Q1 2024 Instructure Holdings Inc Earnings Call

Participants

Matthew Wells; Senior Vice President, Investor Relations; Instructure Holdings Inc

Steve Daly; President & CEO; Instructure Holdings Inc

Peter Walker; Chief Financial Officer, Executive Vice President; Instructure Holdings Inc

Noah Herman; Analyst; J. P. Morgan Securities LLC

Josh Baer; Analyst; Morgan Stanley

Stephen Sheldon; Analyst; William Blair & Company LLC

Joe Vruwink; Analyst; Robert W. Baird & Co. Inc.

Matt Shea; Analyst; Needham & Company Inc

George Kurosawa; Analyst; Citi

Devin Au; Analyst; Keybanc Capital Markets

Connor Passarella; Analyst; Truist Securities

Matt VanVliet; Analyst; BTIG LLC

Presentation

Operator

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

Matthew Wells

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 in 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.

Steve Daly

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 opportunities 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 terms that learning and 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 traditional degrees 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 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 Instructure con 2024, taking place July 9 through the 12th 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 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 in laser focus on the needs of our education customers and 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 and conversations with customers and partners. We continued pickup 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 in and structure 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 consolidation 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 AdTech 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 non-traditional 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 are 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 the 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 element 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 Tampa 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 universities education footprint across over 40,000 learners. This was a notable win for our team as we displaced a legacy competitor in the Canadian market.
Camping union high school district is a district that left us in 2020, 2019, decided to return to Instructure as its elements platform after less 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 & Professional Learning, Adelaide university located 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, ambitious mission focused on preparing students for 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 purchased its 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 focused market. The Indiana associate Association of Realtors, selected Canvas, LMS and studio to power training and education of regulators 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 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 without I will now turn the call over to Peter to discuss the financials in more detail.

Peter Walker

Thanks, Steve, and good afternoon, everyone. Before discussing financial results, I'd like to remind 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 minimus subscription and support revenue outpaced total revenue growth, growing 22.1% to $144.7 million with organic constant currency as subscription and support revenue growth of 7.6%, which excludes the impact of parchment subscription and support revenue accounted for 93% of total revenue in the quarter, a 110 basis points 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 through them and positions us to deliver pro forma annual recurring revenue growth in the high single digits for the combined Instructure and partner 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 68 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 4.7 times.
However, this calculation only captures two months of participants' adjusted EBITDA. If we calculate the leverage ratio using the prior 12 months apartments 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 3.4 times, 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 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% and the midpoint consistent with initial expectations and excluding the impact of our acquisition of parchment, we also expect pro forma annual recurring revenue in 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 and 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 targets 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.

Question and Answer Session

Operator

(Operator Instructions) Brian Peterson, Raymond James.

Hi, this is Jessica on for Brian today.
So I just wanted to start off with the end of the 2023, 2024 school year.
What budget priority are you hearing us so far for school districts and higher education institutions for next school year?
Like outside of the core elements, what Putnam our resonating with schools looking to address pain points,

Steve Daly

Thanks Jessica. As we as we go into the budgeting process within within U.S. specifically about higher? Ed, I think the we it's very similar to what we've been talking about, right there is they are 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 the and some of the key investments that they're going to have to make in order to effectively address that population. So we see we see continued investment in tech consolidation. We see we see them evaluating where which budgets are going to tap into to improve and increase their tech, evaluate their tech investments.
You heard at our investor day moving some of that money from kind of physical locations into the tech into the tech funds and then they're looking at what is the impact of enrollment trends? And again, how do we how do we reach more learners as part of the those enrollment trends that we're seeing.
So very similar conversations that we've been having over the last less six to nine, nine months.

And I think you're at and also on the Double clicking on parchment, what milestones are you focusing on for integrating parchment into the overall structure business during '23 for like how is parchment at integrating into go to market and cross-sell? And what are customers interested in with partners so far early responses?Thanks.

Steve Daly

Yes. Yes, it's and it's an area that we're very focused on. And just to be clear, there is there are ongoing integration efforts on particularly in the back office. And so G&A integration is happening where we're very focused on bringing them onto 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. And anecdotally, as I've been out talking with with customers, they say they've been very positive about bringing the two companies together. We've I was with one of our consortia just about two or three weeks ago.
And we were having conversations and it was sparking interest where they were they were wanting to introduce our parts department salespeople to the registrars because they can see some of the benefits of the 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. It makes some of the decisions about how those how the two teams come together and what that structure looks like going into 2025.

Got it.

Operator

Noah Herman, JPMorgan.

Noah Herman

Hey, guys, thanks for taking the questions on. Just maybe first on the go to market, I know starting in January of this year, you sort of rolled out a new sales organization to two 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 any areas in terms of this go-to-market transition?

Steve Daly

Yes, thanks. Thanks, Noah. Good to hear from you on the euro front from 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 within the existing customers.
We're seeing a lot more our lead generation from our CSM.s 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 it's 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 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 customer. So and you're still early innings, but we should we are on I'm pleased with the progress.

Noah Herman

And that's great to hear from 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 on incrementally invest in different areas going forward. Just curious what are some of those incremental investments you're making as we approach the bulk of the buying season?
Thanks.

Peter Walker

Yes, hey, Noah. Thanks for the question 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. And we just believe there will be a higher ROI on executing that in the back half of the year.

Operator

Josh Baer,Morgan Stanley.

Josh Baer

Greg, thanks for the question, just in regard to all the breakouts as far as the growth businesses that we have are thinking about ARR for 2023 and the growth figures looking ahead, it doesn't necessarily paint the picture of like what's really contributing this year or next year versus in three or four 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 what's really going to help move the needle this year versus maybe in a few years?

Peter Walker

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 targets
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 on 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.

Josh Baer

Okay. Got it. And I was just wondering if you have any an update on the gross retention rates. Just wondering how that's trending at this point? Thanks.

Peter Walker

Yes. So we do not provide that metric on 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 where we go in the year, feeling very positive about our gross retention rates.

Josh Baer

Perfect.

Operator

Stephen Sheldon, William Blair.

Stephen Sheldon

Hey, thanks for taking my questions. I wanted to follow up on Noah's earlier question and 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 that firstly, as we've said many times, Q1 isn't 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're seeing so far this year?

Steve Daly

Yes, you know, Stephen, to your point, it is early and Q1 is not the big selling season for us. But what I what I can color commentary I can give you is and we feel good about the pipeline that's building around those around those of those bundles. As you may have noticed in the prepared remarks, those wins that were multiple product wins.
And so in some cases, those were the bundles that we sold in some cases, they were a mix of products, but we are finding them. We're finding encouraging success in our conversations about and being able to walk in to a kind of a sales opportunity. And rather than just having a conversation about what elements are going to use, it is about the bigger full platform solution.
And so we feel good that we've been able to still have world-class win rates. And we've and we've done a number of deals that again are multiproduct. They give me again, good, good trend with Q2 and Q3 will be more the predictive for us.

Stephen Sheldon

Got it.
That's helpful.
And then just as a follow-up, it sounds like you're continuing to see longer-dated sales cycles and higher ed. So curious if that's gotten any better or worse?
Was it what you've been seeing in recent quarters? And generally, what do you what would it take for that pressure in the ecosystem to ease.

Steve Daly

Yes, we haven't seen any material change then, Stephen, in the 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 units 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 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.

Stephen Sheldon

All right. Great. Thank you.

Operator

Joe Vruwink, Baird.

Joe Vruwink

Great. Hi, everyone. I wanted to ask about some of the big wins and high 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.

Steve Daly

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 on that are 100% focused on this part of the market for us is starting to pay pay dividends for us even now I do think that it this is our first quarter with that dedicated sales team.
And so I do 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 teams that we've just been kind of catching up. And so we do believe we have a good product fit here. But the I do, I am I am encouraged by the focus that's there and the team that's executing on that.

Joe Vruwink

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

Peter Walker

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 a third of parchment business is subscription. So it impact RPO and two thirds is transactional.

Joe Vruwink

Okay. That's great. Thank you very much.

Operator

Ryan MacDonald, Needham.

Matt Shea

Hey, this is Matt Shea on for Ryan. Thanks for taking the question. I think our biggest takeaway coming out of the recent ASUGSV. conference was just this rationalization of vendor sprawl that the K-12 market in particular is going to have to go through post Essar 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 are and if you're ultimately changing kind of how you position that the selling season, just with that, that funding cliff and rationalization coming?
And then would love just an update with the Wyndham 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?

Steve Daly

Yes, I heard the same thing at ASUGSV., Matt. And we saw and we've seen it in the in the market are in fact, every conversation that anecdotally again that I've had, it's an easy conversation to have with the superintendent tour as 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 it is resonating the value proposition is resonating. We have a dedicated team that's <unk> that continues to work on positioning and ensure that we've got the best opportunity to penetrate those opportunities from a 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 it's a long-term growth driver for us, particularly in the ad tech effectiveness space.

Matt Shea

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 faster fiasco going on, but we did just cross the quote unquote, 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, 12 months or any other signals that are kind of informing your outlook there.

Steve Daly

And 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's there is a lot of it Best Buy is causing some some vibration, if you will, some uncertainty. But but at the same time, it feels like they're getting that fixed. I would say trends.
We saw a little bit of a firming of trends this last year. And so as we talk to our higher ed institutions and 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 onto our into our institution and and reach more of the world, if you will.

Matt Shea

Thanks, guys.

Steve Daly

Operator, operator, your next call?
Yes, we're ready for our next question.

Operator

George Kurosawa, Citi.

George Kurosawa

I'm on for Steven Enders. Thanks for. Thanks for taking the question here. You called out some partially coming in a little better than expected? Maybe just double-click on that kind of what seem to be working early on there.

Steve Daly

Yes. Well, there's a couple of things. I think that the need for their products is just is just as important as it's been for their traditional awards products. So we saw some good some good traction within awards.
In addition, the Pathways program products are our D are gaining more and more traction. We see there's there are some some conversations that we're able to open up as a combined company that give me some some encouragement for the pipeline build in the future that that's coming.
So I do feel good about and bringing these two companies together being able to be the only the only one that can can Mary the delivery of learning with the evidence of learning and then how that can become a much more rich experience and then that of 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, then either of us could have standalone.

George Kurosawa

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

Steve Daly

Yes. As we look at the pipeline for for this quarter and for Q3 as we keep track of that, and we are we're trending as was expected. So with there overall new business we're seeing 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.

George Kurosawa

Second questions.

Operator

Devin Au, Keybanc Capital Market.

Devin Au

Great. Thanks for taking my questions. First one I have is on the on the win-back. Congrats on down. 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 that they tack on and I'm just kind of curious if there are more of these win-backs deals in the pipeline in the near term?

Steve Daly

Yes, it was a it was a nice It was nice win for us. It's always good when when you can bring somebody back into the fold on the left. So as I mentioned in my remarks, and they had left us in 2019 as they were enticed away from us. And after their experience over the last three or four years, they came back. And the feedback that they gave us was the usability and the experience that they 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 up against our competition. So it is a it is it is a sweet sweet feeling that to have those winbacks.
And just to be clear, our IT 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 and 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.

Devin Au

Got it. Appreciate the context there. And then a quick one for Peter macro seems like downtick in past 90 days with rates looking to remain elevated longer. It sounds like the headwinds you're facing in higher ed is quite consistent from prior quarter. So my question here is any changes around the macro assumptions being built into your full your guide versus when you initially set the outlook quarter ago? Just any change there next year.

Peter Walker

I appreciate appreciate the question. You know, 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.

Devin Au

Okay. Thank you.

Steve Daly

I would add there. I would add there, Au, that you know, again that this market is less sensitive to the bigger economic macro trends that are out there, right of these the macro backdrop is more related to enrollments and some of these other tuition and those types of things, then it is the big economic macro.
But the nice thing is because we are a trusted partner because we're in talking long 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 and consistently, we're talking about the same trends just because we got early early view into those into those those changes that were happening Thanks.

Devin Au

Appreciate the color.

Operator

Terry Tillman, Truist Securities.

Connor Passarella

Great, thanks. Connor Passarella on for Terry. Appreciate you taking the questions asked is you mentioned the partner ecosystem a few times in the prepared remarks, you're at 900 or so partners now. Can you just give us an update on their ability to either directly or indirectly influence?
This is revenue for Instructure?

Steve Daly

Sure. Yes, it is a it's good to hear from you, Conor.
It's good.
It is a it is a nice, a competitive moat if you will, because of the size because of the breadth whenever we walk into an opportunity and we're seeing it as a competitive advantage for us in the selling process. So for instance, I think we talked about it from a quarter or two ago, for instance of when we went Montana university system, that was because of some because of technology that was integrated into just into canvas that allowed us to learn and to win that win that deal. We see it.
And in some of the some of the examples that I gave in my prepared remarks where we had we had technology integrations that allowed us to differentiate against the against competition. So it does continue to be one of those competitive advantages that that would be really difficult for our competition to replicate as we go into into a selling opportunity.
And I would add that we did announce in the quarter as well collaboration was elusive charts where their tools are integrated into cannabis and available to our customers for free as part of the purchase of the LMS. And so again, the the advantage that we have as being the market leader by having a huge network of use of students and teachers that are on our platform. It gives us some of these advantages that that make us more competitive in a selling process.

Connor Passarella

Yes, Scott, I appreciate that. Maybe just a quick follow-up on the University of Manchester win in the UK 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.

Steve Daly

Yes.
It is it's one of those institutions that other institutions, particularly in the UK look towards and our Army at our media team are very happy with the outcome there or we're using it as part of our as part of our selling process, we're 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 we're seeing internationally.

Connor Passarella

Great. Thanks.

Operator

Matt VanVliet, BTIG.

Matt VanVliet

Great. Thanks for taking the question. I guess is there 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 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?

Steve Daly

Yes, that's one of the 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 it's about a bundle of products. It's a number of products that go into that IT system, its pricing strategies, its positioning and our positioning and marketing that we do in that space is make is bringing more opportunity. So when I look at kind of Q2, Q3 pipeline looks really good, and we're encouraged that we can hit our you know that we can hit our commitments from from that from a nontraditional.

Matt VanVliet

And then as you look towards the prime selling season here coming up, how should we think about overall deal size? Is early indications from customers in terms of how much budgets available versus longer term plans to have more of a land-and-expand approach? And any early thoughts on kind of what you're seeing in the pipeline from a deal size perspective?

Steve Daly

I'm yes, the I'm yes, I would say, Matt, that that what we're seeing in our discussions and part of it, part of the reason why some of these deals are elongating is because there are much more strategic discussions than we've had in the past because we are talking about, you know, the 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 do get into these conversations CounterACT by the fact that takes longer to have those conversations higher up in the organization. Now that's counteracted a little bit. The reason I was hesitating just a little bit, Matt was because at the same time, we also it created a middle market focus in our go to market.
So we are 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, and we haven't had a dedicated team to call on and so they kind of balance out each other. But I would say when we hit when we are having these strategic discussions, they are, you know, obviously a bigger it ends up being a bigger sale for us.

Matt VanVliet

All right. Very helpful.

Steve Daly

Thank you.

Operator

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

Steve Daly

Thank you, everybody, for joining us today in 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.

Operator

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