share details on our strategic plan, including a number of value creation initiatives, we will share a financial status in goals with clear milestones and target date, specifically focused on profitability and growth for canvas bridge and Instructure overall.
We will walk through our cost realignment plan, which aggressively shifts and structures operations to deliver cost profile for gross margin sales and marketing research and development and DNA targeting best in class Fast company benchmarks, and we'll talk about the many exciting opportunities to drive growth in the coming years, there has been much.
Work this year to get in structure on the right path operationally financially and strategically I set a priority not only to drive ambitious and healthy goals from structure, but also to make sure that we commit to those goals with a well thought out plan and approach. Thank you and I look forward to seeing many view on December Threerd now, let's open it up for questions.
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Your first question comes from Ryan Macdonald with Needham Your line is open.
Hi, Thanks for taking my questions.
Just wanted to start I guess first on the canvas business and what you're seeing internationally I mentioned, some delays I think in the UK in Australia and could you talk about what's causing those delays and perhaps an expected timeline of when you expect some of those delays are those deals to be closed in 2020.
Ryan good to hear from yet welcome onshore we can comment on somebody international headwinds and some of the delays that we've seen we've seen as across a few areas specifically, a more acutely and the UK and in Australia New Zealand.
Particularly in the UK as an example, there were 12 public tenders for LMS switches large public tenders that were scheduled to come to market. This year.
Out of those 12, only four of them actually came to market. The other eight were path pushed and delayed beyond 2019 of the remaining four we won three and we advised the fourth one and we're working with that institution to.
To move that process out because they needed to go about it slightly different way.
Got it. Thank you and then I guess just switching over to bridge it sounds like you're clearly, making some nice progress in terms of the employer employee development and thats contributing in a positive manner. Our it's clearly not sort of performing quite to your expectation where do you think the shortfall.
It is coming from given sort of the the changes you have undergone within that business over the past year.
Okay Great question.
It's primarily around getting to sort of the enterprise customers, we knew coming into this year that we'd have on elongated sales cycles. We're pleased three replaced our or I'm, sorry, we released our employee development platform capabilities earlier. This summer. So we now have over 50 customers that are on the employee development.
Our platform utilizing many of the solutions across the suite that were released in the summer.
So we see good progress.
However, with the enterprise customers they are taking a little bit longer than we had hoped and most of them are starting with a division or a subgroup within the organization and then ramping up overtime. So that's what's causing some of the the.
Expected ramp up on bookings.
Thank you very much.
Sure.
Your next question comes from Brian Peterson with Raymond James Your line is open.
Hi, Thanks for taking the questions Dan the first one on bridge you had some new products out this year I did there were some some optimism that does this would be well received by customers maybe any update there how much time, you need to really see how will those will do in the market.
So Brian good to hear me again, thanks for joining the so we're already seeing good signals around employee development. So we're pleased with the uptake.
Say the uptake it really is how many employee development deals are happening that we wouldn't have had a chance at previously if we are just focus on LMS. How many of our customers are moving from sort of elements only and upgrading if you will do the employee development suite and then how is the employee development Swede, making us more competitive in general.
In all the deals as you remember we've been talking throughout this year around some key metrics when rates attach rates and significant deals and we see progress on every single one of those metrics. So as we look at coming out of this summer months with the introduction of the employee development suite.
We're seeing really good positive momentum and intention there the the challenge for US moving forward is really getting the enterprise pipeline fall and progressing those deals for it we learned a lot over the past few months of what it takes to get employee development in the embedded in the enterprise and there is about five key us or product or.
We entered in go to market oriented elements that we think will help to propel report.
Thanks, Dan maybe just a follow up on the domestic Candace bookings I think the comment that the hybrid bookings are on track to be up this year, but thats better than I expected can you confirm if that's an organic comment or does that include portfolio.
Any large deals for the rest of the year that could swing that figure one way or the other thanks Jess.
So that is 100% inorganic number.
I can't speak to the rest of the industry, but as you and others have been indicating you were seeing us or sharp slowdown in LMS switches. This year, when we look at our domestic higher Ed.
Sam as bookings, we are forecasting being up in bookings year over year, which are pretty excited about our win rates remain.
Pretty high and we're happy with our win rates.
I don't know for just winning more of our share whether there's more coming to market, but what we're also doing and I mentioned at Dawn I think last two earnings calls, we're not standing still we're being very proactive going a market, which means that in addition to sort of the RFP demand coming in the market were also creating demand there's a handful of deals and we'll see more through Q4.
There are coming into market not going to RFP and we're moving the business onto campus in terms of the last question you had with regard to sort of significant deals remaining throughout the end of year.
Obviously anything can happen, we're working hard and our plan working hard to deliver in Q4 Theres both resscan upside.
Thanks.
Sure.
Your next question comes from Brad Zelnick with Credit Suisse. Your line is open.
Hi, it's Bob non here for Brad good to see the increased focus on education can you just provide us with an update on the acquisitions of mastery connect and portfolio and how it performed relative to expectations and then just in particular just interested in hearing more quantitatively about if the combination canvas is creating cross sell opportunities are increasing.
Pipeline.
So good to hear from new the couple of things. So I think on the first question on mastery connect and portfolio, how they're performing as we went through those acquisitions earlier in the year, we set a plan and an expectation for bookings. This year that plan an expectation of bookings was a combination of what portfolio mastery canal.
We are already expecting due this year plus you know some incremental expectations for being attached to in structuring cameras as the mother ship.
And we're pleased to be so we're on track with the outlook that we had earlier in the year at the time.
So the acquisitions two is we're seeing.
Some really good uptake and attachment rates with Canada. So we're seeing the benefits as you had asked about around cameras and portfolio attached to campus. That's moat, both making camison portfolio more competitive as well as making sort of canvas plus portfolio and mastery connect more competitive too.
Their points around portfolio mastery connect we're sort of just finishing the operational integration of the teams. So in addition to having a much more sort of a coordinated multi bag go to market effort as well as better integrated technologies. We can start realizing some of the synergies that we had anticipated with those acquisitions.
As well and then lastly, as I mentioned in the prepared remarks.
At our canvas on events in Barcelona, and in Sydney, We're very pleased to see the interest level for portfolio.
And we we've increased the pipeline how internationally for portfolio as well and hope to see some some really positive results going into 2020 and beyond.
Thanks, that's very helpful. Just following up on bridge, what changes are frankly yourself, making to help accelerate growth here and then just how can we ensure that.
The increased focus on profitability that one hinder bridges ability to grow.
Well the.
There's another changes first of all we're leaning much heavier into the employee development side of the business now that we've had in market for quarter. We can now start looking at some recurring patterns what works and doesn't work in terms of a win loss, we're looking at our teams and sort of what's working and individual reps.
And different organizations, our marketing team has done phenomenal job building out an ice CP, an ideal customer profile that helps us be laser focus on the right types of customers, where our value proposition or will resonate. So really the story with bridge is all about focus at this point now that we're learning what is working and what is not.
With regards to our moves towards profitability and improving our bottom line and overall margin bridge will help with that.
Hey, and aggressive plan that we've laid out for the next few years that gets us to some really healthy metrics across the business. We're looking at that.
Metrics broken down by heart, our canvas business and looking at sort of our success and what what makes a successful in camus enbridge attaching products as well as overall as the company you'll hear more about this on December 3rd and one of the things I've task. The team with is to really focus on each of these businesses and what is going.
Two more aggressively get us to success, both on the topline and bottom line.
Thanks very helpful.
Your next question comes from Stephen Sheldon with William Blair. Your line is open.
Hi, Thanks for taking my questions.
First you talked over the last quarter or two about significant hiring for I believe engineers and developers for canvas. So it can you provide more detail on where you're deploying those resources and specifically mainly focused on improvements are tweaks to the core product or.
Many of these looking at building out new solutions are modules that you could roll out overtime.
So Steve and good to hear from you. Thanks for joining the so it's a variety of things.
We look at our strategic plan and we'll share more in December .
Third we need to think about a few factors first how do we continue to retain and please our existing customers our customers and I think any good SaaS company will continue to deliver ongoing innovation to their existing customer sat and that's how we stay ahead of the curve too is we need to deliver more sort of Cape.
Abilities and innovation into our existing products that we can cross sell and upsell into and sort of expanding our presence and then the third is is really development of new products. We've talked about our work that we're we're we're doing in machine learning and AI, which continues to be a focused effort for us a lot of innovation opportunities and grow.
With opportunities for portfolio, and especially for mastery connect where we're just scratching the surface of the work that we can do in assessments. Additionally, as we've been doing our strategic.
Planning effort, we see more and more opportunities in education driving entity, the online space and fulfilling our mission a really working closely with teachers and students to help drive student's success in the overall effectiveness and education leveraging.
Leveraging technology.
It takes engineering effort in R&D, we've been Reconfiguring, our our R&D and enjoyed our engineering and product teams. In fact, we made an aura key organizational change over the past couple of months to move more into a line of business model that line of business model helps to refocus engineers and product resources on the products in a way that can move at the right sort of patients.
Speed that is appropriate for those individual markets, we're doing a considerable amount of hiring and growth and work out of our Budapest location, which obviously gives us a really healthy cost profile and the talent. There is phenomenal we're very pleased with the output from our Budapest.
Team they become sort of see seamlessly integrated into the overall fabric of in structure and then obviously, we continue to work across our office is capturing talent with different skill sets that we need across each of our offices.
Got it that's helpful.
And then on canvas on the K through 12 side I know, they're good source is out there for LMS market share trends and higher Ed, but just wanted to ask can you talk maybe about rough market share in K through 12, and maybe how thats qualitatively trended over the last few years.
So I think we've continued to be really strong anoro adoption.
You know, we bring more business into sort of canvas LMS in K 12 than any other provider.
In the market.
Right now in terms of dedicated LMS.
You have to remember in the K 12 space Theres those are LMS switches that can happen, but a lot of the K 12 space is actually moving from sort of a non LMS school to a school, that's ready to advance and adopt and LMS. So we continue to make strong strides in that area year over year with the addition of mastery connect to it.
Makes us even more competitive answer spreads out our surface area within that segment domestic K 12, as our primary focus even though we do a considerable amount of work outside of outside of North America in K 12, as well there just fundamentally different markets.
Great. Thank you.
Mm.
Your next question comes from Brian Schwartz with Oppenheimer. Your line is open.
Hi, Thanks for taking my question this afternoon.
Dan just one follow up on a couple of your answers you were talking about some of the initiative that youve put in place to improve the the sales productivity here of the domestic AD Tech business and you walked us through those initiatives that to keep that improvement going here over time I was just wonder if I could pin you down if theres anything else that.
Going on to sort of remove some of the overheads that could further help the domestic AD tech productivity metric.
Yes, so Brian good to talk to.
And are you referring to some of the change that we made in the domestic.
Canvas.
Focus on some of the synergies with mastery connect and portfolio.
Yes, you talked a little bit about that's I think you gave us good discussions on that I'm, just wondering if you're doing anything in terms of either the enable man or the ramping.
The sales capacity or if theres anything else on really more on that could remove over had continued to improve the domestic AD tech productivity.
Yes, I think Brian Great question now I understand the it's not just about moving over had its around looking at where we can be more efficient with our sales efforts.
I'm very happy to have Frank Malat joined the team has been here about seven weeks now you can already see the tangible impact that he is making so although we're continuing to make strong.
Progress with campus domestically.
We know we can do more and more our sales teams can continue to get more efficient and more focused on I know, how we can penetrating the market I've talked a little bit about proactively going in a market and generating demand some of the other things that Frank is working with the team. We brought in a sales enablement leader, who is absolutely tremendous and he is going up significantly.
Advanced what we go to market with what our value proposition or mechanics of sales and.
Sales execution, we're also reevaluating our service territory plans. This year Frank came in at exactly the right time, because we're finalizing our 2020 plan for next year and that's inclusive of just about everything looking at our comp plans and quotas looking what motivates wraps looking at our support team.
For reps. We're also building a key account program that will allow us to work with both existing key customers in key operating key prospects in a way, where we can drive innovation and that will create more early adopter opportunities and faster uptake of cameras as well so theres a lot of.
Of positive things that Frank is bringing the table as he has he's come on board, we'll start seeing the effects of those things the positive effects of those things.
A little bit through the end of this year, mostly in 2020, as we build towards sort of greater sales excellence.
Thanks for that color and then Steve just a quick question on on just the math on the guidance revision on it looks at the midpoint on the year. It's about 1.9 million I think you said a million of that is just negative currency. Yes. So the other 900000 is it weighted at all between.
Bridge and the international deals that got pushed out.
It's probably a little more international than bridge.
Okay, and then last question, Dan just trying to add maybe just try to get at the changes in the HCM business and.
Pushing out what possibilities could be out there for the shaft again is that it doesn't it sounds like this is mostly just execution and focus on just want to make sure that thats right. It it's not that theres anything competitive out there around me anything changes in the market outlets suddenly these organizations want to bundle financials with H.
HCM I know you guys have a strong sense of what it's going on and you're saying, it's mostly focus and execution, but sometimes the execution can be linked to other things that are more exaggerated as variables. So I'm just thought I'd I tried opinions on that one last time, thanks for taking the quite yet.
A question I know I don't think it's just execution I think the market conditions are continuing to improve.
If anything and if you read about what jost person as saying out there on the market at the market conditions are moving in a direction, where we are already at Josh as commented before about how comprehensive to bear bridge suite is in terms of learning experience and an employee experience platform more than just about anything else that's out there in the mark.
As we launch bridge connect as one of the final pieces for our employee development platform, that's resonating very well in the market. So as we look at what we're doing enbridge and where we see the market trends the market trends moving toward skilled communities and mentoring and career growth, we're seeing sort of the age of the employee and our plan in place centric enterprise.
Rise really come to bear and that will only create tailwinds.
For bridge, we have to get our execution well in order and understand how to sort execute well against the enterprise, we've had sort of a quarter of execution now with with the employee development solutions since introducing it over the summer and there's definitely a lot of execution learnings from there that we can take forward. The other thing that's unique in the NSS market in a market.
I like the ones were serving as reference selling is a huge.
Element to success moving forward. So the more we win great customers like Skol Candy, which we announced today in our blog will go out with some more of our wins.
The easier it is to sort of reference and develop those patterns to share with the market that will drive confidence and moving to bridge overtime.
Thank you.
Sure.
Your next question comes from Corey Greendale first analyst your line is open.
Hey, good afternoon.
Hey, Gordo.
Kentucky.
Also on the bridge Southern Sudan I wanted to.
Maybe follow up on a couple of your prepared remarks.
Out the Investor day at the risky things stay tune, but.
First of all on the.
Bridge operating independently.
I guess I thought it was largely independent so maybe you could just give it a sense of how much dependence there is and how how transformational that effort is going to be versus more marginal.
So we believe it's going to be pretty.
Pretty transformational as over the past months that we've been doing.
A review of our business answer our strategic planning.
It's become more acutely obvious around.
Bridge being more in that sort of startup growth phase and canvas obviously.
Being more in that mature product phase and when we were a sort of canvas plus bridge company. That's the way we were and I think it was a little bit hard to see in previous years, the fars through the trees. So as part of our our strategic planning work that we've been doing over the past months.
With with.
With our management team with our employees with analysts with the board Sandra There are few things happened one is recognizing that bridge needs to operate almost as sort of up than independent service subsidiary within the business and have the proper attention it needs to spread its wings in focus and execute more at.
The size of company in stages of maturity that it's at and so we're making some organizational changes in shares we've already started putting those in place and of course, then there's sort of.
The fixing the cost equation with bridge as well and giving it more focus. So those are all things that are pretty fundamental shifts in what we're doing but the other sort of chapter. The other side of that story is we've done some deep analysis and what other opportunities. There are in education. So wall. Historically in structure may have thought there was not a lot.
Left to do in education, what Weve been able to derive from our customers and from the market is that they're asking us to take a strategic see at the table and help.
These institutions innovative move forward and much different ways, whether it be what we're doing right now with portfolio mastery connect what we're doing with analytics and machine learning in AI soon around student retention and graduation rates and effective teaching and learning or you know institutions moving more into their online.
Space and beyond so by site, creating some more autonomy for bridge within our organization. It both serves bridge well and it frees up more time for our senior leaders a management team to really be focused on.
Elevating canvas, LMS and accelerating as well as navigating our way into more educational spaces.
And I got App.
Since you just said that.
Maybe they know nothing is off the table by talking about helping institutions go online it sounds like the Lpms space is that something you're considering.
Look we work closely we have a lot of Lpms right now.
Oh PM space is a broad space in fact, many of the opium companies out there are more sort of content and services companies.
And there's a gap for technology. So we view our role already playing a significant as a significant player in the infrastructure of education in traditional leaded models and online models. Today is we can serve institutions. We can serve lpms, we can serve a lot of different modalities.
And players within the market with our partner program. That's now over 350 partners, we're already seeing our ability to connect the dots to create much more of an integrated in online experience for institutions. The nice thing about this.
Is it gives us is that institutions are immediately looking to us to help create sort of this broader framework and leverage of their offerings across traditional blended and now online we've had catalog and market for some time, which is really the marketplace for online learning the storefront for online.
Learning, so we see opportunities to expand what we're doing there and capture a big piece of the market Thats a high growth right now.
That makes a lot of sense given your place in that market. My last question is it.
There are some that could read between some lines and I don't know they fit or not so I'll just ask the question overtly which is instead, we are talking about bridge and engaging in a strategic review and management enhancing focus on canvas and education. It sounds like one could say between the lines that you would consider.
Selling or carving out bridge is that on the table or or how does what you're doing enhance your focus management's ability to focus on education.
Yeah, I mean look the bridge is an important part of our business.
But it's at a different stage right now as I mentioned in these different attention and we're working on the strategy and organizing the team.
And then again, recognizing there's more opportunity in edge you like I mentioned, we're going continue to sort to a strategic review in the business as we reorganized the team moving forward and create more of that focus.
Look what we want mostly right now is for bridge to be on a path that can best deliver its mission of helping employees grow and develop every day, we see a lot of opportunities in general with bridge, whether it be through partnership or or focus moving forward that can accelerate accelerate that mission.
For us nothing is off the table the focus for US is really making bridge successful making bridge financially.
Beneficial on accretive and and healthy and and continuing to grow overtime.
Great and if I could just throw in Steve. Thank you prior help over the years and looking forward to asking what comes next.
Thank you.
Your next question comes from Eric Lemus with Suntrust Robinson Humphrey Your line is open.
Hey, guys. Thanks for taking the question I wanted to follow up Dan on something you were talking about.
On a path question about data and analytics can you give us any sort of update on the progression you're dealing with this strategic initiative around dig in.
Should we expect to hear some new products coming out in the next year to around and get analytics and the Big initiative.
Yes, we dig into Codenamed reviews.
We're making very good progress.
There are about.
15 to 20 institutions now that are working in sort of pre pilot mode, We'll move and to pilot in early customer mode here shortly and I expect us to have something in the market at least in that sort of early customer phase in 2020, now that would be an early offering that comes out of this initiative and we anticipate a very.
Do you have offerings overtime in the space of.
Analytics ml AI and predictive insights.
Okay, Great and then I wanted to ask a question on international.
On your prepared remarks, and things got pushed out but looking at overall investments in international markets. How are you feeling around sales coverage and certain areas is that an area of investment as we go into the new year.
It's an area of shift we've been and I think this is this is Alan structure started off just like many U.S. based technology companies sort of take that first step into what feels familiar English speaking countries. In these regions, Australia, New Zealand and the UK and if you look at the patterns for many America.
In software companies they struggle when they have to go beyond sort of those English speaking markets. It creates a little bit of a blind spot. You know this has been an area of focus for me through 20 years of my my career, so its and its they give it a little less or incremental investment think of it as a reassessment of reallocation of focus.
And resources, we're making some good.
Early early movements and to span I talked about AC on the call.
NC Ed in France.
We're we're working with number of institutions now in the Philippines, and and we have some opportunities across the broader.
Asia Pac region, So we'll be reallocating resources and adjusting the teams. So we can capitalize more broadly on the regional opportunities that what's nice about that is as we move more broadly with canvas, we're finding that our approach and tactics. While there are nuances within these local markets and we need to be aware of them like governing the influence.
And and tender processes in general our value pop prop and our product stands very strong in these markets and gives us an opportunity to sort of repeat the pattern recipe for growth. It's just something that we have to get after a little more aggressively.
Okay, great. Thank you.
Your next question comes from Risi jewelry with D.A. Davidson Your line is open.
Hi, guys. This is hanna.
Thanks for taking my question.
First off with the introduction of engaging earlier this year.
Any notable changes.
Yes.
And I get to talk to thank you. So in addition to engage we also launched our career product and we've expanded recently with bridge connect engage is definitely one of the most intriguing products as we go into market with the employee to own developments solution engages competitive into investing in exist.
The market of employee sentiment and voice and being in market. Since June we're just going through some of the earlier iterative ones, what's nice about engage and be able to get that employee sentiment in voice is that it's actually hoping to demonstrate the benefits and the results of bridges and employee development solutions I think it's going to take another call.
Well months in cycles for us to be able to talk to case studies and release those in the market.
But we are seeing a larger deal sizes come through now it's not quite tripping the enterprise bucket as much but we have many more six figure deals executing and happening in the pipeline than we ever have before including a number of deals that maybe we're in the you know tend at $20000 range for example.
We have now been upgraded into 100000, plus dollar range, where they were LMS before and now they're moving forward with engage in the employee development suite.
Great that's helpful.
Foreign currency headwinds.
International revenue.
Yes, the vast majority of it is yes, that's correct.
And then just last question Stephen Dan could you talk about.
Thank you.
Qualities.
The top qualities Oh channel.
Yes.
So.
Well, it's relatively Steven I've been talking about this for some time he's been thinking about retirement for some time as well Steve was.
Great good enough to sort of stay on this year as I've joined in sort of been getting my seat solidly on the ground and I really appreciate the time in the partnership with Steve.
We have not written the job rec yet.
We are still working on things, but but look we have a lot to tackle moving forward, we need to really become truly are a successful multiproduct company, we need to be successful executing a multiple international geographies and we need to be financially disciplined such that we're achieving.
You know considerable metrics moving forward in all areas, our business I referenced cost benchmarks.
Against.
Against sales and marketing R&D, DNA and gross margin, but we're also targeting overall margin metrics for each of our areas of the business I've talked to my team and I'm asking each of the leaders in my team to be mindful, what we're doing so we can reach those benchmarks as well its growth benchmarks were looking at.
Being a strong role of 40 plus company.
Not too long.
From now and these are serious goals, so having someone step in that role that is familiar with how to sort of manage those dynamics of a company in the public space is very important to me.
Great. Thank you guys.
Your next question comes from Alex Paris, with Barrington Research. Your line is open.
Good afternoon, then Steve this is Chris how sitting in for Alex Paris.
Thank you for all the color and commentary you've given so far.
I still several questions here, but for the second time I'll just go through a few.
You mentioned Skol Kandi is a key win for bridge learn.
As we will kind of outside the box for bridge learn are there any opportunities whether it be a joint venture partnering with the for profit.
That you could envision longer term as part of your strategy to increase penetration within these corporate accounts.
Yes, you're referring to like a another like in HCM organization, and partnering that way, where we become almost the white labor the OEM capability for the explore employee experience and there's an HCM organization and handles more of the back office capabilities, we see a lot of opportunities to that we're.
Still early stage with bridge, we have a very mature partnership program with campus and we would like to establish a similar partnership program with bridge, we've started experimenting with that a little bit with some of the different HCM players out there and we see a lot of opportunity one of the nice things about bridge being a true native.
Cloud platform is we've been able to penetrate markets around extend an enterprise and sort of extended use with a complex some wide audience for serve our customers customers and bridges uniquely capable of delivering to those needs. So pivoting that into a strategic partnership strategy and having that be a man.
Mechanism to drive and accelerate bookings and revenue is something that's a part of our consideration moving forward.
Great and then.
One more question understanding that these are tenders the 12 tenders that you mentioned.
Internationally.
Eight of them pushed and you won three out of four on a relative basis and generally speaking.
Can you comment on the dynamics between eight that pushed versus the.
The three out of the for that you won recently.
Sure. So a couple of things just to be clear. This 12 were only in the UK. So that was just an example, there are other tenders for example, the question and Australia, New Zealand others. These are public tenders.
The dynamics today that pushed out we don't know exactly why.
Your your guess is as good as mine in terms of political climate in some of these markets and whether that had an effect or not I'm sure you guys here about Brexit until till.
So no end about that potentially have an impact on business and while we have no way of drawing a line from what the conditions in the UK to these eight tenders that pushed out we know that there's definitely some delays happening and an unusual form now we can't count on it but we're hoping that those eight tenders pushed out be.
In 2019 wind up coming to market and decision next year in 2020, and we can have a really good solid.
Quarter and are solid year next year in 2020 with those tenders hopefully coming in a market, we're not banking on that though we need to both the excellent in the UK and across the region in EMEA of the remaining for to be clear on that as well only three of them went to decision. All three of those went to campus as a decision the fourth one we're working with the institution.
Then on for a revision of the process and the approach as well so it should come into market. In 2020. There were just not enough time left in 2019 to really get that process back on track.
Thank you so much for the color and they'll be.
Watching the blog for any other announcements thanks.
Great Chris Thank you.
Your next question comes from Brett Knobloch with Berenberg capital Your line is open.
Hi, guys. Thanks for taking my question and congrats to Steven retiring.
Given the analysts stays a little more than a month out. It was just wondering if the new CFO I guess really have any input into the strategic and financial plans that you guys are going to set for from nothing.
Yes, so Brett this is relatively new news and and a new decision on Steve maybe on Steve has assured me that he's the 100% committed on working with me and with the team through the transition as we find the next CFO for an structure and being really generous.
With his time on the transition even after close to eight years of see spending time, helping unstructured get where it is today he wants to see the towards fast into two to good hands and success moving forward with regards the analyst day being on December 3rd that's not far from out. So we have some thinking to do in terms of how we want to.
Presents some of the information and the strategic planning work that we're doing and what that means vis-a-vis, bringing in a new CFO .
Okay, great. Thanks, guys.
Thank you.
There are no further questions at this time I'll now turn the call back over to Dan.
Yep. So in closing I, just want to thank our employees our customers our partners investors and others. It's been a it's been a good Q3 were pleased with our results solid quarter for and structure and with that we'd like to close the call for say thank you.
This concludes today's conference call you may now disconnect.
No.