Q4 2021 Instructure Holdings Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby.
And thank you for your patience again, ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to infrastructure, its fourth quarter and fiscal year 'twenty to 'twenty one earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Please be advised that this conference is being recorded.
I'd like to turn the conference over to you for Speedway, Denise Garcia Investor Relations Denise. Please go ahead.
Thank you Mel good afternoon, and welcome killing structures fourth quarter and full year 2021 earnings call. We will be discussing the results announced in our press release issued after the market closed today with me are instructors Chief Executive Officer, Steve Bailey, and Chief Financial Officer, Dale Boeing before we begin I'd like to remind you that today's conference.
This call will include forward looking statements based on the company's current expectations. These forward looking statements are subject to a number of significant risks and uncertainties and our actual results may differ materially for a discussion of factors that could affect our future financial results and business. Please refer to today's just to the disclosure in today's earnings release and other.
Our reports and filings we file from time to time with the Securities and Exchange Commission.
All of our statements are made as of today based on information available to us today and except as required by law, we assume no obligation to update any such statements. During the call. We will also refer to both GAAP and non-GAAP financial measures you can find the reconciliation of our GAAP to non-GAAP measures included in our press release, which is posted to the Investor relations.
Section of our website with that let me turn the call over to Steve.
Thank you Denise and good afternoon, everyone. Thank you all for joining us for our fourth quarter and full year 2021 earnings call. During today's call Dale and I will provide details on our fourth quarter results and provide first quarter and full year 2022 guidance <unk>.
In structured delivered another strong quarter in Q4 exceeding our previously communicated guidance ranges across all of our guidance metrics fourth quarter, GAAP revenue was $110 $6 million or 26% year over year, while allocated combined receipts, our ACR was $111 $4 million up 20.
<unk>, 3% year over year, we had our best fourth quarter bookings in the history of the company as we continued to execute on the go to market strategy, We introduced last fall full.
Full year 2021, GAAP revenue was $405 $4 million up 34% year over year, while ACR was $414 $7 million up 28% year over year.
We think ACR, which adds back the impact of fair value adjustments to acquired unearned revenue gives investors better visibility into the underlying growth of our business.
Thanks to our focused investment approach fourth quarter, adjusted EBITDA grew 57% year over year to $41 7 million or 37% margin full year 2021, adjusted EBITDA more than doubled to $146 $7 million and we converted 115% of full year adjusted.
<unk> EBITDA to adjusted Unlevered free cash flow.
Total customers grew 14% year over year to nearly 7000 at the end of Q4 as canvas gained share across each of our key markets net.
Net revenue retention was 109% in 2021, which highlights the continued growth opportunity in our customer base.
Our strong fourth quarter financial performance capped off a truly outstanding year for <unk> and structure. We look forward to building on our success in 2022 and beyond as we continue to enhance our in structured learning platform, while remaining focused on driving profitable growth and maintaining our industry leading margins.
I now want to talk about five key highlights for the quarter first in Q4, we once again saw strength in each of our key markets U S higher education, K, 12, and international and higher education, our cloud native and extendable platform continue to displace legacy systems during the quarter Walden University selected canvas for.
It's 40000 student population because of its superior user interface and flexibility at scale, while providing data access and a robust API.
The deal also included impacts to help accelerate Walden transitioned from blackboard to canvas, while providing continuity with previous functionality.
We're seeing strong uptake of impacted higher education, as well as K 12, as educational institutions seek to better understand how Ed Tech tools are being used in their environment. We have also been very pleased by how impact has been received in the K 12 markets since we announced the availability of the solution last fall and we expect to impair.
To further differentiation differentiate us from our K 12 competitors, while expanding our total addressable market in.
In K 12, more broadly we continue to take share from both unpaid and paid paid legacy LMS systems during the quarter and Q4, Hertford County public schools selected canvas LMS and canvas studio after the incumbent or paid LMS vendor terminated its legacy system.
Hartford chose us because of our strong product features and our expertise in migrations and change management services.
International remained our fastest growing part of the business in Q4, and we continue to see it believe international can be as large as our U S business over time in Australia, We signed a deal with Australian Catholic University or ACO to replace their moodle system.
After a comprehensive competitive tender process acu selected canvas and impact as the foundation for the next generation digital ecosystem to underpin Acu online universities recently launched fully online education portfolio.
Second our focus go to market an expanded set of offerings are resulting in higher penetration of products across our customer base through both cross sell opportunities and new logo deals in 2021, 43% of new wins involved more than one product up from 33% in 2020.
During the quarter Newport News public schools took advantage of the statewide virtual Virginia contract, which allows districts who use canvas as a procurement vehicle.
To purchase mastery connect our K 12 student assessment management system. So armed with better sales tools are dedicated K 12 assessment sales team is having great success cross selling our suite of assessment management solutions, including Master connect and circa into our customer.
And canvas installed base.
Third we are making disciplined investments to expand our platform and drive long term growth high gross margins strong sales execution productive R&D investment and low capital requirements allow us to reinvest in the business pursue strategic M&A and deleverage, while maintaining industry leading margins.
For example, the full year 2022 guidance, we are providing today, which Dale will discuss in greater detail later in the call. It takes into account meaningful increases in R&D and sales head count expanding our sales capacity, while delivering expected, 36% adjusted EBITDA margin well ahead of consensus 2022 estimates for Ed Tech peers.
Fourth we have a strong track record of value creation through M&A.
With canvas at our core we are uniquely capable of improving the performance accessibility and reach of acquired software solutions.
Our technical integrations have gone smoothly and ahead of schedule, well, which has allowed our sales teams to rapidly incorporate newly acquired products into their conversations as a result, we've been very successful in adding products. We acquired over the last 12 months to our existing canvas space.
Fifth as our international business continues to grow rapidly and gain market share. We are looking at ways to turbocharge growth last month, we announced the launch of a new channel partner program, which is expected to spur growth in APAC EMEA and Latam markets. The new program offers potential partners additional ways to generate revenue beyond.
[noise] reselling products with opportunities such as the implementation training and support services early feedback has been positive and we are optimistic about the cost effective expansion of our international footprint through channel partners.
Turning to stimulus funding last month, the department of Education announced that every state Education Agency received approval of their American rescue plan Elementary and secondary school emergency relief or Essar planned before the end of 2021, resulting in the distribution of $41 billion of additional funding which had been contingent.
On state plan approval.
With only 26 billion of the 190 billion investor funds used as of November 2021, we expect the funding environment to remain favorable for years to come.
Looking to the remainder of 2022 and beyond we believe the in structured learning platform is uniquely positioned to help educational institutions and developers solve the complex challenges presented by the proliferation of Ed Tech tools for educational institutions. These challenge include a fragmented user experience side.
Low data unclear or why security risks and difficulties in evaluating implementing and managing applications for.
For Ed Tech tool developers access accessing education markets and navigating procurement processes are significant hurdles are 2022 product roadmap includes investments to expand the capabilities of our platform as we dress address an even larger share of our $30 billion total market opportunity.
In our core North American higher education business, we expect the number of RFP opportunities to significantly increase in 2022 relative to 2020 one as universities look to upgrade their infrastructures are growing pipeline includes large universities with legacy LMS systems, which simply cannot scale to meet the demands of millions.
A concurrent users we are highly confident in our competitive position and look forward to continued momentum in the coming years in summary, I couldn't be more excited to lead and structure through our evolution into the most comprehensive teaching and learning platform worldwide I would like to thank our customers our partners our employees and shareholders for your <unk>.
Ongoing support with that I will now turn the call over to Dale to talk about our financial results and the ongoing momentum we're seeing in the business.
Thank you, Steve and thanks, again to everyone for joining us today.
Before discussing our detailed financial results I'd like to point out that in addition to our GAAP results I will be discussing certain non-GAAP result.
Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results can be found in our earnings release, which is posted in the Investor Relations section of our website.
In the fourth quarter, we continued to show a combination of strong topline growth and expanding adjusted EBITDA margins for.
For the full year, we expanded adjusted EBITDA margin by 1300 50 basis points, we expect to maintain our industry, leading margins as we deliver durable profitable growth in the years ahead.
As Steve mentioned, we generated fourth quarter 2021, total GAAP revenue of $110 6 million up 26% year over year, and ACR of $111 4 million up 23% year over year subscription and support ACR accounted for 91% of our fourth quarter revenue.
At $101 million up 27% year over year, primarily as a result of the continued momentum within our core canvas LMS product both domestically and internationally. In addition to the strong upsell and cross sell of our other products, especially assessments.
Professional services and other revenue accounted for 9% of our fourth quarter revenue at $9 6 million up 22% year over year, driven by strong implementation and training services delivery in our K 12 business.
Deferred revenue at the end of the fourth quarter was $255 $7 million up 25% year over year remaining performance obligations for RP O were $698 million at the end of the fourth quarter up 60% year over year.
We expect to recognize revenue on approximately 76% of our appeal over the next 24 months.
In discussing the remainder of the income statement. Please note that unless otherwise stated all references to our expenses operating results and share count are on a non-GAAP basis. Please note that when I referred to margins in the upcoming comments I'm, referring to margins calculated as a percentage of ACR.
Our strong gross margin profile was supported by our optimized cloud architecture and flexible support model.
<unk> to meet seasonal customer.
In the fourth quarter gross profit was $86 million, representing 77, 1% gross margin up from 68, 3% in the fourth quarter of 2020.
Couldn't be more pleased with our inherent operating model and continued operating leverage on the gross margin.
Turning now to operating expenses sales and marketing expenses for the fourth quarter were $21 4 million or 19, 2% of ACR down from 22, 1% in the fourth quarter of 2020.
Research and development expenses for the fourth quarter were $13 4 million.
Or 12% of ACR compared to 11, 5% in the fourth quarter of 2020, as we invested in engineering headcount to pursue our ambitious product roadmap.
General and administrative expenses for the fourth quarter were $10 5 million or nine 4% of ACR up from $6 seven in the fourth quarter of 2020, driven largely by the addition of public company costs in the second half of 2021.
non-GAAP operating income for the fourth quarter was $47 million, representing a 36, 5% operating margin up from 27, 9% in the fourth quarter of 2020.
Fourth quarter, adjusted EBITDA was $41 $7 million, representing a 37, 4% adjusted EBITDA margin up.
From 29, 3% in the fourth quarter of 2020.
non-GAAP net income for the fourth quarter was $48 $2 million or <unk> 34 per share compared to $17 million or <unk> 13 per share a year ago.
Turning to the balance sheet and cash flow statement.
We ended the fourth quarter with $169 $2 million in cash cash equivalents and restricted cash and $493 $3 million of long term debt net of discounts, resulting in a 2.2 times net debt to trailing 12 months adjusted EBITDA ratio.
Full year 2021, GAAP operating cash flow was $105 $1 million.
Compared to negative $22 million in the prior year.
Full year free cash flow was $109 million compared to negative $22 4 million.
In the prior year.
Full year 2021, Unlevered free cash flow was $156 6 million or.
124% year over year increase from $69 9 million in 2020, while adjusted Unlevered free cash flow, which adjusts for the impact of restructuring transaction and sponsor related costs paid in cash was 168 7 million a 60.
9% year over year increase from $99 $7 million in 2020.
As a reminder, our strong free cash flow conversion is driven by a favorable billing terms low capital expenditures and our accumulated tax assets, which we believe will act as a tax shield for the next several years.
I will now conclude the call by providing guidance for Q1 and for the full year of 2022 for ACR adjusted EBITDA and adjusted Unlevered free cash flow.
We have provided additional guidance details in our earnings press release.
For the first quarter of fiscal 2022, we expect ACR in the range of $109 $1 million to $110 million.
$1 million normalizing for the branch divestiture, our first quarter of ACR guidance growth rate is 16% at the midpoint for.
For the full year, we expect ACR in the range of $456 7 million to $467 million normalizing for the branch divestiture, our full year HCR guidance growth rate is at 12% at the midpoint.
As a reminder, in February of 2021, we sold rich our corporate LMS business.
<unk> contributed approximately $4 million of ACR during the first quarter of 2021.
We expect first quarter adjusted EBITDA in the range of $37 9 million to $38 $9 million, representing an adjusted EBITDA margin of 35% at the midpoint of the range.
For the full year, we expect adjusted EBITDA in the range of $162 1 million to $166 1 million, representing an adjusted EBITDA margin of 35, 8% at the midpoint of the range.
We anticipate full year 2022, adjusted Unlevered free cash flow to be between 183 and $187 million. Please note that moving forward, we plan to use adjusted Unlevered free cash flow as our primary three cash flow metric because it provides a better measure of our ongoing.
<unk> cash generation.
A couple of quick points on seasonality.
First as a reminder, ACR is typically roughly flat between our first and second quarters and we expect this trend to repeat itself this year.
Second we expect our adjusted Unlevered free cash flow seasonality to look a little different this year by.
By leveraging our scale and strong balance sheet, we've been able to secure favorable terms with our vendors, thereby reducing our cost structure and improving our gross margins gross margins over time, we're able to do this by making incremental prepayments to vendors in the order of $25 million to $30 million, which will impact adjusted.
Unlevered free cash flow year over year comparisons for the first quarter.
In summary, 2021 was an incredible year for <unk> structure, we reentered the public markets and execute at a very high level exceeding our guidance in every quarter from our position at the center of teaching and learning we are leading the digital transformation of education and financially we offer a rare combination.
Nation of double digit growth and best in class margins.
We couldnt be more pleased about our momentum in the marketplace and look forward to updating you on our progress throughout 2022.
With that Steve and I are happy to take any of your questions.
Thank you as a reminder to ask a question you will need to press star one on the telephone keypad again tier one on the telephone.
Ask the question until we Joe Your question press the pound key.
Please standby, while we compile the Q&A roster.
We have the first question comes from the line of Josh Josh Baer of Morgan Stanley . Your line is now open you may ask your question.
Great. Thanks for the question and congrats on the finish to a strong year and I guess I wanted to ask with adding.
Adding 800 customers and 109% retention rate really like what does the pipeline look heading into 'twenty two.
You could kind of give any context on pipeline across higher Ed K 12, and international segments. Please.
Yes.
Thanks, Josh.
We are seeing a continued momentum in the marketplace. Our pipeline is looking looking good.
We mentioned in the prepared remarks that we're seeing increased RFP activity in the U S higher Ed space.
So.
That is that is up significantly from 'twenty one to 'twenty. Two so we continue to see good pipeline build.
Frankly, 22, and 23 in the U S higher Ed business. So we feel really confident about where the pipeline is starting this.
This year.
Okay, Great and then on the <unk>.
The new International Channel partner program, and how should we think about <unk>.
Contribution from that.
This year or in the coming years. Thank you.
Yes.
This is an important part of our overall long term growth strategy and our continued continuing to drive international as the fastest growing segment of our business.
As you know as we've talked about in previous calls, we really have put a focus on our direct sales teams. We've identified those countries that we believe.
Our best suited for a direct sales engagement and we are still investing very heavily in those markets as evidenced by the recent win with Australian Catholic University, we were seeing good momentum the channel program allows us to address those markets that we.
We looked at and said, okay, if we weren't indirect.
They wouldn't necessarily breakeven in the first 12 months, but this is a much more efficient way to address those those countries.
So it is going to expand our addressable market in the international space. So the way to think about it Josh is that it really is a driver of growth for the next two to three years.
And we're starting to we're getting really good feedback on the program and we're just starting to sign up channel partners and expect it to be again something to drive that durable growth in our international markets over the next two to three years.
Thank you next question, we have the line of Sterling Auty of Jpmorgan. Your line is now open you may ask a question.
Hi, This is drew on for Sterling given that the K 12 district budget votes are happening over the coming months do you have any preliminary sense of spending on infrastructure solutions and the upcoming budget cycle.
Yeah. Thanks for the question drew.
We do we have a pipeline that we're managing we feel we feel very confident in the guidance that we've given you that the pipeline will support those.
Those numbers.
As as.
As we mentioned this is this is an area that's been going through digital transformation Covid was really a catalyst and the starting point for that digital transformation, so as particularly as we've amassed a portfolio more than just the L. A masked with the assessment part of the business and the impact products that we're adding we have a lot of products.
That.
That apply to this digital transformation. So we feel very good about where we're sitting from a pipeline perspective for our K 12 business.
Okay, great. Thank you.
Thank you and next question, we have the line of Fred.
Macquarie. Your line is now open you may ask your question.
Thank you and congratulations on the quarter I wanted to really dig into what the structure is able to do at the moment to help address learning loss and specifically as it relates to.
The K 12 environment mastery connect now as you're as you're looking out it at you know the U S domestic K 12 marketplace.
What appetite you find schools have four more assessments capabilities more insights and essentially what the master connect is able to deliver and you know further how you know our schools thinking about tackling the problems of learning loss that has accrued throughout and really continue to accrue throughout.
The stop and go learning cycles during the pandemic.
Okay.
Thanks, Brad good to hear from you.
And it's a great question. This is the big this is a big challenge for the K 12 system is.
There were there were funds specifically targeted within the Essar stimulus funding to address learning loss.
You've hit it on the head.
The main tool that we have to to help schools address learning loss is through our all of our assessment solutions, both mastery connect as well as the <unk>.
Circa <unk>.
<unk> that we acquired at the beginning of last year.
Our approaches.
Is a little bit different than traditionally has been done in assessment, which has been high stakes end of end of year kind of testing.
Whereas our tar are our solutions are really targeted at real time feedback to the teachers on how students are doing against the standards against where they should be in their educational journey and so we announced that mastery view products last last year that really are again these lightweight quick hitting.
Psychometric Lee sound ways to test how students are doing along their journey rather than waiting to the end and seeing how they did so this is a big part of the overall learning assessment and then with the with the LMS.
We also have the ability again teachers have a three.
360 degree view on how our students are viewing what are they teaching and they're able to look at how they can adjust their teaching four four students says there as they get that feedback from the assessment solutions. So a lot of good stuff that we provide in the classroom for the teachers to be able to get that real time feedback on how students are doing.
Okay. Thank you and then I wanted to ask.
Okay.
Connected.
As a follow up question. Please press star one on your telephone keypad.
Okay. We have a question from rental of Jefferies. Your line is now open you may ask your question.
Good afternoon, I'm curious on higher Ed.
Colleges that have come back into session any change of behavior or any observations you have in some of these engagements and then.
For K through 12, I'm curious, where you believe that over time the mix.
You know settled out as it relates to the overall mix of the business in terms of customers and revenue and any any other observations on the K through 12 side just from a metric perspective, you could offer thanks.
Yeah.
From a from an engagement perspective, you specifically asked about U S higher Ed what we're seeing is utilization on our platform is.
About the same level that it was during the pandemic so as as we've gone back to more in person the engagement still right.
What is being recognized is that this has become core infrastructure for delivering on teaching and learning whether it's in person fully remote or hybrid environment.
It is the glue that that.
That they use to make sure that theres, a seamless experience across each of those teaching.
Methods and so so we see good engagement continued on the on the platform and higher than it was pre pandemic.
<unk> from K 12, you know the reality is we have a really strong business in our U S higher Ed it's very sticky very very low churn. We've never lost a fully deployed four year higher education institution that mix is going to change very slowly. So we're just over a third of our business right now is K 12.
I don't expect that to change more than a few points over the next several years again because of the because of the durability of that U S higher Ed business that we're seeing.
Great. Thanks.
Thank you we have now the line again of Mr. Fred.
Blair. Your line is now open you may ask your question.
Hey, I'm back with my follow up.
I wanted to just ask about the competitive landscape I know that you know you.
You highlighted some competitive wins this quarter in the higher Ed space and Theres certainly been.
You know quite a bit of activity there as well with.
You know some consolidation in the market and I wanted to ask you know as you're looking.
Looking at the Rfps that are out there and as you are looking at the competitive landscape in higher Ed.
How do you see things progressing and do you see any sort of shift that is potentially papering canvas. Thank you.
Yeah, It's a good question Fred and welcome back.
We have we have.
The competitive situation is is as it's been although we're seeing.
There was a dynamic during the pandemic, where a lot of higher education institutions already had something in place to kind of hunker down.
And said, we're just going to get through this with what we have.
What they recognized was.
The open source or on Prem solutions, just didn't scale and they didn't meet the demands and so now theyre looking at whats its time to re platforming and decide what we're going to do for the next decade, and so as we're coming out of.
The kind of panic situation that we had in 2020.
They're starting to open up and look for that next generation and that bodes very well for us from a competitive perspective as we have.
We scaled up dramatically.
During the pandemic we stayed up.
Whereas.
Some of the open open source like Moodle fell down.
The some of the legacy technologies that Theyre, just didn't scale and so so that's the primary driver that we see right now is looking for that digital transformation, what's going to be the technology to take them into the next 10 to 20 years and.
And again.
It's really well for us our win rates are around 70%. So we continue to see high win rates in those opportunities.
Thank you I appreciate the context.
Thank you we have the next question comes from the line of Brian Peterson of Raymond James. Your line is now open you may ask your question.
Good evening gentlemen, thanks for taking the question. So I wanted to follow up on K 12, I think theres been some debate.
And the rate of adoption there I know you guys mentioned the funding backdrop, but I'm curious where do you see the penetration of <unk>.
Through 12 today and I'd also be curious as you look at markets like assessments.
Where is that right and then maybe that's hard to peg today, but like I think we're trying to think about the incremental opportunity in K through 12. So anything that you can share there would be really helpful.
Yeah.
Yes.
You know in the K 12 space, we think we're still the last time. We did this study it was about 40% penetrated with paid for LMS.
I suspect when we get the latest data it'll be more around 50% of the market that's penetrated with our pay for LMS and we still are the market share leader and paid for it we're still seeing as.
As districts put together their plans as they figure out ways to use that the stimulus funds is there is there looking at the digital transformation. That's going on there is still a lot of room for us a greenfield.
The opportunity in those districts that had don't have paid for LMS yet.
The penetration of the LMS is.
Frankly, we don't know exactly on assessments, where I believe it's ahead of where the assessment penetration is.
Especially when it comes to these interim assessments that were talking about in the automation of those processes. So I think we're still early days for them.
An assessment of use of an automated assessment management system in order to do these formative an interim assessment. So we still got some we've still got a lot of runway there.
Good to hear Steve and deal maybe a follow up for you just on the 800 customers new customers.
Any rough sense on how those compare across the three buckets. So I'd also be curious you are the one of 9% and all of our how do we think about that metric going forward. Thanks guys.
Sure.
So we don't break down the customers the customers in those different segments, but.
We're really pleased with the growth of customers and what we've been able to acquire during this past year, but.
So let me transition over to your second question, Brian on the 109 INR. We're also really excited about that one O nine number.
Our net revenue retention, Atlanta, right, where we expected it to be.
And it's really based upon that strong.
<unk> that we have that gross revenue retention that that is best in class at mid nineties, we add on top of that the annual growth rate with our price increases and then the cross sell on top of that it's just we're really happy with it what that number is not including though is the progress that we've made.
Good.
Our landing larger with our new logos.
We've mentioned this in his opening remarks that we are adding more products when we land with new logos than we did last year and that's someone who's not captured within the <unk> number but is also an expansion against all of those customers that you opened your question with the <unk>.
Adding 800 year over year.
Thanks Bill.
Thank you we have the next question comes from the line of Terry Tillman of choice. Your line is now open you may ask your question.
Hey, good evening, Stephen Dale Congrats from me as well My first question is on the we've talked about assessments here and you all talked about momentum there and I know, there's a variety of skus that would fall under that whole kind of theme of assessment, but anything more you can share about just the size or the scale of that in relationship to the broader business.
And we see your guidance for 'twenty, two but his assessment something that is going to grow at multiples or anything you can share about its relative growth rate and then I have a follow up.
Yeah. So.
We don't breakdown between products, where the where the revenue is broken down but this is one of those areas, where it is growing faster than the core business.
And we expect it to continue to grow faster than the core business.
We're really pleased with the sales motion and as we've talked about in the past when.
When Frank came in he put into place.
Some discipline around how we talk about the products that we talk about the platform.
We've seen some great uptake on those on those products. So so we feel good about that business and that that will be a driver it.
It will continue to be a driver over and above the traditional or.
For the core business growth rate and we've seen also an increase in deal size with those with those.
Cross sell in 'twenty, and 2021 as well so a good driver for growth longer term for us Terry.
That sounds good and also Steve I'm excited to hear that you're excited about the.
Uptick I think you said significant RFP activity increase.
In U S higher Ed I mean, that's great to hear what I'm curious about is any more color in terms of.
What the kind of composition is made of are there some really larger state schools or is it kind of smaller private institutions or just what's the flavor of what some of the opportunities are looking like and you know I know Dale gave the 12% ACR growth for the year.
Depending on how this pipeline plays out and hopefully gets converted at a very high win rate could that end up being one of the areas, where theres conservatism because some of those business flows through in 'twenty, two or should we think more of 'twenty. Three I think that was like five questions. So good luck with all of that thank you.
Thanks Terry.
Just give me Amit so yes, I am excited about the RFP activity.
As you know.
As we've talked about with you before is <unk>.
'twenty 2021 2021 was really kind of a little bit slow in.
In the higher Ed space from an RFP activity, we see good pipeline build for 2022 and 2023.
The.
Ed.
The breakdown is is it's across the board.
There are a number of large institutions that are had been on the.
Long term contracts with some of our competitors that are coming up as well as just.
<unk>.
Across it I'd say Terry Theres no real.
Its not trending towards one size of customer over the other but we see it across the board.
As we look at that as a driver of growth. We are we feel really good about the guidance.
No.
We feel confident that we can hit that that guidance that we've given you and.
This is an area where a lot of these decisions are going to be made over the next two years and I think it's going to be a driver of growth for the higher Ed business for for the next two to three years. So.
I guess, that's how I characterize what we're seeing build in the pipeline Terry.
That's correct you actually answered all the questions that's fairly nice that's a nice plus thank you.
Yeah.
Thank you again, if anyone would like to ask a question you will need to press star one on your telephone keypad agenda obese, Taiwan on the telephone keypad.
The next question comes from the line of Matt Vanvliet Tid. Your line is now open you may ask your question.
Yeah. Thanks for taking the question guys nice job on the quarter.
I guess wanted to dig in a little bit more on the new channel strategy internationally can.
Can you help us maybe better understand who who some of these channel partners are.
Are they already selling in the tech space are they selling your competitors are they.
Larger consulting organizations that just happened.
<unk> be looking to break into the Ed Tech market.
Any I guess additional details and sort of size and scope of some of the partners that you are looking at.
Yes.
And it's a good question.
The way that we've targeted that the program is is we want our presence in countries, where we may not go all in on a direct sales team and the associated customer success and all that so we were looking for partners that have significant presence in country.
Have the investment and they are big enough to be able to support our customers in the way that our customers are accustomed to be able to provide the services surrounding those so and a lot of cases there.
We're targeting either some of the larger multinational kind of.
Value added distributors that have resellers in country.
We're targeting.
Salting groups that already have presence with.
Within the AD Tech space in fact, almost exclusively our the partners that we are working with already have presence in Ed Tech. So so that's that really is the profile that we're looking for and again, we're looking for scale, we're looking for a significant presence local presence.
And.
And in many cases partners that could span multiple countries for us.
Okay, and then on the federal stimulus funding you mentioned, a very low percentage has actually been kind of put to use to this point do you have much sort of line of sight into the timing of.
Or some of those projects might come up that are.
Seem to be earmarked with the additional budget out there.
Obviously, there's a timeline around when it needs to be spent per se, but I'm curious if those conversations have been very explicit in saying, we're pulling forward project X because we.
We now have a surplus in the budget.
And in most cases.
The dollars are allocated at the state level, so as we get down to the district level and the buyers of our technologies. They don't always know exactly was this from stimulus funds are from general state funds. All they know is they have this amount. So so we don't have great visibility into.
Whether they are using those funds specifically for our technology or not.
But.
As we've talked about in the past this is this.
This money is earmarked to be committed by 2024 and that.
That means you could sign a three year deal in 2024 and the dollars are committed by the government to the state and so we do expect that this is a this is a multi year.
Catalyst in this market for us.
Okay, great. Thank you.
Thank you next question from the line of Joe <unk> of Baird. Your line is now open you may ask your question.
Great Hi, everyone. This is actually Peter on for Joe Tonight.
I wanted to ask again about assessments.
Has continued there and you guys keep talking positively about it.
Alright. It also seems like there's other entities, maybe moving into the assessment space. So I wanted to ask.
Has the competitive environment changed or who are you seeing.
Anyone.
From a competitive perspective in these deals.
Yes.
The competitive landscape hasn't necessarily changed you know theres always been players that have been in this space.
So it's the usual players that we've seen in there what we where we focus.
Peter in our in our sales engagement in our sales motion is around.
Really the advantage that a share or a district can get.
And having a tightly integrated assessment and learning management system, so that they can see.
They can they can have great visibility into what they're teaching how they're teaching it and get real time feedback about how the students are then doing.
Against those lesson plans that they're creating and so really our focus competitively as is.
Is better together, we can give you a lot more insights we can give you a lot better insights by having these tight integrations between.
The assessment solutions, and the and the learning management system.
So again not necessarily new players, we feel like our competitive positioning is much better than it's ever been as.
Mitch and his team have really created some tight integrations between the solutions that we had and that we acquired through <unk>.
Okay. It sounds good and I wanted to ask in the past couple of quarters, you've given directional growth rates for K 12, higher Ed International would you mind, providing those and then also do you have anything to say on how that should look going into next year with the guidance. Thanks.
Thanks.
Yes.
We as.
As we look at our guidance for next year, where we are we feel really good about.
What we've what we've guided to from a from a topline growth in general we continue to expect our international business to grow the fastest.
Of the three segments, we are super happy about our.
Our higher Ed business, and our K 12 business, we continue to see them growing.
All in all of our segments growing kind of in the double digits plus.
Space So.
The other piece I would add in the guidance is that we do expect R.
Our subscription and our services to grow slightly faster than the overall.
In the in the guidance that we've given you.
Awesome. Thank you very much.
Thank you we have a question from the line of Stephen Sheldon with William Blair. Your line is now open you may ask your question.
Hey, Thanks, nice results and guidance here.
No a lot of K 12 school districts are dealing with issues related to teacher turnover and burn out. So I guess, how do you. How do you think about in structures current ability to make.
Teachers lives easier with canvas and some of the assessment capabilities. He talked about and is there even more that you could do to use your <unk> to reduce the burden of teacher space as you think about your <unk>.
Product development roadmap and the potential for M&A over the next few years.
Yes, it's a it's a great question, it's a huge problem in K 12.
As you as you.
Rightfully pointed out there.
There's a couple of things that we do to help address that the first off I've met with one of our customers just about a month ago.
And his his feedback to me was.
Canvas can make teaching cool again.
The fact that.
Its next generation it eases that it eases a lot of the manual processes that a teacher has to go through.
So they can focus on the exciting part of their job which is inspiring.
Leading leading students mentoring students.
And so by having the systems in place we take a lot of those manual processes away from the teachers. We also by having that system of record in the classroom. We also helped the district in that as we have turnover or we have.
Absenteeism for as we see.
Teachers that are out sick for a variety of reasons.
That all lesson plans the content, it's all there for the substitute or from whomever is taking over for that for that teachers. So having that that common infrastructure makes it much easier for them as they are trying to manage.
The workflow workforce, we believe that areas from an M&A that you mentioned areas of engagement around ways to help.
Teachers assess the social emotional learning of the students anything we can do to help them better address the needs of their students and do it in an automated way is going to make their lives easier better make it more fun to be a teacher.
And.
Anything we can do to help increase student engagement.
Looking again, both organically and Inorganically.
Is going to help in that realm as well.
We get crushed got it yes.
Thanks, that's really helpful.
And then just as a follow up sounds like Youre planning to ramp R&D head count and get into 2022. So curious what you're seeing in terms of the hiring environment for tech talent in.
And how much success, you've had on the hiring and retention side there.
Yeah.
I wish I could say that we werent facing the same labor challenges that everybody else is it is a very very competitive market out there.
And we do have a couple of advantages in that we have a really important mission.
The fact that we are doing we are addressing a lot of.
Really important.
Challenges that can help society and helping educate the world's students, helping teachers become more effective in their ability to teach helping bring together parents and teachers and students and administrators and allowing them to also learn together that mission is a great.
Is really helpful in us being able to attract and retain talent. In addition, going public this year.
<unk> now also have the additional ability to offer equity and other ways to attract and retain talent. So we feel really good about our ability to hire we were very successful in the second half of the year in particular last year. We go into this year with with more.
<unk> number more heads in R&D than we started last year and will continue to add to that so we feel good about our ability to hit the.
The ramp that we built into our investment plan.
Good to hear thank you.
Yeah.
Thank you everyone. There are no more questions, ladies and gentlemen that concludes today's conference call. Thank you all for participating you may now disconnect.
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