8-K

Date: February 27, 2020

Instructure, Inc.

/s/ Matthew A. Kaminer

Matthew A. Kaminer

Chief Legal Officer

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 27, 2020

Instructure, Inc.

(Exact name of registrant as specified in its charter)


Delaware	001-37629	26-3505687
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

6330 South 3000 East, Suite 700

Salt Lake City, UT

84121

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (800) 203-6755

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

Trading

symbol

Name of each exchange

on which registered

Common Stock, par value $0.0001

INST

New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 2.02.

Results of Operations and Financial Condition.

The following are the preliminary results of operations for Instructure, Inc. (the “Company”) as of and for the three and twelve months ended December 31, 2019.

Fourth Quarter and Full Year Financial Summary

(in thousands, except per share data)


	Three Months Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenue	$	69,195		$	56,251		$	258,473		$	209,544

Gross Margin
GAAP		66.9	%		69.6	%		68.0	%		70.5	%
Non-GAAP⁽¹⁾		70.0	%		71.3	%		71.2	%		72.2	%

Operating Loss
GAAP		(23,403	)		(8,259	)		(85,993	)		(44,773	)
Non-GAAP⁽¹⁾		(7,703	)		(1,012	)		(21,712	)		(21,898	)

Operating Margin
GAAP		-33.8	%		-14.7	%		-33.3	%		-21.4	%
Non-GAAP⁽¹⁾		-11.1	%		-1.8	%		-8.4	%		-10.5	%

Net loss
GAAP		(23,005	)		(7,587	)		(80,819	)		(43,465	)
Non-GAAP⁽¹⁾		(6,968	)		(340	)		(21,108	)		(20,712	)

EPS
GAAP	$	(0.61	)	$	(0.22	)	$	(2.19	)	$	(1.27	)
Non-GAAP⁽¹⁾	$	(0.18	)	$	(0.01	)	$	(0.57	)	$	(0.60	)

(1)

Non-GAAP financial measures exclude stock-based compensation, reversal of payroll tax expense on secondary stock purchase transactions, amortization of acquisition related intangibles, the change in fair value of mark-to-mark liabilities, the change in fair value of the contingent liability and the deferred income tax benefit.

Total revenue for the three months ended December 31, 2019 was $69.2 million, compared with $56.3 million reported for the three months ended December 31, 2018. On a GAAP basis, the Company recorded net loss of $(23.0) million for the three months ended December 31, 2019, or $(0.61) per basic and diluted share, compared with net loss of $(7.6) million, or $(0.22) per basic and diluted share, for the three months ended on December 31, 2018. Non-GAAP net loss for the three months ended December 31, 2019 was $(7.0) million, or $(0.18) per basic and diluted share, compared with non-GAAP net loss of $(0.3) million, or $(0.01) per basic and diluted share, for the three months ended December 31, 2018.

Total revenue for the full year ended December 31, 2019 was $258.5 million, compared with $209.5 million reported for the full year ended December 31, 2018. The Company recorded GAAP net loss for the full year ended December 31, 2019 of $(80.8) million, or $(2.19) per basic and diluted share, compared with GAAP net loss of $(43.5) million, or $(1.27) per basic and diluted share, for the full year ended December 31, 2018. The Company recorded non-GAAP net loss for the full year ended December 31, 2019 of $(21.1) million, or $(0.57) per basic and diluted share, compared with $(20.7) million, or $(0.60) per basic and diluted share, for the full year ended December 31, 2018. During the three-months ended December 31, 2019, the Company incurred approximately $4.3 million of expenses related to the proposed acquisition by Thoma Bravo.

As of December 31, 2019, the Company had $116.8 million in cash, cash equivalents, and marketable securities, compared with $153.0 million at December 31, 2018. Free cash flow for the three months ended on December 31, 2019 was $(15.4) million, compared with $(22.4) million reported for the three months ended on December 31, 2018. Total free cash flow for the full year ended December 31, 2019 was $8.7 million, compared with $(10.9) million reported for the full year ended December 31, 2018.

Non-GAAP Financial Measures

The Company’s non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating loss, non-GAAP operating margin, non-GAAP net loss, non-GAAP net loss per share, non-GAAP free cash flow and 12-month billings are not presented in accordance with GAAP and are not intended to be used in lieu of GAAP presentations of results of operations.

Management presents these non-GAAP financial measures because it considers them to be important supplemental measures of performance. Management uses the non-GAAP financial measures for planning purposes, including analysis of the company’s performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management also believes that the non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company’s financial and operational performance. However, these non-GAAP financial measures have limitations as an analytical tool and are not intended to be an alternative to financial measures prepared in accordance with GAAP. We intend to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial tables included below. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics.

Non-GAAP measures exclude stock-based compensation, reversal of payroll tax expense on secondary stock purchase transactions, amortization of acquisition related intangibles, the change in fair value of mark-to-market liabilities, the change in fair value of the contingent liability and the deferred income tax benefit. We believe investors may want to exclude the effects of these items in order to compare our financial performance between time periods:

•

Stock-based compensation - Although stock-based compensation is an important aspect of the compensation of our employees and executives, management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business. Unlike cash compensation, the value of equity awards is determined using a complex formula that incorporates factors, such as market volatility and forfeiture rates that are beyond our control.

•

Reversal of payroll tax expense on secondary stock purchase transactions - Prior to our IPO, operating expenses included employer payroll tax-related items on employee sales of securities to investors. The amount of employer payroll tax-related items on these transactions was dependent on the fair market value of our stock. Beginning in the second quarter of 2016, operating expenses included the reversal of such payroll tax expense due to the reduction of the estimated liability, which will continue to occur in the second quarter of each year.

•

Amortization of acquisition related intangibles - Expense for the amortization of acquisition related intangibles is a non-cash item, and we believe that the exclusion of this expense provides for a useful comparison of our operating results to prior periods.

•

Change in fair value of mark-to-market liabilities - Under GAAP, we are required to record mark-to-market adjustments for the change in fair value of the liability for warrants issued in connection with term debt and our credit facility. This expense or gain is excluded from management’s assessment of our operating performance because management believes that these non-cash items are not indicative of ongoing operating performance.

INSTRUCTURE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)


	December 31, 2019			December 31, 2018
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	101,236		$	94,320
Short-term marketable securities		15,584			58,630
Accounts receivable—net of allowances of $871 and $1,092 at December 31, 2019 and December 31, 2018, respectively		38,029			35,514
Prepaid expenses		9,809			13,918
Deferred commissions		10,256			8,226
Other current assets		8,211			2,019

Total current assets		183,125			212,627
Property and equipment, net		28,076			27,388
Right-of-use assets		36,514			—
Goodwill		69,614			12,354
Intangible assets, net		32,513			6,262
Noncurrent prepaid expenses		4,558			3,516
Deferred commissions, net of current portion		12,303			11,404
Other assets		797			446

Total assets	$	367,500		$	273,997

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	14,619		$	3,581
Accrued liabilities		11,142			9,809
Deferred rent		—			1,329
Lease liabilities		6,554			—
Deferred revenue		145,045			117,298

Total current liabilities		177,360			132,017
Deferred revenue, net of current portion		2,710			3,372
Lease liabilities, net of current portion		41,793			—
Deferred rent, net of current portion		—			10,150
Other long-term liabilities		80			20

Total liabilities		221,943			145,559

Stockholders’ equity:
Common stock		3			3
Additional paid-in capital		493,795			395,865
Accumulated other comprehensive income (loss)		—			(8	)
Accumulated deficit		(348,241	)		(267,422	)

Total stockholders’ equity		145,557			128,438

Total liabilities and stockholders’ equity	$	367,500		$	273,997

INSTRUCTURE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)


	Three Months Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
	(unaudited)			(unaudited)			(unaudited)
Revenue:
Subscription and support	$	63,890		$	50,962		$	236,241		$	188,501
Professional services and other		5,305			5,289			22,232			21,043

Total net revenue		69,195			56,251			258,473			209,544

Cost of Revenue:
Subscription and support		17,900			13,382			64,170			46,706
Professional services and other		5,032			3,740			18,656			15,137

Total cost of revenue		22,932			17,122			82,826			61,843

Gross profit		46,263			39,129			175,647			147,701

Operating expenses:
Sales and marketing		29,524			23,811			121,643			97,481
Research and development		21,838			14,281			83,526			59,391
General and administrative		18,304			9,296			56,471			35,602

Total operating expenses		69,666			47,388			261,640			192,474

Loss from operations		(23,403	)		(8,259	)		(85,993	)		(44,773	)

Other income (expense):
Interest income		563			885			1,795			2,413
Interest expense		(5	)		(14	)		(16	)		(68	)
Other expense		523			(167	)		(225	)		(698	)

Total other income, net		1,081			704			1,554			1,647

Loss before income taxes		(22,322	)		(7,555	)		(84,439	)		(43,126	)
Income tax benefit (expense)		(683	)		(32	)		3,620			(339	)

Net loss	$	(23,005	)	$	(7,587	)	$	(80,819	)	$	(43,465	)

Net loss attributable to common stockholders	$	(23,005	)	$	(7,587	)	$	(80,819	)	$	(43,465	)

Net loss per common share, basic and diluted	$	(0.61	)	$	(0.22	)	$	(2.19	)	$	(1.27	)

Weighted average shares used to compute net loss per share, basic and diluted		37,815			35,175			36,892			34,248

INSTRUCTURE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Three Months Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
	(unaudited)			(unaudited)			(unaudited)
Operating Activities:
Net loss	$	(23,005	)	$	(7,587	)	$	(80,819	)	$	(43,465	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation of property and equipment		2,867			2,311			10,642			8,749
Amortization of intangible assets		2,632			674			9,335			2,786
Amortization of deferred financing costs		—			4			9			19
Change in fair value of mark-to-market liabilities		—			—			—			(1,266	)
Stock-based compensation		13,114			6,645			56,512			22,747
Other		332			320			(656	)		(437	)
Changes in assets and liabilities:
Accounts receivable, net		3,494			11,368			(2,217	)		(2,643	)
Prepaid expenses and other assets		169			(2,385	)		(6,836	)		(2,553	)
Deferred commissions		4,892			(212	)		(2,679	)		(1,384	)
Right-of-use assets		606			—			2,716			—
Accounts payable and accrued liabilities		4,184			(13,046	)		13,039			(2,805	)
Deferred revenue		(17,803	)		(18,003	)		22,166			19,008
Lease liabilities		(662	)		—			(2,362	)		—
Deferred rent		—			(261	)		—			1,342
Other liabilities		(3,539	)		—			11			—

Net cash provided by (used in) operating activities		(12,719	)		(20,172	)		18,861			98

Investing Activities:
Purchases of property and equipment		(2,758	)		(2,244	)		(10,243	)		(11,132	)
Proceeds from sale of property and equipment		32			10			103			88
Purchases of marketable securities		(12,865	)		(21,690	)		(28,259	)		(113,860	)
Maturities of marketable securities		2,300			23,750			63,000			61,600
Sale of marketable securities		—			—			8,786			—
Business acquisitions, net of cash received		330			—			(54,963	)		—

Net cash used in investing activities		(12,961	)		(174	)		(21,576	)		(63,304	)

Financing Activities:
Proceeds from common stock offerings, net of offering costs		—			—			—			109,789
Proceeds from issuance of common stock from employee equity plans		5,860			3,707			12,868			12,467
Shares repurchased for tax withholdings on vesting of restricted stock		(1,143	)		(72	)		(3,237	)		(405	)
Payments for financing costs		—			—			—			(18	)

Net cash provided by financing activities		4,717			3,635			9,631			121,833

Net increase (decrease) in cash and cash equivalents		(20,963	)		(16,711	)		6,916			58,627
Cash and cash equivalents, beginning of period		122,199			111,031			94,320			35,693

Cash and cash equivalents, end of period	$	101,236		$	94,320		$	101,236		$	94,320

INSTRUCTURE, INC.

RECONCILIATION OF NON-GAAP GROSS MARGIN

(in thousands, except percentages)

(unaudited)


	Three Months Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
GAAP gross profit	$	46,263		$	39,129		$	175,647		$	147,701
Stock-based compensation		870			632			3,880			2,210
Amortization of acquisition related intangibles		1,293			332			4,549			1,339
Reversal of payroll tax expense on secondary stock purchase transactions		—			—			—			(49	)

Non-GAAP gross margin	$	48,426		$	40,093		$	184,076		$	151,201

GAAP gross margin %		66.9	%		69.6	%		68.0	%		70.5	%
Non-GAAP gross margin %		70.0	%		71.3	%		71.2	%		72.2	%

INSTRUCTURE, INC.

RECONCILIATION OF NON-GAAP OPERATING LOSS

(in thousands, except percentages)

(unaudited)


	Three Months Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
Loss from operations	$	(23,403	)	$	(8,259	)	$	(85,993	)	$	(44,773	)
Stock-based compensation		13,114			6,645			56,512			22,747
Reversal of payroll tax expense on secondary stock purchase transactions		—			—			(1,327	)		(1,225	)
Amortization of acquisition related intangibles		2,586			602			9,116			2,497
Change in fair value of contingent liability		—			—			(20	)		(1,144	)

Non-GAAP operating loss	$	(7,703	)	$	(1,012	)	$	(21,712	)	$	(21,898	)

GAAP operating margin		-33.8	%		-14.7	%		-33.3	%		-21.4	%
Non-GAAP operating margin		-11.1	%		-1.8	%		-8.4	%		-10.5	%

INSTRUCTURE, INC.

RECONCILIATION OF NON-GAAP NET LOSS

(in thousands, except per share data)

(unaudited)


	Three Months Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
Net loss	$	(23,005	)	$	(7,587	)	$	(80,819	)	$	(43,465	)
Stock-based compensation		13,114			6,645			56,512			22,747
Reversal of payroll tax expense on secondary stock purchase transactions		—			—			(1,327	)		(1,225	)
Amortization of acquisition related intangibles		2,586			602			9,116			2,497
Change in fair value of mark-to-market liabilities		—			—			—			(122	)
Change in fair value of contingent liability		—			—			(20	)		(1,144	)
Deferred income tax benefit from business combination		337			—			(4,570	)		—

Non-GAAP net loss	$	(6,968	)	$	(340	)	$	(21,108	)	$	(20,712	)

Non-GAAP net loss per common share, basic and diluted	$	(0.18	)	$	(0.01	)	$	(0.57	)	$	(0.60	)
Weighted average common shares used in computing basic and diluted net loss per common share		37,815			35,175			36,892			34,248

INSTRUCTURE, INC.

RECONCILIATION OF FREE CASH FLOW

(in thousands)

(unaudited)


	Three Months Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
Net cash provided by (used in) operating activities	$	(12,719	)	$	(20,172	)	$	18,861		$	98
Purchases of property and equipment and intangible assets		(2,758	)		(2,244	)		(10,243	)		(11,132	)
Proceeds from sale of property and equipment		32			10			103			88

Free cash flow	$	(15,445	)	$	(22,406	)	$	8,721		$	(10,946	)

INSTRUCTURE, INC.

RECONCILIATION OF 12-MONTH BILLINGS

(in thousands)

(unaudited)


	Trailing Twelve Months Ended December 31
	2019		2018
Total net revenue	$	258,473	$	209,544

Total deferred revenue
Beginning balance		120,669		101,662
Ending balance		147,755		120,669

Net change in current deferred revenue		27,086		19,007

Total 12-month billings	$	285,559	$	228,551

INSTRUCTURE, INC.

RECONCILIATION OF NON-GAAP OPERATING EXPENSES

Three Months Ended December 31, 2019

(in thousands)

(unaudited)


	GAAP		Stock-based Compensation Expense			Reversal of Payroll Tax Associated with Equity Transactions		Amortization of acquired intangibles			Change in fair value of contingent earn-out liability		NON-GAAP
Operating expenses:
Sales and marketing	$	29,524		(3,326	)		—		(1,292	)		—	$	24,906
Research and development		21,838		(4,633	)		—		—			—		17,205
General and administrative		18,304		(4,285	)		—		—			—		14,019

Total operating expenses	$	69,666		(12,244	)		—		(1,292	)		—	$	56,130

INSTRUCTURE, INC.

RECONCILIATION OF NON-GAAP OPERATING EXPENSES

Three Months Ended December 31, 2018

(in thousands)

(unaudited)


	GAAP		Stock-based Compensation Expense			Reversal of Payroll Tax Associated with Equity Transactions		Amortization of acquired intangibles			Change in fair value of contingent earn-out liability		NON-GAAP
Operating expenses:
Sales and marketing	$	23,811		(1,618	)		—		(270	)		—	$	21,923
Research and development		14,281		(2,385	)		—		—			—		11,896
General and administrative		9,296		(2,010	)		—		—			—		7,286

Total operating expenses	$	47,388		(6,013	)		—		(270	)		—	$	41,105

INSTRUCTURE, INC.

RECONCILIATION OF NON-GAAP OPERATING EXPENSES

Year Ended December 31, 2019

(in thousands)

(unaudited)


	GAAP		Stock-based Compensation Expense			Reversal of Payroll Tax Associated with Equity Transactions		Amortization of acquired intangibles			Change in fair value of contingent earn-out liability		NON-GAAP
Operating expenses:
Sales and marketing	$	121,643		(15,098	)		—		(4,567	)		—	$	101,978
Research and development		83,526		(19,550	)		—		—			—		63,976
General and administrative		56,471		(17,984	)		1,327		—			20		39,834

Total operating expenses	$	261,640		(52,632	)		1,327		(4,567	)		20	$	205,788

INSTRUCTURE, INC.

RECONCILIATION OF NON-GAAP OPERATING EXPENSES

Year Ended December 31, 2018

(in thousands)

(unaudited)


	GAAP		Stock-based Compensation Expense			Reversal of Payroll Tax Associated with Equity Transactions		Amortization of acquired intangibles			Change in fair value of contingent earn-out liability		NON-GAAP
Operating expenses:
Sales and marketing	$	97,481		(6,022	)		430		(1,158	)		—	$	90,731
Research and development		59,391		(8,338	)		616		—			—		51,669
General and administrative		35,602		(6,177	)		130		—			1,144		30,699

Total operating expenses	$	192,474		(20,537	)		1,176		(1,158	)		1,144	$	173,099

Additional Disclosures Regarding the Information Contained in this Form 8-K

In accordance with General Instruction B.2 of Form 8-K, the information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, except as expressly set forth by specific reference in such filing to this Current Report on Form 8-K.