In 2017, I have written up several company summaries for the board:
Talend in February: http://discussion.fool.com/tlnd-32598219.aspx
Wix in April: http://discussion.fool.com/my-new-position-wix-32677125.aspx
Teladoc in June: http://discussion.fool.com/teladoc-32753167.aspx
Alarm.com in August: http://discussion.fool.com/my-thoughts-on-alarmcom-32813166.aspx…
I hope these are improving, and I rely on your questions and feedback to hone them and figure out what else I need to look at. What follows is a write-up on the latest addition to my portfolio.
Instructure (INST)
Summary and History
Instructure is a cloud-based learning management platform for academic institutions and companies across the world. Their platform enables virtual learning, and they’ve gotten so good at it in the education context (since they started in 2008) that they’re now (actually since early 2015) offering it in a business context as well. Their classroom product is called Canvas, and their business solution is called Bridge.
Instructure IPO’d in November 2015 at $16/share. It is currently trading at roughly $30/share.
They are constantly signing school districts and businesses to expand their reach to hundreds of thousands of new users. In the most recent quarter:
Instructure continued to expand its customer base in the second quarter. A few highlights include:
US Higher Education and K-12 Schools – Canvas was selected by Montgomery County Public Schools, the 17th largest school district in the U.S. with over 200 schools and 150,000 students, and by the Des Moines Independent Community School District for its 37,000 students. Within the U.S. higher education market, Canvas was chosen by the University of Minnesota, the 7th largest public university in the U.S., serving over 70,000 learners. Additionally, Temple University and Iowa State University chose Canvas for their respective 30,000 students.
International – Canvas was chosen by Erasmus University Rotterdam for their 23,000 students and by the University of Twente for their almost 10,000 students. Additionally, Canvas was selected by a consortium of three universities, serving 50,000 students in the Philippines. These universities are collaborating on joint research and share a common vision around digital literacy.
Corporate – The Hartsfield-Jackson International Airport in Atlanta, the world’s busiest airport, will utilize Bridge to train more than 11,000 of their employees and contractors.
That’s pretty impressive, and that’s just the last 90 days.
Numbers
Revenue (in millions)
Mar Jun Sep Dec
2015: 15 16 21 22
2016: 23 26 30 32
2017: 34 38
Revenue Growth
Mar Jun Sep Dec
2015:
2016: 59% 63% 44% 45%
2017: 46% 47%
EPS
Mar Jun Sep Dec
2015: -.43
2016: -.42 -.44 -.34 -.35
2017: -.33 -.32
Mkt Cap: ~0.9B
PS Ratio: ~6.5 (compare to TLND – a company of similar size with PS of 9. And INST is maybe growing even faster)
PE Ratio: N/A
as of 2016
88% of revenue is recurring
Deferred Revenue: 76M
Backlog: 213M (future non-cancellable amounts to be invoiced under agreements)
Great Investor Presentation: https://ir.instructure.com/investors/events-and-presentation…
As of June 2017 deferred revenue is up to 103M!
Outlook
For the third quarter ending September 30, 2017, Instructure expects revenue of approximately $40.2 million to $40.8 million, a non-GAAP net loss of ($9.4) million to ($8.8) million, and non-GAAP net loss per share of ($0.32) to ($0.30) per common share.
For the full year ending December 31, 2017, Instructure expects revenue of approximately $152.9 million to $154.1 million, up from previously stated guidance of $150.7 million to $152.2 million, non-GAAP net loss of ($36.8) million to ($35.8) million, up from ($37.7) million to ($36.7) million, and non-GAAP net loss per share of ($1.26) to ($1.23) per common share, up from ($1.29) to ($1.26).
Concerns
They seem to have a large increase in AR during Q2 each year. Last year it was 35M, and this year it was 60M. But typically in Q3 each year, AR comes down quite a bit.
They did briefly address this on the CC:
A lot of times, if a client signs up for something in January or February, what they will do is, they will stick a stub period into the contract, to align it with their fiscal year, which usually begins in July. And so what they will do, is they will put a four or five month stub period in there, and then they will start with 12 month cycles thereafter. And so what happens is, a lot of deals that get done in the first part of the year, the latter part of the prior year, from a cash collection standpoint, get pushed to the middle of the year, and then that’s the cycle that they go from that point.
I’d welcome anybody’s thoughts on if the high AR is a potential problem or not. For now, I choose to believe they know what they’re doing.
Conclusion
I’ve taken a mid-sized position (just under 5%), which started small a week or two ago, but has increased as I’ve learned more about the company. I also really feel the value proposition is especially great right now. Still:
- It is a very small company, less than a $1B mkt cap, and there’s just not as much information out there about it as many others (even the similarly sized Talend, which at least Bert has written about).
- It is a new position for me. I like to build my position as I learn about a company. As much as I like the value here, I have to remember not to let it get too big too fast.
Thanks for reading, and in advance for any feedback!
Bear
PS Again, can’t recommend enough checking out these slides: https://ir.instructure.com/investors/events-and-presentation…