Q1 2022 Instructure Holdings Inc Earnings Call

Ladies and gentlemen, thank you for standing by.

Welcome to instructions first quarter 2022 earnings call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

Please be advised that this conference is being recorded.

I would now like to turn the conference over to your first Speaker, Denise Garcia Investor Relations Denise. Please go ahead.

Thank you good afternoon, and welcome to the <unk> first quarter 2022 earnings call, we will be discussing the results announced in our press release issued after market close today with me are instructors.

They've officer, Steve Bailey, and Chief Financial Officer, Dale Belt before we begin I'd like to remind you that today's conference call will include forward looking statements based on the company's current expectations. These forward looking statements are subject to a number of significant risks and uncertainties.

Actual results may differ materially for a discussion of factors that could affect our future financial results and business. Please refer to the disclosure in today's earnings release and other reports and filings we file from time to time with the Securities and Exchange Commission all of our statements are made as of today based on information available to us.

Today, except as required by law.

We assume no obligation to update such statements during the call. We will also refer to both GAAP and non-GAAP financial measures you can find a 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 first quarter 2022 earnings call. During today's call Bill and I will provide details on our first quarter results and provide second quarter and updated full year 2022 guidance.

Structured delivered another strong quarter in Q1 exceeding our previously communicated guidance ranges across all of our guidance metrics first quarter GAAP revenue was $113 5 million up 20% to 21% year over year, while allocated combined receipts or ACR was 114 million.

Up 15% year over year normalizing for the bridge divestiture GAAP revenue at ACR were up 26% and 20% year over year, respectively. We think HDR, which add adds back the impact of fair value adjustments to acquired unearned revenue gives investors better visibility into the underlying growth of our business.

We achieved a record non-GAAP gross margin of 78, 4% in Q1 up 580 basis points year over year as we continue to improve the efficiency of our it infrastructure and support operations first quarter adjusted EBITDA grew 34% year over year to $43 $6 million.

38% margin as we demonstrated the demonstrated operating leverage on both the gross margin and adjusted EBITDA lines, Kansas.

Kansas continues to displace legacy LMS competitors in the United States and across our major international markets beyond the LMS or instructor learning platform strategy gained further traction during the quarter as we continue to land large deals and grew ACR from our assessments product at a strong double digit rate.

We expect to continue investing in the platform through organic development and strategic M&A as we strive to connect every aspect of teaching and learning and capture an increasing share of our $30 billion market opportunity.

I now want to talk about five key highlights from the quarter.

First in Q1, we once again saw strength in each of our key markets U S higher education, K 12 and international.

Our education institutions across the country continue to choose cameras for its ease of use scalability flexibility and superior UX.

Our highly engaged Kansas community of $1 6 million users is also often cited as a key deciding factor when institution selected structure as their long term strategic partner.

Higher education institutions collaborate and share best practices, especially within the school system.

And we find that that.

Wins within our school system tend to get more wins for example, our first Kansas adoption in the California State University system was in 2013, since then more and more CSU universities adopted Kansas, we couldnt be more pleased to announce that as of Q1, all 23 CSU universities within combined.

Enrollment of over 485000 students are contracted with <unk> structure.

Beyond canvas LMS CSU University is used a number of other and structure learning platform solutions, including studio impact and pathways.

As the only provider with significant higher education, and K 12, LMS market share canvas benefits from network effects as purchasing decisions increasingly factor in the continuity of teaching and learning experience. In addition to collaborating amongst themselves higher education institutions, especially the community colleges collaborate with K 12.

Schools to better understand the needs and preferences of the incoming student population last quarter, Prince Georges community College, or <unk> in Maryland selected in structure over the legacy incumbent in a four product deal.

Structure had been on PTC sees radar since Prince Georges K 12 District joined the Kansas Community 18 months ago, Bgc's SEC wanted to ensure a seamless transition for <unk>.

<unk> first entering college, especially for first generation students.

As the largest provider of K 12, and higher education offerings, Kansas was uniquely positioned to serve <unk> needs as more K 12 districts adopt enterprise class solutions and the digital transformation of K 12 education experience continues we expect our competitive advantage to increase as the network effect created by offering an ela.

<unk> solution to both the higher education, and K 12 markets grows even stronger.

This network effect works, both ways as evidenced by the competitive win last quarter with Spring branch Independent School District in Houston.

Spring Spring branch Isd chose canvas to serve the 33000, plus K 12 students enrolled across its 47 School district.

For spring branch ISP continuity with regional higher education institutions, as well as canvas and strong reputation in the wider Texas education community were key factors in this decision to go with canvas. In addition to canvas LMS Spring branch Isd purchase, Kansas studio, which allows teachers to integrate <unk>.

<unk> video content into their lesson plans to modernize the teaching and learning experience across their district.

International remains the fastest growing part of the business in Q1 and.

And we continue to believe international can be at least as large as our U S business over time.

During the quarter, we signed an agreement with <unk>, a private university in Spain to replace their open source system.

After a rigorous multi year review you can select canvas over a competitive product priced at a steep discount with 90% of the time in the classroom spent on instructional workforce flows enabled by the LMS educational institutions understand the fundamental importance of selecting the right LMS partner.

Chose canvas, because we offer a superior LMS solution, our strong product portfolio and ecosystem of over 650 partners, an exceptional level of customer support and a host of other factors. The decision rarely comes down to price alone.

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 during the quarter Knievel School district in existing canvas LMS customer.

Selected our mastery connect assessment management system, and the navigate item bank formative assessment content, we acquired with circa over competitive solutions.

We're helping K 12 districts like enable school district transition to a teaching model based on more frequent benchmark digital assessments, which proactively identified learning loss and enable earlier interventions.

Addressing learning losses of key social priority with 20% of the $122 billion.

A S. R. Three funds appropriated under the American rescue plan earmarked for pandemic related learning loss assessments represent a significant customer level growth opportunity for instructor as <unk> of our K 12 assessment solutions is two to three times greater than the <unk> of our K 12 LMS solution.

Third we are making disciplined investments to expand our platform and drive long term growth our 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, our updated 2022 guidance, which Neil will discuss in greater detail later in the call reflects our expectation for further adjusted EBITDA margin expansion this year.

Our higher full year 2022, adjusted EBITDA margin outlook is driven by faster ACR growth and stronger gross margins than previously expected without any change to our planned increases in R&D and sales head count we will continue to invest in our business to drive long term profitable growth.

Fourth we continue to use strategic M&A with the goal of increasing our Tam and expanding our in structured learning platform capabilities on April 14th we announced the acquisition of Concentrix Sky is Badger technology serves as the default micro credentials credentialing tool within canvas LMS.

Badger Stackable digital Credentialing technology enables millions of non traditional learners to demonstrate to potential employers the skills and achievements. They have earned from over 25000 organizations and 160 countries.

We expect our rebranded Kansas badges, and canvas credentials offering to advance our strategy to address the $5 billion non traditional online market opportunity. We're excited to support our higher education customers in their efforts to serve this rapidly growing segment of their student populations.

Our M&A pipeline remains strong and we will continue to pursue strategic acquisitions with the goal of expanding our Tam and enhancing the value of the instruction learning platform to educational institutions and their students.

Fifth our international business continues to grow rapidly and gain market share international remained our fastest growing segment in Q1 with strength in each of our major regions with international higher education LMS market share in the mid single digits, we expect international to remain our fastest growing segment in the years ahead last quarter, we discussed.

Strategy to cost effectively expand our international footprint through a new channel partner program, while still early the program is off to a strong start with bookings and pipeline ahead of plan.

We have signed 72, new value added resellers and have distribution coverage in 100% of emerging markets globally. We are thrilled to announce the tech data the world's largest distributor will be supporting us across all of Latin America and in APAC, we look forward to expanding and expanding and deepening our relationships with.

Channel partners as we seek to turbocharge international growth.

Turning to stimulus funding the vast majority of the $190 billion appropriated for the K 12 schools under the American Rescue plan Elementary and secondary school emergency relief.

<unk> fund.

Mains unspent.

According to capstone, a leading government policy and regulatory consulting firm.

As of the start of Q2, roughly $150 billion of Essar funds had yet to be invested which assuming the funds are deployed over a three to five year period represents a roughly 50% average annual increase in K 12 discretionary spending this is because approximately 90% of K 12 district spending which totaled <unk> <unk>.

$769 billion in fiscal year 2019, According to the National Center for Education Statistics consists of recurring non discretionary expenditures such as salaries benefits janitorial services and capital outlays, which are seldom considered to be appropriate use of such stimulus funds. We continue to expect essar funds to draw.

<unk> significant incremental demand in our K 12 segment in coming years.

Looking to the remainder of 'twenty, two and beyond our pipeline of North American higher education, RFP opportunities continues to build as many universities, which delayed major purchasing decisions during the pandemic look to upgrade their infrastructures.

With competitive win rates in the 70% range market share gains represent a substantial ongoing growth driver for and structure. Our M&A pipeline remains robust and we continue to explore ways to leverage our strong balance sheet and free cash flows to accelerate unstructured learning platform strategy. We are highly confident in our strategic vision and the ability to.

Execute and look forward to continued momentum in the coming years and.

In summary, I am encouraged by our strong first quarter financial results, which exceeded our guidance range on all metrics. We expect the favorable trends that drove our first quarter outperformance to continue for the balance of the year, which is reflected in our revised 2022 guidance.

Once again like to thank our customers partners employees and shareholders for your ongoing support with that I will now turn the call over to Dale to talk about our financial results and the ongoing momentum we are 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 results are.

Our GAAP financial results along with the reconciliation between GAAP and non-GAAP results can be found in our earnings release, which is posted in the Investor Relations section of our website.

In the first quarter, we continued to show a combination of strong topline growth and expanding adjusted EBITDA margins.

Building on the consistent gross margin improvement we have delivered in recent quarters first quarter non-GAAP gross margin exceeded 78% a new record for <unk> structure.

As Steve mentioned, we generated first quarter 2022, total GAAP revenue of $113 $5 million of.

21% year over year.

We are a $114 million up 15% year over year.

Normalizing for the bridge divestiture first quarter, GAAP revenue and ACR grew 26% and 20% year over year, respectively.

Subscription and support ACR accounted for 91% of our first quarter revenue at $104 million up.

14% year over year or 20% normalizing for the bridge divestiture.

Primarily as a result of the continued momentum within our core canvas LMS product both domestically and internationally. In addition to strong upsell and cross sell of other products, especially assessments.

Professional services and other ACR accounted for 9% of our first quarter revenue at $10 million of.

Of 29% year over year or 35% normalizing for the bridge divestiture.

Driven by strong implementation and training services delivery in our K 12 business.

Deferred.

Revenue at the end of the first quarter was $189 million up 22% year over year.

Remaining performance obligations or <unk> were $668 $6 million at the end of the first quarter up 17% year over year, and we expect to recognize revenue on approximately 75% of our RPM 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.

The non-GAAP basis. Please.

Please note that when I refer to margins in the upcoming comments im referring to margins calculated as a percentage of ACR.

Our strong gross margin profile as supported by our optimized cloud architecture and flexible support model that scales to meet seasonal customer demand.

In the first quarter gross profit was $89 $4 million.

Representing a 78, 4% gross margin up from 72, 6% in the first quarter of 2021.

We couldn't be more pleased with our enhanced operating model and continued operating leverage on the gross margin line.

Turning now to operating expenses.

Sales and marketing expenses for the first quarter were $22 4 million or 19, 7% of ACR compared to 19, 7% in the first quarter of 2021.

Research and development expenses for the first quarter were $14 4 million or 12, 6% of ACR down from 13% in the first quarter of 2021.

We continue to invest in engineering head count to pursue our ambitious product roadmap, while leveraging offshore talent to drive ongoing R&D efficiency.

General and administrative expenses for the first quarter were $10 1 million or eight 8% of ACR up from seven 2% in the first quarter of 2021, driven largely by the addition of public company costs.

non-GAAP operating income for the first quarter was $42 5 million, representing a 37, 3% operating margin.

Up from 32, 6% in the first quarter of 2021.

First quarter, adjusted EBITDA was $43 $6 million.

Representing a 38, 2% adjusted EBITDA margin up from 33% in the first quarter of 2021.

non-GAAP net income for the first quarter was $40 3 million or 28 cents per share on a fully diluted basis compared to $23 $7 million or <unk> 19 per share a year ago.

Turning to the balance sheet and cash flow statements.

We ended the first quarter with $105 $3 million in cash cash equivalents and restricted cash and $493 5 million.

Long term debt net of discount, resulting in a 2.46 times net debt to trailing 12 months adjusted EBITDA ratio.

As a reminder, the timing of cash collections is highly seasonal in our business with the vast majority of annual license fees Invoiced and collected during the third and fourth quarters at contract renewal or an exception.

As a result, our cash balances and cash flows are lower during the first half of the year and build significantly during the second half of the year.

Operating cash flow was negative $65 9 million during the first quarter and $97 $9 million over the last 12 months.

Free cash flow was negative $67 $3 million during the first quarter and $92 $8 million over the last 12 months.

Adjusted Unlevered free cash flow was negative $63 million during the first quarter.

Over the last 12 months adjusted Unlevered free cash flow was $143 1 million, a 25% year over year increase.

As a reminder, our strong free cash flow conversion was 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 Q2 and revised guidance for the full year of 2022 for ACR adjusted EBITDA and adjusted Unlevered free cash flow.

For the second quarter of fiscal 2022, we expect ACR in the range of $110 5 million to.

$111 5 million <unk>.

Consistent with typical Q2 seasonality.

We are raising our <unk>.

Fiscal 2022, ACR guidance and now we expect ACR in the range of $461 8 million.

$465 8 million.

Normalizing for the bridge divestiture, our full year ACR guidance growth rate was 13% at the midpoint.

As a reminder.

On February 26, 2021, we sold bridge, our corporate LMS business.

<unk> contributed approximately $4 million of ACR during the first quarter of 2021.

We expect second quarter adjusted EBITDA in the range of $37 million to $38 million.

Representing an adjusted EBITDA margin of 33, 8% at the midpoint of the range for.

For the full year, we now expect adjusted EBITDA in the range of $164 8 million to $168 $8 million.

Representing an adjusted EBITDA margin of 36% at the midpoint of the range.

Our increased fiscal year 2022, adjusted EBITDA guidance reflects higher ACR growth and stronger gross margin because we continue to optimize our third party technology costs.

We are also increasing our full year 2022, adjusted Unlevered free cash flow guidance by $2 million.

Now expect adjusted Unlevered free cash flow in the range of $185 million to $189 million.

A couple of quick points on adjusted Unlevered free cash flow.

As a reminder, during Q1, we made incremental prepayments to vendors of approximately $25 million to $30 million, because the cure more favorable terms, which impacted year over year comparisons for the quarter.

Prepayments will reduce our cost structure and improve our gross margins over time.

<unk>.

In the earnings release and 8-K, we filed today, we have provided a quarterly reconciliation of adjusted Unlevered free cash flow for the first nine quarters for the last nine quarters to facilitate historical financial comparisons of this metric.

In summary, we are pleased.

To have exceeded our first quarter guidance ranges.

And to be raising our full year 2022 guidance ranges across all metrics.

Executing at a very high level as we continue to displace legacy LMS competitors and gain wallet share with our instruction learning platform solutions.

There is no company better positioned to an instruction to lead the digital transformation of education.

We have only scratched the surface of this $30 billion market opportunity our financial profile is compelling with double digit top line growth best in class margins and superior adjusted Unlevered free cash flow conversion.

Look forward to updating you on our progress throughout the remainder of 2022.

With that Steve and I are happy to take any of your questions.

At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.

I ask that you please limit yourself to one question and one follow up.

Our first question comes from the line of Brent Thill with Jefferies. Your line is open.

Hey, guys. This is David on for Brian . Thanks, So much for taking the question two if I can for the first one I believe you said the international business remains the highest growing business could you maybe just provide a little bit more color around.

The U S higher Ed U S K 12 and international on any.

Color on the growth rates that would be helpful.

Yes.

We don't break out the guidance David.

By those segments, but we will say they all grew double digits. This last quarter and we expect them to continue to grow double digits with the.

The international segment being the <unk>.

The fastest grower of those three.

Understood that's helpful and then.

The second question thinking about the K through 12 market I was hoping you could help us understand how you guys are penetrating that market is it are you guys seeing outsize of growth in that market coming from displacement cycles of some other vendors in the space or is it.

You guys are gaining.

Wins with.

K 12 districts that arent using a paid LMS or more of a lightweight solution.

Yes, it's a good question, David we see the ladder. So there is we estimate about half the market that still is using free tools.

<unk> and so most of our wins are coming from those school districts as they look to digitally transform and Theyre looking for an enterprise grade LMS.

Assets, where most of the most of the activity is from a sales perspective.

Okay.

Got it that's super helpful. Thanks, guys appreciate it.

Thanks, David.

Our next question comes from the line of Josh <unk> with Morgan.

Your line is open.

Great and congrats on the quarter and thanks for the question.

Appreciate all the color or the color on the competitive win rates.

I was just wondering if you could maybe remind me given the nature of your academic customers are all of your wins coming through a competitive process or is there kind of part of the business mix that comes through there.

Easier ways and then also just wondering any context for how those win rates have trended or what.

The metric that you mentioned today was versus 2020 or pre pandemic.

Yes.

Yes, thanks for the question Josh.

So we are.

<unk>.

We do have just under a little less than half of our business comes through Rfps.

Now most of the selling processes are competitive in the fact that we have to prove the value in that within that selling process, but again less and less than half of them come through rfps. The rest come through for instance of cross sell or upsell would not to have to go through an RFP traditionally and those types of.

Thanks.

So where we are.

We're encouraged by the activity the RFP activity that we see in higher Ed.

But again, it's less than half of the total business win rates, we see continue to be strong we are in the 70% range.

That's higher than it was a little bit higher than it was pre pandemic.

So we continue to see people recognizing and institutions recognizing the importance of.

A.

An enterprise solution that is proven in the market that scales that is flexible for their needs and meets the needs of the digital transformation. That's happening so I feel really good about where our win rates are.

Really helpful. Thanks, and then just wanted to ask.

Obviously results are.

Better than expected. So there is no weakness showing up but I did want to check in on the Kinder Garden, Mike first second grade portion of K 12.

Originally maybe there were some concerns that there could be higher churn bear just given the nature of those students and engagement as we move forward in a pandemic. So just wanted to check in on that segment of the market.

What youre seeing.

<unk>.

Yes, it's a good question, Josh because historically pre pandemic that was an area that.

That maybe didn't look to an LMS during the pandemic. They everybody had to really adopt an LMS and what they're finding is that the LMS continues to provide value even as we return into the into the classroom as it's much.

Much more efficient for teacher not to have to go make copies of assignments hand to mouth collect them or quizzes or tests or things like that and so we're seeing usage continue.

To be above prepay pre pandemic levels.

We recognize that the experience required for a K five kind of experience is much different than.

Junior higher high school and so.

Last year, we released the different UI for that that segment of early learners, that's really based on a classroom centric and much more graphical and for those early readers that.

Needed a different interface and so.

Because of that that new and expanded UI for that we have not seen downgrades in that space as we've gone back into in person. So I feel really good about the investment we made as well as the importance of the LMS.

In that segment going forward.

Excellent. Thank you.

Yeah.

Your next question comes from the line of <unk> <unk> with Macquarie. Your line is open.

Thank you.

Firstly I wanted to check on the higher education competitive landscape kind.

A follow on to a prior question, but really I think it's been about eight months now since one of your larger competitors was acquired have you seen any changes in how stores are higher education institutions are patient LMS selection, which is generally their transition planning considering the shifting market curious, especially as we're going into budgeting season.

Yes.

Hey, Fred good to hear from you.

We have seen.

As we as we mentioned we've seen a pretty pretty nice increase in rfps in the pipeline for 'twenty, two and 'twenty three.

In some cases well in every case, it's a displacement.

Some cases, its some of the open source.

Competitors in some cases.

Or are paid for our competitors like the one you mentioned so we.

We do see.

We do see organizations really trying to decide what does the future look like for my institution, how am I going to re platform for the next 20 years.

And so.

Of that RFP activity is people starting to think about okay. I've got renewals coming up in the next couple of years.

Let's start the process now.

Okay. Thank you for that.

Yeah.

Regarding the M&A it seems like some of your recent acquisitions have exercised.

Technologies integrating ecosystems.

And the acquisitions youre, making them better.

Around those structures platform.

Importantly, the open technology.

At work initiative championed by concentric Scott.

Yeah.

You were a little bit quiet.

Fred was.

Our strategy around the acquisitions that we've made they've been kind of tech tuck in there.

Kind of the open initiative.

Concentrix Sky is a big part of.

The.

There is a strategy around our M&A.

Okay.

Create a platform within the learning environment that does.

Extensible allows partners to really innovate on top of our platform, so acquisitions like impact or the easy soft acquisition the kimono.

So acquisition really with targeted about some of the platform.

Components.

As well as.

How do we help our institutional customers extend out and address a whole new population of students which is.

The up or re skilled in those types of things and so.

The concentric Sky acquisition.

So it was targeting how do we how do we help our customers address that online opportunity.

Our solutions.

Outside of the four walls within.

Institution.

We're really excited about the support that Concentrix Guy has really the kind of foundational.

Towards that they've provided to some of the open the initiatives that are out there.

We've always been very much about an open platform. We help define some of the early LTI standards, we completely support them. We sit on the board and this is just extend it to a different part of the technology stack and we expect to continue to.

Make those investments that Concentrix sky was making in supporting those initiatives.

Well then my my headset wasn't working you got it.

Rubin with Baird Your line.

It's open.

Yeah.

And maybe wanted to start with.

'twenty two.

Got it.

Moving out of when it comes to the revenue.

ACI I think a lot of the increase.

Since the aegis.

And kind of abuse.

Might've changed from your initial launch.

Paul.

Or is it all views.

So starting the year in terms of the sequence for this year.

Okay.

Yes, as we look at it.

Go ahead, Dave.

Sorry, Steve.

So just what are the things that of.

Of course, we had great performance in Q1, and we're really proud.

Over performance or the strong performance. We had in Q1 is timing related we had some favorable timing, which will balance out in Q2, Q3 and Q4.

If you take a look at.

We've got expanding margins.

We've talked about operating as a rule of 50 company and and.

That's where you'll see that expansion happening overtime above what we had.

In the first quarter.

Okay.

Great and then.

I wanted to ask maybe at more of a strategic level. When you engage with kind of mic and its structure and this may be applying more of a strategic role and how an institution might be approaching.

They are learning approach and strategy for the next several years.

At your long term RPI.

Increasing really nicely then you have these anecdotes, where K 12, <unk> segment or the other it just seems like maybe.

Potential for deal sizes getting much larger, but maybe the size of the financials just kind of how you see.

And customers think differently and how it's structured participates in that.

Oh.

Yes, I think it's a.

I think your read through you read between the lines there and you picked up on the trend that we're really excited about which is yes.

The company and structure is viewed as more than just Kansas.

More than just learning management systems, we're seeing.

Seeing a lot more engagement upfront.

Up front.

And so in Q1 I think it was about it was over 40% of our new deals new logo deals had more than one product.

So from a.

Just from an average revenue per user share wallet thats going up we're also seeing the deal size in our cross sells increase.

Year over year, and so yes, we're involved in bigger conversations around.

The strategic.

Digital transformation that's happening within.

Within education, and with the LMS touching 90% of all instructional workflows.

There is a lot there's a lot of room for us to continue to help our customers grow not only within the traditional but also expanding into that.

That market that we've talked about in the past that online nontraditional learner.

Yeah.

Okay. Thank you very much.

Thanks, Joe.

Your next question comes from the line of Alex Sklar with Raymond James Your line is open.

Non traditional online market opportunity you referenced.

Fairly notable Tam expansion.

How much of it is addressable today, what kind of solutions in place and clearly that's not just centered sky. So I'm curious what else that includes in terms of canvas in terms of its structure solutions today.

Yes.

Good question no it's not.

That whole $5 billion market isn't opened up by concentric sky, but.

<unk>.

<unk> talked in the past, we were making a number of organic investments in our catalog product is included in that $5 billion Tam number in.

In addition to the Badging and some of the stuff that comes with.

With our Badger acquisition.

In addition to Kansas.

Licenses that they have going into that into those address those types of.

Those learners. So it's a combination of technologies that we're bringing together and including some of the impact.

Technologies that will integrate into that as well so.

It is it is a combination of technologies, both organic and M&A.

That open up that $5 billion opportunity for us.

Your next question comes from the line of Terry Tillman with <unk> Securities. Your line is open.

Oh, great and hi, everyone. This is Robert on for Terry and Thats on a quarter and thanks for taking the question.

Just had one on statewide deals.

Excellent to hear about traction with virtual Virginia contract last quarter and now expansion in California, I am curious if you are both an update there and some additional color into the possibility for additional statewide deals going forward. Thanks.

Yes.

We continue to engage both at the state wide level as well as district levels. Many of the the the activity that happened during the pandemic as the states kind of stepped in to help we still see we still see some of that activity. Continuing so there are a couple of deals in the pipeline that we're still <unk>.

Working from an LMS perspective, we're seeing a pickup in.

In the cross sell into those those state deals that we signed in the last 24 months for the LMS.

And so where we're continuing to see.

Success. There we won 11 of the 12 that were that were less during the during the pandemic.

But.

But we also continue to see activity at the district level. So it's kind of a combination.

That's great. Thank you.

Okay.

Your next question comes from the line of Matt <unk> with BTG. Your line is open.

Thanks for taking the question guys and nice job on the quarter.

I guess, Steve wanted to follow up a little bit on some of the commentary you made around catalog I know that's been something that has been one of your bigger cross sell opportunities the last few quarters.

So curious where badger concentric sky's sort of fits in with that is that something that were you were using as part of the.

Onto the catalog.

Or partnering around on the catalog product or what you were using before and kind of how that expands the offering from here forward.

Yes, no. It's a good it's a good question Matt.

Thank you for asking it.

There was an integration that we already had with badger.

Inside of canvas and so we were we were very familiar with the product work very closely with the team saw the traction that it was gaining in our customer base and and.

And Thats part of the rationale for doing the acquisition.

As you think about the non traditional.

Students right.

We've got a well defined path to how do you get to a degree right, which what what classes you need to take what skills you need to gain in that process. When you start to look at the non traditional student.

It's much more kind of a mix and match and so.

The technology that Badger brings and the pathways program program within the <unk> portfolio is it allows institutions to group.

Classes or.

Courses together to create micro credentials and so that becomes a key part of that that overall.

What the institution presents to that non traditional students and they use the catalog is the portal for that and so much of that technology will kind of underpinning the background, how students pull together stacks of credentials to create.

Our micro credentials and then how they stack those along to.

Eventually get to degrees over time.

That's how they kind of messed together.

Lot of the technology.

<unk> was kind of a lightweight version that was integrated into canvas.

It's kind of a free offering to get people.

Familiar with the technology and we have an opportunity to go then cross sell into premium services.

Okay very helpful and then.

As we look at the overall inflation going through the economy.

You guys are coming up on your kind of your biggest renewal period.

Good.

What are those discussions looking like with your customers.

How much is sort of protected by the Nikola provisions in some of your contracts.

Versus having to kind of negotiate a specific rate.

How should we think about you guys using price increases to protect your margins moving ahead.

Yeah. So.

The.

We expect a 3% to 5% price increase.

On average.

That's a combination of some that will be higher than that some that are protected by consortium agreements or things like that with negotiated price increases.

It's safe to assume that will kind of be in that 3% to 5% range again this year.

Overall price increase.

Alright, great. Thank you.

Your next question comes from the line of Stephen Sheldon with William Blair. Your line is open.

Hey, guys wanted to ask specifically about cross selling opportunity in higher Ed.

You talked about the strong RFP environment, clearly seeing good traction with new customers, but which existing products. What his uptake of additional modules beyond the LMS look like across the client base and how are you thinking about expanding it overtime.

Yeah.

Within the higher Ed specifically, we have we have a stack of add on products.

That it creates about another 50% increase in the ARPA available.

And our higher end customers and that's through a variety of products whether its impact.

That just added.

Technology from Concentrix Sky, our catalog products our studio product.

We have.

Various penetration rates of those but the.

The sales teams are very much focused on cross selling those products into the existing customer base. In addition to including them in our new logo wins as part of a bigger deal.

Over 40% of our new logo deals in the last 12 months have had more than one one.

<unk> product in them.

So really excited about the opportunity to drive durable growth.

With these.

Through both cross sell as well as.

Increasing our our new logo deal sizes.

Got it that's helpful.

A follow up just kind of a numbers question and apologies if I missed it.

It's small, but what assumptions have you made in the guidance for the concentric sky and Badger acquisition in terms of revenue and adjusted EBITDA for the year.

It's a good question Steven.

We are really excited to have Concentrix sky technology.

Part of it.

<unk> learning platform.

And the team there with us too.

But concentrix guys small.

We expect it will contribute less than 1% of our.

Full year 2022 ACR.

And b broker neutral to our EBITDA for the year.

The durable growth from this acquisition happens in future periods future years.

But thats the impact.

I'm excited about the opportunity here, but it has a de minimis impact on 2022.

Great. Thank you.

There are no further questions. This does conclude today's conference call. Thank you for participating you may now disconnect.

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