UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30,~~March 31, ~~2022~~2023

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-40647

Instructure Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

84-4325548

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

6330 South 3000 East, Suite 700

Salt Lake City, UT 84121

(Address of principal executive offices, including zip code)

(800) 203-6755

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	INST	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer		Accelerated filer	

Non-accelerated filer		Smaller reporting company	

Emerging growth company	

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

As of ~~October 31, 2022,~~May 2, 2023, there were ~~142,502,988~~143,478,526 shares of the registrant’s common stock outstanding.

Instructure Holdings, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended ~~September 30, 2022~~March 31, 2023

INDEX


			Page
	PART I. FINANCIAL INFORMATION (Unaudited)

Item 1.	Condensed Consolidated Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations and Comprehensive Loss	4

	Condensed Consolidated Statements of Stockholders’ Equity	5

	Condensed Consolidated Statements of Cash Flows	76


	Notes to Condensed Consolidated Financial Statements	98

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2521

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4135

Item 4.	Controls and Procedures	4236

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4337

Item 1A.	Risk Factors	4337

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4337

Item 3.	Default Upon Senior Securities	4337

Item 4.	Mine Safety Disclosures	4337

Item 5.	Other Information	4337

Item 6.	Exhibits	4337

SIGNATURES		4539

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Instructure,” and the “Company” refer to Instructure Holdings, Inc. and its wholly-owned subsidiaries.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

INSTRUCTURE HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)


	September 30,			December 31,			March 31,			December 31,
	2022			2021			2023			2022
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	259,161		$	164,928		$	104,758		$	185,954
Accounts receivable—net		72,332			51,607			63,505			71,428
Prepaid expenses		27,624			15,475			44,427			11,120
Deferred commissions		14,222			11,418			14,482			13,390
Other current assets		3,015			3,384			2,782			3,144
Total current assets		376,354			246,812			229,954			285,036
Property and equipment, net		12,915			10,792			12,249			12,380
Right-of-use assets		14,537			18,175			12,584			13,575
Goodwill		1,203,979			1,194,221			1,266,402			1,266,402
Intangible assets, net		540,551			629,746			506,930			542,679
Noncurrent prepaid expenses		993			1,553			7,427			871
Deferred commissions, net of current portion		18,634			20,105			16,745			18,781
Deferred tax assets		9,304			6,477			7,925			8,143
Other assets		5,649			5,901			5,654			5,622
Total assets	$	2,182,916		$	2,133,782		$	2,065,870		$	2,153,489
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	19,674		$	18,324		$	13,765		$	18,792
Accrued liabilities		26,563			28,408			26,213			28,483
Lease liabilities		6,956			6,666			7,099			7,205
Long-term debt, current		4,013			2,763			4,013			4,013
Deferred revenue		308,231			240,936			203,231			275,564
Total current liabilities		365,437			297,097			254,321			334,057
Long-term debt, net of current portion		487,490			490,500			485,468			486,471
Deferred revenue, net of current portion		12,632			14,740			12,491			13,816
Lease liabilities, net of current portion		18,045			23,678			14,804			16,610
Deferred tax liabilities		22,614			29,851			21,425			24,702
Other long-term liabilities		1,890			3,531			1,382			1,706
Total liabilities		908,108			859,397			789,891			877,362
Stockholders’ equity:
Common stock, par value $0.01 per share; 500,000 shares authorized as of September 30, 2022 (unaudited) and December 31, 2021; 142,503 and 140,741 shares issued and outstanding as of September 30, 2022 (unaudited) and December 31, 2021, respectively.		1,425			1,407
Common stock, par value $0.01 per share; 500,000 shares authorized as of March 31, 2023 (unaudited) and December 31, 2022; 143,479 and 142,917 shares issued and outstanding as of March 31, 2023 (unaudited) and December 31, 2022, respectively.								1,435			1,429
Additional paid-in capital		1,568,562			1,539,638			1,587,303			1,575,600
Accumulated deficit		(295,179	)		(266,660	)		(312,759	)		(300,902	)
Total stockholders’ equity		1,274,808			1,274,385			1,275,979			1,276,127
Total liabilities and stockholders’ equity	$	2,182,916		$	2,133,782		$	2,065,870		$	2,153,489

See accompanying notes.

INSTRUCTURE HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts)

(unaudited)


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2022			2021			2022			2021			2023			2022
Revenue:
Subscription and support	$	109,727		$	96,163		$	316,124		$	266,774		$	118,480		$	103,492
Professional services and other		12,702			11,058			34,344			27,994			10,363			9,970
Total revenue		122,429			107,221			350,468			294,768			128,843			113,462
Cost of revenue:
Subscription and support		37,005			36,528			108,419			112,575			38,810			35,546
Professional services and other		7,068			4,939			19,063			15,500			7,022			5,465
Total cost of revenue		44,073			41,467			127,482			128,075			45,832			41,011
Gross profit		78,356			65,754			222,986			166,693			83,011			72,451
Operating expenses:
Sales and marketing		45,737			40,553			134,943			120,858			50,850			43,321
Research and development		20,596			15,823			56,466			47,191			23,702			17,201
General and administrative		14,408			14,396			44,277			38,943			14,373			15,616
Impairment on disposal group		—			—			—			1,218
Total operating expenses		80,741			70,772			235,686			208,210			88,925			76,138
Loss from operations		(2,385	)		(5,018	)		(12,700	)		(41,517	)		(5,914	)		(3,687	)
Other income (expense):
Interest income		303			—			366			13			1,341			36
Interest expense		(7,173	)		(11,251	)		(16,337	)		(44,178	)		(9,485	)		(4,553	)
Other expense		(3,856	)		(1,623	)		(6,967	)		(2,365	)
Other income														76			306
Total other income (expense), net		(10,726	)		(12,874	)		(22,938	)		(46,530	)		(8,068	)		(4,211	)
Loss before income taxes		(13,111	)		(17,892	)		(35,638	)		(88,047	)		(13,982	)		(7,898	)
Income tax benefit		3,056			4,631			7,119			20,022			2,125			2,353
Net loss and comprehensive loss	$	(10,055	)	$	(13,261	)	$	(28,519	)	$	(68,025	)	$	(11,857	)	$	(5,545	)
Net loss per common share, basic and diluted	$	(0.07	)	$	(0.10	)	$	(0.20	)	$	(0.52	)	$	(0.08	)	$	(0.04	)
Weighted average common shares used in computing basic and diluted net loss per common share		142,108			136,647			141,536			129,643			143,112			140,952

~~Share amounts and per share data give retroactive effect to the forward stock split described in the Description of Business and Basis of Presentation footnote effective July 9, 2021.~~

See accompanying notes.

INSTRUCTURE HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except per share amounts)

(unaudited)


	Common															Common
	Stock, $0.01						Additional						Total			Stock, $0.01						Additional						Total
	Par Value						Paid-In			Accumulated			Stockholders'			Par Value						Paid-In			Accumulated			Stockholders’
	Shares			Amount			Capital			Deficit			Equity			Shares			Amount			Capital			Deficit			Equity
Balances at June 30, 2022		141,914		$	1,419		$	1,558,193		$	(285,124	)	$	1,274,488
Balances at December 31, 2022																	142,917		$	1,429		$	1,575,600		$	(300,902	)	$	1,276,127
Vesting of restricted stock units		484			5			(5	)		—			—			440			5			(5	)		—			—
Purchase of ESPP shares		178			2			3,249			—			3,251			173			2			3,293			—			3,295
Shares withheld for tax withholding on vesting of restricted stock units		(73	)		(1	)		(1,644	)		—			(1,645	)		(51	)		(1	)		(1,278	)		—			(1,279	)
Stock-based compensation		—			—			8,769			—			8,769			—			—			9,693			—			9,693
Net loss		—			—			—			(10,055	)		(10,055	)		—			—			—			(11,857	)		(11,857	)
Balances at September 30, 2022		142,503		$	1,425		$	1,568,562		$	(295,179	)	$	1,274,808
Balances at March 31, 2023																	143,479		$	1,435		$	1,587,303		$	(312,759	)	$	1,275,979


	Common															Common
	Stock, $0.01						Additional						Total			Stock, $0.01						Additional						Total
	Par Value						Paid-In			Accumulated			Stockholders'			Par Value						Paid-In			Accumulated			Stockholders’
	Shares			Amount			Capital			Deficit			Equity			Shares			Amount			Capital			Deficit			Equity
Balances at June 30, 2021		126,001		$	1,260		$	1,268,683		$	(232,745	)	$	1,037,198
Repurchase of TopCo units		(2	)		—			(7	)		—			(7	)
Issuance of common stock in connection with initial public offering, net of underwriters' discounts and commissions and issuance costs		14,175			142			259,462			—			259,604
Balances at December 31, 2021																	140,741		$	1,407		$	1,539,638		$	(266,660	)	$	1,274,385
Vesting of restricted stock units		306			3			(3	)		—			—			425			4			(4	)		—			—
Purchase of ESPP shares																	240			3			4,073			—			4,076
Shares withheld for tax withholding on vesting of restricted stock units		(57	)		(1	)		(1,317	)		—			(1,318	)		(59	)		(1	)		(1,262	)		—			(1,263	)
Stock-based compensation		—			—			6,777			—			6,777			—			—			7,873			—			7,873
Net loss		—			—			—			(13,261	)		(13,261	)		—			—			—			(5,545	)		(5,545	)
Balances at September 30, 2021		140,423		$	1,404		$	1,533,595		$	(246,006	)	$	1,288,993
Balances at March 31, 2022																	141,347		$	1,413		$	1,550,318		$	(272,205	)	$	1,279,526

See accompanying notes.

~~INSTRUCTURE HOLDINGS, INC.~~

~~Condensed Consolidated Statements of Stockholders’ Equity~~

~~(in thousands, except per share amounts)~~

~~(unaudited)~~

Common

Stock, $0.01

Additional

Total

Par Value

Paid-In

Accumulated

Stockholders’

Shares

Amount

Capital

Deficit

Equity

Balances at December 31, 2021

140,741

$
1,407

$
1,539,638

$
(266,660
)

$
1,274,385

Vesting of restricted stock units

1,498

15

(15
)

—

—

Purchase of ESPP shares

418

5

7,322

—

7,327

Shares withheld for tax withholding on vesting of restricted stock units

(154
)

(2
)

(3,331
)

—

(3,333
)
Stock-based compensation

—

—

24,948

—

24,948

Net loss

—

—

—

(28,519
)

(28,519
)
Balances at September 30, 2022

142,503

$
1,425

$
1,568,562

$
(295,179
)

$
1,274,808

Common

Stock, $0.01

Additional

Total

Par Value

Paid-In

Accumulated

Stockholders’

Shares

Amount

Capital

Deficit

Equity

Balances at December 31, 2020

126,219

$
1,262

$
1,264,703

$
(177,981
)

$
1,087,984

Repurchase of TopCo units

(220
)

(2
)

(928
)

—

(930
)
Issuance of common stock in connection with initial public offering, net of underwriters' discounts and commissions and issuance costs

14,175

142

259,462

—

259,604

Vesting of restricted stock units

306

3

(3
)

—

—

Shares withheld for tax withholding on vesting of restricted stock units

(57
)

(1
)

(1,317
)

—

(1,318
)
Stock-based compensation

—

—

11,678

—

11,678

Net loss

—

—

—

(68,025
)

(68,025
)
Balances at September 30, 2021

140,423

$
1,404

$
1,533,595

$
(246,006
)

$
1,288,993

~~Share amounts and per share data give retroactive effect to the forward stock split described in the Description of Business and Basis of Presentation footnote effective July 9, 2021.~~

~~See accompanying notes.~~

INSTRUCTURE HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine months ended September 30,						Three months ended March 31,
	2022			2021			2023			2022
Operating activities:
Net loss	$	(28,519	)	$	(68,025	)	$	(11,857	)	$	(5,545	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation of property and equipment		3,145			2,728			1,203			1,004
Amortization of intangible assets		102,195			100,319			35,749			33,741
Amortization of deferred financing costs		881			1,958			294			294
Impairment on disposal group		—			1,218
Stock-based compensation		24,670			11,532			9,635			7,813
Deferred income taxes		(10,064	)		(20,254	)		(3,059	)		(3,411	)
Other		4,917			1,565			181			(360	)
Changes in assets and liabilities:
Accounts receivable, net		(20,357	)		(7,700	)		7,629			14,779
Prepaid expenses and other assets		(10,941	)		80			(39,557	)		(34,733	)
Deferred commissions		(1,333	)		(5,596	)		944			304
Right-of-use assets		3,638			7,552			991			1,197
Accounts payable and accrued liabilities		(2,395	)		8,634			(7,177	)		(11,746	)
Deferred revenue		62,621			80,470			(73,658	)		(66,701	)
Lease liabilities		(5,343	)		(4,746	)		(1,912	)		(1,468	)
Other liabilities		(1,641	)		(919	)		(324	)		(1,113	)
Net cash provided by operating activities		121,474			108,816
Net cash used in operating activities								(80,918	)		(65,945	)
Investing activities:
Purchases of property and equipment		(4,979	)		(2,800	)		(1,327	)		(1,333	)
Proceeds from sale of property and equipment		41			40			6			22
Proceeds from sale of Bridge		—			46,018
Business acquisitions, net of cash received		(19,484	)		(16,886	)
Net cash provided by (used in) investing activities		(24,422	)		26,372
Net cash used in investing activities								(1,321	)		(1,311	)
Financing activities:
IPO proceeds, net of offering costs paid of $5,719		—			259,604
Proceeds from issuance of common stock from employee equity plans		7,327			—			3,295			4,076
Shares repurchased for tax withholdings on vesting of restricted stock units		(3,333	)		(1,318	)		(1,279	)		(1,263	)
Distributions to stockholders		—			(930	)
Repayments on long-term debt		(2,500	)		(307,882	)		(1,250	)		—
Term Loan prepayment premium		—			(3,827	)
Net cash provided by (used in) financing activities		1,494			(54,353	)
Net cash provided by financing activities								766			2,813
Foreign currency impacts on cash, cash equivalents, and restricted cash		(4,256	)		—			301			590
Net increase in cash, cash equivalents, and restricted cash		94,290			80,835
Net decrease in cash, cash equivalents, and restricted cash								(81,172	)		(63,853	)
Cash, cash equivalents, and restricted cash, beginning of period		169,152			150,953			190,266			169,152
Cash, cash equivalents, and restricted cash, end of period	$	263,442		$	231,788		$	109,094		$	105,299
Supplemental cash flow disclosure:
Cash paid for taxes	$	3,034		$	556		$	181		$	69
Interest paid	$	9,950		$	42,302		$	8,096		$	1,424
Non-cash investing and financing activities:
Capital expenditures incurred but not yet paid	$	20		$	62		$	186		$	119

See accompanying notes.

INSTRUCTURE HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

The following provides a reconciliation of cash, cash equivalents, and restricted cash to the amounts reported on the condensed consolidated balance sheets. Restricted cash has been disclosed in Other assets as it is associated with letters of credit obtained to secure office space from our various lease agreements and other contractual arrangements (in thousands):



	Nine months ended September 30,				Three months ended March 31,
	2022		2021		2023		2022

Cash and equivalents	$	259,161	$	227,487	$	104,758	$	100,854
Restricted cash		4,281		4,301		4,336		4,445
Total cash, cash equivalents, and restricted cash	$	263,442	$	231,788	$	109,094	$	105,299

See accompanying notes.

INSTRUCTURE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of Business and Basis of Presentation

Organization

On March 24, 2020, Instructure Parent, L.P. (“TopCo”) acquired 100 percent of Instructure, Inc.’s equity. Instructure Intermediate Holdings I, Inc. was a wholly-owned subsidiary of TopCo and was formed on January 14, 2020 by Thoma Bravo Fund XIII, L.P. (“Thoma Bravo”) for the purpose of purchasing (the “Take-Private Transaction”) Instructure, Inc. and had no operations prior to the Take-Private Transaction. On May 26, 2021, Instructure Intermediate Holdings I, Inc. changed its name to Instructure Holdings, Inc. (the “Company,” “Instructure,” “we,” “our,” or “us” ).).

Instructure is an education technology company dedicated to elevating student access, amplifying the power of teaching, and inspiring everyone to learn together. Instructure's learning platform delivers a next-generation learning management system (“LMS”), robust assessments for learning, actionable analytics, and engaging, dynamic content. Instructure offers its learning platform through a Software-as-a-Service, or SaaS, business model. Instructure, Inc. was incorporated in the state of Delaware in September 2008. We are headquartered in Salt Lake City, Utah, and have wholly-owned subsidiaries in the United Kingdom, Australia, the Netherlands, Hong Kong, Sweden, Brazil, Mexico, Hungary, and Singapore.

~~2021 Stock Split and Initial Public Offering (~~“~~IPO~~”)

~~On July 9, 2021, the Company effected a~~ ~~126,239.815~~-for-1 stock split of its issued and outstanding shares of common stock and made comparable and equitable adjustments to its equity awards in accordance with the terms of the awards. The par value of the common stock was not adjusted as a result of the stock split. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retrospectively, where applicable, to reflect this stock split. In connection with the stock split, on July 9, 2021, the Company’s board of directors and stockholders approved the Certificate of Amendment to the Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from ~~2,000~~ ~~shares to~~ ~~500,000,000~~ ~~shares and to increase the number of authorized shares of preferred stock from~~ ~~zero~~ ~~shares to~~ ~~50,000,000~~ ~~shares.~~ No ~~preferred stock has been issued or outstanding.~~

~~On July 26, 2021, the Company completed its IPO of~~ ~~12,500,000~~ ~~shares of common stock at an offering price of $20.00~~ ~~per share. The Company received net proceeds of $234.0~~ ~~million after deducting underwriting discounts and commissions. On August 19, 2021, the underwriters partially exercised their over-allotment option and purchased an additional~~ ~~1,675,000~~ ~~shares of common stock at the offering price of $20.00~~ ~~per share. The Company received additional net proceeds of $31.4~~ ~~million after deducting underwriting discounts and commissions.~~

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) applicable to interim periods, under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management, we have prepared the accompanying unaudited condensed consolidated financial statements on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the fiscal year ended December 31, ~~2021,~~2022, and these condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, ~~2022.~~2023. The year-end balance sheet data was derived from audited financial statements, but the interim condensed consolidated balance sheet included in this Form 10-Q does not include all disclosures required under U.S. GAAP. Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted under the rules and regulations of the SEC.

These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC on February ~~23, 2022~~17, 2023 (the ~~"2021~~"2022 10-K").

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Such estimates, which we evaluate on an on-going basis, include provisions for credit losses, useful lives for property and equipment and intangible assets, valuation allowances for net deferred income tax assets, valuation of stock-based compensation, ~~and common stock, acquisition-related~~acquisition related estimates, our assessment for impairment of goodwill, intangible assets, and other long-lived assets, the standalone selling price of performance obligations, timing of professional services revenue recognition, and the determination of the period of benefit for deferred commissions. We base our estimates on historical experience and on various other assumptions which we believe to be reasonable.

Operating Segments

We operate in a single operating segment, cloud-based learning management, assessment and performance systems. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the chief operating decision makers (“CODMs”), which are our chief executive officer and chief financial officer, in deciding how to allocate resources and assess performance. Our CODMs evaluate our financial information and resources and assess the performance of these resources on a consolidated basis. Since we operate in one operating segment, all required financial segment information can be found in the condensed consolidated financial statements.

2. Summary of Significant Accounting Policies

A summary of the Company’s significant accounting policies ~~are~~is discussed in “Note 1 – Description of Business and Summary of Significant Accounting Policies” of the ~~2021~~2022 10-K. There have been no significant changes to these policies during the unaudited ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023.

Recent Accounting Pronouncements

Adopted accounting pronouncements

Effective January 1, ~~2021,~~2022, the Company adopted Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. Beginning in the second quarter of 2022, a wholly-owned foreign subsidiary has year-to-date pretax book loss in excess of full year forecasted loss due to unrealized losses on foreign currency. Under the Year-to-Date Loss Limitation in Interim-Period Tax Accounting section of ASU 2019-12, the benefit recorded related to this entity is no longer limited to the forecasted full year benefit. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related notes.

~~Effective January 1, 2022, the Company adopted ASU~~ No. 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. Upon adoption a lessor ~~will be~~is required to classify a lease with variable lease payments (that do not depend on a rate or index) as an operating lease on commencement date if classifying the lease as a sales-type or direct financing lease would result in a selling loss. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related notes.

Effective January 1, 2022, the Company adopted ASU No. 2021-01, Reference Rate Reform (Topic 848), which refined the scope of Topic 848 and clarified some of its provisions. The amendments permit entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by the discounting transition. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related notes.

Effective January 1, 2022, the Company adopted ASU No. 2021-08, Business Combinations (Topic 805), which requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606). The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related notes.

Issued accounting pronouncements

There have been no recent accounting pronouncements issued which are expected to have a material effect on the ~~Company's~~Company’s condensed consolidated financial statements. Management continues to monitor and review recently issued accounting guidance upon issuance.

3. Net Loss Per Share

A reconciliation of the denominator used in the calculation of basic and diluted net loss per share is as follows (in thousands, except per share amounts):


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2022			2021			2022			2021			2023			2022
	(unaudited)												(unaudited)
Numerator:
Net loss	$	(10,055	)	$	(13,261	)	$	(28,519	)	$	(68,025	)	$	(11,857	)	$	(5,545	)
Denominator:
Weighted-average common shares outstanding—basic		142,108			136,647			141,536			129,643			143,112			140,952
Dilutive effect of share equivalents resulting from unvested restricted stock units and shares for issuance under employee stock purchase plan		—			—			—			—			—			—
Weighted-average common shares outstanding—diluted		142,108			136,647			141,536			129,643			143,112			140,952
Net loss per common share, basic and diluted	$	(0.07	)	$	(0.10	)	$	(0.20	)	$	(0.52	)	$	(0.08	)	$	(0.04	)

For the unaudited three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, we incurred net losses and, therefore, the effect of our restricted stock units (“RSUs”) and of shares issuable under the employee stock purchase plan were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive. We also incurred losses in the unaudited three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022. The following table contains share totals with a potentially dilutive impact (in thousands):



	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2022		2021		2022		2021		2023		2022
	(unaudited)								(unaudited)
Restricted stock units		5,204		4,787		5,204		4,787		6,656		5,985
Shares issuable under employee stock purchase plan		35		76		35		76		28		38
Total		5,239		4,863		5,239		4,863		6,684		6,023

4. Property and Equipment

Property and equipment consisted of the following (in thousands):


	September 30,			December 31,			March 31,			December 31,
	2022			2021			2023			2022
	(unaudited)						(unaudited)
Computer and office equipment	$	5,353		$	2,668		$	5,581		$	5,528
Capitalized software development costs		7,778			4,591			9,344			8,585
Furniture and fixtures		1,619			1,325			1,464			1,589
Leasehold improvements and other		6,917			4,330			6,587			6,970
Total property and equipment		21,667			12,914			22,976			22,672
Less accumulated depreciation and amortization		(8,752	)		(2,122	)		(10,727	)		(10,292	)
Total	$	12,915		$	10,792		$	12,249		$	12,380

Accumulated amortization for capitalized software development costs was $~~1.8~~2.9 million and $~~0.8~~2.4 million at ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, respectively. Amortization expense for capitalized software development costs for the unaudited three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, was $~~0.4~~0.6 million and $~~1.0~~0.3 million, ~~respectively, and $0.2~~ ~~million and $0.5~~ ~~million for the unaudited three and nine months ended September 30, 2021,~~ respectively, and is recorded within subscription and support cost of revenue onin the condensed consolidated statements of operations and comprehensive loss.

1110

5. Acquisitions

2022 Acquisitions

On April 13, 2022, we acquired all outstanding shares of Concentric Sky, Inc. (“Concentric Sky” which was rebranded to “Canvas Credentials” subsequent to acquisition) for the purpose of our continued commitment to building the education industry’s most integrated teaching and learning platform to support lifelong learning. $0.5 million of the purchase price was held back for a period of 90 days following the acquisition for working capital adjustments. The amount held back had been paid in full as of December 31, 2022. The acquisition did not have a material effect on our revenue or earnings in the ~~condensed~~ consolidated statements of operations and comprehensive loss for the reporting periods presented. For tax purposes, a 338(h)(10) election was filed to step up the tax basis of assets acquired to fair market value.

The ~~following table summarizes the preliminary estimated fair values~~final allocation of the ~~consideration transferred, assets acquired and liabilities assumed~~purchase price was as ~~of the date of the Canvas Credentials acquisition~~follows (in thousands):


Consideration transferred
Cash paid	$	20,814
Holdback amount		500
Total purchase consideration	$	21,314
Identifiable assets acquired
Cash	$	1,330
Accounts receivable		1,018
Prepaid expenses and other assets		109
Intangible assets: developed technology		3,900
Intangible assets: customer relationships		9,100
Total assets acquired	$	15,457
Liabilities assumed
Accounts payable and accrued liabilities	$	1,335
Deferred revenue		2,566
Total liabilities assumed	$	3,901
Goodwill		9,758
Total purchase consideration	$	21,314

1211

~~2021 Acquisitions~~

On ~~June 28, 2021,~~December 15, 2022, we acquired all outstanding shares of ~~Eesysoft Software International B.V. (“Eesysoft” which was rebranded~~LearnPlatform, Inc. ("LearnPlatform") to ~~“Impact~~accelerate the impact of the Instructure learning platform for schools, universities, and shared partner providers by ~~Instructure” or “Impact” subsequent to acquisition) for the purpose of enhancing our ability to help our customers more effectively use our core products.~~adding evidence-based insight into inventory, compliance, procurement, and usage. $~~1.5~~0.2 million of the purchase price ~~is being paid over~~was held back for a period of ~~18 months~~90 days following the ~~closing~~acquisition for working capital adjustments. The amount held back had been paid in full as of ~~the transaction.~~March 31, 2023. The acquisition did not have a material effect on our revenue or earnings in the condensed consolidated statements of operations and comprehensive loss for the reporting periods presented. ~~On June 28, 2021, the Company~~We recorded ~~an increase to the Impact~~a provisional net deferred tax liability of $~~0.7~~3.4 million in purchase accounting due to athe step up in book basis of intangible assets as a result of the stock acquisition. We expect the net deferred tax liability to decrease as book amortization expense is recognized on the acquisition-related intangible assets. The net deferred tax liability will remain provisional until the LearnPlatform tax returns are filed.

The ~~final allocation~~following table summarizes the preliminary estimated fair values of the ~~purchase price was as follows (in thousands):~~

Consideration transferred

Cash paid

$
17,472

Deferred consideration

1,500

Total purchase consideration

$
18,972

Identifiable assets acquired

Cash

$
586

Accounts receivable

624

Deposits

9

Intangible assets: developed technology

3,300

Intangible assets: customer relationships

1,700

Total assets acquired

$
6,219

Liabilities assumed

Accounts payable and accrued liabilities

$
49

Deferred revenue

692

Payroll tax liability

91

Deferred tax liability

672

Lease liability

24

Total liabilities assumed

$
1,528

Goodwill

14,281

Total purchase consideration

$
18,972

On November 5, 2021, we acquired all outstanding shares of Kimono LLC (“Kimono” which was rebranded to “Elevate Data Sync” subsequent to acquisition) for the purpose of enhancing our ability to help our customers more effectively synchronize data between our core product applications and student information systems (“SIS”). $~~0.4~~ ~~million of~~ ~~the purchase price was held back for a period of 90 days following the acquisition for working capital adjustments.~~ The acquisition did not have a material effect on our revenue or earnings in the condensed consolidated statements of operations and comprehensive loss for the reporting periods presented. For tax purposes, a 338(h)(10) election was filed to step up the tax basis ofconsideration transferred, assets acquired ~~to fair market value.~~

~~The final allocation~~and liabilities assumed as of the ~~purchase price was as follows~~date of the LearnPlatform acquisition (in thousands):


Consideration transferred
Cash paid	$	11,021	$	93,825
Holdback amount		350		150
Total purchase consideration	$	11,371	$	93,975

Identifiable assets acquired
Cash and cash equivalents	$	1,324
Accounts receivable, net		336
Prepaid expenses		66
Cash			$	4,297
Accounts receivable				1,306
Prepaid expenses and other assets				373
Right-of-use asset				288
Intangible assets: developed technology		2,200		7,600
Intangible assets: customer relationships		1,200		28,700
Intangible assets: trade names and trademarks				300
Intangible assets: non-compete agreements				50
Total assets acquired	$	5,126	$	42,914

Liabilities assumed
Accounts payable and accrued liabilities	$	174	$	767
Deferred revenue		515		6,900
Other liabilities		25
Lease liabilities				288
Deferred tax liabilities				3,407
Total liabilities assumed	$	714	$	11,362
Goodwill		6,959		62,423
Total purchase consideration	$	11,371	$	93,975

For all periods presented, the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, of which $16.7 million is expected to be deductible for tax ~~purposes.~~purposes, comprised of $9.7 million from the Canvas Credentials acquisition and $7.0 million from the Elevate Data Sync acquisition. The goodwill generated from ~~these~~all transactions is attributable to the expected synergies to be achieved upon consummation of the business combinations and the assembled workforce values. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. Developed technology represents the estimated fair value of the acquired existing technology and is being amortized over its estimated ~~remaining~~ useful life of five years. Amortization of developed technology is included in subscription and support cost of revenue expenses in the accompanying condensed consolidated statements of operations and comprehensive loss. Customer relationships represent the estimated fair value of the acquired customer bases and are amortized over the estimated ~~remaining~~ useful life of seven years. The trade names acquired are amortized over the estimated useful life of one to ten years. Amortization of customer relationships and trade names is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.

~~Sale~~Non-compete agreements are amortized over an estimated useful life of ~~getBridge LLC (“Bridge”)~~

~~On February 26, 2021, the Company sold Bridge, its corporate learning platform and wholly-owned subsidiary, for a total purchase price of $47.0~~three years ~~million. We received cash proceeds net of transaction costs of $46.0~~ million. The proceeds from this sale were used to pay down the balance of our then outstanding Term Loan (as defined in Note 7—Credit Facility). During the unaudited six months ended June 30, 2021, we recognized a pretax loss on this divestiture of $~~1.2~~ ~~million, which~~and amortization is included in ~~operating~~research and development expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.

6. Goodwill and Intangible Assets

Goodwill activity was as follows (in thousands):

Total

Balance as of December 31, 2021

$
1,194,221

Additions (Note 5—Acquisitions)

9,758

Balance as of September 30, 2022 (unaudited)

$
1,203,979


	Total
Balance as of December 31, 2022	$	1,266,402
Additions		—
Balance as of March 31, 2023 (unaudited)	$	1,266,402

1412

Intangible assets consisted of the following (in thousands):


	Weighted-Average Remaining Useful Life	September 30, 2022							December 31, 2021							Weighted-Average Remaining Useful Life	March 31, 2023							December 31, 2022
		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net			Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
				(unaudited)															(unaudited)
Software	5 Months	$	21	$	(18	)	$	3	$	21	$	(13	)	$	8	N/A	$	21	$	(21	)	$	—	$	21	$	(20	)	$	1
Trade names	88 Months		125,800		(32,644	)		93,156		125,800		(22,809	)		102,991	82 Months		126,100		(39,289	)		86,811		126,100		(35,936	)		90,164
Developed technology	31 Months		317,700		(151,650	)		166,050		313,800		(104,215	)		209,585	28 Months		325,300		(183,867	)		141,433		325,300		(167,600	)		157,700
Customer relationships	55 Months		422,700		(141,358	)		281,342		413,600		(96,438	)		317,162	53 Months		451,400		(172,759	)		278,641		451,400		(156,635	)		294,765
Non-compete agreements																33 Months		50		(5	)		45		50		(1	)		49
Total		$	866,221	$	(325,670	)	$	540,551	$	853,221	$	(223,475	)	$	629,746		$	902,871	$	(395,941	)	$	506,930	$	902,871	$	(360,192	)	$	542,679

Amortization expense for intangible assets was $~~34.3~~35.7 million and $~~102.2~~33.7 million for the unaudited three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively, and $33.6~~ ~~million and $100.3~~ ~~million for the unaudited three and nine months ended September 30, 2021,~~ respectively.

Based on the recorded intangible assets at ~~September 30, 2022~~March 31, 2023 (unaudited), estimated amortization expense is expected to be as follows (in thousands):


	Amortization		Amortization
	Expense		Expense
Years Ending December 31,	(unaudited)		(unaudited)
Remainder of 2022	$	34,262
2023		137,041
Remainder of 2023			$	107,218
2024		136,806		142,442
2025		94,093		99,729
2026		74,005		79,625
2027 and thereafter		64,344
2027				40,682
2028 and thereafter				37,234
Total	$	540,551	$	506,930

7. Credit Facility

On March 24, 2020, we entered into a credit agreement with a syndicate of lenders and Golub Capital Markets LLC, as administrative agent and collateral agent, and Golub Capital Markets LLC and Owl Rock Capital Advisors LLC, as joint bookrunners and joint lead arrangers (the “Credit Agreement”). The Credit Agreement provided for a senior secured term loan facility (the “Initial Term Loan”) in an original aggregate principal amount of $775.0 million, which was supplemented by an incremental term loan pursuant to the First Incremental Amendment and Waiver to Credit Agreement, dated as of December 22, 2020, in a principal amount of $70.0 million (the “Incremental Term Loan” and, together with the Initial Term Loan, the “Term Loan”). The maturity date for the Term Loan was March 24, 2026, with the remaining principal due in full on the maturity date. The Credit Agreement also provided for a senior secured revolving credit facility in an aggregate principal amount of $50.0 million (the “Revolving Credit Facility” and, together with the Term Loan, the “Credit Facilities”). The Revolving Credit Facility included a $10.0 million sublimit for the issuance of letters of credit.

~~The Credit Agreement required us to repay the principal of the Term Loan in equal quarterly repayments equal to~~ ~~0.25~~% of the aggregate original principal amount of the Term Loan, reduced as a result of the application of prepayments. Further, until the last day of the quarter ending June 30, 2021, the Credit Facilities bore interest at a rate equal to (i) ~~6.00% plus the highest of (x) the prime rate (as determined by reference to the Wall Street Journal), (y) the Federal funds open rate plus~~ ~~0.50% per annum, and (z) a daily Eurodollar rate based on an interest period of one month plus~~ ~~1.00% per annum or (ii) the Eurodollar rate plus~~ ~~7.00% per annum, subject to a~~ ~~1.00~~% Eurodollar floor. Thereafter, on the last day of each of the five full fiscal quarters, we had the option (a “Pricing Grid Election”) to (i) retain the aforementioned applicable margins or (ii) switch to the applicable margins set forth on a pricing grid which, subject to certain pro forma total net leverage ratio limits, provided for applicable margins ranging from ~~5.50% to~~ ~~7.00%, in the case of Eurodollar loans, and~~ ~~4.50% to~~ ~~6.00~~% in the case of ABR Loans (as defined in the Credit Agreement). The applicable margins set forth on the pricing grid would become mandatory beginning on the last day of the tenth full fiscal quarter ending after March 24, 2020. Interest payments were due quarterly, or more frequently, based on the terms of the Credit Agreement.

On May 27, 2021, the Company exercised its option to make a Pricing Grid Election. As a result, the Company’s applicable margin for Eurodollar loans under the Credit Facilities from May 27, 2021 onward was ~~5.5%. In connection with the Company's IPO, the Company made a principal prepayment in August 2021 of $224.3~~ million on its outstanding Term Loan. In connection with the underwriters' partial exercise of their over-allotment option in August 2021, the Company made an additional principal prepayment in August 2021 of $~~30.8~~ ~~million on its outstanding Term Loan. The Company also incurred a~~ ~~1.5% prepayment premium in conjunction with each principal prepayment.~~

~~The Company incurred fees with respect to the Revolving Credit Facility, including a commitment fee of~~ ~~0.50% per annum of unused commitments under the Revolving Credit Facility.~~

On October 29, 2021, we entered into a credit agreement ~~(the “2021 Credit Agreement”)~~ with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent, (the “2021 Credit Agreement”) governing our senior secured credit facilities (the “Senior Secured Credit Facilities”), consisting of a $500.0 million senior secured term loan facility (the “Senior Term Loan”) and a $125.0 million senior secured revolving credit facility (the “Senior Revolver”). The proceeds from the Senior Secured Credit Facilities were used, in addition to cash on hand, to (1) to refinance, in full, all existing indebtedness under the Credit Agreement (the “Refinancing”), (2) to pay certain fees and expenses incurred in connection with the entry into the 2021 Credit Agreement and the Refinancing, and (3) to finance working capital needs of the Company and its subsidiaries for general corporate purposes.

All of the ~~Company's~~Company’s obligations under the Senior Secured Credit Facilities are guaranteed by the subsidiary guarantors named therein (the “Subsidiary Guarantors”). The Senior Revolver includes a $10.0 million sublimit for the issuance of letters of credit. Any issuance of letters of credit will reduce the amount available under the Senior Revolver. As of ~~September 30, 2022~~March 31, 2023 (unaudited), we had no outstanding borrowings under our Senior Revolver.

The Senior Term Loan has a seven-year maturity and the Senior Revolver has a five-year maturity. WeCommencing June 30, 2022, we are required to repay the Senior Term Loan portion of the Senior Secured Credit Facilities in quarterly principal installments of 0.25% of the aggregate original principal amount of the Senior Term Loan at closing, with the balance payable at maturity. Borrowings under the Senior Secured Credit Facilities bear interest, at the ~~Company's~~Company’s option, at: (i) Base Rate equal to the greater of (a) the Federal Funds Rate plus 1/2 of 1.00%, (b) the rate of interest in effect for such day as publicly announced from time to time by the administrative agent as its “prime rate,” (c) a Eurocurrency Rate for such date plus 1.00% and (d) 1.00%; or (ii) the Eurocurrency Rate (provided that the Eurocurrency Rate applicable to the Senior Term Loan shall not be less than 0.50% per annum). The Applicable Rate for the Senior Term Loan with respect to Eurocurrency Rate Loans is 2.75% per annum and 1.75% per annum for Base Rate Loans. The Applicable Rate for the Senior Revolver with respect to Eurocurrency Rate Loans, SONIA Loans, and Alternative Currency Term Rate Loans ranges from 2.00% to 2.5% subject to the ~~Company's~~Company’s Consolidated First Lien Net Leverage Ratio, while the Applicable Rate for Base Rate Loans ranges from 1.00% to 1.50% subject to the ~~Company's~~Company’s Consolidated First Lien Net Leverage Ratio. We are also required to pay an unused commitment fee to the lenders under the Senior Revolver at the Applicable Commitment Fee of the average daily unutilized commitments. The Applicable Commitment Fee ranges from 0.40% to 0.50% subject to the ~~Company's~~Company’s Consolidated First Lien Never Leverage Ratio.

The 2021 Credit Agreement contains a financial covenant solely with respect to the Senior Revolver. If the outstanding amounts under the Senior Revolver exceed 35% of the aggregate amount of the Senior Revolver commitments, we are required to maintain at the end of each fiscal quarter ~~commencing with the quarter ending June 30, 2022,~~ a Consolidated Net Leverage Ratio of not more than 7.75 to 1.00. As of ~~September 30, 2022~~March 31, 2023 (unaudited), there was no amount outstanding under the Senior Revolver. The Company had $125.0 million of availability under the Senior Revolver as of ~~September 30, 2022~~March 31, 2023 (unaudited).

Debt discount costs of $13.6 million were incurred in connection with the Term Loan. An additional $3.8 million of debt discount costs were incurred after the IPO in August 2021 in connection with the prepayment premium associated with the Term Loan as the prepayments were treated as modifications for accounting purposes. These debt discount costs were being amortized into interest expense ~~as set forth in the condensed consolidated statements of operations and comprehensive loss,~~ over the contractual term of the Term Loan. As a result of the Refinancing in the fourth quarter of 2021, the Company wrote off the remaining $13.8 million of debt discount costs related to the Credit Facilities to loss on debt extinguishment in the condensed consolidated statements of operations and comprehensive loss. Additionally, as a result of the Refinancing, the Company capitalized $1.0 million and $5.9 million of debt discount costs incurred in connection with the Senior Term Loan in long-term debt, current and long-term debt, net of current portion, respectively, on the condensed consolidated balance sheets. The Company recognized $0.2 million and $~~0.7~~0.2 million of amortization of debt discount costs for the unaudited three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively, and $0.7~~ ~~million and $1.9~~ ~~million for the unaudited three and nine months ended September 30, 2021,~~ respectively, which is recorded as interest expense in the accompanying condensed consolidated statements of operations and comprehensive loss. At ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021~~2022 the Company had an aggregate principal amount outstanding of $~~497.5~~495.0 million and $~~500.0~~496.3 million, respectively, under the Senior Term Loan, bearing interest at ~~6.12~~7.85% and ~~3.25~~6.12%, respectively. The Company had $~~6.0~~5.5 million and $~~6.7~~5.8 million of unamortized debt discount costs at ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, respectively, which is recorded as a reduction of the debt balance on the Company’s condensed consolidated balance sheets.

Debt issuance costs of $0.7 million were incurred in connection with the Revolving Credit Facility. These debt issuance costs were being amortized into interest expense ~~as set forth in the condensed consolidated statements of operations and comprehensive loss,~~ over the contractual term of the Revolving Credit Facility. As a result of the Refinancing, the Company wrote off the remaining $0.5 million of debt issuance costs related to the Credit Facilities to loss on debt extinguishment in the condensed consolidated statements of operations and comprehensive loss. Additionally, as a result of the Refinancing, the Company capitalized $0.2 million and $0.8 million of deferred issuance costs incurred in connection with the Senior Revolver in other current assets and other assets, respectively, on the condensed consolidated balance sheets. The Company recognized $47.0 thousand and $~~0.1~~47.0 ~~million~~thousand of amortization of debt issuance costs for the unaudited three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively, and $29.0~~ ~~thousand and $0.1~~ ~~million for the unaudited three and nine months ended September 30, 2021,~~ respectively, which is recorded as interest expense in the accompanying condensed consolidated statements of operations and comprehensive loss. The Company had $~~0.8~~0.7 million and $~~0.9~~0.7 million of unamortized debt issuance costs at ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, respectively, which ~~were~~are included in other current assets and other assets on the Company’s condensed consolidated balance sheets.

The Senior Secured Credit Facilities contain customary negative covenants. At ~~September 30, 2022~~March 31, 2023 (unaudited), the Company was in compliance with all applicable covenants pertaining to the Senior Secured Credit Facilities. The Company also maintained compliance with all applicable covenants pertaining to the Credit Facilities prior to the Refinancing.

The maturities of outstanding debt, as of ~~September 30, 2022~~March 31, 2023 (unaudited), are as follows (in thousands):


	Amount		Amount
Years Ending December 31,	(unaudited)		(unaudited)
Remainder of 2022	$	1,250
2023		5,000
Remainder of 2023			$	3,750
2024		5,000		5,000
2025		5,000		5,000
2026		5,000		5,000
2027				5,000
Thereafter		476,250		471,250
Total	$	497,500	$	495,000

8. Revenue

~~The Company has~~We have one operating segment, which is our cloud-based learning, assessment, development and engagement systems. Historically, ~~Instructure had primarily~~we have generated revenues from ~~two~~our Education customer ~~bases, Education and Corporate.~~base. Education customers consist of K-12 and Higher Education institutions that purchase our Canvas ~~LMS,~~Learning Management System (“LMS”), which includes assessments, analytics and learning content. On February 26, 2021, the Company sold Bridge and no longer receives revenues from Corporate customers. Corporate customers purchased Bridge-related product, the Company’s corporate learning platform, which included a learning management system and performance platform that helped employees and managers transform their organization through connection, alignment, and growth. The following ~~tables present~~table presents the Company’s disaggregated revenues ~~based on its two customer bases and~~ by geographic region, based on the physical location of the customer (in thousands):

Three months ended
September 30,

Nine months ended
September 30,

2022

2021

2022

2021

(unaudited)

Education

$
122,429

$
107,221

$
350,468

$
291,106

Corporate

—

—

—

3,662

Total revenue

$
122,429

$
107,221

$
350,468

$
294,768

Percentage of revenue generated by Education

100
%

100
%

100
%

99
%

Three months ended
September 30,

Nine months ended
September 30,

2022

2021

2022

2021

(unaudited)

United States

$
97,567

$
86,757

$
278,631

$
237,455

Foreign

24,862

20,464

71,837

57,313

Total revenue

$
122,429

$
107,221

$
350,468

$
294,768

Percentage of revenue generated outside of the United States

20
%

19
%

20
%

19
%



	Three months ended March 31,
	2023			2022
	(unaudited)
United States	$	102,596		$	90,107
Foreign		26,247			23,355
Total revenue	$	128,843		$	113,462
Percentage of revenue generated outside of the United States		20	%		21	%

Deferred Revenue and Performance Obligations

During the unaudited three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, 7693% and 6492% of revenue recognized was included in our deferred revenue balance at ~~June 30, 2022 (unaudited), and~~ December 31, ~~2021, respectively. During the unaudited three~~2022 and ~~nine months ended September 30,~~ 2021,77~~% and~~ 62~~%, respectively, of revenue recognized was included in our deferred revenue balance at June 30, 2021 (unaudited), and December 31, 2020,~~ respectively.

Transaction Price Allocated to the Remaining Performance Obligations

As of ~~September 30, 2022~~March 31, 2023 (unaudited), approximately $~~792.6~~703.7 million of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 7576% of our remaining performance obligations over the next 24 months, with the balance recognized thereafter.

Concentration of Credit Risk, Significant Customers and Provision for Credit Losses

There were no customers with revenue as a percentage of total revenue exceeding 10% for the periods presented.

As of ~~September 30, 2022~~March 31, 2023 (unaudited) ~~there were no customers with outstanding net accounts receivable balances as a percentage of total outstanding net accounts receivable greater than 10%. As of~~and December 31, ~~2021, our largest customer~~’~~s outstanding net accounts receivable balance as a percentage of total outstanding net accounts receivable represented~~ ~~10.5%. There~~2022 there were no ~~other~~ customers with outstanding net accounts receivable balances as a percentage of total outstanding net accounts receivable greater than 10% ~~as of December 31, 2021.~~.

Our provisions for credit loss balances at ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021~~2022 were $1.4 million and $~~0.8~~1.5 million, respectively.

9. Deferred Commissions

Deferred commissions primarily consist of sales commissions that are capitalized as incremental contract origination costs and were $~~32.9~~31.2 million and $~~31.5~~32.2 million as of ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, respectively. Amortization expense for deferred commissions was $~~4.4~~4.8 million and $~~11.6~~3.4 million for the unaudited three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively, and $3.0~~ ~~million and $7.7~~ ~~million for the unaudited three and nine months ended September 30, 2021,~~ respectively. There was no impairment of deferred commissions during these periods.

10. Stockholders’ Equity and Stock-Based Compensation

~~The TopCo Amended and Restated Partnership Agreement (“Partnership Agreement”) set forth the terms, rights, powers, qualifications, limitations and restrictions~~As of the partnership. In accordance with the Partnership Agreement, there was an unlimited number of authorized Class A Units and Class B Units (collectively, the “Units”) and issuance of such Units was determined by the board of managers.

~~In connection with the Take-Private Transaction, TopCo issued~~ ~~1,250,000~~ ~~Class A Units and~~ ~~90,000,000~~ ~~Class B Units, with~~ no par values, for the cash paid by Thoma Bravo and its affiliated funds. Units shared in distributions according to a “waterfall” which provided for distributions to be made in the following order and priority: (1) first, to the holders of Class A Units until they received a 9% annual return on their remaining unreturned capital contributions, compounded quarterly; (2) second, to the holders of Class A Units until they received an amount equal to their respective capital contributions on a pro rata basis; and (3) third, to the holders of the remaining Class B Units based on their percentage of ownership, taking into account any applicable vesting terms and participation threshold on the Class B Units. A participation threshold in respect of a Class B Unit was determined at the time of issuance or grant and was equal to or greater than the amount payable in respect of a Class B Unit having a participation threshold of zero pursuant to the waterfall in a hypothetical liquidation of TopCo at the value of TopCo as of immediately prior to such issuance or grant. No conversion or redemption rights are associated with Class A or Class B Units. In connection with the IPO, TopCo effected a series of transactions that resulted in TopCo’s equityholders holding shares of our common stock directly, and then TopCo being liquidated and dissolved.

~~In connection with the Take-Private Transaction, the Company's board of directors authorized~~ ~~2,000~~ ~~shares of common stock with a par value of $0.01. Common stock issued and outstanding prior to the stock split as of July 9, 2021~~March 31, 2023 (unaudited) and December 31, ~~2020 were~~ ~~998.10~~ ~~and~~ ~~999.84, respectively. No other shares were issued. Subsequently, on July 9, 2021, the Company effected a~~ ~~126,239.815~~-for-1 stock split of its issued and outstanding shares of common stock and made comparable and equitable adjustments to its equity awards in accordance with the terms of the awards. The par value of the common stock was not adjusted as a result of the stock split. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retrospectively, where applicable, to reflect this stock split.

~~As of September 30,~~ 2022, ~~(unaudited) and December 31, 2021,~~ there were 500,000,000 shares of common stock authorized. As of ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, there were ~~142,502,988~~143,478,526 and ~~140,740,569~~142,917,080 shares of common stock issued and outstanding, respectively.

~~11. Stock-Based Compensation~~

Employee Equity Plans

In April 2020, as part of the Take-Private Transaction, the board of managers of TopCo approved the Instructure Parent, LP Incentive Equity Plan (the “2020 Plan”) and the Instructure Co-Invest Agreement (the “Co-Invest Agreement”) to incentivize employees and to align the employees and management with the owners of the business. The 2020 Plan provided for the grant of incentive stock options, profits interest, equity appreciation rights and other forms of awards to employees and non-employees granted or denominated in TopCo ~~units.~~Units. Under the 2020 Plan, 10,000,000 Class B Units (“Incentive Units”) were reserved for issuance (“Incentive Carry”) and did not have a contractual life. Incentive Carry grants were subject to a service and a performance vesting condition based on the achievement of an EBITDA target as established by ~~the Company’s~~TopCo’s board of managers, over a performance period of four years. Additionally, TopCo granted 480,000 Incentive Units to certain members of the board of managers that were only subject to service-based vesting conditions over four years (“Board Carry”). These Incentive Units were not included in the Incentive Carry pool previously discussed and there was no contractual life. The Co-Invest Agreement offered employees the one-time opportunity to co-invest in TopCo by purchasing Units directly from ~~the Company~~TopCo for cash. Under the Co-Invest ~~agreement,~~Agreement, the purchase price for one Class A unit and 72 Class B units was $1,000, which ~~was~~is the same investment allocation between the two unit classes as the investment made by existing investors at the time of the Take-Private Transaction.

The 2020 Plan was terminated in July 2021 in connection with the IPO. No further equity awards were granted under the 2020 Plan subsequent to the IPO. As of the IPO date, 2,271,698 vested Incentive Units converted to 1,305,738 shares of the ~~Company's~~Company’s common stock and were released to the Unit holders, and 6,126,802 unvested Incentive Units were exchanged for 3,496,739 RSUs under the 2021 Plan. The RSUs will generally vest in 11 equal quarterly installments ~~commencing~~which commenced on September 1, 2021.

In July 2021, our board of directors adopted the 2021 Omnibus Incentive Plan (the “2021 Plan”), which serves as the successor to 2020 Plan. Accordingly, no shares remain available for issuance under the 2020 Plan. A total of 18,000,000 shares of the ~~Company's~~Company’s common stock were initially reserved for issuance under the 2021 Plan. Pursuant to the terms of the 2021 Plan, the share reserve increased by ~~5,629,623~~5,716,683 shares in January ~~2022.~~2023. As of ~~September 30, 2022,~~March 31, 2023, we had ~~16,291,356~~19,627,649 shares of common stock available for future ~~grants~~grant under the 2021 Plan.

In July 2021, our board of directors adopted, and our stockholders approved the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which allows eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The initial offering period ended on February 28, 2022. Each new offering period begins on or about March 1 and September 1 and is approximately six months in duration. On each purchase date, eligible employees will purchase our common stock at a price per share equal to 85% of the lesser of (1) the fair market value of our common stock on the offering date or (2) the fair market value of our common stock on the purchase date. A total of 1,900,000 shares of the Company’s common stock were initially reserved for issuance under the 2021 ESPP. Pursuant to the terms of the 2021 ESPP, the share reserve increased by ~~1,407,406~~1,429,171 shares in January ~~2022.~~2023. As of ~~September 30, 2022~~March 31, 2023 (unaudited), ~~2,889,878~~4,145,940 shares of common stock were available for purchase under the 2021 ESPP.

During the ~~unaudited~~ three months ended ~~September 30, 2022,~~March 31, 2023 (unaudited), we granted ~~87,883~~2,539,452 RSUs to employees under the 2021 Plan. Each RSU entitles the recipient to receive one share of the ~~Company's~~Company’s common stock upon vesting. The RSUs are subject to time-based service requirements and generally vest over a four-year service period. The grant date fair ~~value~~values of the RSUs granted during the ~~unaudited~~ three months ended ~~September 30, 2022 was~~March 31, 2023 (unaudited) ranged from $~~23.50~~24.24 to $26.41, which ~~represents~~represent the closing stock price for the underlying common stock on the respective grant ~~date,~~dates, with an aggregate fair value of $~~2.1~~63.7 million.

The following two tables present stock-based compensation by award type and where the stock-based compensation expense was recorded in our condensed consolidated statements of operations and comprehensive loss (in thousands):



	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2022		2021		2022		2021		2023		2022
	(unaudited)								(unaudited)
Options	$	—	$	28	$	21	$	104	$	—	$	19
Restricted stock units		9,538		7,784		27,249		12,151		9,599		8,863
Shares issuable under employee stock purchase plan		522		565		1,653		565		411		594
Class A and Class B Units		—		2		—		4,902
Total stock-based compensation	$	10,060	$	8,379	$	28,923	$	17,722	$	10,010	$	9,476

1916



	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2022		2021		2022		2021		2023		2022
	(unaudited)								(unaudited)
Subscription and support cost of revenue	$	358	$	257	$	965	$	652	$	379	$	282
Professional services and other cost of revenue		451		323		1,292		610		414		376
Sales and marketing		2,813		2,139		8,162		4,814		2,528		2,577
Research and development		3,035		2,292		8,261		4,896		3,174		2,540
General and administrative		3,403		3,368		10,243		6,750		3,515		3,701
Total stock-based compensation	$	10,060	$	8,379	$	28,923	$	17,722	$	10,010	$	9,476

In connection with the Take-Private Transaction on March ~~31,~~24, 2020, and except for certain executives, outstanding stock options and restricted stock units, and together with the stock options, “equity awards”, whether vested or unvested, were ~~cancelled~~canceled and replaced with the right to receive $49.00 per share in cash, less the applicable exercise price per share and applicable withholding taxes (the “per share price”), with respect of each share of common stock underlying such award (“Cash Replacement Awards”). The per share price attributed to the unvested equity awards ~~vest~~vests and ~~are~~is payable at the same time such equity awards would have vested pursuant to their original terms prior to the replacement. During the ~~unaudited~~ three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 (unaudited), the Company recognized $~~1.4~~0.4 million and $~~4.3~~1.7 million of stock-based compensation expense associated with the Cash Replacement Awards, ~~respectively, and $1.7~~ ~~million and $6.1~~ ~~million for the unaudited three and nine months ended September 30, 2021,~~ respectively.

Restricted Stock Units

The following table summarizes the activity of RSUs for the unaudited ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 (in thousands, except per unit amounts):

RSUs

Weighted Average Grant Date Fair Value Per Unit

Unvested and outstanding at December 31, 2021

1,987

$
21.00

Granted

2,597

21.58

Vested

(655
)

20.75

Forfeited or cancelled

(429
)

21.34

Unvested and outstanding at September 30, 2022

3,500

$
21.44


	RSUs			Weighted Average Grant Date Fair Value Per Unit
Unvested and outstanding at December 31, 2022		3,437		$	21.60
Granted		2,539			25.10
Vested		(181	)		21.54
Forfeited or canceled		(250	)		21.60
Unvested and outstanding at March 31, 2023		5,545		$	23.20

As of ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, total unrecognized compensation cost related to unvested RSUs amounted to $~~69.8~~120.0 million and $~~37.2~~68.3 million, respectively, which is expected to be recognized over a weighted average period of ~~3.2~~3.4 years and ~~3.5~~3.1 years, respectively.

The following table summarizes the activity of the Incentive Carry and Board Carry, subsequent to their conversion into RSUs under the 2021 Plan, for the unaudited ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 (in thousands, except per unit amounts):

RSUs

Weighted Average Grant Date Fair Value Per Unit

Unvested and outstanding at December 31, 2021

2,736

$
10.75

Vested

(844
)

10.78

Forfeited or cancelled

(188
)

11.25

Unvested and outstanding at September 30, 2022

1,704

$
10.73


	RSUs			Weighted Average Grant Date Fair Value Per Unit
Unvested and outstanding at December 31, 2022		1,409		$	10.72
Vested		(258	)		10.74
Forfeited or canceled		(40	)		11.08
Unvested and outstanding at March 31, 2023		1,111		$	10.75

2017

There were no Incentive Units granted subsequent to December 31, 2021. As of ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, we had $~~17.3~~11.0 million and $~~28.3~~14.2 million ~~respectively,~~ of unrecognized stock-based compensation expense related to unvested Incentive Units exchanged for RSUs, that are expected to be recognized over a weighted-average period of ~~1.5~~1.0 and ~~2.3~~1.3 years, respectively.

2021 ESPP

The following table summarizes the assumptions relating to 2021 ESPP purchase rights used in a Black-Scholes option pricing model for the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited):


	Three months ended September 30,		Three months ended March 31,
	2022	2021	2023	2022
Dividend yield	None	None	None	None
Volatility	32 - 41%	47%	25 - 32%	41 - 47%
Risk-free interest rate	0.6 - 3.34%	0.06%	3.34 - 5.20	0.06
Expected life (years)	0.5	0.6	0.5	0.5 - 0.6

~~12.~~11. Income Taxes

Utilization of the net operating loss carryforwards and credits may be subject to substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

We file tax returns in the United States, the United Kingdom, Australia, the Netherlands, Hong Kong, Sweden, Brazil, Mexico, Hungary, China, Singapore and various state jurisdictions. All of our tax years remain open to examination by major taxing jurisdictions to which we are subject, as carryforward attributes generated in past years may still be adjusted upon examination by the Internal Revenue Service or state and foreign tax authorities if they have or will be used in future periods.

We believe that we have provided adequate reserves for our income tax uncertainties in all open tax years. We do not expect our gross unrecognized tax benefits to change significantly in the next 12 months.

~~13.~~12. Fair Value of Financial Instruments

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. The fair value hierarchy prioritizes the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable ~~market based~~market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

There were no transfers between Level 1 and Level 2 of the fair value measurement hierarchy during the period ended ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021.~~2022. Assets measured at fair value on a recurring basis as of ~~September 30, 2022~~March 31, 2023 (unaudited) were as follows (in thousands):


	September 30, 2022								March 31, 2023
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	3,359	$	—	$	—	$	3,359	$	3,417	$	—	$	—	$	3,417
Total assets	$	3,359	$	—	$	—	$	3,359	$	3,417	$	—	$	—	$	3,417

Assets measured at fair value on a recurring basis as of December 31, ~~2021~~2022 were as follows (in thousands):


	December 31, 2021								December 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	3,343	$	—	$	—	$	3,343	$	3,383	$	—	$	—	$	3,383
Total assets	$	3,343	$	—	$	—	$	3,343	$	3,383	$	—	$	—	$	3,383

2118

Instruments Not Recorded at Fair Value on a Recurring Basis.

We estimate the fair value of our Senior Term Loan carried at face value, less unamortized discount costs, quarterly for disclosure purposes. The estimated fair value of our Senior Term Loan is determined by Level 2 inputs, observable ~~market based~~market-based inputs or unobservable inputs that are corroborated by market data. As of ~~September 30, 2022~~March 31, 2023 (unaudited), the fair value of our Senior Term Loan was $~~491.5~~489.5 million. The carrying amounts of our cash, prepaid expenses, other current assets, and accrued liabilities approximate their current fair value because of their nature and relatively short maturity dates or durations.

~~14.~~13. Leases

The Company leases office space under non-cancelable operating leases with lease terms ranging from one to ~~seven years~~six year.s. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include early termination options. The Company has elected to exercise its early termination rights. All related operating leases have been impaired to reflect this early termination option. The Company subleases four of its locations. As of ~~September 30, 2022,~~March 31, 2023 the first, second, third, and fourth sublease term had 93 months, 7569 months, 4034 months, and 1913 months remaining, ~~respectively.~~respectively. None of the above subleases have an option for ~~renewal.~~renewal.

Operating lease right-of-use assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. Right-of-use assets also include adjustments related to prepaid or deferred lease payments and lease incentives. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on information available at the lease commencement date to determine the present value of lease payments.

The Company performed evaluations of its contracts and determined that each of its identified leases are operating leases. The components of operating lease expense were as follows (in thousands):

Three months ended
September 30,

Nine months ended
September 30,

2022

2021

2022

2021

(unaudited)

Operating lease cost, gross

$
1,568

$
1,731

$
4,952

$
5,621

Variable lease cost, gross(1)

522

435

1,649

1,371

Sublease income

(352
)

(300
)

(893
)

(777
)
Total lease costs(2)

$
1,738

$
1,866

$
5,708

$
6,215



	Three months ended March 31,
	2023			2022
	(unaudited)
Operating lease cost, gross	$	1,786		$	1,796
Variable lease cost, gross(1)		710			536
Sublease income		(287	)		(254	)
Total lease costs(2)	$	2,209		$	2,078

(1)

Variable rent expense was not included within the measurement of the ~~Company's~~Company’s operating right-of-use assets and lease liabilities. Variable rent expense is comprised primarily of the ~~Company's~~Company’s proportionate share of operating expenses, property taxes and insurance and is classified as lease expense due to the ~~Company's~~Company’s election to not separate lease and non-lease components.

(2)

Short-term lease costs for the unaudited three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~(unaudited) were not significant and are not included in the table above.

Cash paid for amounts included in the measurement of operating lease liabilities for the ~~unaudited~~ three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 (unaudited) were $~~2.0~~2.3 million and $~~6.2~~ ~~million, respectively, and $~~2.2 million, ~~and $6.5~~ ~~million for the unaudited three and nine months ended September 30, 2021,~~ respectively, and were included in net cash used in operating activities in the condensed consolidated statements of cash flows.

As of ~~September 30, 2022~~March 31, 2023 (unaudited), the maturities of the Company’s operating lease liabilities were as follows (in thousands):

Remainder of 2022
$
2,188

2023

8,570

2024

8,342

2025

4,277

2026

2,703

2027 and thereafter

3,082

Total lease payments

29,162

Less:

Imputed interest

(4,161
)
Lease liabilities

25,001

Tenant improvement reimbursements included in the measurement of lease liabilities but not yet received

(414
)
Lease liabilities, net
$
24,587


Remainder of 2023	$	6,424
2024		8,538
2025		4,348
2026		2,774
2027		1,996
2028 and thereafter		1,098
Total lease payments		25,178
Less:
Imputed interest		(3,275	)
Lease liabilities		21,903
Tenant improvement reimbursements included in the measurement of lease liabilities but not yet received		(414	)
Lease liabilities, net	$	21,489

As of ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, the weighted average remaining lease term was ~~3.8~~ 3.5and ~~4.4~~3.6 years, respectively, and the weighted average discount rate used to determine operating lease liabilities was ~~8.19~~8.21% and 8.20%, as of ~~each of September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021.~~2022, respectively.

~~15.~~14. Commitments and Contingencies

Non-cancelable purchase obligations

As of ~~September 30, 2022~~March 31, 2023 (unaudited), our outstanding non-cancelable purchase obligations with a term of 12 months or longer related to cloud infrastructure and business analytic services in the ordinary course of business totaled $~~45.0~~2.2 million for fiscal year 2023, $48.4 million for fiscal year 2024, and $48.0 million for fiscal ~~years 2024~~year 2025. During the period ended March 31, 2023 (unaudited), we recognized $12.2 million in subscription and ~~2025, respectively.~~support cost of revenue, $0.6 million in research and development, and $0.2 million in professional services and other cost of revenue in our condensed consolidated statements of operations and comprehensive loss related to our non-cancelable purchase obligations.

Letters of Credit

As of ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, we had a total of $4.3 million and $~~4.2~~4.3 million, respectively, of letters of credit outstanding that were issued for purposes of securing certain of the Company’s obligations under facility leases and other contractual arrangements.

Litigation

We are involved in various legal proceedings and claims, including challenges to trademarks, from time to time arising in the normal course of business. If we determine that it is probable that a loss has been incurred and the amount is reasonably estimable, we will record a liability in our condensed consolidated financial statements. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. Although the results of litigation and claims are inherently unpredictable and uncertain, management does not believe that the outcome of our various legal proceedings, ~~with the potential exception of the matter described below (which we believe is without merit and which we are defending vigorously against),~~ if determined adversely to us, singly or in the aggregate, would have a material impact on our financial position, results of operations, or liquidity.

InAs previously disclosed in February 2021, Oklahoma Law Enforcement Retirement System and Q. Wade Billings filed a class action lawsuit against Instructure Holdings, LLC, certain Thoma Bravo entities and certain directors and officers of ~~Predecessor,~~Instructure Holdings, LLC, relating to the Take-Private Transaction. The complaint alleges that such directors and officers breached their fiduciary duties in connection with the Take-Private Transaction, and that Instructure Holdings, LLC and Thoma Bravo aided and abetted such breaches. Plaintiffs seek damages of an unidentified amount, interest, and attorneys’ and experts’ fees and expenses. On ~~September 8, 2022,~~January 6, 2023, the Court ~~heard oral argument on~~dismissed the ~~defendants’ motion to dismiss~~plaintiffs’ complaint in full and the ~~plaintiff’s motion~~time to ~~convert the motion to dismiss to one for summary judgment. We do not believe these claims have merit and are defending vigorously against them.~~appeal has expired.

~~16.~~15. Related-Party Transactions

The Company has agreements in place with Thoma Bravo, LLC for financial and management advisory services, along with compensation arrangements and reimbursements to directors and officers. During the ~~unaudited~~ three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 (unaudited), the Company incurred $0.2 million and $~~0.5~~0.1 million, ~~of costs~~respectively, related to these ~~services, respectively, and $0.1~~ ~~million and $0.4~~ ~~million for the unaudited three and nine months ended September 30, 2021, respectively.~~services. The related expense is reflected in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

The spouse of Mitch Benson, our Chief Strategy Officer, is an employee of the Company. Mr. Benson has served as an ~~Officer~~officer of the Company since August 2019. His spouse, Ms. Tara Gunther, has been an employee of the Company since 2014. Her ~~2021~~2022 base salary and short-term incentive award was approximately $0.2 million in the aggregate. She also received benefits generally available to all employees. The compensation for Ms. Gunther was determined in accordance with our standard employment and compensation practices applicable to employees with similar responsibilities and positions. For the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 (unaudited), Ms. Gunther's base salary was $~~0.2~~0.1 million.

In ~~connection with~~October 2022, our ~~entry into~~board of directors approved the ~~Credit Facilities on~~appointment of Melissa Loble, Chief Customer Experience Officer, to the Board of Trustees of Internet2, a community of organizations providing services for research and education. Ms. Loble was appointed by Internet2's Board of Trustees in the same period and her term of service as a member of the Board of Trustees is expected to end in October 2024. During the three months ended March ~~24, 2020, affiliates~~31, 2023 (unaudited), the Company paid Internet2 $26.0 thousand for services provided in the ordinary course of ~~Thoma Bravo collectively acquired~~business.

In March 2023, our board of directors also approved the appointment of Ms. Loble to be the chair of the board of 1EdTech, a non-profit collaboration dedicated to powering learner potential. Ms. Loble was appointed by 1EdTech's board in the same period and her term of service as the chair of the board is expected to end in March 2024. During the three months ended March 31, 2023 (unaudited), the Company paid 1EdTech $~~129.2~~0.1 million for services provided in the ordinary course of ~~our Term Loan and as of September 30, 2021 (unaudited), affiliates of Thoma Bravo collectively owned $~~business.~~88.6~~ ~~million of our Term Loan. In connection with our principal prepayments made in August 2021, $42.5~~ ~~million of the prepayments were applied to the Term Loan held by affiliates of Thoma Bravo. Additionally, in connection with our October 29, 2021 Refinancing, $88.6~~ ~~million of our Term Loan held by affiliates of Thoma Bravo was paid off. Refer to Note 7—Credit Facility for additional information regarding the principal prepayments and Refinancing.~~

~~Interest paid to affiliates of Thoma Bravo during the nine months ended September 30, 2021 (unaudited) was $7.0~~ ~~million.~~

2420

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis together with the financial statements and the related notes to those statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and our audited Consolidated Financial Data for the year ended December 31, ~~2021~~2022 and the related notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC on February ~~23, 2022~~17, 2023 (the ~~"2021~~"2022 10-K"). The following discussion contains forward-looking statements. See the “Forward-Looking Statements” section of this Quarterly Report on Form 10-Q.

Overview

From the inception of a teacher’s lesson through a student’s mastery of a concept, Instructure personalizes, simplifies, organizes, and automates the entire learning lifecycle through the power of technology. Our learning platform delivers the elements that leaders, teachers, and learners need – a next-generation ~~learning management system (“LMS”),~~LMS, robust assessments for learning, actionable analytics, and engaging, dynamic course content. Schools standardize on Instructure’s solutions as the core of their ~~core~~ learning platform because we bring together all of the tools that students, teachers, parents, and administrators need to create an accessible, engaging and modern learning environment. Our platform is cloud-native, built on open technologies, and scalable across thousands of institutions and tens of millions of users worldwide. We are the LMS market share leader in both Higher Education and paid K-12, with ~~nearly~~over 7,000 global customers, representing Higher Education institutions and K-12 districts and schools in more than 100 countries. We are maniacally focused on our customers and enhancing the teaching and learning experience. As such, we continuously innovate to grow the ~~footprint~~functionality and capabilities of our platform, including through our earlier acquisitions ~~of Portfolium~~ to add online skills portfolio capabilities for Higher Education students ~~MasteryConnect~~ and ~~Certica to add~~ assessment and analytics ~~capabilities, Impact~~capabilities. More recently, we acquired Eesysoft (rebranded to “Impact by Instructure” subsequent to acquisition, or “Impact”) to allow educators to evaluate the impact education technologies have on student engagement and outcome, ~~Elevate~~Kimono LLC (rebranded to “Elevate Data ~~Sync~~Sync” subsequent to acquisition) to secure data syncing capabilities across applications within a school environment, Concentric Sky, the maker of Badgr, (rebranded to “Canvas Credentials” subsequent to acquisition) to empower institutions to help learners navigate their personal learning journeys through stackable digital credentialing technology that allows them to carry proof of their academic achievements and ~~Canvas Credentials~~skills development, and LearnPlatform to ~~give educators a robust, scalable~~empower educational organizations to evaluate and ~~feature-rich platform for badging.~~manage ongoing usage and effectiveness of digital learning products. Our platform becomes ~~deeply ingrained into~~the invaluable digital infrastructure behind our customers’ instructional workflows.

Since our founding in 2008, we have expanded our platform from the core LMS to include a broad set of offerings targeting all aspects of teaching and learning. As our platform has grown, we have become more strategic to schools as they seek vendor consolidation, best of breed solutions, and integrated offerings to serve teachers and students.

This discussion and analysis reflects our financial condition and results of operations for the ~~unaudited~~ three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021.~~(unaudited).

For the ~~unaudited~~ three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021:~~(unaudited):

•

Our revenue was ~~$122.4~~$128.8 million and ~~$107.2~~$113.5 million, respectively.

•

Our net loss was ~~$10.1~~$11.9 million and ~~$13.3~~$5.5 million, respectively.

•

Our adjusted EBITDA was ~~$47.6~~$48.3 million and ~~$41.3~~$43.6 million, respectively.

•

Our operating cash flow was ~~$179.9~~$(80.9) million and ~~$161.2~~$(65.9) million, respectively.

•

Our free cash flow was ~~$178.3~~$(82.2) million and ~~$160.0 million, respectively.~~

~~For the unaudited nine months ended September 30, 2022 and 2021:~~

•

~~Our revenue was $350.5 million and $294.8 million, respectively.~~

•

~~Our net loss was $28.5 million and $68.0 million, respectively.~~

•

~~Our adjusted EBITDA was $131.0 million and $105.0 million, respectively.~~

•

~~Our operating cash flow was $121.5 million and $108.8 million, respectively.~~

•

~~Our free cash flow was $116.5 million and $106.1~~$(67.3) million, respectively.

Adjusted EBITDA and free cash flow are non-GAAP measures, see “Non-GAAP Financial Measures” for definitions and reconciliations to the most closely comparable GAAP measure.

2521

Recent Developments

Macroeconomic Conditions and ~~COVID-19 Update~~Trends

Adverse macroeconomic conditions, including but not limited to ~~heightened~~high inflation, slower econcomic growth or recession, changes to fiscal and monetary policy, ~~higher~~high interest rates, currency fluctuations, market-wide liquidity issues and challenges in the supply chain could impact our ~~business. In addition, the war in Ukraine has given rise to potential global security issues that may, in particular, adversely affect international~~ business and ~~technology companies, such as ours.~~customer spending. Certain of our customers may also be negatively impacted by these events.

~~We believe that~~In March 2023, Silicon Valley Bank (“SVB”) was closed and placed in receivership with the ~~COVID-19 pandemic accelerated adoption~~Federal Deposit Insurance Corporation (“FDIC”) as receiver. As of the date of this Quarterly Report, the majority of our ~~learning platform,~~cash deposits have been transferred to other financial institutions, with the remaining amounts still deposited with SVB being fully accessible. However, there is uncertainty in the markets regarding the stability of the banking system and especially of regional banks and the safety of deposits in excess of FDIC insured deposit limits. If the various banks and financial institutions at which we ~~expect will~~hold our cash enter receivership or become insolvent, our ability to access our cash may be threatened.

During 2022, the U.S. dollar strengthened against foreign currencies. The U.S dollar may continue to ~~generate additional opportunities for us in~~strengthen against foreign currencies if the ~~future. We continued to experience high usage on~~U.S. Federal Reserve further raises the federal funds interest rate, which could further impact our ~~learning platform, even~~reported expenses. Similarly, as ~~North American K-12 students have returned to~~a result of increased federal funds interest rates, the classroom on a full-time basis. Since our customers have transitioned back to the classroom, the demand for our network and data storage capacity, inclusive of third-party cloud hosting, has come down from peak pandemic levels. However, our customers continue to embrace remote learning platforms and demand for our products remains significantly higher than pre-pandemic levels. These factors have generated a positive impactinterest rate applicable to our ~~gross margin.~~

~~There is no assurance that we will experience~~Senior Term Loan increased from 6.12% as of December 31, 2022 to 7.85% as of March 31, 2023 (unaudited), impacting our cost of debt. These items have not had a ~~continued increase in the adoption of~~material impact on our ~~learning platform or that new or existing customers will continue to utilize our service as the COVID-19 pandemic continues to taper.~~

~~The full extent to which the tapering of the COVID-19 pandemic will directly or indirectly impact our business,~~ results of operations ~~and financial condition continues~~ to ~~be uncertain and cannot be accurately predicted.~~date.

Key Factors Affecting Our Performance

Our historical financial performance has been, and we expect our financial performance in the future to be, driven by the following trends and our ability to:

Increase Adoption of Cloud-Based Software by Higher Education and K-12 Institutions

Our ability to increase market adoption of our platform is driven by the overall adoption of cloud applications and infrastructure by academic institutions. We believe that Higher Education and K-12 institutions are poised to accelerate the pace of cloud adoption to support near-term online educational needs, as a result of, and following the COVID-19 pandemic, and to withstand future challenges. Academic institutions that relied upon on-premises solutions to support remote operations faced significant delays at the height of the pandemic. In order to continue providing a high-quality education and support in-person, remote, and hybrid learning, institutions must make a fundamental shift to adopt cloud-based collaboration solutions. As the leader in the market for cloud-based learning technology, we believe the imperative for these institutions to adopt cloud infrastructure will increase demand for our platform and broaden our customer base.

Grow Our Customer Base

We believe there is significant opportunity to grow our customer base in Higher Education and K-12. The growth of our Higher Education customer base is primarily dependent on the replacement of legacy systems with our cloud-native platform in North America and our continued expansion efforts internationally. The growth of our K-12 customer base is primarily dependent on our ability to surround currently implemented free solutions with our learning platform and, in connection therewith, monetize demand for our broad capabilities. We intend to expand our customer base by continuing to make targeted and prudent investments in sales and marketing and customer support.

Cross-sell into our Existing Customer Base

Most of our customers initially engage with us using our Canvas LMS solution, and then we are generally able to cross-sell our other solutions as these customers become aware of the benefits of our broad capabilities, including learning, assessments, analytics, student success, program management, digital courseware, and global online learning. Our future revenue growth is dependent upon our ability to expand our customers’ use of our learning platform. Our ability to increase sales to existing customers depends on a number of factors, including customer satisfaction, competition, pricing, economic conditions, and spending by customers.

Key Components of Results of Operations

Revenue

We generate revenue primarily from two main sources: (1) subscription and support revenue, which is comprised of ~~Software-as-a-Service, or~~ SaaS fees from customers accessing our learning platform and from customers purchasing additional support beyond the standard support that is included in the basic SaaS fees; and (2) related professional services revenue, which is comprised of training, implementation services and other types of professional services.

2622

Subscription revenue is derived from customers using our learning platform and is driven primarily by the number of customers, the number of users at each customer, the price of our applications and renewals. Support revenue is derived from customers purchasing additional support beyond the standard support that is included in the basic SaaS fee. Our contracts typically vary in length between one and five years. Subscriptions and support are non-cancelable and are billed in advance on an annual basis. All subscription and support fees billed are initially recorded in deferred revenue and recognized ratably over the subscription term.

Professional services and other revenue are derived primarily from implementation, training, and other consulting fees. Implementation services includes training and consulting services that generally take anywhere from 30 to 90 days to complete depending on customer-side complexity and timelines. It includes regularly scheduled and highly-structured activities to ensure customers progress toward better utilizing our applications. Most of these interactions take place over the phone and through the use of web meeting technology. Because we have determined the implementation services are distinct, they are recognized over time as the services are rendered, using an efforts-expended input method. Implementation services also include nonrefundable upfront setup fees, which are allocated to the remaining performance obligations.

We include training with every implementation and offer additional training for a fee. The training offered is focused on creating confidence among users so they can be successful with our applications. Most training is performed remotely using web meeting technology. Because we have determined that trainings are distinct, we record training revenue upon the delivery of the training. Training is recognized ratably in the same manner as subscription and support revenue described above.

In addition to our implementation and training offerings, we provide consulting services for custom application development, integrations, content services and change management consulting. These services are architected to boost customer adoption of our applications and to drive usage of features and capabilities that are unique to our company. We have determined that these services are distinct. Professional services revenue is typically recognized over time as the services are rendered, using an efforts-expended input method.

Cost of Revenue

Cost of subscription and support revenue consists primarily of the costs of our cloud hosting provider and other third-party service providers, employee-related costs including payroll, benefits and stock-based compensation expense for our operations and customer support teams, amortization of capitalized software development costs and acquired technology, and allocated overhead costs, which we define as rent, facilities and costs related to IT. Our acquired technology is amortized over the estimated ~~remaining~~ useful life, which is five years.

Cost of professional services and other revenue consists primarily of personnel costs of our professional services organization, including salaries, benefits, travel, bonuses and stock-based compensation, as well as allocated overhead costs.

Operating Expenses

Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs of our sales and marketing employees, including sales commissions and incentives, benefits and stock-based compensation expense, marketing programs, including lead generation, costs of our annual InstructureCon user conference, acquisition-related amortization expenses and allocated overhead costs. We defer and amortize on a straight-line basis sales commission costs related to acquiring new contracts over a period of benefit that we have determined to be generally four years. Customer relationships represent the estimated fair value of the acquired customer bases and are amortized over the estimated ~~remaining~~ useful life of seven years. The trade names acquired are amortized over the estimated ~~remaining~~ useful lives ranging from ~~three~~one to ten years.

Research and Development. Research and development expenses consist primarily of personnel costs of our development team, including payroll, benefits and stock-based compensation expense and allocated overhead costs. We capitalize certain software development costs that are attributable to developing new applications, features and adding incremental functionality to our platform. We amortize these costs to subscription and support cost of revenue in the condensed consolidated statements of operations and comprehensive loss over the estimated life of the new application or incremental functionality, which is generally three years.

General and Administrative. General and administrative expenses consist of personnel costs and related expenses for executive, finance, legal, human resources, recruiting, employee-related information technology, administrative personnel, including payroll, benefits and stock-based compensation expense; professional fees for external legal, accounting and other consulting services; and allocated overhead costs.

Other Income (Expense), net

Other income (expense), net consists primarily of interest income, interest expense, and the impact of foreign currency transaction gains and losses. Interest expense is related to fees incurred to have access to our credit facilities. As we have expanded our international operations, our exposure to fluctuations in foreign currencies has increased.

2723

Income Tax Benefit

We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income and changes in tax laws. The tax benefit at ~~September 30, 2022 (unaudited)~~March 31, 2023 consists of decreases in U.S. Federal and state deferred tax liabilities due to current year pretax book loss, ~~minimal increases to state deferred tax liabilities due to increases in~~net of valuation allowance ~~recorded against state net operating loss carryforwards, and increases to foreign deferred tax assets as a result of changes in foreign tax rates.~~recorded.

Results of Operations

The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods. The data has been derived from the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q which include, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial position and results of operations for the interim periods presented. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.



	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2022			2021			2022			2021			2023			2022
	(in thousands)												(in thousands)
Revenue:
Subscription and support	$	109,727		$	96,163		$	316,124		$	266,774		$	118,480		$	103,492
Professional services and other		12,702			11,058			34,344			27,994			10,363			9,970
Total revenue		122,429			107,221			350,468			294,768			128,843			113,462
Cost of revenue:
Subscription and support(1) (2) (3)		37,005			36,528			108,419			112,575			38,810			35,546
Professional services and other(1) (3)		7,068			4,939			19,063			15,500			7,022			5,465
Total cost of revenue		44,073			41,467			127,482			128,075			45,832			41,011
Gross profit		78,356			65,754			222,986			166,693			83,011			72,451
Operating expenses:
Sales and marketing(1) (2) (3)		45,737			40,553			134,943			120,858			50,850			43,321
Research and development(1) (3)		20,596			15,823			56,466			47,191			23,702			17,201
General and administrative(1) (3)		14,408			14,396			44,277			38,943			14,373			15,616
Impairment on disposal group (3)		—			—			—			1,218
Total operating expenses		80,741			70,772			235,686			208,210			88,925			76,138
Loss from operations		(2,385	)		(5,018	)		(12,700	)		(41,517	)		(5,914	)		(3,687	)
Other income (expense):
Interest income		303			—			366			13			1,341			36
Interest expense		(7,173	)		(11,251	)		(16,337	)		(44,178	)		(9,485	)		(4,553	)
Other expense(3)		(3,856	)		(1,623	)		(6,967	)		(2,365	)
Other income(3)														76			306
Total other income (expense), net		(10,726	)		(12,874	)		(22,938	)		(46,530	)		(8,068	)		(4,211	)
Loss before income taxes		(13,111	)		(17,892	)		(35,638	)		(88,047	)		(13,982	)		(7,898	)
Income tax benefit		3,056			4,631			7,119			20,022			2,125			2,353
Net loss	$	(10,055	)	$	(13,261	)	$	(28,519	)	$	(68,025	)	$	(11,857	)	$	(5,545	)

(1)

Includes stock-based compensation as follows:


	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2022		2021		2022		2021		2023		2022
	(in thousands)								(in thousands)
Cost of revenue:
Subscription and support	$	358	$	257	$	965	$	652	$	379	$	282
Professional services and other		451		323		1,292		610		414		376
Sales and marketing		2,813		2,139		8,162		4,814		2,528		2,577
Research and development		3,035		2,292		8,261		4,896		3,174		2,540
General and administrative		3,403		3,368		10,243		6,750		3,515		3,701
Total stock-based compensation	$	10,060	$	8,379	$	28,923	$	17,722	$	10,010	$	9,476

2824

(2)

Includes amortization of acquisition-related intangibles as follows:


	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2022		2021		2022		2021		2023		2022
	(in thousands)								(in thousands)
Cost of revenue:
Subscription and support	$	15,885	$	15,582	$	47,434	$	46,412	$	16,073	$	15,690
Sales and marketing		18,375		18,008		54,756		53,900		19,670		18,049
Research and development										5		—
Total amortization of acquisition-related intangibles	$	34,260	$	33,590	$	102,190	$	100,312	$	35,748	$	33,739

(3)

Includes ~~restructuring,~~ transaction, sponsor, other non-recurring costs, and ~~sponsor related costs~~foreign currency gains and losses as follows:


	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2022		2021		2022		2021		2023		2022
	(in thousands)								(in thousands)
Cost of revenue:
Subscription and support	$	141	$	159	$	159	$	2,108	$	294	$	9
Professional services and other		34		28		129		883		225		54
Sales and marketing		412		99		802		2,551		1,759		280
Research and development		1,984		226		2,776		2,904		3,568		290
General and administrative		1,673		1,519		4,236		8,378		1,497		1,837
Impairment on disposal group		—		—		—		1,218
Other expense		3,865		1,610		7,050		1,610
Total restructuring, transaction and sponsor related costs	$	8,109	$	3,641	$	15,152	$	19,652
Other income										250		292
Total costs for transaction, sponsor, other non-recurring costs, and foreign currency gains and losses									$	7,093	$	2,178



	Three months ended March 31,
	2023	2022
	(as a percentage of total revenue)
Revenue:
Subscription and support	92%	91%
Professional services and other	8	9
Total revenue	100	100
Cost of revenue:
Subscription and support	30	31
Professional services and other	5	5
Total cost of revenue	35	36
Gross profit	65	64
Operating expenses:
Sales and marketing	39	38
Research and development	18	15
General and administrative	11	14
Total operating expenses	68	67
Loss from operations	(3)	(3)
Other income (expense):
Interest income	1	—
Interest expense	(7)	(4)
Other income	—	—
Total other income (expense), net	(6)	(4)
Loss before income taxes	(9)	(7)
Income tax benefit	2	2
Net loss	(7)%	(5)%

Three months ended
September 30,

Nine months ended
September 30,

2022

2021

2022

2021

(as a percentage of total revenue)
Revenue:

Subscription and support

90%

90%

90%

91%
Professional services and other

                             10

  10

  10

  9
Total revenue

                           100

                           100

  100

  100
Cost of revenue:

Subscription and support

  30

  34

  31

  38
Professional services and other

  6

  5

  5

  5
Total cost of revenue

  36

  39

  36

  43
Gross profit

  64

  61

  64

  57
Operating expenses:

Sales and marketing

  37

  38

  39

  41
Research and development

  17

  15

  16

  16
General and administrative

  12

  13

  13

  13
Impairment on disposal group

  —

  —

  —

  —
Total operating expenses

  66

  66

  68

  70
Loss from operations

  (2)

  (5)

  (4)

  (13)
Other income (expense):

Interest income

  —

  —

  —

  —
Interest expense

  (6)

  (10)

  (5)

  (15)
Other expense

  (3)

  (2)

  (2)

  (1)
Total other income (expense), net

  (9)

  (12)

  (7)

  (16)
Loss before income taxes

  (11)

  (17)

  (11)

  (29)
Income tax benefit

  3

                               4

                               2

                               7
Net loss

(8)%

(13)%

(9)%

(22)%

Comparison of the unaudited three ~~and nine~~ months ended ~~September 30, 2022 and~~March 31, 2023 to the unaudited three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022

Revenue



	Three months ended September 30,				Change					Nine months ended September 30,				Change					Three months ended March 31,				Change
	2022		2021		Amount		%			2022		2021		Amount		%			2023		2022		Amount		%
	(dollars in thousands)																		(dollars in thousands)
Subscription and support	$	109,727	$	96,163	$	13,564		14	%	$	316,124	$	266,774	$	49,350		18	%	$	118,480	$	103,492	$	14,988		14	%
Professional services and other		12,702		11,058		1,644		15			34,344		27,994		6,350		23			10,363		9,970		393		4
Total revenue	$	122,429	$	107,221	$	15,208		14	%	$	350,468	$	294,768	$	55,700		19	%	$	128,843	$	113,462	$	15,381		14	%

~~Three month change~~

Subscription and support revenue increased ~~$13.6~~$15.0 million for the unaudited three months ended ~~September 30, 2022~~March 31, 2023. The increase is due to ~~an increase in~~expanded use of our solutions, including among new and existing customers. For the unaudited three months ended March 31, 2023, revenue from new customers ~~growth~~increased by $9.0 million and revenue from existing customers ~~through upselling historical products~~increased $6.0 million. International markets contributed 20% of the total revenue for the three months ended March 31, 2023, an increase of $2.9 million. Use of our solutions expanded as a result of the need for continued digital transformation in education and ~~cross-selling~~targeted sales and marketing efforts in new ~~products, contributions from our recent acquisitions,~~ and ~~the effects of acquisition accounting from Accounting Standards Codification (“ASC”) Topic 805 (“ASC 805”).~~existing markets.

Professional services and other revenue increased ~~$1.6~~$0.4 million for the unaudited three months ended ~~September 30, 2022~~March 31, 2023. The increase is due to the ~~same factors discussed above.~~

~~Nine month change~~

Subscription and support revenue increased $49.4 million for the unaudited nine months ended September 30, 2022 due to new and existing customers, through upselling historical products and cross-selling new products, and contributions fromexpanded use of our ~~recent acquisitions,~~solutions as ~~discussed above, as well as the effects of acquisition accounting from ASC 805.~~

~~Professional services and other revenue increased $6.4 million for the unaudited nine months ended September 30, 2022 due to the same factors~~ discussed above.

Cost of Revenue

Three months ended
September 30,

Change

Nine months ended
September 30,

Change

2022

2021

Amount

%

2022

2021

Amount

%

(dollars in thousands)

Cost of revenue:

Subscription and support

$
37,005

$
36,528

$
477

1
%

$
108,419

$
112,575

$
(4,156
)

(4
)%
Professional services and other

7,068

4,939

2,129

43

19,063

15,500

3,563

23

Total cost of revenue

$
44,073

$
41,467

$
2,606

6
%

$
127,482

$
128,075

$
(593
)

(0
)%
Gross margin percentage

Subscription and support revenue

66
%

62
%

66
%

58
%

Professional services and other

44

55

44

45

Total gross margin

64

61

64

57

~~Three month change~~



	Three months ended March 31,						Change
	2023			2022			Amount		%
	(dollars in thousands)
Cost of revenue:
Subscription and support	$	38,810		$	35,546		$	3,264		9	%
Professional services and other		7,022			5,465			1,557		28
Total cost of revenue	$	45,832		$	41,011		$	4,821		12	%
Gross margin percentage
Subscription and support revenue		67	%		66	%
Professional services and other		32			45
Total gross margin		64			64

Subscription and support cost of revenue increased ~~$0.5~~$3.3 million for the unaudited three months ended ~~September 30, 2022~~March 31, 2023 due to an increase in web hosting costs of $1.7 million, an increase in salaries, wages, and employee-related benefits of ~~$0.8~~$0.6 million, an increase in amortization of acquisition-related intangibles of ~~$0.5~~$0.6 million, an increase in stock-based compensation of $0.1 million, an increase in contractor and consulting costs of $0.2 million, and ~~an increase~~other miscellaneous increases of $0.3 million in software expense. These increases were offset by a decrease of $0.4 million in web hosting costs, $0.3 million in systems and hardware costs, and $0.4 million in third-party consultant and contractor costs.$0.1 million.

Professional services and other cost of revenue increased ~~$2.1~~$1.6 million for the unaudited three months ended ~~September 30, 2022~~March 31, 2023 due to an increase in salaries, wages, and employee-related benefits of $1.2 million, an increase in ~~systems and hardware~~software costs of ~~$0.2 million, an increase in third-party consultants and contractors of $0.5~~$0.3 million, and other ~~insignificant increases of $0.2 million.~~

~~Nine month change~~

Subscription and support cost of revenue decreased $4.2 million for the unaudited nine months ended September 30, 2022 due to a decrease of $1.9 million related to exiting leased property, which occurred in the first quarter of 2021, and decreases in rent and related expenses of $0.4 million. Web hosting expenses and software license expenses decreased $3.5 million, systems and hardware costs decreased $0.9 million, and third-party consultants and contractors decreased $0.5 million. These decreases were offset by an increase in amortization of acquisition-related intangibles of $1.4 million, an increase in salaries, wages, and related benefits of $1.2 million, and an increase in other employee-related expenses, including travel, of $0.2 million.

Professional services and other cost of revenue increased $3.6 million for the unaudited nine months ended September 30, 2022 due to an increase in salaries, wages, and related benefits of $2.8 million, an increase in systems and hardware costs of $0.5 million, an increase in other employee-related expenses, including travel, of $0.3 million, an increase in third-party consultants and contractors of $0.6 million, an increase in software expenses of $0.1 million, and other insignificantmiscellaneous increases of $0.1 million. ~~These increases were offset by a decrease of $0.8 million related to exiting leased property, which occurred in the first quarter of 2021.~~

Operating Expenses

Sales and Marketing

Three months ended
September 30,

Change

Nine months ended
September 30,

Change

2022

2021

Amount

%

2022

2021

Amount

%

(dollars in thousands)

Sales and marketing

$
45,737

$
40,553

$
5,184

13
%

$
134,943

$
120,858

$
14,085

12
%



	Three months ended March 31,				Change
	2023		2022		Amount		%
	(dollars in thousands)
Sales and marketing	$	50,850	$	43,321	$	7,529		17	%

~~Three month change~~26

Sales and marketing expenses increased ~~$5.2~~$7.5 million for the unaudited three months ended ~~September 30, 2022~~March 31, 2023 due to an increase in salaries, wages, and ~~related~~employee-related benefits of ~~$1.8~~$2.1 million, ~~commissions~~an increase in acquisition-related amortization of $1.6 million, an increase in travel expenses of $1.1 million, an increase in bonuses of $1.0 million, an increase in severance pay of $0.6 million, an increase in training and other employee-related expenses of $0.4 million, and an increase in contractor and consulting cost of $0.3 million.

Research and Development



	Three months ended March 31,				Change
	2023		2022		Amount		%
	(dollars in thousands)
Research and development	$	23,702	$	17,201	$	6,501		38	%

Research and development expenses increased $6.5 million for the unaudited three months ended March 31, 2023 due to an increase in salaries, wages, and employee-related benefits of $2.5 million, an increase in severance pay of $0.8 million, an increase in stock-based compensation ~~expense~~ of $0.6 million, offset by a decrease in bonuses of $0.2 million. There were also additional increases related to ~~amortization~~software and related maintenance of ~~acquisition-related intangibles~~$0.5 million, contractor and consulting costs of ~~$0.4~~$2.0 million, ~~increases in marketing~~travel expenses such as advertising and tradeshows of $0.9 million, an increase of $0.2 million in software expense, and an increase in employee-related expenses, including travel, of $0.3 million. These increases were offset by a decrease in third-party consultants and contractors of $0.2 million, and ~~a decrease in systems and hardware costs of $0.2 million.~~

~~Nine month change~~

Sales and marketing expenses increased $14.1 million for the unaudited nine months ended September 30, 2022 due to an increase in salaries, wages, and related benefits of $6.1 million, commissions of $3.0 million, and stock-based compensation expense of $3.3 million. Additionalother miscellaneous increases included an increase in marketing expenses such as tradeshows and partnerships of $1.5 million, other employee-related expenses, including travel, of $1.8 million, and an increase in acquisition-related intangibles of $0.8 million. These increases were offset by a decrease of $2.0 million related to exiting leased property, which occurred in the first quarter of 2021, and a decrease in third-party consultants and contractors of $0.8 million.

~~Research and Development~~

Three months ended
September 30,

Change

Nine months ended
September 30,

Change

2022

2021

Amount

%

2022

2021

Amount

%

(dollars in thousands)

Research and development

$
20,596

$
15,823

$
4,773

30
%

$
56,466

$
47,191

$
9,275

20
%

~~Three month change~~

Research and development expenses increased $4.8 million for the unaudited three months ended September 30, 2022 due to an increase in salaries, wages, and stock-based compensation of $1.8 million, an increase in third-party consultants and contractors of $2.5 million, an increase in systems and hardware costs of $0.2 million, an increase in other employee-related expenses, including travel, of $0.1 million, and other insignificant increases of $0.2 million.

~~Nine month change~~

Research and development expenses increased $9.3 million for the unaudited nine months ended September 30, 2022 due to an increase in salaries, wages, and stock-based compensation of $4.9 million, an increase in third-party consultants and contractors of $4.2 million, an increase in systems and hardware costs of $0.7 million, an increase in other employee-related expenses, including travel, of $0.7 million, and an increase in office building rent of $0.2 million. These increases were offset by a decrease of $1.4 million related to exiting leased property, which occurred in the first quarter of 2021, and other insignificant decreases of $0.1 million.

General and Administrative

Three months ended
September 30,

Change

Nine months ended
September 30,

Change

2022

2021

Amount

%

2022

2021

Amount

%

(dollars in thousands)

General and administrative

$
14,408

$
14,396

$
12

0
%

$
44,277

$
38,943

$
5,334

14
%



	Three months ended March 31,				Change
	2023		2022		Amount			%
	(dollars in thousands)
General and administrative	$	14,373	$	15,616	$	(1,243	)		(8	)%

~~Three month change~~

General and administrative expenses ~~did not significantly change~~decreased by $1.2 million for the unaudited three months ended ~~September 30, 2022 because increases in salaries, wages, and related benefits of $0.7 million were offset by~~March 31, 2023 due to a decrease in ~~bonuses of $0.6 million. General~~contractor and ~~administrative expenses also increased as a result of an increase in marketing expenses, such as advertising and tradeshows, of $0.4 million, and an increase in systems and hardware~~consulting costs of ~~$0.3 million. These increases were offset by decreases in third-party consultants and contractors of $0.6~~$0.9 million, a decrease in ~~business~~ insurance costs of ~~$0.1~~$0.5 million, and a decrease in ~~office building rent~~recruiting and employee-related costs of $0.1 million.

~~Nine month change~~

General and administrative expenses increased by $5.3 million for the unaudited nine months ended September 30, 2022 due to an increase in salaries, wages, and related benefits of $1.9 million, and an increase in stock-based compensation of $3.5 million, which increases These decreases were offset by ~~a decrease~~increases in ~~bonuses of $1.1 million. General and administrative expenses also increased as a result of an increase in insurance~~travel expenses of ~~$2.2 million, an increase in franchise and property taxes of $0.7~~$0.1 million, an increase in bad debt expense of ~~$0.5~~$0.1 million, ~~an increase~~and other miscellaneous increases of ~~$0.5 million in systems and hardware costs, and increases in other employee-related expenses, including travel, of $0.3~~$0.1 million. These increases were offset by a decrease of $0.7 million related to exiting leased property, which occurred in the first quarter of 2021, and decreases in third-party consultants and contractors of $2.5 million.

~~Impairment on Disposal Group~~

Three months ended
September 30,

Change

Nine months ended
September 30,

Change

2022

2021

Amount

%

2022

2021

Amount

%

(dollars in thousands)

Impairment on disposal group

$
—

$
—

$
—

—

$
—

$
1,218

$
(1,218
)

(100
)%

~~Nine month change~~

Impairment on disposal group decreased by $1.2 million for the unaudited nine months ended September 30, 2022. The decrease is due to our decision to market and sell Bridge, the Company’s corporate learning platform and wholly-owned subsidiary.

Other Income (Expense), Net

Three months ended
September 30,

Change

Nine months ended
September 30,

Change

2022

2021

Amount

%

2022

2021

Amount

%

(dollars in thousands)

Other income (expense), net

$
(10,726
)

$
(12,874
)

$
2,148

(17
)%

$
(22,938
)

$
(46,530
)

$
23,592

(51
)%



	Three months ended March 31,						Change
	2023			2022			Amount			%
	(dollars in thousands)
Other income (expense), net	$	(8,068	)	$	(4,211	)	$	(3,857	)		92	%

~~Three month change~~

Other income (expense), net ~~decreased $2.1~~includes interest income and expense and the impact of foreign currency transaction gains and losses. Other income (expense), net increased $3.9 million for the unaudited three months ended ~~September 30, 2022 due to decreased interest expense of $4.3 million~~March 31, 2023 as a result of ~~reduced~~increased interest ~~rates~~expense of $4.9 million due to interest rate increases on our ~~Term Loan and~~ Senior Term Loan (as defined below), ~~as well as~~an increase in expense from disposal of fixed assets of $0.2 million and an increase in expense related to the ~~overall reduction~~exit of leased property of $0.1 million. These increases in ~~principal following our IPO and Refinancing. These decreases were offset by increased realized and unrealized foreign currency losses of $2.2 million.~~

~~Nine month change~~

~~Other income (expense), net decreased $23.6 million for the unaudited nine months ended September 30, 2022 as a result of decreased interest~~ expense ~~of $28.2 million due to reduced interest rates on our Term Loan and Senior Term Loan, as well as the overall reduction in principal following our IPO and Refinancing. These decreases~~ were offset by an increase in interest income of ~~$4.6 million related to realized and unrealized foreign currency losses.~~$1.3 million.

Income Tax Benefit

Three months ended
September 30,

Change

Nine months ended
September 30,

Change

2022

2021

Amount

%

2022

2021

Amount

%

(dollars in thousands)

Income tax benefit

$
3,056

$
4,631

$
(1,575
)

(34
)%

$
7,119

$
20,022

$
(12,903
)

(64
)%


	Three months ended March 31,				Change
	2023		2022		Amount			%
	(dollars in thousands)
Income tax benefit	$	2,125	$	2,353	$	(228	)		(10	)%

3327

~~Three month change~~

Income tax benefit decreased ~~$1.6~~$0.2 million for the unaudited three months ended ~~September 30, 2022. Income tax benefit consists of current and deferred taxes for U.S. and foreign income taxes.~~

~~Nine month change~~

~~Income tax benefit decreased $12.9 million for the unaudited nine months ended September 30, 2022.~~March 31, 2023. Income tax benefit consists of current and deferred taxes for U.S. and foreign income taxes. Due to the ~~Company's net operating loss (“NOL”)~~Company’s NOL carryforward position, the decrease in the income tax benefit was driven mainly by ~~a reduction~~an increase in pretax book loss recognized in the unaudited ~~nine~~three months ended ~~September 30,~~March 31, 2023, net of 2023 valuation allowance recorded. The impact of foreign tax rate changes accounted for additional benefit recorded through March 31, 2022.

Liquidity and Capital Resources

As of ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, our principal sources of liquidity were cash, cash equivalents and restricted cash totaling ~~$263.4~~$109.1 million and ~~$169.2~~$190.3 million, respectively, which was held for working capital purposes, as well as the available balance of our Senior Term Loan, (as defined below). As of ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, our cash equivalents were comprised of money market funds. We expect our operating cash flows to improve as we increase our operational efficiency and experience economies of scale.

We ~~finance~~have financed our operations through cash received from operations and ~~in 2021, our IPO and the Refinancing.~~debt financing. We believe our existing cash and cash equivalents, our Senior ~~Secured Credit Facilities~~Term Loan and cash provided by sales of our solutions and services will be sufficient to meet our working capital, capital expenditure and cash needs for at least the next 12 months and beyond. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and services offerings, and the continuing market acceptance of our products. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies.

Our material cash requirements from known contractual and other obligations primarily consist of our Senior Term Loan and operating facility lease obligations, including certain letters of credit. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our 2022 10-K for more details.

We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations.

A portion of our customers pay in advance for subscriptions, a portion of which is recorded as deferred revenue. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is later recognized as revenue in accordance with our revenue recognition policy. As of ~~September 30, 2022~~March 31, 2023 (unaudited), we had deferred revenue of ~~$320.9~~$215.7 million, of which ~~$308.2~~$203.2 million was recorded as a current liability and is expected to be recorded to revenue in the next 12 months, provided all other revenue recognition criteria have been met. As of December 31, ~~2021,~~2022, we had deferred revenue of ~~$255.7~~$289.4 million, of which ~~$240.9~~$275.6 million was recorded as a current liability.

The following table shows our cash flows for the unaudited ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:

Nine months ended
September 30,

2022

2021

(in thousands)

Net cash provided by operating activities

$
121,474

$
108,816

Net cash provided by (used in) investing activities

(24,422
)

26,372

Net cash provided by (used in) financing activities

1,494

(54,353
)



	Three months ended March 31,
	2023			2022
	(in thousands)
Net cash used in operating activities	$	(80,918	)	$	(65,945	)
Net cash used in investing activities		(1,321	)		(1,311	)
Net cash provided by financing activities		766			2,813

3428

Our cash flows are subject to seasonal fluctuations. A significant portion of our contracts have terms that coincide with our customers’ typical fiscal year-end of June 30. Historical experience has shown an increase in new and renewed contracts as well as anniversary billings, all of which immediately precede the beginning of our academic customers’ typical fiscal year-end. We typically invoice SaaS fees annually upfront with credit terms of net 30 or 60 days. In turn, our cash flows from operations are affected by this seasonality and are typically reflected in higher cash flow, accounts receivable and deferred revenue balances for the second and third ~~quarters~~quarter of each year.

Credit Facility

On March 24, 2020, we entered into a credit agreement with a syndicate of lenders and Golub Capital Markets LLC, as administrative agent and collateral agent, and Golub Capital Markets LLC and Owl Rock Capital Advisors LLC, as joint bookrunners and joint lead arrangers (the “Credit Agreement”). The Credit Agreement provided for a senior secured term loan facility (the “Initial Term Loan”) in an original aggregate principal amount of $775.0 million, which was supplemented by an incremental term loan pursuant to the First Incremental Amendment and Waiver to Credit Agreement, dated as of December 22, 2020, in a principal amount of $70.0 million (the “Incremental Term Loan” and, together with the Initial Term Loan, the “Term Loan”). The Credit Agreement also provided for a senior secured revolving credit facility in an aggregate principal amount of $50.0 million (the “Revolving Credit Facility” and, together with the Term Loan, the “Credit Facilities”). The Revolving Credit Facility included a $10.0 million sublimit for the issuance of letters of credit.

~~The Credit Agreement required us to repay the principal of the Term Loan in equal quarterly repayments equal to 0.25% of the original principal amount of Term Loan.~~

In connection with the Company's IPO, the Company made a principal prepayment in August 2021 of $224.3 million on its outstanding Term Loan. In connection with the underwriters' exercise of their over-allotment option in August 2021, the Company made an additional principal prepayment in August 2021 of $30.8 million on its outstanding Term Loan. The Company also incurred a 1.5% prepayment premium in conjunction with each principal prepayment.

On October 29, 2021, we entered into a credit agreement ~~(the “2021 Credit Agreement”)~~ with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent (the “2021 Credit Agreement”), governing our senior secured credit facilities (the “Senior Secured Credit Facilities”), consisting of a $500.0 million senior secured term loan facility (the “Senior Term Loan”) and a $125.0 million senior secured revolving credit facility (the “Senior Revolver”). The proceeds from the ~~new~~ Senior Secured Credit Facilities were used, in addition to cash on hand, to (1) to refinance, in full, all existing indebtedness under the Credit Agreement (the “Refinancing”), (2) to pay certain fees and expenses incurred in connection with the entry into the 2021 Credit Agreement and the Refinancing, and (3) to finance working capital needs of the Company and its subsidiaries for general corporate purposes.

All of the ~~Company's~~Company’s obligations under the Senior Secured Credit Facilities are guaranteed by the subsidiary guarantors named therein (the “Subsidiary Guarantors”). The Senior Revolver includes borrowing capacity available for letters of credit. Any issuance of letters of credit will reduce the amount available under the Senior Revolver. ~~At and subsequent to closing,~~As of March 31, 2023 there have not been any borrowings incurred under the Senior Revolver.

The Senior Term Loan has a seven-year maturity and the Senior Revolver has a five-year maturity. WeCommencing June 30, 2022, we are required to repay the Senior Term Loan portion of the Senior Secured Credit Facilities in quarterly principal installments of 0.25% of the aggregate original principal amount of the Senior Term Loan at closing, with the balance payable at maturity. Borrowings under the Senior Secured Credit Facilities bear interest, at the ~~Company's~~Company’s option, at: (i) Base Rate equal to the greater of (a) the Federal Funds Rate plus 1/2 of 1.00%, (b) the rate of interest in effect for such day as publicly announced from time to time by the administrative agent as its ~~"prime~~“prime rate,"” (c) a Eurocurrency Rate for such date plus 1.00% and (d) 1.00%; or (ii) the Eurocurrency Rate (provided that the Eurocurrency Rate applicable to the Senior Term Loan shall not be less than 0.50% per annum). The Applicable Rate for the Senior Term Loan with respect to Eurocurrency Rate Loans is 2.75% per annum and 1.75% per annum for Base Rate Loans. The Applicable Rate for the Senior Revolver with respect to Eurocurrency Rate Loans, SONIA Loans, and Alternative Currency Term Rate Loans ranges from 2.00% to 2.5% subject to the ~~Company's~~Company’s Consolidated First Lien Net Leverage Ratio, while the Applicable Rate for Base Rate Loans ranges from 1.00% to 1.50% subject to the ~~Company's~~Company’s Consolidated First Lien Net Leverage Ratio. We are also required to pay an unused commitment fee to the lenders under the Senior Revolver at the Applicable Commitment Fee of the average daily unutilized commitments. The Applicable Commitment Fee ranges from 0.40% to 0.50% subject to the ~~Company's~~Company’s Consolidated First Lien Never Leverage Ratio.

As of ~~September 30, 2022~~March 31, 2023 (unaudited), we had outstanding borrowings of ~~$497.5~~$495.0 million on the Senior Term Loan, no outstanding borrowings under our Senior Revolver and $4.3 million outstanding under letters of credit.

Operating Activities

Net cash ~~provided by~~used in operating activities consists of net loss adjusted for certain non-cash items, including stock-based compensation, depreciation and amortization, deferred income taxes and other non-cash charges, net.

3529

Net cash ~~provided by~~used in operating activities during the unaudited ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was ~~$121.5~~$80.9 million, which was attributable to a net loss of ~~$28.5~~$11.9 million adjusted for certain non-cash items, including ~~$24.7~~$9.6 million of stock-based compensation expense, ~~$105.3~~$35.7 million of depreciation and amortization, ~~and $0.9~~$0.3 million inof amortization of debt discount and issuance costs, $3.1 million of deferred income taxes and ~~$4.9~~$0.2 million inof other non-cash items. ~~These amounts were offset by a decrease~~Working capital sources of ~~$10.1 million to deferred income taxes. The net change in operating asset and liabilities~~cash included a net ~~increase~~decrease of ~~$42.3~~$66.0 million in deferred revenue and accounts receivable resulting from the seasonality of our business where a significant number of our customer agreements occur in the second and third quarter each year. Prepaid expenses and other current assets increased by ~~$10.9~~$39.6 million, ~~lease liabilities decreased by $5.3 million, other liabilities decreased by $1.6 million,~~while accounts payable and accrued liabilities decreased by ~~$2.4~~$7.2 million, lease liabilities decreased by $1.9 million, other liabilities decreased by $0.3 million, deferred commissions decreased by ~~$1.3~~$0.9 million, and right-of-use assets decreased by ~~$3.6~~$1.0 million.

Net cash ~~provided by~~used in operating activities during the unaudited ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$108.8~~$65.9 million, which was attributable to a net loss of ~~$68.0~~$5.5 million adjusted for certain non-cash items, including ~~$11.5~~$7.8 million of stock-based compensation expense, ~~$103.0~~$34.7 million depreciation and amortization ~~$2.0~~and $0.3 million in amortization of debt discount and issuance ~~costs, $1.2 million of impairment on disposal group, and $1.6 million in other non-cash items.~~costs. These amounts were offset by a decrease of $0.4 million in other non-cash items and $3.4 million to deferred income ~~taxes of $20.3 million.~~taxes. Working capital sources of cash included a net ~~increase~~decrease of ~~$72.8~~$51.9 million in deferred revenue and accounts receivable resulting from the seasonality of our business where a significant number of our customer agreements occur in the second and third quarter each year. Prepaid expenses and other current assets increased by $34.7 million, while lease liabilities decreased by ~~$0.1~~$1.5 million, other liabilities decreased by $1.1 million, accounts payable and accrued liabilities ~~increased~~decreased by ~~$8.6~~$11.7 million, deferred commissions decreased by ~~$5.6 million, lease liabilities decreased by $4.7 million, other liabilities decreased by $0.9~~$0.3 million, and right-of-use assets decreased by ~~$7.6~~$1.2 million.

Investing Activities

Our investing activities have consisted of business acquisitions, property and equipment purchases for computer-related equipment and capitalization of software development costs. Capitalized software development costs are related to new applications or improvements to our existing software platform that expand the functionality for our customers.

Net cash used in investing activities was $1.3 million during each of the unaudited ~~nine~~three months ended ~~September 30,~~March 31, 2023 and unaudited three months ended March 31, 2022, ~~was $24.4 million,~~ consisting of ~~the acquisition of Canvas Credentials of $19.5 million, net of cash received, and~~ purchases of property and ~~equipment of $5.0 million.~~equipment.

Net cash provided by investing activities during the unaudited nine months ended September 30, 2021 was $26.4 million, consisting of $46.0 million due to the sale of our Bridge business, which was offset by our acquisition of Impact of $16.9 million, and purchases of property and equipment of $2.8 million.

Financing Activities

Our financing activities have consisted of proceeds from issuance of common stock from employee equity plans, shares withheld for tax withholdings on vesting of RSUs ~~repurchases of TopCo units~~ and repayments of long-term debt.

Net cash provided by financing activities during the unaudited ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was ~~$1.5~~$0.8 million, which consisted of ~~$7.3~~$3.3 million in proceeds from the issuance of common stock from employee equity plans, offset by ~~$3.3~~$1.3 million of shares repurchased for tax withholdings on vesting of restricted stock units, and ~~principal payments made~~a $1.3 million payment on ~~our~~ long-term ~~debt of $2.5 million.~~debt.

Net cash ~~used in~~provided by financing activities during the unaudited ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$54.4~~$2.8 million, which consisted of ~~$307.9~~$4.1 million in proceeds from the issuance of ~~principal payments made on our long-term debt, $3.8 million of prepayment premium paid in connection with our principal debt payments,~~common stock from employee equity plans, offset by $1.3 million of shares repurchased for tax withholdings on vesting of restricted stock ~~and distributions to stockholders of $0.9 million. These cash outflows were offset by $259.6 million of IPO proceeds, net of offering costs paid of $5.7 million.~~units.

Critical Accounting Estimates

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United ~~States.~~States (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting estimates as compared to those described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our ~~2021~~ 10-K.

Recent Accounting Pronouncement

For information on recent accounting pronouncements, see Note 2. “Summary of Significant Accounting Policies—Recent Accounting ~~Pronouncements"~~Pronouncements” in the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance and liquidity. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their U.S. GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with U.S. GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP. Investors are encouraged to review the related U.S. GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures.

Non-GAAP Operating Income

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

The following table provides a reconciliation of loss from operations to non-GAAP operating income for each of the periods indicated:


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2022			2021			2022			2021			2023			2022
	(in thousands)												(in thousands)
Loss from operations		(2,385	)		(5,018	)		(12,700	)		(41,517	)		(5,914	)		(3,687	)
Stock-based compensation		10,060			8,379			28,923			17,722			10,010			9,476
Restructuring, transaction and sponsor related costs		4,244			2,031			8,102			18,042
Transaction costs (1)														3,836			1,424
Sponsor costs (2)														58			134
Other non-recurring costs (3)														3,449			912
Amortization of acquisition-related intangibles		34,260			33,590			102,190			100,312			35,748			33,739
Fair value adjustments to deferred revenue in connection with purchase accounting		25			1,379			855			8,471			—			499
Non-GAAP operating income	$	46,204		$	40,361		$	127,370		$	103,030		$	47,187		$	42,497

(1)

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

(2)

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


(3) Includes other non-recurring costs as follows:	Three months ended March 31,
	2023		2022
	(in thousands)
Contract modification fees		115		230
Employee severance		1,859		65
Workforce realignment costs		1,060		354
Other insignificant non-recurring costs		415		263
Total other non-recurring costs	$	3,449	$	912

3731

Free Cash Flow

We define free cash flow as net cash ~~provided by~~used in operating activities less purchases of property and equipment and intangible assets, net of proceeds from disposals of property and equipment. We believe free cash flow facilitates period-to-period comparisons of liquidity. We consider free cash flow to be an important measure because it measures the amount of cash we generate and reflects changes in working capital. We use free cash flow in conjunction with traditional U.S. GAAP measures as part of our overall assessment of our liquidity, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our ~~Board~~board of directors concerning our liquidity.

The following table provides a reconciliation of net cash ~~provided by~~used in operating activities to free cash flow for each of the periods indicated:


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2022			2021			2022			2021			2023			2022
	(in thousands)												(in thousands)
Net cash provided by operating activities	$	179,872		$	161,183		$	121,474		$	108,816
Net cash used in operating activities													$	(80,918	)	$	(65,945	)
Purchases of property and equipment and intangible assets		(1,564	)		(1,193	)		(4,979	)		(2,800	)		(1,327	)		(1,333	)
Proceeds from disposals of property and equipment		5			16			41			40			6			22
Free cash flow	$	178,313		$	160,006		$	116,536		$	106,056		$	(82,239	)	$	(67,256	)

Adjusted EBITDA

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

We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and ~~Board.~~board of directors. In addition, it provides a useful measure for period-to-period comparisons of our business, as it removes the effect of certain non-cash expenses and certain variable charges.

Adjusted EBITDA has limitations as a financial measure, should be considered as supplemental in nature, and is not meant as a substitute for the related financial information prepared in accordance with U.S. GAAP.

The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated:



	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2022			2021			2022			2021			2023			2022
	(in thousands)												(in thousands)
Net loss	$	(10,055	)	$	(13,261	)	$	(28,519	)	$	(68,025	)	$	(11,857	)	$	(5,545	)
Interest on outstanding debt and loss on debt extinguishment		7,173			11,247			16,334			44,170			9,485			4,553
Benefit for taxes		(3,056	)		(4,631	)		(7,119	)		(20,022	)		(2,125	)		(2,353	)
Depreciation		1,087			911			3,145			2,728			1,203			1,004
Amortization		2			2			5			5			2			2
Stock-based compensation		10,060			8,379			28,923			17,722			10,010			9,476
Restructuring, transaction and sponsor related costs		8,109			3,641			15,152			19,652
Transaction costs (1)														3,836			1,424
Sponsor costs (2)														58			134
Other non-recurring costs (3)														3,550			912
Effects of foreign currency transaction gains														(351	)		(292	)
Amortization of acquisition-related intangibles		34,260			33,590			102,190			100,312			35,748			33,739
Interest income														(1,301	)		—
Fair value adjustments to deferred revenue in connection with purchase accounting		25			1,379			855			8,471			—			499
Adjusted EBITDA	$	47,605		$	41,257		$	130,966		$	105,013		$	48,258		$	43,553

(1)

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

(2)

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

~~Allocated Combined Receipts~~

We define Allocated Combined Receipts as the combined receipts of our Company and companies that we have acquired allocated to the period of service delivery. We calculate Allocated Combined Receipts as the sum of (i) revenue and (ii) the impact of fair value adjustments to acquired unearned revenue related to the Take-Private Transaction and Certica, Impact and Elevate Data Sync acquisitions that we do not believe are reflective of our ongoing operations. Management uses this measure to evaluate organic

3832

growth of the business period over period, as if the Company had operated as a single entity and excluding the impact of acquisitions or adjustments due to purchase accounting. Organic growth in current and future periods is driven by sales to new customers and the addition of additional subscriptions and functionality to existing customers, offset by customer cancellations or reduced subscriptions upon renewal.

We believe that it is important to evaluate growth on this organic basis, as it is an indication of the success of our services from the customer’s perspective that is not impacted by corporate events such as acquisitions or the fair value estimates of acquired unearned revenue. We believe this measure is useful to investors because it illustrates the trends in our organic revenue growth and allows investors to analyze the drivers of revenue on the same basis as management.

~~The following table presents a reconciliation of revenue to Allocated Combined Receipts for each of the periods indicated:~~

Three months ended
September 30,

Nine months ended
September 30,

2022

2021

2022

2021

(in thousands)

Revenue

$
122,429

$
107,221

$
350,468

$
294,768

Fair value adjustments to deferred revenue in connection with purchase accounting

25

1,379

855

8,471

Allocated Combined Receipts

$
122,454

$
108,600

$
351,323

$
303,239

~~Summary of Non-GAAP Financial Measures~~

~~The following table presents a summary of each non-GAAP financial measure for each of the periods indicated:~~

Three months ended
September 30,

Nine months ended
September 30,

2022

2021

2022

2021

(in thousands)

Other Financial Data:

Non-GAAP operating income

46,204

40,361

127,370

103,030

Free cash flow

178,313

160,006

116,536

106,056

Adjusted EBITDA

47,605

41,257

130,966

105,013

Allocated Combined Receipts

122,454

108,600

351,323

303,239


(3) Includes other non-recurring costs as follows:	Three months ended March 31,
	2023		2022
	(in thousands)
Loss on exit of leased properties		101		—
Contract modification fees		115		230
Employee severance		1,859		65
Workforce realignment costs		1,060		354
Other insignificant non-recurring costs		415		263
Total other non-recurring costs	$	3,550	$	912

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including those relating to future events or our future financial performance and financial guidance. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “project,” “believe,” “estimate,” “predict,” “potential,” “intend” or “continue,” the negative of terms like these or other comparable terminology, and other words or terms of similar meaning in connection with any discussion of future operating or financial performance. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results or our plans and objectives for future operations, growth initiatives, or strategies are forward-looking statements. These statements are only predictions. You should not place undue reliance on our forward-looking statements. These statements are not guarantees of future performance and are subject to future events, risks and uncertainties, many of which are beyond our control, or currently unknown to us. Our assumptions may turn out to be inaccurate and cause actual events or results to differ materially from our expectation or projections. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

•

~~risks associated with general global political, macroeconomic, social, health~~the continued economic uncertainty, including record-high inflation, supply chain challenges, labor shortages, high interest rates, foreign currency exchange volatility, concerns of economic slowdown or recession and ~~market conditions, including rising inflation, political instability, terrorist activities~~reduced spending or ~~military conflicts, including Russia's invasion~~suspension of ~~Ukraine;~~

•

~~risks associated with future stimulus packages approved by the U.S. federal government;~~investment in new or enhanced projects;

•

risks associated with failing to continue our recent growth ~~rates;~~

•

rates, including our ability to acquire new customers and successfully retain existing customers;

•

the effects of the increased usage of, or interruptions or performance problems associated with, our learning platform;

•

the impact on our business ~~and prospects from~~by health pandemics or epidemics, including the ongoing ~~effects of~~ the COVID-19 pandemic;

•

our history of losses and expectation that we will not be profitable for the foreseeable future;

•

the ~~impact of adverse general and industry-specific economic and market conditions;~~risk that the markets for our applications develop more slowly than expected;

•

risks associated with future stimulus packages approved by the U.S. federal government;

•

risks to our revenue from changes in the spending policies or budget priorities for government funding of Higher Education and K-12 institutions;

•

risks and uncertainties associated with potential acquisitions;

•

our ability to grow our business effectively, to scale our business and to manage our expenses;

•

the competitiveness of the market in which we operate;

•

risks caused by delays in upturns or downturns being reflected in our operating results;

•

~~risks and uncertainties associated with potential acquisitions;~~

•

our ability to use net operating losses to offset future taxable income;

•

our ability to change our pricing models, if necessary to compete successfully;

•

the length and unpredictability of our sales cycles;

•

risks associated with failure to develop our sales and marketing capabilities;

•

~~the competitiveness of the market in which we operate;~~

•

risks associated with joint ventures, platform partnerships and strategic alliances;

•

our ability to offer high-quality professional services and support;

•

the effectiveness of our expense reduction plan;

•

risks associated with international operations;

•

our reliance on our management team and other key employees, including the effects of recent significant changes to our executive leadership team and the resulting transitions;

•

our ability to attract and retain qualified personnel;

•

our ability to maintain our company culture as we grow;

•

risks related our brand recognition and reputation;

•

the complexity and time-consuming nature of our billing and collections processing;

•

our ability to adapt and respond to rapidly changing technology, evolving industry standards and changing customer needs;

•

the impact of potential information technology or data security breaches or other cyberattacks or other disruptions;

•

risks associated with our use of open source software, including that we make a substantial portion of the source code for Canvas available under the terms of an open source license;

•

risks relating to our reliance on third-party software and intellectual property licenses;

•

the impact of real or perceived errors, failures or bugs in our solutions;

•

risks associated with lawsuits by third parties for alleged infringement, misappropriation or other violation of their intellectual property and proprietary rights;

•

our ability to obtain, maintain, protect and enforce our intellectual property and proprietary rights;

•

risks related to incorrect or improper use of our solutions or our failure to properly train customers on how to utilize our solutions;

•

privacy laws and regulations, including changes thereto, applicable to our business;

•

risks relating to non-compliance with FERPA, COPPA and other regulatory regimes applicable to our business;

•

risks related to changes in tax laws;

•

the impact of export and import control laws and regulations;

•

risk relating to non-compliance with anti-corruption, anti-bribery and similar laws;

•

our ability to comply with complex procurement rules and regulations;

•

risks related to future litigation;

•

risks related to our existing and future indebtedness;

•

our ability to develop and maintain proper and effective internal control over financial reporting;

•

our management team’s limited experience managing a public company

•

our ability to correctly estimate market opportunity and forecast market growth;

•

the impact of any catastrophic events;

•

our ability to raise additional capital or generate cash flows necessary to expand operations and invest in new technologies; and

•

other factors disclosed in the section entitled “Risk Factors” in the ~~2021 10-K and elsewhere in this Quarterly Report.~~2022 Form 10-K.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by this cautionary statement as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates and inflation. We do not hold or issue financial instruments for trading purposes.

Foreign Currency Exchange Risk

Our reporting currency is the U.S. dollar. Due to our international operations, we have foreign currency risks related to operating expense denominated in currencies other than the U.S. dollar, particularly the ~~euro and the Australian dollar.~~euro. Most of our sales are denominated in U.S. dollars, and therefore our revenue is not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States, Europe, Australia, and New Zealand. Our condensed consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments. For the ~~unaudited~~ three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 (unaudited), a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our condensed consolidated financial statements.

Interest Rate Risk

We had cash, cash equivalents, and restricted cash of ~~$263.4~~$109.1 million and ~~$169.2~~$190.3 million as of ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, respectively, consisting of cash and money market accounts in highly rated financial institutions. With the exception of cash, these interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in our interest income have not been significant. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of these investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates.

At ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, we also had in place a $125.0 million Senior Revolver and approximately ~~$497.5~~$495.0 million ~~outstanding~~ on our Senior Term Loan. As of ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~

2022, we had no outstanding borrowings under our Senior Revolver. The Senior Revolver bears interest at 2.5% whereas the Senior Term Loan bears interest at 2.75% plus a variable applicable rate. At ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021,~~2022, the applicable rate was ~~3.37%~~5.10% and ~~0.50%~~3.37%, respectively.

We have an agreement to maintain cash balances at a financial institution of no less than $4.3 million as collateral for several letters of credit for purposes of securing certain of the Company’s obligations under facility leases and other contractual arrangements.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were designed to, and were effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2022~~March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitation on the effectiveness of internal control. The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are, and from time to time may be, party to litigation and subject to claims incident to the ordinary course of business. As our growth continues, we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of these matters could materially affect our future results of operations, cash flows or financial position. ~~With the potential exception of the below matter (which we believe is without merit and which we are defending vigorously against), we~~We are not presently party to any legal proceedings that in the opinion of management, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.

InAs discussed previously in February 2021, Oklahoma Law Enforcement Retirement System and Q. Wade Billings filed a class action lawsuit in the Delaware ~~Court~~Cour of Chancery against Instructure Holdings, LLC, certain Thoma Bravo entities and certain directors and officers of ~~Predecessor,~~Instructure Holdings, LLC relating to the ~~Take-Private~~Take Private Transaction. The complaint ~~alleges~~alleged that such directors and officers breached their fiduciary duties in connection with the ~~Take-Private~~Take Private Transaction, and that Instructure Holdings, LLC and Thoma Bravo aided and abetted such breaches. Plaintiffs ~~seek~~sought damages of an unidentified amount, interest, and attorneys’ and experts’ fees and expenses. On January 26, 2023, the Court dismissed the plaintiff's complaint in full and the time to appeal has expired.

On September 8, 2022, the Court heard oral argument on the defendants’ motion to dismiss and the plaintiff’s motion to convert the motion to dismiss to one for summary judgment. We do not believe these claims have merit and are defending vigorously against them.

Item 1A. Risk Factors

There have been no material changes in the risk factors included in section entitled “Risk Factors” included in ~~the 2021 10-K.~~our 2022 Form 10-K..

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits

4337

EXHIBIT INDEX


Exhibit Number		Description
3.1		Second Amended and Restated Certificate of Incorporation of Instructure Holdings, Inc., filed July 23, 2021(1)
3.2		Amended and Restated Bylaws of Instructure Holdings, Inc., effective July 21, 2021(2)
10.1		Employment Agreement, dated as of January 3, 2023, by and between Instructure Holdings, Inc. and Chris Ball(3)
10.2		Consulting Agreement dated as of February 10, 2023, by and between Instructure Holdings, Inc. and Frank Maylett(4)
31.1		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of the Principal Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of the Principal Executive Officer and Principal Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema
101.CAL		Inline XBRL Taxonomy Extension Calculation
101.DEF		Inline XBRL Extension Definition
101.LAB		Inline XBRL Taxonomy Extension Label
101.PRE		Inline XBRL Taxonomy Extension Presentation
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Document has been furnished, is not deemed filed and is not to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing.

(1) Incorporated by reference to Exhibit 3.1 on Form 8-K filed on July 21, 2021

(2) Incorporated by reference to Exhibit 3.2 on Form 8-K filed on July 21, 2021

(3) Incorporated by reference to Exhibit 10.1 on Form 8-K filed on January 10, 2023

(4) Incorporated by reference to Exhibit 99.2 on Form 8-K filed on February 13, 2023

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Instructure Holdings, Inc.

Date: ~~November 2, 2022~~May 3, 2023	By:	/s/Dale Bowen
		Dale Bowen
		Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

4539


Consideration transferred
Cash paid	$	17,472
Deferred consideration		1,500
Total purchase consideration	$	18,972
Identifiable assets acquired
Cash	$	586
Accounts receivable		624
Deposits		9
Intangible assets: developed technology		3,300
Intangible assets: customer relationships		1,700
Total assets acquired	$	6,219
Liabilities assumed
Accounts payable and accrued liabilities	$	49
Deferred revenue		692
Payroll tax liability		91
Deferred tax liability		672
Lease liability		24
Total liabilities assumed	$	1,528
Goodwill		14,281
Total purchase consideration	$	18,972


	Total
Balance as of December 31, 2021	$	1,194,221
Additions (Note 5—Acquisitions)		9,758
Balance as of September 30, 2022 (unaudited)	$	1,203,979


Remainder of 2022	$	2,188
2023		8,570
2024		8,342
2025		4,277
2026		2,703
2027 and thereafter		3,082
Total lease payments		29,162
Less:
Imputed interest		(4,161	)
Lease liabilities		25,001
Tenant improvement reimbursements included in the measurement of lease liabilities but not yet received		(414	)
Lease liabilities, net	$	24,587