Q1 2023 Instructure Holdings Earnings Call
Speaker 2: Ladies and gentlemen, thank you for standing by and welcome to Instructures First Quarter 2023 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. Thank you.
Speaker 2: Please be advised that this conference is being recorded. I would now like to turn the conference over to your first speaker, April C, Investor Relations. April , please go ahead. Good afternoon and welcome to Instructors' first quarter or 2023 earnings conference call. We will be discussing the results announced in our press release issued after the market closed today. With mere Instructors' chief executive officers Steve Daly and chief financial officer Dale Bowen. 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.
Speaker 2: These forward-looking statements are subject to a number of significant risks and uncertainties and our results made differ materially. For discussion of factors that could affect our future financial results in business, please refer to the disclosure and today's earnings release and other reports and filings we file from time to time with the Security and Exchange Commission. All of our statements are made as of today based on information available to us today and acceptance required by law we assume no obligation to update any such statements.
Speaker 3: 2023 earnings call. During today's call, Dale and I will share the details of our first quarter results and provide guidance for Q2 in the full year 2023.
Speaker 3: First quarter, 2023 results exceeded our previously commuted guidance ratings for revenue and adjusted EBITDA, fueled by our fishing go-to-market organization and unyielding dedication to customer satisfaction.
Speaker 3: First quarter revenue was $128.8 million, up 13.6% year over year, including an 80 basis point headwind from foreign exchange.
Speaker 3: First quarter adjusted EBITDA grew 10.8% year over year to $48.3 million, a 37.5% margin.
Speaker 3: and continued operational efficiency.
Speaker 3: First, our new logo win rates remain strong across all of our markets. Success is being driven by our focused go-to-market engine, best-in-class customer experience, expanded set of offerings, and our ability to solve real-world challenges across the teaching and learning landscape.
Speaker 3: In one win this quarter, we scored a perfect 100% in our RFP response in categories such as vision and innovative power, completeness of the solution, and problem solving power.
Speaker 3: These are areas above and beyond our features and functions of our product wherein structure consistently shines and that helps us to drive our growth.
Speaker 3: In North American higher ed, we have a greater than 40% market share and we continue to see RFP activity in line with our expectations.
Speaker 3: We win a very high percentage of New Deals as customers recognize the value we offer.
Speaker 3: During the quarter, we had a significant win with the University of Massachusetts Amherst, which chose the Instructure Learning Platform based on positive feedback from students and faculty during a successful pilot engagement.
Speaker 3: UMass Amherst wanted a common experience for all their students and faculty, whether they were engaged in a traditional in-person, online, or non-traditional education.
Speaker 3: They chose to partner with Instructure as their platform for the future. They were able to replace multiple LMS vendors with Canvas and also incorporate Studio Catalog and Impact.
Speaker 3: We're proud to partner with UMass Amherst in providing an exceptional learning experience for their students and faculty.
Speaker 3: In North American K-12, our platform and tailored services continue to drive success and continue to support our market leading position with nearly 30% share according to the list ed tech.
Speaker 3: The green shoots we mentioned during our last quarterly call resulted in strong bookings for Q1 as K-12 decision makers continue to recognize our products as mission critical.
Speaker 3: We're particularly pleased with the traction in assessments. During Q1, we won a competitive RFP for Sioux Falls School District, which included seven products. Canvas LMS, Studio, and the full suite of mastery products. In doing so, we displaced the LMS and AMS incumbents due to our comprehensive solution, our customization capabilities, and our ability to migrate the district's benchmark data to mastery connect. Looking ahead, we feel great about our prospects in K12.
Speaker 3: as we continue to focus on multi-products, suites, and increasing deal sizes.
Speaker 3: International remained the fastest growing part of our business during the quarter, excluding the impact from FX, with strong performance from both our direct business and our channel partner program.
Speaker 3: We secured a direct win with CVO GENT, a continuing education school in Belgium to replace an outdated LMS. The customer chosen structure, in part because no other vendor can meet the extensive requirements in its RFP.
Speaker 3: Under scoring their high level of satisfaction with our platform, we've already received multiple referrals as a result of our relationship.
Speaker 3: Separately, we had our largest channel deal to date in APAC highlighting the ongoing success of our channel partner program.
Speaker 3: Second, our success in the education technology industry continues to be driven by our platform strategy and our ability to stay ahead of the curve in terms of innovation.
Speaker 3: We estimate that our current product lineup represents over a billion dollar cross-ill opportunity to our existing customer base, and we continue to see strong success capturing this opportunity as customers take advantage of the breadth of our solutions.
Speaker 3: Our pipeline is strong and we see we are seeing positive trends in cross-selling as our customers look to expand their use of our products to improve teaching and learning outcomes. We are also proud to report a higher penetration year-over-year of our products across our customer base.
Speaker 3: fueling the higher penetration rates or deals like Green Bay Area Public School District.
Speaker 3: This district added mastery connect and assessments catalog and credentials.
Speaker 3: Comparing our current contract with our new contract with them, we saw an increase of over eight times the contract value. In another when we closed our largest credentials deal since the concentric sky acquisition highlighting the potential for growth in this area.
Speaker 3: And the power of a platform strategy extends beyond our products. The platform allows us to elevate our partners and uniquely meet our customers' challenges together. These robust partnerships help drive our above average wind rates and demonstrate the power of a platform in ecosystem. The Sioux-Fall winds for example included a partner product that helped us set us apart from our competition.
Speaker 3: We were also able to win the Dutch Institute for Public Safety NIPV during the quarter since the unstructured learning platforms openness allowed Dream to seamlessly integrate their software products to provide a complete solution for NIPV's educational needs.
Speaker 3: Third, our non-traditional capabilities have helped drive growth for our company, and we are committed to providing innovative solutions that meet the evolving needs of our customers. Our current focus on lifelong learning and vocational training has resulted in a number of exciting wins, including a multi-year deal with Delta Young College in the Netherlands, this quarter, which we completed against four other competitors in a rigorous EU tender process.
Speaker 3: With this partnership, Canvas will be made available to 18,000 students for continuing the education, company training courses, and more. Additionally, a large existing K-12 customer purchased Canvas catalog to enable teachers to access professional development training on demand by self-enrolling in courses.
Speaker 3: Finally, an update on one of our large non-traditional deals. People's CERT is now fully operational after less than two quarters. This is a significant milestone. At Canvas, we'll now be used to train and certify 250,000 people's CERT learners worldwide. We believe that this partnership demonstrates a power of a platform to address non-traditional educational paths.
Speaker 3: And we're excited to see how it will drive growth for a company in the years to come.
Speaker 3: We are confident we will continue to unlock new opportunities and drive value for our customers in the dynamic education technology space. Fourth, we are seeing strong results from our M&A strategy with the recent Learn Platform acquisition exceeding expectations for the quarter.
Speaker 3: The strong uptake and pipeline growth for a learn platform has revealed significant untapped potential from both new and existing customers. K12 decision makers are recognizing value and learn platforms ability to manage and evaluate their full suite of education technology tools.
Speaker 3: Learn Platform's evidence-based capabilities are tarpa-mind with part-door partners given the proof of efficacy required by regulators. As we further integrate Learn Platform into our go-to-market motion, we believe we can capitalize on this meaningful growth opportunity.
Speaker 3: We believe that our plan to continue to enhance our platform through organic and inorganic means will keep us at the forefront of the education technology space.
Speaker 3: Finally, I want to highlight our continued profitable growth. Our best-in-class margins have enabled us to make disciplined investments that expand our platform and drive long-term growth, including investments in embedded analytics for Canvas administrators, a new data access platform to extend the instruction learning platform, and making progress with new quizzes during the quarter.
Speaker 3: In addition to these product investments, we are also able to up level our go-to-market engine under the leadership of Chris Ball. We believe we can maintain a healthy balance of growth and profitability while maintaining flexibility to invest in high return opportunities. In conclusion, our impressive Q1 results and expanding impact on education position us as
Speaker 3: Please go ahead.
Speaker 3: Thank you, Steve, and thanks again to everyone for joining us today.
Speaker 3: Before discussing our detailed financial results, I'd like to point out that in addition to our gap results, I'll be discussing certain non-gap results. Our GAAP financial results, along with a reconciliation between gap and non-gap results, can be found in our earnings release, which is posted in the Investor Relations section of our website.
Speaker 3: In the first quarter, we continue to show a combination of strong top line growth and best in class EBITDA margins. As Steve mentioned, we generated first quarter 2023 total gap revenue of $128.8 million. Subscription and support accounted for 92% of our first quarter revenue at $118.5 million.
Speaker 3: up 14.5% year over year, primarily as a result of the continued momentum within our core Canvas LMS products, both domestically and internationally, in addition to the strong upsell and cross-sell of our other products. Professional services and other revenue accounted for 8% of our first quarter revenue at $10.4 million.
Speaker 3: up 3.9% year over year. Deferred revenue at the end of the first quarter was $215.7 million, up 14.2% year over year. Remaining performance obligations or RPO were $703.7 million at the end of the first quarter, up 5% year over year.
Speaker 3: We expect to recognize revenue on approximately 76% of our RPO 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.
Speaker 3: Our strong Gross Margin profile was supported by our optimized cloud architecture and flexible support model that scales to meet seasonal customer demand. In the first quarter, Gross Profit was $100.4 million, representing a 77.9% Gross Margin.
Speaker 3: down from 78.4% in the first quarter of 2022. Turning now to operating expenses. Sales and marketing expenses for the first quarter were $26.9 million, or 20.9% of ACR, up from 19.7% in the first quarter of 2022. Research and development expenses for the first quarter were $17.0 million.
Speaker 3: percent of ACR, down from 8.8 percent in the first quarter of 2022.
Speaker 3: Non-GAP operating income for the first quarter was $47.2 million, representing a 36.6% operating margin, down from 37.3% in the first quarter of 2022.
Speaker 3: First quarter adjusted to EBITDA was $48.3 million, representing a 37.5% adjusted EBITDA margin, down from 38.2% in the first quarter of 2022. Non-GAP net income, normalized for the newly added tax effect of adjustments, was $27.9 million in the first quarter.
Speaker 3: or 19 cents per share compared to 28.9 million dollars or 21 cents per share a year ago.
Speaker 3: Turning to the balance sheet and cash flow statement. We ended the first quarter with $109.1 million in cash, cash equivalents and restricted cash, and $489.5 million of long-term debt net of discount, resulting in a 2.06 times net debt to trailing 12 months adjusted.
Speaker 3: action costs, sponsor costs, impaired leases, and other non-recurring costs paid in cash was negative $63.4 million, a 5.2% year-over-year decrease from negative $60.3 million in the year ago quarter.
Speaker 3: I will now conclude the call by providing guidance for Q2 and for the full year of 2023 for revenue and adjusted EBITDA. We have provided additional guidance details in our earnings press release.
Speaker 3: For the second quarter of fiscal 2023, we expect revenue in the range of $128.5 million to $129.5 million.
Speaker 3: For the full year, we expect revenue to be in the range of $521.3 million to $525.3 million.
Speaker 3: We expect second quarter adjusted EBITDA in the range of $48.5 million to $49.5 million, representing an adjusted EBITDA margin of 38.0% at the midpoint of the range.
Speaker 3: For the full year, we expect adjusted EBITDA in the range of $199.4 million to $203.4 million, representing an adjusted EBITDA margin of 38.5% at the midpoint of the range. For the full year, we expect adjusted unlevered free cash flow to be in the range of $202.5 million.
Speaker 3: to $206.5 million. In summary, the first quarter provided a great start to 2023. We executed at a very high level and exceeded our guidance and continued to deliver a rare combination of double digit growth and best in class margins.
Speaker 3: We couldn't be more pleased about our momentum in the marketplace and look forward to updating you on our progress throughout 2023.
Speaker 2: With that Steve and I are happy to take any of your questions. Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your telephone keypad. If you would like to remove yourself from the queue, you may press star 1 again.
Speaker 4: Your first question comes from the line of Josh Baer of Morgan Stanley . Please go ahead. Hey, guys. It's Matt Salsin, also known for Josh Baer. Thanks for taking the question. It's nice to hear that Q1 bookings are strong in K-12. I'm just curious if there's any kind of qualitative commentary that you guys can provide.
Speaker 4: around what you're seeing there. I know last year you guys had noted there are some staffing shortages and a few other issues that were pushing deals out so I'm curious if those have resolved or potentially you know the multi-product adoption is what is creating that uplift or potentially both just any kind of additional commentary there would be helpful. Thanks.
Speaker 3: Yeah, happy to. So, you know, in our last call, we talked about seeing a lot more activity in the K-12 space in particular, and that continued throughout the quarter. So, a couple things that are happening there. First of all, we're going to be looking at the
Speaker 3: you know, the teacher shortage hasn't been resolved, so they're still dealing with that, but what they've started to recognize is that, you know, technology can play a role in helping deal with this on a longer term basis. And so we can free up some teacher time, we can help with subs, there's a lot of things that technology can help with.
Speaker 3: to solve that problem. The other piece was that from an administrator perspective, we are seeing more cycles spent, more activity, more interest in figuring out how to accelerate the digital transformation and recognizing that while the second half of last year, they were kind of hunkering down that they need to be ready for fall start come 2023.
Speaker 2: Your next question comes from the line of Fred Happemeier with Macquarie. Please go ahead.
Speaker 3: Hey, thank you very much and congratulations on a very strong quarter here. I would love to ask as you're looking at the shape of deals in the K-12 landscape and with ESSER funds still flowing this year, just kind of a two-parter here. Firstly, are you seeing or how are you seeing the pipeline build throughout this year and as you're going into the...
Speaker 3: certainly the K-12 purchasing cycle. And then secondly, are you seeing ESSER funds, are you seeing them being deployed? And is it something that's perhaps helping you and your ability to get some of these deals across the line, perhaps on the implementation side?
Speaker 3: Yeah, those are good questions, Fred. Good to hear from you. Thank you. So, from a pipeline build, we're seeing, along with that increased activity that we saw coming into the first of the year here, we're seeing the pipeline build nicely. And we're seeing a lot of interest, a lot of activity going into, as you mentioned, the end of the budget. We're seeing some skyrocket value right now.
Speaker 3: year this quarter and then the start of the new investment going into July . The pipeline is looking good. We've got good coverage for the quarter. We're seeing good out pipeline build as well. So we're on track to where we think we should be at this point of the year for the rest of the year. I would say from an ESSER funding perspective, this is always the question we get asked. Thank you.
Speaker 3: Couple things I would say. First of all, it's really, it's difficult for us to tell, you know, directly, you know, are these ESSER funds that are being used or not, but I would say what it's creating is a nice background in macro condition in K-12, at least for the next 18 months, where there are still a lot of dollars in the system.
Speaker 3: We make sure in the sales process that we're working with our sponsors, we're working with local legislatures to ensure that the funding is enduring, and that we've got durable funding for our solutions as they are the foundation of digital transformation and strategies that are multi-year. So I would say
Speaker 3: of tools that are being purchased with these dollars and that's driving a lot of interest in pipeline build for the Learn platform technology that we had acquired as well as we've kind of exploded in the number of apps being used in K-12. We're getting a lot of demand around help us rationalize that, help us get visibility of what's being used, is it being used well, is it having
Speaker 3: Thank you very much for that context. And let's ask another question actually about market share, which you had called out. And you have quite robust market share in higher ed. And I think there comes a time where there's some concerns that are raised about well, has a company reached market share saturation? So I just wanted to ask with respect to higher ed.
Speaker 3: Can you just also provide some context about how you're seeing pipeline build specifically there, whether you think that you've hit a point of market saturation and generally what your kind of expanding platform strategy means for the company in general as you have this already robust market share.
Speaker 3: Yeah, yeah. It is a question that we've gotten a number of times, Fred, you're right. I would say that, you know, first of all, you know, we have, you know, looking at the latest data about 44% of by an enrollment perspective, about 36% by institution perspective.
Speaker 3: Still 40% of institutions in the US in higher ed are using Blackboard and Moodle. So there's still a lot of room to run from a market share perspective. And as those renewals are coming up for renewal within those.
Speaker 3: within those existing arrangements. We're there through the RFP process or through whatever process they use for purchasing. And so I still think there's a lot of room for us to run from a market share perspective in US higher ed and not too worried and not really seeing a slowdown.
Speaker 3: if you will, in the interest as people are looking for what's their digital transformation strategy for the future. I would add also that our market share were much lower penetration internationally on average across all of the markets that we play in. It's a high single digits, so there's still a lot of room for us to run from a market share perspective in international as well.
Speaker 2: Thank you very much. Your next question comes from the line of Joe Rooink with Baird. Please go ahead.
Speaker 5: Great. Hi everyone. You gave this interesting example with UMass Amherst where Canvas sort of becomes, I guess it's an omni-channel learning platform.
Speaker 5: that a typical scope in RFPs you're now seeing where an institution wants to consolidate all of their offerings onto one platform, one vendor, and when you made the comment that RFP activity is in line with your expectations in terms of higher ed.
Speaker 5: that quantity of RFPs I guess embedded in that question are the dollar opportunities getting larger even if the number of opportunities is maybe in line.
Speaker 3: Yeah, good questions. On the first one, yes, absolutely is the short answer to your question about omni-channel. With UMass Amherst in particular, they had a system and a whole process that they set up for online students.
Speaker 3: They had a different system with different processes that they used for their matriculating or traditional on campus. And they're saying, look, we've got to get this done.
Speaker 3: this is changing, right? Students are gonna be both at some point in their learning journey. And so we're happy to, you know, we need to bring that together. And that was part of our strategy as a university. We are seeing that across the board more and more.
Speaker 3: thinking about this differently, whether they're an existing customer who now wants to bring their online program in line with the traditional matriculating students or not. I do think that'll be a key driver. It is a key driver from our sales perspective.
Speaker 3: from a from the second part of your question around, you know, what are we seeing from a RFP perspective? So we are seeing, you know, deal sizes are varying. We are seeing some big deals like UMass Amherst, I think, you know,
Speaker 3: by virtue of the fact that we are very successful in existing R1s and some of the bigger ones. Some of these deal sizes are a little smaller than they have been in the past, but we're seeing with the...
Speaker 3: With the dollar perspective, it's very consistent as far as the dollar amount from an RFP perspective. Volume is up more than the dollar amount is. So when we talk about that kind of consistent with our expectations, I was really referring to that dollar figure rather than the volume figure.
Speaker 5: Okay, okay great. And then I guess just on the updated EBITDA outlook I think the forecast entails higher margins something probably 39% or better EBITDA margins in the back half. Anything you can touch on just in terms of the second half first.
Speaker 5: first half improvement that's embedded in the outlook.
Speaker 6: Yeah, sure. We do have some Q1 margins.
Speaker 6: had a little bit of noise in them associated with timing of some services.
Speaker 6: But as you've seen with the guidance that we provided and some sequential growth in our margins from Q4 of 2022, we've had confidence in where we have leverage in our business to expand our margins in the second half.
Speaker 2: Okay, great. Thank you. Your next question comes from the line of Brian Peterson with Raymond James. Please go ahead.
Speaker 4: Congrats on the strong results guys. So just starting on international, Steve, I'd love to understand how the pace of the pipeline developed there is working. Would you say maybe there is more strength with the direct or indirect in certain regions? Maybe if you could kind of double click on how that movement in the pipeline is working into these international markets.
Speaker 3: Sure. Thanks, Brian . Yes. So I would say we're still in the pipeline build from a channel perspective as we're into new markets there. We're about almost a year into our development of the channel program.
Speaker 3: So our maturity, if you will, in the direct is much further ahead than in indirect. So from that perspective alone, we're seeing good direct pipeline build. Now, at the same time, we track different metrics with our channel program, including enablement and...
Speaker 3: selling capability, support capability, those types of things. And we're seeing really good progress from a channel build perspective from that in that space. Now, you know, our channel, I would say our channel efforts are going well in Latin America. And and
Speaker 3: APAC those are the more more earlier and we've had some longer term channel partners in EMEA and so EMEA's channel may be a little bit ahead of those others too but we're you know we're pretty we're pretty we're seeing pretty good progress across across the board across geo
Speaker 4: And I would say you know in summary that the direct is probably a little bit ahead of the the international just from a maturity perspective Got it. Thanks for the color Stephen. Maybe a follow-up. It sounds like if you're looking at the K through 12 Pipeline there might be more interest in people buying multiple products at the same time is that?
Speaker 4: in a recent phenomenon or is that something that's been building? I know you have a lot more products you can sell. I'd love to understand if people are really coming in with kind of this multi-product mentality more so now than they did in the past.
Speaker 3: Yeah. So I think, you know, this has clearly been a focus from a strategy perspective for us for a while. I think part of it is our maturing in our solution selling and our platform as we've added more pieces, and we've integrated them more tightly in the process. We've also added more pieces to our solution and we've added more pieces to our solution.
Speaker 3: you know, came out with some packaging models and ways for us to sell this better. So I would say, you know, the need hasn't changed, right? With coming out of the pandemic, the need to assess, the need to assess learning loss, all those things have been top of mind for our K-12 customers.
Speaker 3: I think our ability to sell has gotten better. But I also think, again, second half of last year, we just saw a general slowdown and now it's picking back up. The interest in the activity is picked back up in the first quarter. So it's as much a market need as it is our ability to.
Speaker 3: deliver on the integration the platform and the strategy and the selling motion. CEO – David
Speaker 4: in the platform and the strategy and the selling motion. Thanks, Steve. Your next question.
Speaker 5: Sorry, your next question comes from the line of Terry Tillman with Truist. Please go ahead. Hey, good afternoon, Steve and Dale, and congrats from me. I had two questions. First on the Learn platform side, evidence of the services seems like an emerging market and very timely given the ESSER funds. What I'm curious about is anything you can share in terms of the contribution of that acquisition and how it impacts milk Directorate and American
Speaker 5: Where do you see the bigger revenue synergies? You just giving it care and feeding and driving a lot more evidence as a service deals? Because I do know that they had a monetization strategy, or you all really driving K through 12 and all the platform products you have into maybe their install base or who they were engaging with and then had a follow up.
Speaker 3: Yeah. So, so, so I would say yes, you're absolutely right, very timely. It was, you know, part of our investment thesis that the need for evidence and evidence as a service was going to be much more important over time. You know the, the
Speaker 3: There's a couple things where we feel really good about our ability to kind of accelerate the business after the acquisition. Again, we saw a good pipeline build in 2-1. We believe that impact will happen kind of later in the year into 2024 to drive growth, which is, you know, as we mentioned, we expect a kind of de minimis impact in 2023.
Speaker 3: from the Learn Platform acquisition, but really there's a couple areas where we are uniquely positioned to help Learn Platform go a lot faster than they could as a standalone. The biggest is probably in the provider business. We have an ecosystem of 600-700 partners that are already integrated into the Instructure Learning Platform.
Speaker 3: and just our reach perspective to go a lot faster. And that was a part of their business that was very new when we bought them, right? They'd only been operating about a quarter, selling to providers. And so that's where we believe a lot of that acceleration will come. In addition, we have a number of, we have a lot of state.
Speaker 3: state level contracts that we're taking LEARN into where we're using those to leverage our existing contracts. There's a lot of things that we can do to kind of grease the skids from a purchasing perspective within the state purchasing or the LEAs within K-12 as well. So a lot of good synergies that we believe we can leverage over the next three to four quarters.
Speaker 5: Got it. That's helpful. And I guess on the Chris Ball side, I was going to ask about the – I'm assuming he's still in the honeymoon phase, but, you know, he's got several quarters under his belt. I don't know if the Wisconsin School District deal kind of is some of his work, but eight times contract increase or contract value increase is impressive. What are some of the early kind of low-hanging fruit areas that Chris Ball is having in effect? Thank you.
Speaker 3: Yeah, great question, Terry.
Speaker 3: As always, you do great questions, Terry. Chris has been on the job for 90 days, so I don't want to over sensationalize the impact. What I will say is he has had a big impact.
Speaker 3: on our focus on solution selling, on how to sell that whole suite. And so, yes, there's definitely, I would say he had an impact on that deal in particular. But really what he's done a really good job at and is bringing two teams together, right? Like sales.
Speaker 3: is seamless, how do we ensure that we're able to find more opportunities to help in more ways with our customers, marrying the customer success manager with the seller, and we believe ultimately, which will drive a much better cross-sell and allow us to help.
Speaker 3: our customers much more deeply than just one or two products. So I'm really pleased with the progress so far that Chris has made, and I'm excited about what we'll be able to share with you in the coming quarters as he starts to really put his fingerprints on our go-to-market motion.
Speaker 2: It's good to hear. Thanks. Your next question comes from the line of Matt Van Vliet of BTIG. Please go ahead.
Speaker 4: Thanks, appreciate taking the question. Good afternoon. I guess first on all the platform commentary and multi-product selling, curious if we could get much of an update on how the catalog product is driving demand, especially in higher ed there. Is it still something that a number of contributors didn't make clear on?
Speaker 5: schools are looking at either revamping or launching their own online programs, and you're going to help them with that? Or maybe just any commentary around the demand environment today versus six or 12 months ago. Yeah. I'm going to address that in the context of really how do we help a school.
Speaker 3: either go online or kind of bring that kind of omni channel experience right online or in the classroom. And the short answer is yes, we see a lot of demands. The pipeline has been building for a while, you know, it's been last two years, we've made a concerted effort and an increase in our investment in
Speaker 3: product now that really is starting to pay off for us. It is it's doing a couple things for us. One, it's really a differentiator as we go into a deal like UMass Amherst where we have a robust solution on both sides of the offering as well as it's giving us a lot of good cross-sell.
Speaker 3: opportunity and ability to kind of, again, be much more of a solution provider for existing customers. So, yes, that is a key part of the overall solution for delivering that kind of omni-channel experience for universities. And it's creating a nice differentiation for us.
Speaker 4: Okay, very helpful. And then I guess as as you look out towards a number of those Blackboard or Moodle renewals and higher ed that you mentioned still maybe 40% of the market. How often are you meeting sort of a I'm not sure we're going to do anything kind of no decision kick the can down the road for another year or two.
Speaker 7: if they haven't signed the contract yet.
Speaker 3: Yeah, it's much more the latter. You know, it's, we saw more of that behavior say I'm just going to renew kind of when we were closer to the pandemic right and they were they weren't sure what was going to happen and they had something in place. So now's not the time for me to make a change. But, but we're, we're a lot of it, a lot of activity and it has been, you know, this isn't a new phenomenon.
Speaker 3: recognizing it's time to change. And, you know, I think you articulated it right in that question, Matt, was that, you know, it's not, we're just kicking the can down the road, but we're being very deliberate about how do we plan this out? How, you know, how are we going to do change management? And, you know, we'll either, you know, sign, you know, either they're signing now or in the near future for, you know, again, this kind of, this.
Speaker 4: stage rollout and deployment of the technology over time. Right, great. Thank you. Very helpful. Your next question comes from the line of Steven Sheldon with William Blair. Please go ahead. Hey, thanks. Another question here on LMS, market share, and higher ed. Let me point off that last question. As you think about institutions on legacy or lower end LMS solutions and the potential of stepping to replace them, do you have much visibility into the pace of renewals over the next few years? And if so, how do you see the future of LMS?
Speaker 3: How does that look? Will there be steady opportunities, kind of near term for market share gains relative to the 40% you have right now? Yeah, I mean, we have a reasonable view into those renewals and it's part of the sales motion. Everybody in their territory is out.
Speaker 3: mining for those renewals. So it is, you know, we expect it to be a fairly, you know, steady kind of deliberate move. We don't, I don't see, you know, everybody's going to do it next year, for instance, but you know, it'll be a, it'll be a measured kind of gain in market share, similar to what we've seen over the last year. I think we're kind of in kind of more of a steady state.
Speaker 3: than we did coming right out of the pandemic when there was a bunch of activity. Got it. That's great.
Speaker 4: And then just as a follow-up, we'd love an update on assessments adoption in K-12. When you win new customers on that side, is it mainly Greenfield wins? How much different does that look between bigger and smaller school districts?
Speaker 4: And is there any way to frame how quickly assessment solutions are growing across your platform? And do you think this will be a continue, you know, an outsized area growth over the next few years given what you're seeing? Yeah, you know, I would say this, there is a move to try to consolidate on, you know, on the
Speaker 3: get a closed loop look at a student and how well they're doing, you know, not only what's being taught, who's engaging with the content, but then how are they doing against the standards and closing the loop that way. And so that really is where the value accrues. It is a combination of, you know, moving people off of pen and paper, as well as, you know, one of the one of the deals we talked about in the script, you know.
Speaker 3: helps teachers understand whether some of those remediations that they're putting in place to address learning loss are working and get that feedback in near real time so that they can make changes and address.
Speaker 3: the individualized teaching that they're doing for each of the students. So a lot of, still a lot of opportunity to cross sell. It was, I believe it was our fastest growing product in K-12 this last quarter. So do believe that that'll be a growth contributor to us for a while, Stephen.
Speaker 4: Great to hear. Thank you. Your next question comes from the line of Brent Thill with Jefferies. Please go ahead. Hey, good afternoon, guys. This is Dave Lusberg, I'm from Brent. Sorry if these have been addressed. I'm just getting off another call where they said that, another Education Tech call where they said that AI has become a headwind to toot.
Speaker 8: that potentially you guys can do with it and then I had a follow up.
Speaker 3: We share your opinion, right? We think that AI is an opportunity for us. It doesn't really replace anything that we do in the environment. But when you marry this with the LMS, we think there's a number of areas that are really interesting that we're exploring. So,
Speaker 3: You mentioned one of them, helping teachers get better at the manual tasks, simplifying some of their, whether it's course creation, authoring, whether it's assessments, and how do they generate those questions on their quizzes, those types of things. We think all of that will help teachers. And when we integrate it in as part of the...
Speaker 3: the ongoing workflow that they're engaged in and used to in the LMS, it makes their life much easier. There's also the opportunity to do things like virtual tutoring built into the LMS. And because of the way that the technology is designed by integrating it with the LMS, for instance, give institutions, give school districts.
Speaker 3: the ability for universities or high schools with students that are going directly into the workforce to address skilled-based workforce training and reskilling, allowing institutions to map their coursework to skills much more easily and simply use the technology to map them against taxonomies, for instance. So we do...
Speaker 3: the relationships we have with teachers and learners and the technology to manage the whole process of delivering on teaching and learning. So we're excited about the opportunity and working on things.
Speaker 8: Already working on things Super helpful. Thanks for the color there and then you know shifting gears a little bit And I don't think this is how we would normally phrase it But if I kind of break down the business right and think like you know core LMS And then you know everything else you have right and you know assessments and K through 12 We just mentioned is your fastest growing product in K through 12 But if I take out the LMS and look at the business
Speaker 3: stuff you know as it relates to assessment and other things so would be great to you know hear any color you can provide there. Sure I think you know we we've been been pretty consistent in that we're not breaking out those those specifically the different types of products in different areas that we are cross-selling.
Speaker 3: I would say that cross-selling is improving. We continue to add both on the initial sale with new logos, and the number of
Speaker 3: deals that have more than one product as well as the number of customers that have more than one one solution from us. We you know I think the the biggest growers assessments a huge opportunity right now and we're seeing that that that acceleration
Speaker 3: The addressing the nontraditional learner opportunity is a great growth opportunity for us in two ways. One is in cross-selling to existing learning institutions that we already have relationships with, as well as the nontraditional educators like a...
Speaker 3: like a people cert that we talked about in the script, that is training outside of what you would.
Speaker 3: traditionally consider a higher ed institution. And so we do think those two are probably the biggest growth drivers and the ones that we're seeing the most growth in, contributing the most to our growth in the near term.
Speaker 2: Super helpful. Appreciate it, guys. Thanks, Dave. Your next question comes from the line of Steve Enders with Citi. Please go ahead.
Speaker 5: Thanks for taking the question here. I guess I do want to ask a little bit on the guide and the revenue outlook in particular. I guess good beat and raise if we're looking at 1Q2Q. But how should we be thinking about the second half of the year and what you're guiding to here? bulls&%$ w
Speaker 5: I guess any change in the seasonality of the business that we should be thinking about here, is there an added level of conservatism as we think about the second half in particular here? I don't think there's anything outside of what we've already talked about in the second half of the year that we're looking for the guide.
Speaker 6: We do put out numbers that we feel confident in achieving. And as Steve talked about, we had a great Q1, a little bit of overperformance there in our bookings. And so we feel good about the targets that we've shared with you and our ability to hit them. Okay. I guess it was, we think about the funding environment in K-12.
Speaker 3: Yeah, you know, the way that we think about it, Steve, is that it creates a nice kind of macro backdrop for us in that, you know,
Speaker 3: The schools are still flush with cash. They still have the appetite to make these investments. The reality is, first of all, it's hard for us to really break down.
Speaker 3: When we closed the deal, was that Esterfunds or were Esterfunds in the background? But I will say that what we're seeing is an interest in digital transformation. The recognition that the technologies that we provide around, particularly in K-12, around LMS and assessment management are core infrastructure for digital transformation. They're a must-have in there.
Speaker 3: And so a lot of these conversations again, when we're working with our decision makers, as well as the funding sources at the state level, is that we are ensured that these are durable funding sources. You know, we still have 18 months left to spend the existing funding sources at the state level.
Speaker 3: the existing dollars that are out there. So we do think that this background is, you know, it's still a favorable macro backdrop for us. We do expect that this will be, we'll still have a lot of activity for the next, you know, next 18 to 24 months. Yeah, perfect. Appreciate you taking the questions.
Speaker 4: Your next question comes from the line of Noah Herman with JP Morgan. Please go ahead. Hey guys, thanks for taking the question. Just one on our end. Sort of coming back to the, you know, more so the non-traditional or non-university customer opportunity.
Speaker 4: you know, the people feel, you know, coming more into fruition after two quarters, that seems like a really strong, bright spot and data point. You know, I mean, how do you sort of see the opportunity with non-traditional customers really growing at this point? And how do you sort of see that acting as another lever for durable revenue?
Speaker 3: that there is a market that we haven't, we're just starting to tap into. The People's Cert is one of those, Citian Guild is another one. We talked about CBO Gent on the call today in Belgium, are all about those non-traditional institutions, not just...
Speaker 3: So it gives us a lot of confidence in our ability to drive double-digit growth, top-line growth for the foreseeable future. And we're really pleased with the early traction that we've gotten. And again, the people certainly have a lot of confidence.
Speaker 3: quick turnaround up and running, an excellent reference customer well known in the market and you know kind of one of those lighthouse accounts to help us drive that ongoing growth.
Speaker 3: up and running, an excellent reference customer, well known in the market, and kind of one of those lighthouse accounts to help us drive that ongoing growth. Great, thank you so much.
Speaker 3: There are no further questions at this time. I will turn the call back to CEO Steve Daley. Thank you, operator. And thank you, everybody. As you heard today, you know, our commitment to innovation, customer success and disciplined investments in our platform will continue to unlock new opportunities like this non-traditional space and drive value for our customers.
Speaker 3: about the future. We look forward to continuing to drive that top line growth, but also world class margins in the months and years ahead. So thank you for your time, and we look forward to talking to you in another quarter.
Speaker 3: that top line growth, but also, you know, world-class margins in the months and years to head. So thank you for your time, and we look forward to talking to you in another quarter. Thanks, everybody.
Speaker 9: This concludes today's conference call. You may now disconnect your line. Please wait. The conference will begin shortly. Music