Instructure Announces Fourth Quarter and Fiscal Year 2022 Financial Results

Fourth Quarter GAAP Revenue of $124.7 Million Grows 12.8% year over year

Fiscal Year 2022 GAAP Revenue of $475.2 Million Grows 17.2% year over year

Fiscal Year 2022 Net Loss of $34.2 Million and Adjusted EBITDA* of $179.6 Million

SALT LAKE CITY, Feb. 13, 2023 /PRNewswire/ -- Instructure Holdings, Inc. (Instructure) INST, the makers of the Canvas Learning Management System, today announced financial results for the fourth quarter and fiscal year ended December 31, 2022.

"Our strong fourth quarter revenue reflects the increasingly central role we play in supporting educators, students, parents, and leaders as they navigate unprecedented challenges," said Steve Daly, Instructure CEO. "As we move into 2023, we are committed to further expanding our impact on the educational landscape, solving more of the unique challenges educators face while continuing to deliver balanced growth and profitability."

Fourth Quarter Financial Highlights:

GAAP Revenue of $124.7 million, an increase of 12.8% year over year
Allocated Combined Receipts*, or ACR, of $124.7 million, an increase of 11.9% year over year
Operating loss of $3.8 million, or negative 3.0% of revenue, and Non-GAAP operating income* of $46.5 million, or 37.3% of ACR*
GAAP net loss of $5.7 million, or negative 4.6% of revenue, and Adjusted EBITDA* of $48.6 million, or 39.0% of ACR*
Cash flow from operations of $17.0 million and Adjusted Unlevered Free Cash Flow* of $29.3 million

Full Year 2022 Financial Highlights:

GAAP Revenue of $475.2 million, an increase of 17.2% year over year
Allocated Combined Receipts*, or ACR, of $476.1 million, an increase of 14.8% year over year
Operating loss of $16.5 million, or negative 3.5% of revenue, and Non-GAAP operating income* of $173.9 million, or 36.5% of ACR*
GAAP net loss of $34.2 million, or negative 7.2% of revenue, and Adjusted EBITDA* of $179.6 million, or 37.7% of ACR*
Cash flow from operations of $140.3 million and Adjusted Unlevered Free Cash Flow* of $173.5 million

*See "Non-GAAP Financial Measures" for information regarding the Company's use of non-GAAP financial measures as well as reconciliations to the most closely comparable GAAP measures in this press release.

Business and Operating Highlights:

In December, we acquired LearnPlatform, the leading provider of technology that enables educators and their institutions to research, select and evaluate digital learning solutions.
The University of Louisiana System selected Canvas and Impact due to improved functionality, consistency of user experience, alignment with the other state university systems, and 24/7 technical support for end users.
The Charles County Public School District selected Canvas due to the power of its instructional materials, integrations and other 3rd party tools, superior scale and reliability, and best-in-class service.
The University of Santo Tomas in the Philippines selected Canvas LMS and Canvas Studio due to ease of use, role-specific mobile experiences, broad support for outcomes, and the breadth of integratable third party tools.
The City and Guilds of London Institute chose Instructure as its institutional learning technology partner for the future growth of their organization with an initial plan to deploy Canvas and plans to evaluate Credentials.
Chris Ball was named Instructure's new President and Chief Operating Officer and will oversee the go-to-market strategy and customer lifecycle, including marketing, revenue operations, sales and customer experience.

Business Outlook

Based on information as of today, February 13, 2023, the Company is issuing the following financial guidance.

First Quarter Fiscal 2023:

Revenue is expected to be in the range of $126.5 million to $127.5 million
Non-GAAP operating income* is expected to be in the range of $45.9 million to $46.9 million
Adjusted EBITDA* is expected to be in the range of $47.0 million to $48.0 million
Non-GAAP net income* is expected to be in the range of $25.7 million to $26.7 million

Full Year 2023:

Revenue is expected to be in the range of $519.4 million to $523.4 million
Non-GAAP operating income* is expected to be in the range of $193.4 million to $197.4 million
Adjusted EBITDA* is expected to be in the range of $198.0 million to $202.0 million
Non-GAAP net income* is expected to be in the range of $109.2 million to $113.2 million
Adjusted Unlevered Free Cash Flow* is expected to be in the range of $200.0 million to $204.0 million

*Non-GAAP operating income, Adjusted EBITDA, non-GAAP net income and Adjusted Unlevered Free Cash Flow are non-GAAP measures. Instructure is unable to provide guidance, or a reconciliation, for operating loss and net loss, the most closely comparable GAAP measures with respect to non-GAAP operating income, Adjusted EBITDA and non-GAAP net income, and net cash provided by operating activities, the most closely comparable measure with respect to Adjusted Unlevered Free Cash Flow, because Instructure cannot provide a meaningful or accurate calculation or estimation of certain reconciling items without unreasonable effort. This is due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, including stock-based compensation and amortization of acquisition-related intangibles. Thus, Instructure is unable to present a quantitative reconciliation of non-GAAP guidance to GAAP guidance because such information is not available.

Effective January 1, 2022, Instructure adopted ASU No. 2021-08, Business Combinations (Topic 805), which requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606). As a result, Instructure will no longer present guidance for ACR because GAAP revenue and ACR will now converge.

Conference Call Information

Instructure's management team will hold a conference call to discuss our fourth quarter and fiscal year ended December 31, 2022 results today, February 13, 2023 at 5:00 p.m. ET. The conference call can be accessed by dialing (888) 330-2384 from the United States and Canada or (240) 789-2701 internationally with conference ID 1348899. A live webcast and replay of the conference call can be accessed from the investor relations page of Instructure's website at ir.instructure.com. An archived replay of the webcast will be available following the conclusion of the call.

About Instructure

Instructure INST is an education technology company dedicated to elevating student success, amplifying the power of teaching, and inspiring everyone to learn together. Today the Instructure Learning Platform supports tens of millions of educators and learners around the world. Learn more at www.instructure.com.

Non-GAAP Financial Measures

Instructure has provided in this press release financial information that has not been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). In addition to Instructure's results determined in accordance with GAAP, Instructure believes the following non-GAAP measures are useful in evaluating its operating performance and liquidity. Instructure believes that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies.

A reconciliation of Instructure's historical non-GAAP financial measures to the most directly comparable GAAP measures has been provided in the financial statement tables included in this press release, and investors are encouraged to review the reconciliation.

ACR. We define ACR as the combined receipts of our Company and companies that we have acquired allocated to the period of service delivery. We calculate ACR as the sum of (i) revenue and (ii) the impact of fair value adjustments to acquired unearned revenue related to Thoma Bravo's acquisition of Instructure (the "Take-Private Transaction") and the Certica Holdings, LLC ("Certica"), Eesysoft Software International B.V. (which was rebranded to "Impact by Instructure" or "Impact" subsequent to acquisition), and Kimono LLC (which was rebranded to "Elevate Data Sync" subsequent to acquisition) acquisitions where we do not believe such adjustments are reflective of our ongoing operations. Management uses this measure to evaluate the organic growth of the business period over the period, as if the Company had operated as a single entity and excluding the impact of acquisitions or adjustments due to purchase accounting.

Non-GAAP Operating Income. We define non-GAAP operating income as loss from operations excluding the impact of stock-based compensation, transaction costs, sponsor costs, impairment charges, other non-recurring costs, amortization of acquisition-related intangibles, and the impact of fair value adjustments to acquired unearned revenue relating to the Take-Private Transaction and the Certica, Impact, and Elevate Data Sync acquisitions that we do not believe are reflective of our ongoing operations. We believe non-GAAP operating income is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance. Although we exclude the amortization of acquisition-related intangibles from the non-GAAP measure, management believes it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.

Non-GAAP Net Income. We define non-GAAP net income as net loss excluding the impact of stock-based compensation, amortization of acquisition-related intangibles, the impact of fair value adjustments to acquired unearned revenue relating to the Take-Private Transaction and the Certica, Impact, and Elevate Data Sync acquisitions, transaction costs, sponsor costs, impairment charges, other non-recurring costs, and effects of foreign currency transaction (gains) and losses that we do not believe are reflective of our ongoing operations. The tax effects of the adjustments are calculated using the statutory tax rate, taking into consideration the nature of the item and the relevant taxing jurisdiction. We believe Non-GAAP net income is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance. Although we exclude the amortization of acquisition-related intangibles from the non-GAAP measure, management believes it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation. Basic non-GAAP net income per common share attributable to common stockholders is computed by dividing non-GAAP net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted non-GAAP net income per common share attributable to common stockholders is computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period.

Adjusted EBITDA; Adjusted EBITDA Margin. EBITDA is defined as earnings before debt-related costs, including interest and loss on debt extinguishment, benefit for taxes, depreciation, and amortization. We further adjust EBITDA to exclude certain items of a significant or unusual nature, including stock-based compensation, transaction costs, sponsor costs, impairment charges, other non-recurring costs, effects of foreign currency transaction (gains) and losses, amortization of acquisition-related intangibles, and the impact of fair value adjustments to acquired unearned revenue relating to the Take-Private Transaction and the Certica, Impact, and Elevate Data Sync acquisitions. Although we exclude the amortization of acquisition-related intangibles from this non-GAAP measure, management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by ACR.

Free Cash Flow, Unlevered Free Cash Flow and Adjusted Unlevered Free Cash Flow. We define free cash flow as net cash provided by (used in) operating activities less purchases of property and equipment and intangible assets, net of proceeds from disposals of property and equipment. We define unlevered free cash flow as free cash flow adjusted for cash paid for interest on outstanding debt and cash settled stock-based compensation. We define adjusted unlevered free cash flow as unlevered free cash flow adjusted for transaction costs, sponsor costs, impaired leases, and other non-recurring costs paid in cash. We believe free cash flow, unlevered free cash flow and adjusted unlevered free cash flow facilitate period-to-period comparisons of liquidity. We consider free cash flow, unlevered free cash flow and adjusted unlevered free cash flow to be important measures because they measure the amount of cash we generate and reflect changes in working capital.

Non-GAAP Cost of Revenue and Non-GAAP Operating Expenses. We define non-GAAP cost of revenue and non-GAAP operating expenses as GAAP cost of revenue and GAAP operating expenses, respectively, excluding the impact of stock-based compensation, transaction costs, sponsor costs, impairment charges, other non-recurring costs, and amortization of acquisition-related intangibles that we do not believe are reflective of our ongoing operations. Although we exclude the amortization of acquisition-related intangibles from the non-GAAP measures, management believes it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.

Non-GAAP Gross Profit; Non-GAAP Gross Profit Margin. We define non-GAAP gross profit as gross profit excluding the impact of stock-based compensation, transaction costs, impairment of leased properties, other non-recurring costs, amortization of acquisition-related intangibles, and fair value adjustments to deferred revenue in connection with purchase accounting that we do not believe are reflective of our ongoing operations. Although we exclude the amortization of acquisition-related intangibles from the non-GAAP measure, management believes it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation. Non-GAAP Gross Profit Margin is defined as Non-GAAP gross profit divided by ACR.

Forward-Looking Statements

This press release contains, and statements made during the above referenced conference call will contain, "forward-looking" statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding the Company's financial guidance for the first quarter of 2023 and for the full year ending December 31, 2023, the Company's growth, customer demand and application adoption, the Company's research and development efforts and future application releases, and the Company's expectations regarding future revenue, expenses, cash flows and net income or loss.

These statements are not guarantees of future performance, but are based on management's expectations as of the date of this press release and assumptions that are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements. Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements include the following: risks associated with the continued economic uncertainty, including record-high inflation, supply chain challenges, labor shortages, high interest rates, foreign currency exchange volatility, concerns of economic slowdown or recession and reduced spending by customers; failure to continue our recent growth rates; risks associated with future stimulus packages approved by the U.S. federal government; our ability to acquire new customers and successfully retain existing customers; the effects of increased usage of, or interruptions or performance problems associated with, our learning platform; the impact on our business and prospects from pandemics and the ongoing effects of the COVID-19 pandemic; our history of losses and expectation that we will not be profitable for the foreseeable future; the impact of adverse general and industry-specific economic and market conditions; failure to manage our growth effectively; and changes in the spending policies or budget priorities for government funding of Higher Education and K-12 institutions.

These and other important risk factors are described more fully in the Company's most recent Annual Report on Form 10-K and subsequent Quarterly Report on Form 10-Q and other documents filed with the Securities and Exchange Commission and could cause actual results to vary from expectations. All information provided in this press release and in the conference call is as of the date hereof and Instructure undertakes no duty to update this information except as required by law.

INSTRUCTURE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

	December 31, 2022		December 31, 2021
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	185,954	$	164,928
Accounts receivable—net		71,428		51,607
Prepaid expenses		11,120		15,475
Deferred commissions		13,390		11,418
Other current assets		3,144		3,384
Total current assets		285,036		246,812
Property and equipment, net		12,380		10,792
Right-of-use assets		13,575		18,175
Goodwill		1,266,402		1,194,221
Intangible assets, net		542,679		629,746
Noncurrent prepaid expenses		871		1,553
Deferred commissions, net of current portion		18,781		20,105
Deferred tax assets		8,143		6,477
Other assets		5,622		5,901
Total assets	$	2,153,489	$	2,133,782
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	18,792	$	18,324
Accrued liabilities		28,483		28,408
Lease liabilities		7,205		6,666
Long-term debt, current		4,013		2,763
Deferred revenue		275,564		240,936
Total current liabilities		334,057		297,097
Long-term debt, net of current portion		486,471		490,500
Deferred revenue, net of current portion		13,816		14,740
Lease liabilities, net of current portion		16,610		23,678
Deferred tax liabilities		24,702		29,851
Other long-term liabilities		1,706		3,531
Total liabilities		877,362		859,397
Stockholders' equity:
Common stock		1,429		1,407
Additional paid-in capital		1,575,600		1,539,638
Accumulated deficit		(300,902)		(266,660)
Total stockholders' equity		1,276,127		1,274,385
Total liabilities and stockholders' equity	$	2,153,489	$	2,133,782

INSTRUCTURE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share data)

	Three months ended December 31,				Year ended December 31,
	2022		2021		2022		2021
	(unaudited)		(unaudited)		(unaudited)
Revenue:
Subscription and support	$	114,537	$	101,007	$	430,661	$	367,781
Professional services and other		10,189		9,586		44,533		37,580
Total revenue		124,726		110,593		475,194		405,361
Cost of revenue:
Subscription and support		38,127		36,348		146,546		148,923
Professional services and other		6,685		5,442		25,748		20,942
Total cost of revenue		44,812		41,790		172,294		169,865
Gross profit		79,914		68,803		302,900		235,496
Operating expenses:
Sales and marketing		46,801		41,686		181,744		162,544
Research and development		20,723		16,580		77,189		63,771
General and administrative		16,170		15,968		60,447		54,911
Impairment on disposal group		—		—		—		1,218
Total operating expenses		83,694		74,234		319,380		282,444
Loss from operations		(3,780)		(5,431)		(16,480)		(46,948)
Other income (expense):
Interest income		1,313		16		1,679		29
Interest expense		(8,258)		(6,182)		(24,595)		(50,360)
Other expense		3,989		(330)		(2,978)		(2,695)
Loss on extinguishment of debt		—		(22,424)		—		(22,424)
Total other income (expense), net		(2,956)		(28,920)		(25,894)		(75,450)
Loss before income taxes		(6,736)		(34,351)		(42,374)		(122,398)
Income tax benefit		1,013		13,697		8,132		33,719
Net loss and comprehensive loss	$	(5,723)	$	(20,654)	$	(34,242)	$	(88,679)
Net loss per common share, basic and diluted	$	(0.04)	$	(0.15)	$	(0.24)	$	(0.67)
Weighted-average common shares used in computing basic and diluted net loss per common share		142,643		140,531		141,815		132,387

INSTRUCTURE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Three months ended December 31,				Year ended December 31,
	2022		2021		2022		2021
	(unaudited)		(unaudited)		(unaudited)
Operating Activities:
Net loss	$	(5,723)	$	(20,654)	$	(34,242)	$	(88,679)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation of property and equipment		1,346		985		4,491		3,713
Amortization of intangible assets		34,522		33,684		136,717		134,003
Amortization of deferred financing costs		297		477		1,178		2,435
Impairment on disposal group		—		—		—		1,218
Loss on extinguishment of debt		—		22,424		—		22,424
Stock-based compensation		8,915		6,540		33,585		18,072
Deferred income taxes		(158)		(16,231)		(10,222)		(36,485)
Other		(3,042)		120		3,669		1,685
Changes in assets and liabilities:
Accounts receivable, net		1,903		3,386		(18,454)		(4,314)
Prepaid expenses and other assets		16,881		2,014		5,940		2,094
Deferred commissions		685		(2,762)		(648)		(8,358)
Right-of-use assets		1,250		1,177		4,888		8,729
Accounts payable and accrued liabilities		168		(596)		(2,227)		8,038
Deferred revenue		(38,383)		(31,927)		24,238		48,543
Lease liabilities		(1,474)		(1,617)		(6,817)		(6,363)
Other liabilities		(184)		(693)		(1,825)		(1,612)
Net cash provided by (used in) operating activities		17,003		(3,673)		140,271		105,143
Investing Activities:
Purchases of property and equipment		(1,342)		(1,459)		(6,321)		(4,259)
Proceeds from sale of property and equipment		2		13		43		53
Proceeds from sale of Bridge		—		—		—		46,018
Business acquisitions, net of cash acquired		(89,529)		(9,698)		(109,013)		(26,584)
Net cash provided by (used in) investing activities		(90,869)		(11,144)		(115,291)		15,228
Financing Activities:
IPO proceeds, net of offering costs paid of $5,719		—		(350)		—		259,254
Proceeds from issuance of common stock from employee equity plans		—		—		7,327		—
Shares repurchased for tax withholdings on vesting of restricted stock units		(1,939)		(250)		(5,272)		(1,568)
Proceeds from issuance of term debt, net of discount		—		493,090		—		493,090
Distributions to stockholders		—		—		—		(930)
Repayments of long-term debt		(1,250)		(531,305)		(3,750)		(839,187)
Term Loan prepayment premium		—		(8,066)		—		(11,893)
Payments of financing costs		(19)		(937)		(19)		(937)
Net cash used in financing activities		(3,208)		(47,818)		(1,714)		(102,171)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		3,897		—		(2,153)		—
Net increase in cash, cash equivalents and restricted cash		(73,177)		(62,635)		21,113		18,200
Cash, cash equivalents and restricted cash, beginning of period		263,443		231,788		169,153		150,953
Cash, cash equivalents and restricted cash, end of period	$	190,266	$	169,153	$	190,266	$	169,153
Supplemental cash flow disclosure:
Cash paid for taxes	$	68	$	90	$	3,102	$	646
Interest paid	$	8,123	$	5,756	$	18,073	$	48,058
Non-cash investing and financing activities:
Capital expenditures incurred but not yet paid	$	67	$	83	$	67	$	83

RECONCILIATIONS OF NON-GAAP MEASURES TO GAAP MEASURES


INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP ALLOCATED COMBINED RECEIPTS
(in thousands)
(unaudited)

	Three months ended December 31,				Year ended December 31,
	2022		2021		2022		2021
Revenue	$	124,726	$	110,593	$	475,194	$	405,361
Fair value adjustments to deferred revenue in connection with purchase accounting		13		851		868		9,322
Allocated combined receipts	$	124,739	$	111,444	$	476,062	$	414,683

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP SUBSCRIPTION AND SUPPORT ALLOCATED COMBINED RECEIPTS
(in thousands)
(unaudited)

	Three months ended December 31,				Year ended December 31,
	2022		2021		2022		2021
Subscription and support revenue	$	114,537	$	101,007	$	430,661	$	367,781
Fair value adjustments to deferred revenue in connection with purchase accounting		13		849		867		9,095
Subscription and support allocated combined receipts	$	114,550	$	101,856	$	431,528	$	376,876

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP OPERATING INCOME
(in thousands)
(unaudited)

	Three months ended December 31,				Year ended December 31,
	2022		2021		2022		2021
Loss from operations	$	(3,780)	$	(5,431)	$	(16,480)	$	(46,948)
Stock-based compensation		10,856		8,063		39,779		25,785
Transaction costs⁽¹⁾		4,206		2,701		9,123		9,090
Sponsor costs⁽²⁾		66		27		517		414
Impairment charges⁽³⁾		—		—		—		8,116
Other non-recurring costs⁽⁴⁾		630		794		3,365		3,944
Amortization of acquisition-related intangibles		34,520		33,682		136,710		133,994
Fair value adjustments to deferred revenue in connection with purchase accounting		13		851		868		9,322
Non-GAAP operating income	$	46,511	$	40,687	$	173,882	$	143,717

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP ADJUSTED EBITDA
(in thousands)
(unaudited)

	Three months ended December 31,						Year ended December 31,
	2022			2021			2022			2021
Net loss	$	(5,723)		$	(20,654)		$	(34,242)		$	(88,679)
Interest on outstanding debt and loss on debt extinguishment		8,257			28,605			24,591			72,775
Benefit for taxes		(1,013)			(13,697)			(8,132)			(33,719)
Depreciation		1,346			985			4,491			3,713
Amortization		2			2			7			7
Stock-based compensation		10,856			8,063			39,779			25,785
Transaction costs⁽¹⁾		4,206			2,701			9,123			9,090
Sponsor costs⁽²⁾		66			27			517			414
Impairment charges⁽³⁾		—			—			—			8,116
Other non-recurring costs⁽⁴⁾		630			794			3,365			3,944
Effects of foreign currency transaction (gains) and losses		(4,536)			306			2,514			1,916
Amortization of acquisition-related intangibles		34,520			33,682			136,710			133,994
Fair value adjustments to deferred revenue in connection with purchase accounting		13			851			868			9,322
Adjusted EBITDA	$	48,624		$	41,665		$	179,591		$	146,678

Net loss margin		(4.6)	%		(18.7)	%		(7.2)	%		(21.9)	%
Adjusted EBITDA margin		39.0	%		37.4	%		37.7	%		35.4	%

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF FREE CASH FLOW, UNLEVERED FREE CASH FLOW & ADJUSTED UNLEVERED FREE CASH FLOW
(in thousands)
(unaudited)

	Three months ended December 31,				Year ended December 31,
	2022		2021		2022		2021

Net cash provided by (used in) operating activities	$	17,003	$	(3,673)	$	140,271	$	105,143
Purchases of property and equipment		(1,342)		(1,459)		(6,321)		(4,259)
Proceeds from disposals of property and equipment		2		13		43		53
Free cash flow	$	15,663	$	(5,119)	$	133,993	$	100,937
Cash paid for interest on outstanding debt		8,123		5,756		18,073		48,058
Cash settled stock-based compensation		1,941		1,522		6,194		7,616
Unlevered free cash flow	$	25,727	$	2,159	$	158,260	$	156,611
Transaction costs⁽¹⁾		2,215		1,003		9,474		7,444
Sponsor costs⁽²⁾		33		42		378		335
Impaired leases		609		—		2,074		7
Other non-recurring costs⁽⁵⁾		761		839		3,359		4,299
Adjusted unlevered free cash flow	$	29,345	$	4,043	$	173,545	$	168,696

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP NET INCOME
(in thousands, except per share data)
(unaudited)

	Three months ended December 31,				Year ended December 31,
	2022		2021		2022		2021
Net loss	$	(5,723)	$	(20,654)	$	(34,242)	$	(88,679)
Stock-based compensation		10,856		8,063		39,779		25,785
Amortization of acquisition-related intangibles		34,520		33,682		136,710		133,994
Fair value adjustments to deferred revenue in connection with purchase accounting		13		851		868		9,322
Loss on extinguishment of debt		—		22,424		—		22,424
Transaction costs⁽¹⁾		4,206		2,701		9,123		9,090
Sponsor costs⁽²⁾		66		27		517		414
Impairment charges⁽³⁾		—		—		—		8,116
Other non-recurring costs⁽⁴⁾		630		794		3,365		3,944
Effects of foreign currency transaction (gains) and losses		(4,536)		306		2,514		1,916
Tax effects of adjustments⁽⁶⁾		(11,652)		(17,184)		(47,989)		(53,665)
Non-GAAP net income	$	28,380	$	31,010	$	110,645	$	72,661
Non-GAAP net income per common share, basic	$	0.20	$	0.22	$	0.78	$	0.55
Non-GAAP net income per common share, diluted	$	0.20	$	0.22	$	0.77	$	0.54
Weighted average common shares used in computing basic Non-GAAP net income per common share		142,643		140,531		141,815		132,387
Weighted average common shares used in computing diluted Non-GAAP net income per common share		144,261		142,870		143,440		133,487

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP GROSS PROFIT
(in thousands)
(unaudited)
	Three months ended December 31,						Year ended December 31,
	2022			2021			2022			2021
Gross profit	$	79,914		$	68,803		$	302,900		$	235,496
Stock-based compensation		833			596			3,090			1,858
Transaction costs⁽¹⁾		—			—			226			—
Impairment of leased properties		—			—			—			2,768
Other non-recurring costs		5			54			69			277
Amortization of acquisition-related intangibles		15,952			15,648			63,386			62,060
Fair value adjustments to deferred revenue in connection with purchase accounting		13			851			868			9,322
Non-GAAP gross profit	$	96,717		$	85,952		$	370,539		$	311,781

GAAP gross margin		64.1	%		62.2	%		63.7	%		58.1	%
Non-GAAP gross margin		77.5	%		77.1	%		77.8	%		75.2	%

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP COST OF REVENUE
Three Months Ended December 31, 2022
(in thousands)
(unaudited)

	GAAP		Stock-based compensation expense		Transaction Costs		Impairment charges		Other non- recurring costs		Amortization of acquired intangibles		Non-GAAP
Cost of Revenue:
Subscription and support	$	38,127	$	(383)	$	—	$	—	$	(5)	$	(15,952)	$	21,787
Professional services and other		6,685		(450)		—		—		—		—		6,235
Total cost of revenue	$	44,812	$	(833)	$	—	$	—	$	(5)	$	(15,952)	$	28,022

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP COST OF REVENUE
Three Months Ended December 31, 2021
(in thousands)
(unaudited)

	GAAP		Stock-based compensation expense		Transaction Costs		Impairment charges		Other non- recurring costs		Amortization of acquired intangibles		Non-GAAP
Cost of Revenue:
Subscription and support	$	36,348	$	(247)	$	—	$	—	$	(24)	$	(15,648)	$	20,429
Professional services and other		5,442		(349)		—		—		(30)		—		5,063
Total cost of revenue	$	41,790	$	(596)	$	—	$	—	$	(54)	$	(15,648)	$	25,492

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP COST OF REVENUE
Year Ended December 31, 2022
(in thousands)
(unaudited)

	GAAP		Stock-based compensation expense		Transaction Costs		Impairment charges		Other non- recurring costs		Amortization of acquired intangibles		Non-GAAP
Cost of Revenue:
Subscription and support	$	146,546	$	(1,348)	$	(135)	$	—	$	(33)	$	(63,386)	$	81,644
Professional services and other		25,748		(1,742)		(91)		—		(36)		—		23,879
Total cost of revenue	$	172,294	$	(3,090)	$	(226)	$	—	$	(69)	$	(63,386)	$	105,523

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP COST OF REVENUE
Year Ended December 31, 2021
(in thousands)
(unaudited)

	GAAP		Stock-based compensation expense		Transaction Costs		Impairment charges		Other non- recurring costs		Amortization of acquired intangibles		Non-GAAP
Cost of Revenue:
Subscription and support	$	148,923	$	(899)	$	—	$	(1,918)	$	(214)	$	(62,060)	$	83,832
Professional services and other		20,942		(959)		—		(850)		(63)		—		19,070
Total cost of revenue	$	169,865	$	(1,858)	$	—	$	(2,768)	$	(277)	$	(62,060)	$	102,902

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP OPERATING EXPENSES
Three Months Ended December 31, 2022
(in thousands)
(unaudited)

	GAAP		Stock-based compensation expense		Transaction costs		Sponsor costs		Impairment charges		Other non- recurring costs		Amortization of acquired intangibles		Non- GAAP		GAAP % of revenue			Non- GAAP % of ACR
Operating expenses:
Sales and marketing	$	46,801	$	(2,888)	$	(1,129)	$	—	$	—	$	(76)	$	(18,568)	$	24,140		37.5	%		19.4	%
Research and development		20,723		(3,206)		(1,170)		—		—		(9)		—		16,338		16.6	%		13.1	%
General and administrative		16,170		(3,929)		(1,911)		(66)		—		(536)		—		9,728		13.0	%		7.8	%
Total operating expenses	$	83,694	$	(10,023)	$	(4,210)	$	(66)	$	—	$	(621)	$	(18,568)	$	50,206		67.1	%		40.3	%

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP OPERATING EXPENSES
Three Months Ended December 31, 2021
(in thousands)
(unaudited)

	GAAP		Stock-based compensation expense		Transaction costs		Sponsor costs		Impairment charges		Other non- recurring costs		Amortization of acquired intangibles		Non- GAAP		GAAP % of revenue			Non- GAAP % of ACR
Operating expenses:
Sales and marketing	$	41,686	$	(2,122)	$	(38)	$	—	$	—	$	(82)	$	(18,034)	$	21,410		37.7	%		19.2	%
Research and development		16,580		(2,047)		(702)		(18)		—		(417)		—		13,396		15.0	%		12.0	%
General and administrative		15,968		(3,298)		(1,961)		(9)		—		(241)		—		10,459		14.4	%		9.4	%
Total operating expenses	$	74,234	$	(7,467)	$	(2,701)	$	(27)	$	—	$	(740)	$	(18,034)	$	45,265		67.1	%		40.6	%

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP OPERATING EXPENSES
Year Ended December 31, 2022
(in thousands)
(unaudited)

	GAAP		Stock-based compensation expense		Transaction costs		Sponsor costs		Impairment charges		Other non- recurring costs		Amortization of acquired intangibles		Non- GAAP		GAAP % of revenue			Non- GAAP % of ACR
Operating expenses:
Sales and marketing	$	181,744	$	(11,050)	$	(1,302)	$	—	$	—	$	(705)	$	(73,324)	$	95,363		38.2	%		20.0	%
Research and development		77,189		(11,467)		(3,025)		—		—		(929)		—		61,768		16.2	%		13.0	%
General and administrative		60,447		(14,172)		(4,568)		(518)		—		(1,663)		—		39,526		12.7	%		8.3	%
Total operating expenses	$	319,380	$	(36,689)	$	(8,895)	$	(518)	$	—	$	(3,297)	$	(73,324)	$	196,657		67.1	%		41.3	%

INSTRUCTURE HOLDINGS, INC.
RECONCILIATION OF NON-GAAP OPERATING EXPENSES
Year Ended December 31, 2021
(in thousands)
(unaudited)

	GAAP		Stock-based compensation expense		Transaction costs		Sponsor costs		Impairment charges		Other non- recurring costs		Amortization of acquired intangibles		Non- GAAP		GAAP % of revenue			Non- GAAP % of ACR
Operating expenses:
Sales and marketing	$	162,544	$	(6,936)	$	(237)	$	—	$	(2,042)	$	(392)	$	(71,934)	$	81,003		40.1	%		19.5	%
Research and development		63,771		(6,943)		(1,675)		(66)		(1,355)		(945)		—		52,787		15.7	%		12.7	%
General and administrative		54,911		(10,048)		(7,178)		(348)		(733)		(2,330)		—		34,274		13.5	%		8.3	%
Impairment on disposal group		1,218		—		—		—		(1,218)		—		—		—		0.3	%		—
Total operating expenses	$	282,444	$	(23,927)	$	(9,090)	$	(414)	$	(5,348)	$	(3,667)	$	(71,934)	$	168,064		69.6	%		40.5	%

FOOTNOTES

⁽¹⁾ Represents expenses incurred with third parties as part of the Company's merger and acquisition activity, including due diligence, closing and post-close integration activities.

⁽²⁾ Represents expenses incurred for services provided by Thoma Bravo and their affiliates.

⁽³⁾ Includes impairment charges as follows (in thousands):	Three months ended December 31,				Year ended December 31,
	2022		2021		2022		2021
Impairment on Bridge disposal group	$	—	$	—	$	—	$	1,218
Impairment of leased properties		—		—		—		6,898
Total impairment charges	$	—	$	—	$	—	$	8,116


⁽⁴⁾ Includes other non-recurring costs as follows (in thousands):	Three months ended December 31,				Year ended December 31,
	2022		2021		2022		2021
Professional services related to sale of Bridge	$	—	$	—	$	—	$	1,185
Loss on exit of leased properties		—		—		—		66
Contract modification fees		—		—		230		9
Employee severance		195		574		744		1,761
Workforce realignment costs		267		—		1,388		—
Other insignificant non-recurring costs		168		220		1,003		923
Total other non-recurring costs	$	630	$	794	$	3,365	$	3,944


⁽⁵⁾ Includes other non-recurring costs paid in cash as follows (in thousands):	Three months ended December 31,				Year ended December 31,
	2022		2021		2022		2021
Employee severance	$	234	$	569	$	744	$	1,941
Workforce realignment costs		344		—		980		153
Contract modification fees		—		—		186		—
Professional services related to sale of Bridge		—		—		—		1,208
Other insignificant non-recurring costs		183		270		1,449		997
Total other non-recurring costs paid in cash	$	761	$	839	$	3,359	$	4,299


⁽⁶⁾ During the fourth quarter of 2022, we revised the methodology for calculating Non-GAAP Net Income (see Non-GAAP Financial Measures above for details). The table above includes the tax effects of the adjustments calculated by using the statutory tax rate, taking into consideration the nature of the item and the relevant taxing jurisdiction.

For More Information:

Media Relations:

Brian Watkins

Corporate Communications

Instructure

(801) 610-9722

brian.watkins@instructure.com

Investor Relations:

April Scee

Managing Director

ICR, Inc.

(917) 497-8992

april.scee@icrinc.com

View original content to download multimedia:https://www.prnewswire.com/news-releases/instructure-announces-fourth-quarter-and-fiscal-year-2022-financial-results-301745527.html

SOURCE Instructure Holdings, Inc.

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