With restrictions being eased, schools across the country are switching back to offline mode but the new learning culture brought by the pandemic is likely to stay here. The digitization of education accelerated during the crisis, which also calls for effective solutions to ensure a smooth transition.
Instructure Holdings, Inc. (NYSE: INST) is a leading education technology firm that mainly caters to the needs of students in kindergarten through 12th grade. Canvas, the company’s web-based learning management platform is widely used by all of the Ivy League schools as well as the entire California State University system. Currently, Instructure is busy expanding to new markets, mainly through strategic partnerships.
In an email conversation with AlphaStreet, chief executive officer Steve Daly provided valuable insights into the company’s operations and new trends in learning management. Excerpts from the interview:
Do you expect the business to benefit from the COVID-driven shift to remote learning for the long term?
Yes. The fact is that adoption of technology in education in both the K-12 and Higher Ed space was already growing before COVID, but the pandemic really accelerated that adoption.
This was illustrated by how users of our industry-leading Learning Management System (LMS), Canvas, continue to utilize the platform at levels that are significantly higher than pre-pandemic levels. While remote and hybrid education models are now a permanent part of the education landscape and will continue to exist going forward, our technology is now an integral part of all education models, including in-person, as Learning Management Systems (LMS) are now, and will remain, the essential nerve-center of the classroom. All of this will continue to fuel more growth at Instructure.
Can you provide an update on the integration of Kimono? To what extent the new business is expected to contribute to revenue growth?
Acquiring Kimono emphasizes Instructure’s vision of developing the most integrated platform in the education industry. Kimono’s technology provides a cloud-based solution where secure syncing of student, staff, and learning data can take place across various applications within a school environment. Incorporating this solution into Instructure’s industry-leading LMS, Canvas, furthers data integration capabilities for student information systems, leading to more opportunities to expand our business. The acquisition and integration of Kimono is also an example of how we will continue to use M&A opportunistically to increase the number of platform offerings and to elevate our technology.
You have been successful in capturing the K-12 market, as a better alternative to legacy systems. Do you think that model can be replicated in overseas markets?
Yes. One of the key opportunities for Instructure’s growth is building our market share in international markets where we can replace open-source and on-prem products. We recently took a major step in growing our business in international markets with the launch of a new channel partner program. The program is specifically tailored to assist partners in emerging markets and key countries where educational institutions are looking for more robust, flexible solutions to the unique learning challenges facing students today. An example of our growing momentum internationally is in Queensland, Australia where 1,200+ K-12 schools adopted Canvas.
Will available cash be sufficient to meet short-term growth goals, or do you see the need for external funding going forward?
Instructure has a very strong balance sheet that was made even stronger by our IPO in 2021 and accelerated growth in the past two years. We refined our focus as a company when I came on board and we are now in a much stronger financial position. In 2020, we made targeted adjustments to make the business more profitable, efficient, and resilient without sacrificing growth momentum. In 2021 we stepped up reinvestment, and we remain committed to reinvesting behind growth in 2022. We have the balance sheet to do this and believe our growth goals for 2022 (and beyond) are prudent and achievable. Additionally, we continue to have great support from our Private Equity sponsors Thoma Bravo who believes in our mission and goals.
What is your strategy for achieving sustainable profitability; and how soon do you expect Instructure to become profitable?
A solid Learning Management System (LMS) is now a necessity for all schools and is the single most crucial education technology tool for both teachers and students. Our LMS, Canvas, is the market share leader in K-12 and Higher Ed in North America and we are in a great position to continue to grow adoption of Canvas across the globe, driving revenue and profits.
We just reported our full-year financials for 2021 and all major financial indicators for our company were strong and trending in the right direction, including growing our Fiscal Year 2021 GAAP Revenue to $405.4 million, which represents an increase of 34% year over year. Additionally, our adjusted EBITDA margin was 35%+ in 2021 and consensus is for 35%+ in 2022, positioning INST for best-in-class margins vs software peers, despite reinvestment in the business. We are well-positioned as a company with a highly efficient go-to-market strategy which will improve profitability and drive enduring growth. We are very confident in our future.
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