Ladies and gentlemen, thank you for standing by, and welcome to Instructure's First Quarter 2024 Earnings Call. [Operator Instructions] Please be advised that this conference is being recorded. .

I would now like to turn the conference over to your first speaker, Matthew Wells, Senior Vice President, Investor Relations. Matthew, please go ahead. .

Good afternoon, and welcome to Instructure's First Quarter 2024 Earnings Conference Call. We will be discussing first quarter results and updated guidance, as announced in our press release published earlier today. And to accompany the discussion, we've uploaded an earnings presentation to our Investor Relations website.

I encourage you to review this presentation, alongside our prepared remarks. On the call today, we have Instructure's Chief Executive Officer, Steve Daly; and Chief Financial Officer, Peter Walker. .

Before we begin, I'd like to remind you that today's conference call and earnings presentation will include forward-looking statements. These statements are subject to risks and uncertainties that may cause our results to differ materially from listed expectations.

For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings press release and our Form 10-Q and other reports and filings we file with the Securities and Exchange Commission.

All statements are made as of today based on information available to us as of today, and we assume no obligation to update any such statements, except as required by law. .

During the call, we will also refer to both GAAP and non-GAAP financial measures. You can find a reconciliation of our GAAP to non-GAAP measures in our earnings press release, which is posted to the Investor Relations section of our website. .

And with that, let me turn the call over to Steve. .

Thank you, Matt, and thank you all for joining our first quarter 2024 earnings call. I'd also like to thank everyone who attended our Investor Day earlier this year. For those that did attend, I hope that our team's passion for the business, the opportunity ahead of us to grow and our commitment to educators and lifelong learners resonated. .

Kicking it off on Slide 4, as shared during Investor Day, our vision is to be the ecosystem that powers learning for a lifetime and turns that learning into opportunities. As the vertical software leader in education, we are well positioned to connect learners across their lifelong learning journey. .

Anchoring the ecosystem is the Canvas LMS, the market share leader in North America. We are invested in a mission to create real outcomes for learners, whether they are a traditional degree seeker or a nontraditional learner.

We believe the investments we are making across the Instructure platform, our go-to-market structure and partner ecosystem position us as a company to deliver long-term durable growth, and I'm excited by the plan we set to become a $1 billion revenue company by 2028. .

Turning to Slide 5. I'll discuss first quarter highlights. Total revenue of $155.5 million increased 20.7% year-over-year, including 6.8% organic constant currency revenue growth. Subscription and support revenue of $144.7 million increased 22.1%, including 7.6% organic constant currency subscription and support revenue growth.

As a reminder, organic constant currency growth rates exclude the impact of our acquisition of Parchment. .

Parchment revenue exceeded our expectations and grew double digits year-over-year. In the first quarter, pro forma annual recurring revenue for the combined Instructure and Parchment business grew in the high single digits year-over-year.

In addition, annual recurring revenue growth from our core and growth solutions was in line with our medium-term targets. .

As we move to discuss profitability, adjusted EBITDA of $64.9 million grew 34.6% year-over-year and adjusted EBITDA margin expanded significantly to 41.8% this quarter, as we benefited from continued scale in the business and a shift in our spending to later this year.

We exceeded the high end of our guidance ranges across all guided metrics, and we are positively revising our fiscal year 2024 outlook accordingly. Peter will take you through the details of our quarterly performance and full year outlook shortly. .

We also continue to innovate in areas that will have the highest impact for teachers, students and educators. As early leaders in the LMS space, customer-centric innovation is at our DNA, and we are taking a similar approach to refining the AI-enabled solutions that we highlighted during our Investor Day. .

Early indications from beta customers have been positive, and we continue to engage our community around how to best enhance their day-to-day while driving positive student outcomes. We are excited to showcase our innovation at InstructureCon 2024 taking place July 9 through the 12 in Las Vegas.

During the event, we will share customer success stories, highlight product enhancements and spotlight some of our most impactful student outcomes. .

Turning to Slide 6. As a scaled vertical software company, we are in the enviable position of having a large, loyal and referenceable customer base. These customers are asking us to solve more problems for them, and our investment in our growth businesses has created a massive cross-sell opportunity that we are only just starting to monetize.

Our expertise and laser focus on the needs of our education customers have contributed to our world-class margins as we remain focused on operational excellence. .

We have created a business model that allows us great flexibility to invest in growth opportunities, both organically and through M&A.

In summary, we believe that the mission-critical nature of the Instructure platform, our diversified product portfolio, our world-class business model in the large markets that we operate in position us to grow durably and profitably. .

Flipping to Slide 7. Throughout the quarter in conversations with customers and partners, we continue to pick up on recurring themes that underpin the value we deliver.

First, there continues to be a level of uncertainty in our markets as schools and universities are developing strategies to retain and attract more learners in an environment that has changing funding commitments and regulatory pressure. .

As our customers are grappling with these challenges, they continue to come to Instructure to help them navigate their important digital transformations. RFP activity remains high even as decision-making remains elongated. This gives us confidence that these macro headwinds are temporary. .

Second, the consolidation and optimization of technology resources continues to be a high priority, and the LMS is the natural place for consolidations to happen. Customers are pulling us into more broad-based digital transformation discussions and see Instructure as a platform for consolidating their tech stack.

This is a long-term trend, and we believe our expanding portfolio of products, especially our EdTech effectiveness solutions, as well as the extensive reach of our partner ecosystem position us as the partner of choice for consolidation. .

Third, the continued shift to nontraditional and certification programs is increasing the addressable market of learners that we and our customers can reach.

We continue to see traction with our existing customers adopting our nontraditional solutions, and I'm particularly pleased with the progress we are seeing from our newly created professional learning customer teams.

With the addition of Parchment, we believe we are the only EdTech platform that can provide a complete end-to-end solution for both traditional and nontraditional learners. .

Turning to customer highlights in the quarter on Slide 8, I'm excited to share a handful of standout wins that demonstrate the breadth of our offering and the diversity of our customer base. While the decision-making environment in our core North American LMS markets remains elongated, customers are turning to us as a key strategic partner.

Despite these near-term headwinds, we continue to win significant new logos such as the University of Alberta and a competitive win-back at Tempe Union High School District. .

The University of Alberta selected Instructure as the learning management system of the future. Canvas LMS, Studio, Credentials and additional platform solutions will power the university's education footprint across over 40,000 learners. This was a notable win for our teams we displaced the legacy competitor in the Canadian market.

Tempe Union High School District is a district that left us in 2019, decided to return to Instructure as its LMS platform after a lackluster experience with another provider. Canvas LMS stood out based on an improved user experience and excellent services and support across the platform. .

Across the growth areas of our business, we continue to see positive momentum internationally in Parchment and nontraditional and professional learning. Adelaide University located in Australia, selected Canvas LMS, Studio and Credentials as a platform to power learning across more than 50,000 learners.

Our platform offerings were aligned with Adelaide's ambitious mission focused on preparing students for a skills-focused future and to meet their students where they are in their educational journey. .

The value of Instructure's broad portfolio, including the addition of Parchment, is evident with the University of Notre Dame.

Already a Canvas LMS and Parchment customer, they selected Parchment's Comprehensive Learner Record to support a more comprehensive and accessible learner record to help students and staff better manage their credentials and their learning journey. .

And as I mentioned earlier, I'm encouraged by the traction our professional learning teams are gaining in this new focus market. The Indiana Association of Realtors selected Canvas LMS and Studio to power training and education of relators in the state of Indiana.

Past experience and familiarity with the Instructure platform strongly resonated with the more than 15,000 members of the association. .

Moving to Slide 9. Our Q1 results demonstrate the durability of our business model and the breadth of our platform offerings. As a leader in the LMS space, we are well positioned to serve as the educational platform in the future while delivering growth and profitability at scale.

And as Peter will explain, we feel confident in our ability to deliver continued margin expansion while making investments in growth in the second half of the year. .

In summary, I'm excited about the business as we enter the prime buying season. Our ecosystem of educators, partners and students is unparalleled. And with the addition of Parchment, we have further enhanced our position as the platform of choice for modern learning.

We also continue to thoughtfully innovate across our ecosystem by engaging educators and partners to deliver the most impactful solutions. All of this is done while continuing to drive world-class margins. I'm really proud of our team across the world that makes this all possible. .

With that, I will now turn the call over to Peter to discuss the financials in more detail. .

Thanks, Steve, and good afternoon, everyone. Before discussing financial results, I'd like to remind everyone that in addition to our GAAP results, I'll be discussing certain non-GAAP results.

Our GAAP results, along with the reconciliation between GAAP and non-GAAP results, can be found in our earnings release, which is posted in the Investor Relations section of our website. .

Turning to Slide 11. In the first quarter, we delivered a strong combination of durable revenue growth and compounding profitability, and we exceeded all quarterly guided metrics. Total revenue grew 20.7% to $155.5 million, with organic constant currency revenue growth of 6.8%, which excludes the impact of Parchment.

FX headwinds for the quarter of approximately 10 basis points were de minimis. .

Subscription and support revenue outpaced total revenue growth, growing 22.1% to $134.7 million, with organic constant currency subscription and support revenue growth of 7.6%, which excludes the impact of Parchment.

Subscription and support revenue accounted for 93% total revenue in the quarter, a 110 basis point increase over the first quarter of prior year. .

Professional services and other revenue, which now accounts for just 7% of total revenue, grew 4.2% year-over-year to $10.8 million. Deferred revenue at the end of the first quarter was $235 million, up 8.9% year-over-year.

Remaining performance obligations of $820.4 million increased 16.6% year-over-year, and we expect to recognize 76% of RPO over the next 24 months. .

Let's turn to Slide 12. As discussed during Investor Day, our growth strategy is focused on our core and growth businesses. This strategy diversifies our growth algorithm and positions us to deliver pro forma annual recurring revenue growth in the high single digits for the combined Instructure and Parchment businesses in the first quarter. .

We are also positioned to deliver medium-term organic annual recurring revenue growth of 9% to 11%, powering our path to $1 billion in revenue by 2028 and $1 billion in annual recurring revenue exit velocity. In discussing the remainder of the income statement, please note that, unless otherwise stated, all references are on a non-GAAP basis. .

Turning to Slide 13. Our gross margin profile remains very strong, reflecting the flywheel of a greater share of recurring revenue, coupled with continued platform scale, underpinned by operational excellence and investments in our cloud platform to more efficiently deliver solutions across our customer base.

In the first quarter, our non-GAAP gross profit margin expanded 103 basis points year-over-year to 79%. Subscription and support non-GAAP gross margin expanded 60 basis points year-over-year to 82%. .

Turning to Slide 14. Operating leverage continues to grow as the organization scales. This positions us to continue expanding profitability ahead of revenue growth. In Q1, we saw some benefit from a shift in the seasonality of investments, and as such, we expect to reinvest approximately half of this profitability upside in the remainder of the year. .

Non-GAAP operating income of $63.5 million delivered margins of 40.8%, expanded 422 basis points year-over-year. And similarly, adjusted EBITDA of $64.9 million delivered margins of 41.8%, expanding 432 basis points year-over-year. Non-GAAP net income of $32.7 million increased 17.2% year-over-year, driven by expanded profitability in the quarter. .

Operating cash flow was negative $92.6 million compared to negative $80.9 million last year, primarily due to $12 million of early collections in Q4 of last year that I discussed during our Q4 earnings call and higher interest expense from the acquisition of Parchment.

Unlevered free cash flow of negative $79 million and adjusted unlevered free cash flow of negative $65.3 million were in line with expectations and similar to prior year. .

Let's turn to Slide 15 to cover the balance sheet and leverage metrics. We ended the first quarter with $89.3 million in cash, cash equivalents, restricted cash and funds held on behalf of customers. The decrease in cash of $255 million from year-end 2023 is driven by funding of the Parchment acquisition. .

Our first quarter net leverage ratio was 4.7x. However, this calculation only captures 2 months of Parchment's adjusted EBITDA. If we calculate the leverage ratio using the prior 12 months of Parchment's adjusted EBITDA, the leverage ratio would have been lower in the first quarter.

We are on track for year-end net leverage ratio of approximately 3.4x, consistent with the guidance we provided at Investor Day. Our capital allocation priorities remain unchanged since our IPO, investing in organic revenue growth, pursuing M&A and maintaining a healthy balance sheet. .

I will now discuss Q2 guidance and our updated full year outlook. Turning to Slide 16. In the second quarter, we expect revenue in the range of $166.5 million to $167.5 million, growing 27.4% year-over-year at the midpoint.

We expect adjusted EBITDA in the range of $67.5 million to $68.5 million, resulting in margins of 40.7% at the midpoint and expansion of 160 basis points year-over-year. .

Turning to Slide 17. For the full year, we are raising our guidance to reflect the full Q1 revenue beat and an incremental raise. We now expect revenue in the range of $656.5 million to $666.5 million, growing 24.8% year-over-year at the midpoint.

This includes organic constant currency revenue growth of 5% at the midpoint, consistent with initial expectations and excluding the impact of our acquisition of Parchment. We also expect pro forma annual recurring revenue in the high single digits for the combined Instructure and Parchment business. .

Turning to adjusted EBITDA. We expect full year adjusted EBITDA in the target range of $271 million to $274 million, with margins of 41.2% at the midpoint, an expansion of 79 basis points year-over-year.

The $3.5 million of adjusted EBITDA raise reflects a partial flow-through of Q1 results and reinvestment in growth initiatives in the remainder of the year. .

We expect adjusted unlevered free cash flow in the range of $262 million to $265 million, reflecting margins of 39.8% and a raise of $1.5 million at the midpoint. This represents an increase of 17% year-over-year at the midpoint or 29% when adjusted for $12 million of early collections in Q4 of last year. .

Turning to Slide 19. We are reaffirming our medium-term target shared at Investor Day. As the business evolves toward our medium-term targets, we view annual recurring revenue and subscription and support revenue as the growth engine that will power our target of $1 billion in revenue by 2028 and $1 billion in annual recurring revenue exit velocity.

We believe, as the platform scales, we are well positioned to continue expanding margins. .

This concludes our prepared remarks. At this time, operator, please open up the line for questions. .

[Operator Instructions] And your first question comes from the line of Brian Peterson with Raymond James. .

This is Jessica on for Brian today.

So I just want to start off with, with the end of the 2023, 2024 school year, what budget priorities are you hearing so far for school districts and higher education institutions for next school year? Like outside of the core LMS, what parts are resonating with schools looking to address pain points?.

Thanks, Jessica. It's -- as we go into the budgeting process within U.S., specifically about higher ed, I think, it's very similar to what we've been talking about, right? They're looking at what is their long-term strategy from a digital transformation perspective.

How are they going to address more learners than just the traditional matriculating students that are coming on campus to get a degree. And what are some of the some of the key investments that they're going to have to make in order to effectively address that population. .

So we see continued investment in tech consolidation. We see them evaluating where -- which budgets are going to tap into to improve and increase their tech investments. You heard at our Investor Day to moving some of that money from kind of physical locations into the tech funds.

And then they're looking at what is the impact of enrollment trends, and again, how do we reach more learners as part of those enrollment trends that we're seeing. So very similar conversations that we've been having over the last 6 to 9 months. .

Got it. And also, then double-clicking on Parchment.

What milestones are you focusing on for integrating Parchment into the overall Instructure business during 2024? Like how has Parchment integrating into go-to-market and cross-sell? And what are customers interested in with Parchment so far, early responses?.

Yes, it's an area that we're very focused on. And just to be clear, there are ongoing integration efforts, particularly in the back office. And so G&A integration is happening. We're very focused on bringing them on to our systems this year.

Our plan has been to run the go-to-market separate as a way to understand the buying centers, understand where the synergies are. I'm encouraged, anecdotally, as I've been out talking with customers, they've been very positive about bringing the 2 companies together. .

I was with one of our consortia just about 2 or 3 weeks ago, and we were having conversations, and it was sparking interest where they were wanting to introduce our Parchment salespeople to the registrars because they can see some of the benefits of bringing both the delivery of learning with the evidence of learning.

So we're early signals are positive, but we're going to give ourselves the year to make some of the decisions about how those -- how the 2 teams come together and what that structure looks like going into 2025. .

Your next question comes from the line of Noah Herman with JPMorgan. .

Just maybe first on the go-to-market. I know it's starting in January of this year, you sort of rolled out a new sales organization to 2 different motions, both land-and-expand teams.

Just curious to see what the progress has been there on that front? And maybe what sort of inning are we in, in terms of this go-to-market transition?.

Yes. Thanks, Noah. Good to hear from you. I'm very pleased with the progress that we're seeing. I have seen a level of collaboration. I've seen a level of engagement, particularly in the -- what we call drive teams, which are the expand teams within the existing customers.

We're seeing a lot more lead generation from our CSMs and from the teams that are in very close with the customers. We've seen a lot more collaboration between sales and customer experience. .

So it is -- I'm encouraged. Q1 is not usually a very predictive quarter for us, right, as the buying season starts to really crank up in Q2 and Q3. But I'm encouraged by what I see from a pipeline build. I'm encouraged from the feedback that I'm getting from our customers about the unified approach that we're taking with the customers.

So still early innings, but we should -- we are -- I'm pleased with the progress. .

Yes. No, that's great to hear. In your prepared remarks, you also called out that you were actually able to realize some additional savings in the quarter, and you plan to incrementally invest into different areas going forward.

Just curious, what are some of those incremental estimates that you're making as we approach the bulk of the buying season?.

Yes. Noah, thanks for the question. So specifically, there's program spend and some technology infrastructure spend that we shifted into the back half of the year, particularly on the program spend. We just believe there'll be a higher ROI on executing that in the back half of the year. .

Your next question comes from the line of Josh Baer with Morgan Stanley. .

Just in regard to all the breakouts as far as the growth businesses we have, thinking about ARR for 2023 and the growth CAGR is looking ahead, it doesn't necessarily paint the picture of like what's really contributing this year or next year versus in 3 or 4 years. So I was hoping for a little bit of color. .

Obviously, Parchment is one of the bigger assets within the growth businesses, growing double digits, so that's going to be a big contributor. But maybe you could walk through platform ecosystem, the nontraditional, like assessments, international.

What's really going to help move the needle this year versus maybe in a few years?.

Yes, Josh. Thanks for the question. So we're really pleased with Q1 performance and pro forma ARR growth in the high single digits, in line with our expectations. And then ARR growth from our core and our growth businesses were in line with our medium-term target. .

So I'd say, kind of everything that we shared at Investor Day, we're on track with. We've obviously made a big effort to improve disclosure at Investor Day and even in today's call. So -- we're not going to comment each of the individual areas beyond the client wins that we spoke about today, et cetera.

But over time, we'll continue to look to improve disclosure even further. .

Okay. Got it. I was just wondering if you have any update on the gross retention rates.

Just wondering how that's trending at this point?.

Yes. So we do not provide that metric on a quarterly basis, and our main selling season, right, really kicks in, in Q2, Q3, et cetera, when all of our renewals happen, et cetera. So I would say, we go in the year feeling very positive about our gross retention rates. .

The next question comes from the line of Stephen Sheldon with William Blair. .

I wanted to follow up on Noah's earlier question and then ask about some other changes you've made to the sales process. I think you started doing more bundling and packaging this year. And just curious how impactful that change has been. I know, firstly, as we've said multiple times, first quarter is in a massive sales quarter.

But as we think about the key selling season coming up over the next couple of months, how impactful do you think this change could be to the breadth of solutions you're including in contracts given what you've seen so far this year?.

Yes. Stephen, to your point, it is early, and Q1 is not the big selling season for us. But what I can color commentary I can give you is, we feel good about the pipeline that's building around those bundles. As you may have noticed in the prepared remarks, those wins that were multiple product wins. So in some cases, those were the bundles that we sold.

In some cases, they were a mix of products. .

But we're finding encouraging success in our conversations about being able to walk in to a sales opportunity. And rather than just having a conversation about what LMS we're going to use, it is about the bigger full platform solution. And so we feel good.

We've been able to still have world-class win rates, and we've done a number of deals that, again, are multiproduct that give me -- again, good trend with Q2 and Q3 will be more predictive for us. .

Got it. That's helpful. And then just as a follow-up, it sounds like you're continuing to see elongated sales cycles in higher ed. So curious if that's gotten any better or worse relative to what you've been seeing in recent quarters.

And generally, what do you -- what could it take for that pressure in the ecosystem to ease?.

Yes. We haven't seen any material change, Stephen, in the kind of the length of cycle and those types of things. Again, Q1 is not a great predictive quarter for us. One of the institutions are just starting to get their budgets for next year.

And as they start to digest what that looks like and what they have left for this year, that's, I believe, that's going to be a catalyst for some of these decisions to be made. Again, time will tell, but I'm cautiously optimistic. .

Next question comes from the line of Joe Vruwink with Baird. .

I wanted to ask about some of the big wins in the high-growth areas and specifically the nontraditional opportunities.

Are those a byproduct of some of the go-to-market changes and having dedicated sales coverage there? Or are we actually just seeing still that your product is well suited for those opportunities? So the product is currently speaking for itself and the go-to-market coverage is going to drive benefits more later on, perhaps?.

It's a good question, Joe. I would say we are seeing -- I'm encouraged, right? So the fact that we have now have a sales team, we have a marketing and CSM team that are 100% focused on this part of the market for us is starting to pay dividends for us even now. I do think that this is our first quarter with that dedicated sales team.

And so I do think that there's more to come there, but I'm happy with the progress that we've made so far. .

Now the product fit, as we mentioned in our Investor Day, we've been -- there's been a lot of inbound requests prior to having a dedicated sales team that we've just been kind of catching. And so we do believe we have a good product fit here. But the -- I am encouraged by the focus that's there and the team that's executing on that. .

Okay. That's helpful. And then the bridge between reported and organic growth in the earnings release, that's great. That should be a best practice. I'm wondering if you can parse out the M&A contribution within RPO in the quarter. .

Yes. So I appreciate the question. So taking a look at RPO, we obviously had a strong growth rate of 17% year-over-year. The Instructure business growth rate was double digits. The remaining portion is from Parchment.

But I think it's important to remind you that about 1/3 of Parchment's business is subscription, so it would impact RPO, and 2/3 is transactional. .

Your next question comes from the line of Ryan MacDonald with Needham. .

This is Matt Shea on for Ryan. I think our biggest takeaway coming out of the recent ASU GSV conference was just this rationalization of vendor sprawl that the K-12 market, in particular, is going to have to go through post-ESSER funding.

So just curious, I know it's early in the selling season, but just curious if you guys are starting to see that demand for your Learn platform products or if you're ultimately changing kind of how you position the selling season just with that funding cliff and rationalization coming?.

And then would love just an update with the Learn platform on the higher ed side. You guys are still on pace to roll out that beta in the second half of those institutions.

And any early signs of demand?.

Yes. I heard the same thing at ASC GSV, Matt. And we saw -- and we've seen it in the market. In fact, every conversation that I anecdotally, again, that I've had, it's an easy conversation to have with the superintendent or a leader within because there is a -- there is still massive sprawl of apps in -- particularly in the K-12 space.

And so it is resonating. The value proposition is resonating. We have a dedicated team that continues to work on positioning and ensure that we've got the best opportunity to penetrate those opportunities. .

From a higher ed perspective, that is one of those unrealized opportunities that we're working on. We are securing design partners right now and working -- so we are on track to be in beta for the second half of the year and expect that to be a long-term growth driver for us, particularly in the EdTech effectiveness space. .

Got it. That's good to hear. And then maybe just thinking about higher ed enrollments over the next 6, 12, 18 months.

Obviously, we have this vast fiasco going on, but we did just cross the "National College Decision Day." So just curious if you guys are starting to hear anything from your college partners on what their enrollment looks like for the next 6 to 12 months? Or any other signals that are kind of informing your outlook there?.

It's a little bit early for us to get that feedback. As you said, we're just kind of getting past that deadline. And there is a lot of -- Tesla is causing some vibration, if you will, some uncertainty. But at the same time, it feels like they're getting that fixed. I would say, the trends, we saw a little bit of a firming of trends this last year. .

And so as we talk to our highed ed institutions, they are, one, focused on that, but also focused on how do we reach more and more learners. The long-term trend is still how do we bring more learners into our institution and reach more of the world, if you will. .

Your next question comes from the line of George Kurosawa with Citi. .

I'm on for Steve Enders. You called out some Parchment coming in a little better than expected.

Maybe just double click on that, kind of what seemed to be working early on here?.

Yes. Well, there's a couple of things. I think that the need for their products is just as important as it's been for their traditional Awards product. So we saw some good traction within Awards. In addition, the Pathways products are gaining more and more traction.

We see there's -- there are some conversations that we're able to open up as a combined company that give me some encouragement for the pipeline build in the future that's coming. .

So I do feel good about bringing these 2 companies together, being able to be the only one that can marry the delivery of learning with the evidence of learning and then how that can become much more rich experience and then a record that will follow the student their Comprehensive Learner Record.

That message is really resonating and is holding more power as the combined companies than either of us could have stand-alone. .

That's great color. And I think you've alluded a few times on the call to next quarter being the start of the bigger selling season.

Maybe if you just could kind of compare and contrast what you're seeing on the pipeline side relative to last year and how that informs your confidence going into the season?.

Yes. As we look at the pipeline for this quarter and for Q3, as we keep track of that, we're trending as was expected. So with our overall new business, we're seeing the growth that we expected in the pipeline. And then we -- from a renewal perspective, we feel very confident about the renewals that we've highlighted in our guidance. .

Your next question comes from the line of Devin Au with KeyBanc Capital Markets. .

First one I have is on the win-back. Congrats on that one. I know you talked about you guys winning there mainly on the customer service perspective. But I just want to get a little more context on that deal.

What solutions do they tack on? And I'm just kind of curious if there are more of these win-back deals in the pipeline in the near term?.

Yes. It was a nice win for us. It's always good when you can bring somebody back into the fold that left. So as I mentioned in my remarks, they had left us in 2019. They were enticed away from us. And after their experience over the last 3 or 4 years, they came back.

And the feedback that they gave us was the usability and the experience that they have with Canvas wasn't matched with the other solutions, as well as the level of service and support that they got was a differentiator for us against our competition. .

So it is a sweet feeling to have those win-backs. And just to be clear, that is nice.

Our biggest opportunity is there's still quite a bit of greenfield out there with Canvas, and still a big part of the -- a big part of the market that's still kind of cobbling together free tools, and that's where we believe the biggest growth opportunity for us is over the next several years. .

Got it. I appreciate the context there. And then a quick one for Peter. Macro seems to have like downed in the past 90 days, with rates looking to remain elevated longer. But it sounds like the headwinds you're facing in higher ed was quite consistent from prior quarter.

So my question here is, any changes around the macro assumptions being built into your full year guide versus when you initially set the outlook a quarter ago? Just any changes there?.

Yes. Appreciate the question. Our view is there's been no material changes to the macro environment since we last spoke. So there's been no changes in our guide as a result of that. We really need to get into our core buying season, and that will tell us if there's a change in the macro. .

If I would add there, George, that, again, this market is less sensitive to the bigger economic macro trends that are out there, right? This macro backdrop is more related to enrollments and some of the tuition and those types of things than it is the big economic macro. .

But the nice thing is, because we are a trusted partner, because we're in talking longer term, that this is part of a bigger, longer-term digital transformation strategy. We get visibility pretty early in those macro trends.

So that's why you kind of see that consistent -- consistently, we're talking about the same trends is because we got early view into those changes that were happening. .

Your next question comes from Terrell Tillman with Truist Securities. .

Connor Passarella on for Terry. Steve, you mentioned the partner ecosystem a few times in the prepared remarks. You're at 900 person -- partners now.

Could you maybe just give us an update on their ability to either directly or indirectly influence business and revenue for Instructure?.

Sure. Yes. It is a -- and it's good to hear from you, Connor. It's good. It is a nice competitive moat, if you will, because of the size, because of the breadth, whenever we walk into an opportunity, we're seeing it as a competitive advantage for us in the selling process.

So for instance, I think we talked about it a quarter or 2 ago, for instance, when we won Montana University system. That was because of some -- because of technology that was integrated into just into Canvas that allowed us to learn to win that deal. .

We see it in some of the examples that I gave in my prepared remarks, where we had technology integrations that allowed us to differentiate against competition. So it does continue to be one of those competitive advantages that would be really difficult for our competition to replicate as we go into a selling opportunity. .

I would -- we did announce in the quarter as well a collaboration with Lucidchart, where their tools are integrated into Canvas and available to our customers for free, as part of the purchase of the LMS.

And so again, the advantage that we have as being the market leader by having a huge network of students and teachers that are on our platform gives us some of these advantages that make us more competitive in the selling process. .

Yes. I appreciate that. Maybe just as a quick follow-up. The University of Manchester win in the U.K. last quarter, I think you called out specifically that would be more of a lighthouse win for the region.

I'm just curious on how you're seeing the activity play out so far post that deal?.

Yes, it is. It's one of those institutions that other institutions, particularly in the U.K., look towards. And our EMEA team are very happy with the outcome there. We're using it as part of our selling process. We're still -- we're early days with them. And so we'll be able to leverage them even more going into the future.

But it really does validate our international strategy and the success that we're seeing internationally. .

Your next question comes from the line of Matt VanVliet with BTIG. .

I guess as more and more attention on the nontraditional learner, curious on what the pipeline looks like for Catalog and maybe even Studio as whether it's universities or other programs look at how to create a tech stack that is maybe more margin-friendly to the institutions themselves and how much attention you're getting on building out that type of program for them?.

Yes. That's one of the areas that I'm particularly pleased with in this last quarter. We're seeing -- we saw good performance out of that part of the business. And it is, to your point, it's about a bundle of products.

It's a number of products that go into that, it's pricing strategies, it's positioning and marketing that we do in that space is bringing more opportunity. So when I look at kind of Q2, Q3 pipeline, looks really good. We're encouraged that we can hit our commitments from that -- from a nontraditional. .

And then as you look towards the prime selling season here coming up, how should you think about overall deal sizes, early indications from customers in terms of how much budget is available versus longer-term plans to have more of a land-and-expand approach.

Any early thoughts on kind of what you're seeing in the pipeline from a deal size perspective?.

Yes. The -- I would say, Matt, that what we're seeing in our discussions and part of the reason why some of these deals are elongating is because they're much more strategic discussions than we've had in the past because we are talking about overall revenue for an institution, right? How do they go attract more of these nontraditional learners.

It becomes -- we end up calling much higher in the organization. .

So from that perspective, we are encouraged about the size of deal when we do get into these conversations, counteracted by the fact that it takes longer to have those conversations higher up in the organization. Now it's counteracted a little bit.

The reason I was hesitating just a little bit, Matt, was because, at the same time, we also created a middle market focus in our go-to-market. So we are, at the same time, calling on a segment of the market that is a little bit smaller that, historically, we've been we haven't called on -- we haven't had a dedicated team to call on.

And so it kind of balance out each other. But I would say, when we are having these strategic discussions, they are obviously, a bigger -- it ends up being a bigger sale for us. .

That concludes our Q&A session. I will now turn the conference back over to Steve Daly, CEO, for closing remarks. .

Thank you, everybody, for joining us today. Our exceptional first quarter and updated fiscal year guidance was driven by our increasing competitive advantage, our strong execution and our expanding profitability.

We head into the remainder of 2024 with meaningfully enhanced scale, a broader portfolio of products and a retooled go-to-market strategy focused on delivering durable growth at scale. I personally couldn't be more excited about our ability to elevate teaching and learning for students and educators while creating value for shareholders.

Thank you for joining us. .

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect..