Instructure Holdings Inc

NYSE:INST

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to Instructure's Q1 2019 Earnings Conference Call. [Operator Instructions]. Erin Kasenchak with Instructure, you may begin your conference.

[Erin Kasenchak, IR]

Thank you, Operator. Good afternoon, everyone, and thank you for joining us on today's quarterly earnings conference call. Today's call is being hosted by Dan Goldsmith, CEO; and Steve Kaminsky, CFO.

Before we begin, I'd like to remind you that today's conference call will include forward-looking statements based on the company's current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and the other reports and filings we may file from time to time with the Securities and Exchange Commission. All our statements are made as of today based on information available to us as of today, and except as required by law, we assume no obligation to update any such statements. The content of today's conference call is Instructure's property and cannot be reproduced or transcribed without our prior written consent.

During the call, we will also refer to both GAAP and non-GAAP financial measures. You can find a reconciliation of our GAAP to non-GAAP measures included in our press release, which is posted to the Investor Relations section of our website. All of the nonrevenue financial measures we will discuss today are non-GAAP unless we state that the measure is a GAAP measure.

Now I'd like to turn the call over to Instructure's CEO, Dan Goldsmith.

[Daniel Goldsmith, CEO & Director]

Thank you, Erin, and thank you, everyone, for joining us on our Q1 2019 earnings call. From the classroom to the boardroom, Instructure is helping people grow from the first day of school to the last day of work. With this mission in mind, we executed well against our goals for the first quarter of 2019. We have had a solid start to the year and continue to make progress on our long-term strategy. Our delivery of operational efficiencies across our business also provides us with opportunity to invest in growth. And we have continued to expand our global customer base and our Instructure team. It is exciting to see the level of talent and passion coming into the organization from our new offices and teams in Budapest and from Portfolium and MasteryConnect. They are a welcome addition and are naturally becoming part of the Instructure family in the short time they've been with us. I have also had the opportunity to recently meet face-to-face with many students, teachers, administrators and employers who are our customers. Additionally, I have met with partners, prospects and industry experts at events like the ASU-GSV conference where educators, ed tech and investors meet. As I have spoken with these customers and prospects, I am more convinced than ever that Instructure's vision is a shared one.

During today's call, I will discuss our progress advancing the next chapter in our journey, which is built on expanding our impact in education, growing into the employee development market and supporting the convergence of the academic and professional worlds.

Let me begin by sharing an update on how we're expanding our impact in education. At the end of Q1, we acquired long-term partner MasteryConnect, a leader in the educational assessment market. Although the assessment market has existed in K-12 for some time, the industry is moving from the traditional but less impactful end-of-year assessments to a model where assessments are given in the flow of teaching. The results lead to actionable insights that guide teachers and students at the point of learning and throughout the year. The combination of Instructure's Gauge benchmarking tool with MasteryConnect's innovative assessment solutions position Instructure for leadership and growth in this expanding market. With market-leading win rates and continued expansion of offerings, we are committed to growing revenue and increasing Instructure's market share across K-12, HIED and international.

In Q1, Canvas continued its track record of success, adding many institutions as new customers. Some select highlights include displacing Blackboard with full campus rollouts to more than 70,000 students at Rutgers University and 19,000 students at Florida State College at Jacksonville; and at Orange County Public Schools in Florida, the ninth largest school district in the U.S., we expanded our relationship to assist them with their one-on-one dedicated device initiatives that start in kindergarten and extend through the 12th grade.

On the international front, where expansion remains a priority, we replaced Moodle at several institutions in the U.K. for a combined total of 40,000 learners, including Blackpool and The Fylde College, and at the National Pharmacy Association. In LatAm, UniFil, who previously used Blackboard, has expanded its use of Canvas to 11,000 students. And the Learning Lab in Singapore, one of the country's leading K-12 academic and tutorial service providers, has also expanded its use of Canvas to 10,000 students.

On the Bridge side of our business, we continue to grow into the employee development market. We are making headway driving into this new and evolving market category. Employee development complements but goes beyond traditional employee learning. This market category focuses on the individual and enables HR organizations to build effective managers and surface insights around employee engagement. In our conversations with companies that are looking to invest in employee development, they point to the current market offerings in talent management as being focused on old-school, back-office HR management transactions. These solutions fall short of providing an engaging employee experience that delivers the benefits of employee retention and development. In fact, our research shows that nearly 80% of employees want to have more meaningful, career-centric conversations with their managers. Only 15% felt very confident in their progress towards long-term career vision and only 2% thought the annual check-in was sufficient.

Bridge addresses these issues by delivering an engaging and integrated employee experience. We're pleased by the progress we're making, bringing well-known brands into our Bridge pipeline. We've seen an increase in the average number of products being used by customers across Bridge, and our ability to compete and win with Bridge continues to improve. During Q1, we had several key Bridge wins, including SAFESpaces365, a provider of comprehensive security solutions which is using Bridge in an extended enterprise use case for 240,000 learners. SoFi, the online lending community, will use Bridge for compliance and training with 1,500 employees. We're also able to expand our relationship with Dealer FX, a customer experience management provider for automotive dealerships and OEMs to 7,000 learners. EDUCAUSE, the largest community of IT professionals in higher ed, is using Bridge for their 10,000 members.

As part of the international expansion of Bridge, the NSW Department of Industry in Australia, which creates conditions for the New South Wales community to prosper, has selected Bridge for training for their 6,000 employees.

Interbrand, the global brand consultancy and publisher of the highly influential Best Global Brands report, selected Bridge for its employees. And Nederman Holding, a global environmental technology company out of Sweden, chose Bridge for its 1,750 employees.

Getting our strategy and execution right for Bridge has been a high priority for me since joining Instructure. It is great to see our vision with Bridge increasingly resonating in the market. The reception to new products we'll be launching at our June BridgeCon conference has also been positive from our beta participants. Bridge is an important part of our strategy, and we fully expect that it will deliver meaningful financial impact over time.

Expanding our impact on education and growing into the employee development market are important, connected pillars of our long-term strategy. We are also supporting the convergence of the academic and professional worlds as they increasingly turn to each other for help and explore the future of work. As you know, corporations have long hired university-trained talent, bringing new professionals to fuel growth. Most recently, corporations have been turning to university partners to further the education and development of their employees. These forces are creating an unprecedented ecosystem of change that is right in Instructure's sweet spot and will generate significant opportunity. Take for example, Arizona State University, an important Instructure partner and customer that has been recognized by the industry four years in a row as the number one most innovative university. It has announced formal partnerships with Starbucks and Uber that focus on employee education and development. Vivint Smart Home, a Bridge customer, has partnered with Utah State University, a long-standing Canvas customer, on a program to help educate and develop its employees, and we are seeing the convergence further as higher ed Canvas customers, like the University of Washington, select Bridge as their preferred platform for development of faculty and staff. Separately, Temple University is also using Bridge for HIPAA training and compliance. In total, we now have more than 70 academic institutions using Bridge today.

We are also excited about the recent addition of Portfolium to our business. Portfolium helps us further expand our partner network, our footprint, and connect learning opportunities for people from their formal education to their career. As students leave the classroom to enter the workforce, Portfolium gives them a digital portfolio to showcase their achievements, projects and skills to potential employers. Portfolium supports nearly 5 million students and alumni and 60,000 educators at more than 3,600 K-20 institutions. The first eight weeks post acquisition have delivered solid results, and the integration continues to go smoothly. Some of our Portfolium wins include Georgetown University School of Medicine, which selected Portfolium for career development, professional identity formation and learning reflections for their students. Following a successful deployment at the University of Connecticut's Honors College, the entire UConn student population of 30,000 will now utilize Portfolium. And the OESIS Group, an education network connected to the faculty of 600 prestigious K-12 institutions, chose Portfolium for their 5,000 members.

Lastly, I would like to provide more detail on DIG, the code name for our initiative that will leverage data science, like machine learning and AI, to help students understand their progress, stay engaged and on track as well as give instructors and other academic staff insights to improve teaching and learning. Our vision for DIG has generated excitement in the market. Many customers have asked me about it and even shared their excitement for strategic implementation within their schools. We will continue to develop DIG with an eye toward a product that schools can use to improve student and teacher success.

Looking forward, we are excited by the strong prospects for 2019 and beyond. Being highly efficient with our capital, combined with our layered growth approach, allows us to expand on our core LMS business and grow into adjacent markets. We remain focused on executing our strategy, which will sustain our revenue growth, help us achieve profitability and generate shareholder value. And we will do this with a commitment to creating the best experience for our customers.

I'll now turn it over to Steve for a closer look at our Q1 financials.

[Steven Kaminsky, CFO]

Thanks, Dan, and good afternoon, everyone. We are very pleased with our results for the first quarter and believe it's a strong start to 2019. In Q1, we delivered revenue growth of 21% year-over-year, and we continue to bring further operational efficiencies to the business. Let me provide some additional details on our Q1 financials. Total revenue grew to $58.1 million, of which subscription revenue was $53.2 million, a 23% increase year-over-year. The contribution from our international markets was solid, growing 42% over Q1 of last year. Our international revenue now represents 21% of Instructure's total revenue. And 12-month rolling billings at the end of Q1 was $233 million, up 18% from the first quarter of 2018, also calculated on a rolling 12-month basis.

For the remainder of my commentary, unless otherwise noted, I will discuss non-GAAP results, and all EPS numbers are on a per common share basis. Gross margin in Q1 was 71.4%. Q1 total operating expense was $45.9 million, and our operating loss was $4.4 million, an improvement of $2.7 million or nearly 720 basis points year-over-year. This improvement reflects our commitment to operational excellence, as we've discussed for several quarters. Our focus in this area also provides the opportunity to reinvest in the business.

GAAP net loss for Q1 was $16.1 million, as compared to $11.9 million in the same period a year ago. Non-GAAP net loss for Q1 was $4.1 million, an improvement of $0.10 per share year-over-year.

Turning to the balance sheet. We ended the quarter with $91.2 million in cash, cash equivalents and marketable securities. Our ending cash balance was impacted by 2 items in the quarter, our acquisition of Portfolium as well as a prepayment to AWS for 2019.

Free cash flow for the first quarter of 2019 was negative $38.5 million. Looking forward, I am quite pleased that our focus on cash management and operational efficiencies position us well to support our strategic objectives. Additionally, we remain on track to reach approximately neutral free cash flow for the full year.

Let me end my remarks with a discussion around our expectations for the second quarter and full year 2019. For the second quarter of 2019, we expect revenue in the range of $61.8 million to $62.4 million, non-GAAP net loss of $9.2 million to $8.6 million, and non-GAAP net loss per common share of $0.25 to $0.23.

For the full year 2019, we expect revenue in the range of $257 million to $260 million, as compared to our previous guidance of $256 million to $260 million. We expect non-GAAP net loss of $25 million to $21.5 million, as compared to previously stated guidance of $23.5 million to $21.5 million, and a non-GAAP net loss per common share of $0.68 to $0.58, as compared to previously stated guidance of $0.65 to $0.59.

For calculating EPS, we expect our shares to be 36.7 million for the second quarter and 36.8 million for the full year. Let me provide some additional commentary around our non-GAAP guidance for Q2 and full year, which reflects the impact of our recent acquisitions of Portfolium and MasteryConnect. While we raised our full year revenue guidance, we modestly softened the guidance on the bottom line. With the acquisitions, our gross margin will be slightly lower as compared to last year, and for SG&A, the incremental expenses associated with Portfolium and MasteryConnect modestly raises our OpEx profile for the year. Finally, we have accounted for potential incremental investments we may choose to make as we better understand opportunities to further grow these newly acquired businesses.

Regarding our GAAP guidance, there has been a meaningful change to our expectations for net loss. As we mentioned during last quarter's call and as is detailed in our recently released proxy, we instituted a change in compensation philosophy to allow employees to receive a portion of their base salary in equity. Much of the expected impact was included in our guidance given last quarter, but in Q1, we saw more employees choosing stock in lieu of cash, so we expect stock-based comp to increase as a percentage of revenue going forward. This increase in participation in our cash for equity compensation program represents further alignment of our employee base with that of our shareholders, and we are excited about the enthusiasm for this program. And of course, the amortization of intangibles and any tax-related impact of the acquisitions are also reflected in our GAAP guidance.

In summary, it was a strong quarter. We are very pleased about our MasteryConnect and Portfolium acquisitions and believe we are well positioned for Q2 and the remainder of the year.

With that, we're ready to take questions. Operator, please go ahead with our first question.

[Operator]

[Operator Instructions]. Your first question comes from the line of Brian Essex from Morgan Stanley.

[Brian Essex, Morgan Stanley]

I was wondering, Steve, if you could walk through a little bit on the gross margin side. I understand that you may have a kind of elevated OpEx with acquisitions and there are some moving parts there, but on gross margins, can you kind of maybe unpack the slight compression that we saw in the quarter and some of the puts and takes there as you try to evaluate kind of the leverage on the gross margin side of the equation?

[Steven Kaminsky, CFO]

Sure, Brian. The key driver to the slight compression in Q1's numbers had to do with the mix between nonrecurring and recurring gross margin. If you look at the recurring gross margin, that actually moved up a little bit quarter-over-quarter, and it was the nonrecurring that I believe went down by about 110 basis points quarter-over-quarter. So that's where the margin hit took place, if you will. And then going forward, as I mentioned, there's going to be an impact to MasteryConnect and Portfolium as we move through the year. All in all, it's not a hugely meaningful shift, but I did want to note it because you'll see it in the upcoming quarters as well.

[Brian Essex, Morgan Stanley]

Got it. And then maybe to follow up, I know you're not maybe speaking explicitly to some long-term numbers, but how might we think about margin expansion in the model and your trajectory towards better profitability? I understand that kind of the cash flow stability, but looking for some color on where you're focused on controlling cost versus spending to kind of get yourselves in -- on the track to better profitability.

[Steven Kaminsky, CFO]

Well, I don't think anything has really changed, right? If you looked at what happened, R&D was fairly stable. We did see some leverage in sales and marketing as well as G&A. It was more in sales and marketing than in G&A, but I think that's more a function of the size of those two organizations and how much we can actually start leveraging against them going forward. And so I think as we look forward, we are going to continue to focus on leveraging sales and marketing and G&A, and we want to keep R&D relatively stable because we think that's important to invest in our long-term growth.

[Operator]

Your next question comes from the line of Brad Zelnick from Crédit Suisse.

[Brad Zelnick, Crédit Suisse]

I've got one for Dan and a follow-up for Steve. Just, Dan, congrats on MasteryConnect. Can you explain why it makes sense to own the company rather than continue to partner with them? And how should we think about expectations for the assessment market opportunity in Gauge more broadly?

[Daniel Goldsmith, CEO & Director]

So Brad, good to hear you. Great question. We look at the changes going on in the AMS market right now and you can break that market down into 3 primary categories, so high-stakes testing, benchmark testing and formative testing. We had started focusing on the benchmark testing category. MasteryConnect had primarily focused on the formative testing category, and as we see those sort of shifting growth towards what I referred to as innovative assessments, meaning assessment that are happening in the flow of teaching, creating opportunities at the point of learning, it made a lot more sense for us to sort of broaden the strategy and scope in AMS and take advantage of a larger and evolving market moving forward.

[Brad Zelnick, Crédit Suisse]

Great. That's helpful. And just a quick one for Steve. Steve, I believe you paid over $40 million for the business. What's the revenue impact that it has to this year?

[Steven Kaminsky, CFO]

So Brad, it's relatively nominal. We're not disclosing that at least at this point. So -- but I can tell it did have a small impact, but it's relatively nominal.

[Operator]

Your next question comes from the line of Brian Peterson from Raymond James.

[Brian Peterson, Raymond James & Associates]

So maybe one for Dan. So just you highlighted the strategic relevance of Bridge. And obviously, you have a decent amount of Canvas customers there. But I wondered, could you take a chance to expand on that a little bit and maybe what we could see from Bridge at the BridgeCon conference in a few months?

[Daniel Goldsmith, CEO & Director]

Brian, how are you doing? So I'm sorry, just so I understand the question, you want me to expand a little bit on specifically Bridge in the education segment?

[Brian Peterson, Raymond James & Associates]

No, I just would like -- obviously, that's been -- you've been highlighting a strategic relevance at Bridge, and I think that's come up in the investment community. So can you maybe expand on why you think that product is strategic for you? And maybe what we could see in terms of synergies with Canvas and what we might hear at the BridgeCon conference in a few months?

[Daniel Goldsmith, CEO & Director]

Yes. So I'm not going to give you any more details on what we'll be announcing coming up to the BridgeCon conference. So we're in the final countdown up to that conference in June. And we're pretty excited. In fact, as we've been out in sort of beta form with a number of select customers, we've been able to see firsthand the excitement for some of the new capabilities that we're putting into the new products and capabilities inside of the Bridge platform and suite as well as the overall Bridge vision around employee development and engagement, so very good progress there and not a lot more details at this time other than we're seeing good market reception in our early customers.

In terms of the broader strategy, we talked about the three primary themes or our strategy expanding our impact in education, growing into employee development market and then supporting the convergence of academic and professional worlds. As we see more academic institutions and corporations connect the dots with each other, recognize that there's value in sharing learnings and there are individuals that are starting to navigate back and forth and in parallel, bolster an academic learning experience as well as a corporate employee development engagement experience, we're seeing much more of this synergy and connectivity between Canvas and Bridge take place. In fact, in many cases, you may have an employee that can develop based upon corporate learning and experiences combined with academic experience. So having that integrated solution presents more of that opportunity.

The last thing I'll say on this strategy as well is we're taking a position that sort of follows the individual throughout their journey, both in their early academic career, their professional career and then at the points in between. And so with Bridge, with Portfolium, with Canvas, we're able to connect the dots around the individual throughout that ecosystem and continuum, and that provides a lot of opportunity for us to achieve more insights, coach the individual and coach the organization in ways that can drive better success.

[Brian Peterson, Raymond James & Associates]

Got it. And maybe just following up on Portfolium. I know it's been early since the acquisition, but is there anything that you can share in terms of early feedback for customers? And what -- and how we should be thinking about revenue synergies there?

[Daniel Goldsmith, CEO & Director]

Yes. So I'll let Steve talk a little bit about revenue and some of the dollars. But in terms of the reception with Portfolium in the market, it's been about 8 weeks since the acquisition, so it's still early days, but we couldn't be more pleased with both the integration happening between the 2 organizations going very smoothly. And then I personally had the opportunity over the last 8 weeks to be out in the field, visiting a variety of customers, customers that have come from a Portfolium base, customers from a Canvas base going into Portfolium as well as prospects.

And so the great thing is our strategy with Portfolium and student success is resonating quite well within the market. We've had a healthy amount of inbound interest from customers around Portfolium and our strategy there. We've seen good wins happen within the Portfolium domain, where being part of the Instructure family gives the market that much more confidence to move forward. And we're seeing things, like the Portfolium pathways capability, really resonate with both the academic and the corporate world. I also have the opportunity to sit down with an organization that utilizes both the e-portfolios and pathway capabilities combined with the talent match capabilities in Portfolium. So we're also starting to see some of the early indicators of the value that can be provided by our Portfolium solution into the corporate environment for things like sourcing the right talent and really understanding what individuals are capable of.

[Steven Kaminsky, CFO]

So just to round out the answer, Brian, just like with MasteryConnect, and I think we talked a little bit about this last quarter, it's a relatively modest impact to our 2019 revenue. It's reflected in our guidance and -- but what I will say is we are pleased with Q1. They had a healthy quarter, but remember, it's a relatively small company. So the impact to the top line is against the $257.5 million, $258 million a year given our midpoint is relatively modest.

[Operator]

Your next question comes from the line of Scott Berg from Needham.

[Scott Berg, Needham & Company]

Congrats on the quarter. I wanted to focus on the go-to-market side here. After the MasteryConnect acquisition, how are you selling all your education products going forward? Because my guess is the buyer for those solutions is probably a little bit different than your core Canvas buyer.

[Daniel Goldsmith, CEO & Director]

Scott, how are you doing? Good to talk to you again. So there's differences across the landscape depending on the size of school, the type of organization, what budgets they're supporting. So I would say there's a variety of different buying and purchasing patterns within an organization. Absolutely, we've already seen evidence even in these very, very early first weeks with MasteryConnect and synergies that can happen out in the customer base. The fact that we are already starting to sell in this market, in the AMS market, has also created good connectivity with the MasteryConnect solution. So there's been a lot of positivity and receptivity.

In terms of the go-to-market, right now, part of our methodology or approach for acquisitions and integrations is to make sure we don't disrupt the momentum of those individual organizations. MasteryConnect and Portfolium are both very healthy organizations. They came into our organization with sales pipelines, with salespeople, with opportunities with customers. So one of the first priorities around integration is to make sure we don't disrupt the good things that are going on while identifying the opportunity to take synergies with the business as well and streamline things. So effectively, we have the teams at MasteryConnect continue to drive the momentum that they're driving while we're working through sort of the integration and sharing across those teams. Right now, our Canvas K-12 team and the MasteryConnect team are collaborating well in the field, and we're doing that on a sort of targeted-opportunity basis.

[Scott Berg, Needham & Company]

All right, guys. That's helpful. And then kind of an extension to that question would be moving to your -- the DIG product that you've been discussing. Is -- first question is when is that -- when will it be made generally available? Because I don't think I've seen a GA date yet. And then will that be sold, I guess, through the existing Canvas reps as well? And then what does that pricing model look like on that? Because my guess is it's not student-receipt-based going forward.

[Daniel Goldsmith, CEO & Director]

So it's still very early days for DIG. We have not made any comments or commitments to when we're going to begin market GA with the first release of DIG. Obviously, looking at student effectiveness, it's an important piece of what we're aiming to do with DIG and student success. Right now, we're taking it in a paced way. We've been in PBT for some time with some of the first capabilities within DIG. We're moving more into the beta stage here, and we'll do that at least through the end of the year, and we'll determine during that period of time what the future could look like around GA as well as our go-to-market and monetization models.

In terms of go-to-market, there's definitely some synergies especially at an account level with regards to how we go to market and with the sales teams look like. There's a lot of opportunity for our existing Canvas sales teams to promote DIG in the market because there's a lot of similar buyers as well as adjacency within the market. With regards to how we price and package DIG, you're correct in stating that the per user, per FTE model probably doesn't make as much sense given sort of the audience and scope of what each of the DIG offerings could entail. So that's one of the other things that we will continue to work through during the beta phase of the product.

[Operator]

Your next question comes from the line of Terry Tillman from SunTrust.

[Terrell Tillman, SunTrust Robinson Humphrey]

Can you hear me okay?

[Daniel Goldsmith, CEO & Director]

Yes. Terry, how are you?

[Terrell Tillman, SunTrust Robinson Humphrey]

Doing well so far. Earnings is early though. Earnings season is still early. But yes, the first question just relates to the international business, albeit it's still off a small base, has been reporting strong growth. Your domestic or your non-international business, I guess the growth slowed to sub-20% in the first quarter. But how do you actually see over the next couple of years the trend line and the mix of international versus domestic?

[Steven Kaminsky, CFO]

So when we think about international business, Terry, we think about it sort of in 3 ways. Obviously, we have Canvas in the existing regions that we're in. And obviously, we want to mature those. We think about Canvas as we move into new territories like -- for example, DACH and Iberia are relatively new for us, and we want to develop those and continue to move those forward.

And then we think about Bridge, right? Now Bridge is a very different story and Dan can talk more about how we think about go-to-market. But at a very high level, as you think about Bridge compared to Canvas, you've got sort of a country-by-country story with Canvas because it's very regional. But with Bridge, you've got multinationals, right? And that's a very different sales motion and sort of go-to-market strategy.

[Daniel Goldsmith, CEO & Director]

And Terry, just to add one more thing to that, when we talk about sort of domestic opportunity and growth. Obviously, expanding our focus on educational impact is an important initiative for us. That's a global initiative, but obviously, with the penetration in the domestic market with Canvas, it gives us a lot of opportunity as we add MasteryConnect, as we add Portfolium to not only sort of expand the opportunity for us into those markets, but we also believe that those capabilities will make us more competitive with our core as well, both in K-12 and higher ed.

[Steven Kaminsky, CFO]

And just to add one more thing, in the prepared remarks, we talked about examples like ASU and Starbucks, what's interesting is we're seeing that globally. So Oxford has similar initiatives. Both University of Sydney and RMIT in Australia have similar initiatives. So this increased level of interest between academia joining forces with the corporate world and how do we make sure our students are ready for the corporate world and that kind -- and how do we make sure our workers continue to evolve is literally a global phenomenon. And we believe we're extremely well positioned to take advantage of that, too.

[Terrell Tillman, SunTrust Robinson Humphrey]

That sounds good. I guess just a follow-up question relates to -- and I don't know who would want to take this question, but just if you look at U.S. higher ed, you've got a couple more quarters since maybe the last update, but just curious what you're seeing from just an RFP development and sales cycle development, just overall activity and health of that market progressing through the year versus maybe year prior.

[Steven Kaminsky, CFO]

Yes. So, so far, we're staying the course, Terry, with what we've been talking about that it could be a flattish year this year. We'll know more in a few quarters, but we feel pretty good that it's tracking as we expected.

[Operator]

Your next question comes from the line of Justin Furby from William Blair.

[Justin Furby, William Blair & Company]

Just the -- so maybe to start with you, I think you're coming up on...

[Daniel Goldsmith, CEO & Director]

Justin, it's a little hard to hear you. Would you mind speaking up a little bit?

[Operator]

Justin has disconnected. Your next question comes from the line of Brian Schwartz from Oppenheimer.

[Brian Schwartz, Oppenheimer]

Dan, you talked about in your commentary that you're starting to see positive receptions from the beta testers of the 2 new Bridge products. I'm just wondering how we should think about these newer products? Can these products act as force multipliers for some of your other Bridge products? Or should we think about them as more stand-alone and just sort of fuel to the overall growth of the business?

[Daniel Goldsmith, CEO & Director]

A very good question. Really you should think about them in 2 ways. One is they are additive in expanding the total size of deals in an individual sort of account or transaction because what we're seeing is organizations are really buying into sort of the vision and the suite view of things. So as I mentioned in the remarks, the average number of products per customer continues to go up and that will take time, but it will -- it's continuing to trend upward and we're excited to see that. And as that trends up and we have more Bridge products or Bridge solutions per customer, it expands the overall dollars within the account and the overall opportunity. So that's number one.

Number two is we're already seeing the addition that these products make and the vision with those products make us more competitive. So in the past where we might have seen an organization just looking at an LMS solution, for example, even if it starts as an LMS opportunity, if you will, we're able to paint the vision and get organizations excited. That is translating into deals that we, frankly, probably would not have won 6 or 9 months ago that we are seeing wins happen today. I want to caution you that it's still early days for that. So I wouldn't call all the data points we have yet sort of a firm vector, but we're seeing really good indications around both being more competitive, which means increasing our ability to compete and two, increasing the wallet size within individual accounts through more products within the Bridge suite.

[Brian Schwartz, Oppenheimer]

And then the one question I wanted to ask you, Steve, just about the investment profile as we think about it really on the sales capacity, just trying to think about how we should be thinking about the trajectory of your sales capacity. And maybe if it's possible, thinking about that, how it relates to overall revenue growth, now obviously, that's not going to affect 2019, but as we think about our models in the outer years, can you maybe update us on how you're thinking about your investment profile for your sales capacity this year?

[Steven Kaminsky, CFO]

Sure. And I think it's pretty much the same, Brian, as we were talking about in past quarters. And last quarter, we updated it a little bit to talk about that we are going to be leaning a little more on Bridge because when Dan came in and he saw the potential opportunity, we -- he didn't want to create an artificial ceiling on growth by like hyperfocusing on cap, for example. But in terms of Canvas, domestically, we're in a pretty good spot. If we do incremental additions, it's very, very small. Internationally, it's really going to be regionally based. And then for Bridge, we're thinking about a little bit more holistically.

Now that being said, it's still the same sort of attitude about how we grow these sales teams. You will never see us saying, "Oh, we added 30 new people to the sales force because we want more bookings," right? Now would we get more bookings? We certainly would. Would it be a terrible decision from being cost-effective and smart about how you manage your teams? It would also be that. So for example, when we grew the enterprise team, which was pretty -- when we sort of upgraded and decided to grow the enterprise team this year, we're talking about 6 people. So we're always going to be very thoughtful about how we add the resources, but generally speaking, that sort of covers how we're thinking about it globally for our entire business.

[Operator]

Your next question comes from the line of Rishi Jaluria from D.A. Davidson.

[Hannah Rudoff, D.A. Davidson & Co.]

This is Hannah on for Rishi. First, I was just wondering if you could talk about MasteryConnect and what kind of technical integration is still left on that side.

[Daniel Goldsmith, CEO & Director]

Yes. So I think your question was about the technical integration left on MasteryConnect?

[Hannah Rudoff, D.A. Davidson & Co.]

Yes.

[Daniel Goldsmith, CEO & Director]

So there's really two primary things to think about. It's been weeks since the acquisition of MasteryConnect. So there's absolutely a good amount of work to do both in integrating the product from a technical perspective as well as continuing to evolve the product and solution into the market. The second thing is recognizing that MasteryConnect was already one of our partners in the partner ecosystem. One of the nice things about that is we get a bit of a jump-start with an acquisition as opposed to starting cold without knowing their technology at all. There are already integrations built in with MasteryConnect. There are already case studies with MasteryConnect working hand in glove with Canvas. This is one of the things with Canvas that the entire education ecosystem, and we and our partners have benefited from is really by driving into an LTI and a set of standards around the ecosystem. It allows for better technical integration faster. So there's still work to be done, but we have a head start.

[Hannah Rudoff, D.A. Davidson & Co.]

Okay. Great. That's super helpful. And then just a follow-up on MasteryConnect. Speaking of synergy opportunities, do you feel like there might be some sort of synergy with higher ed? Because it seems like MasteryConnect is really targeted towards K-12 right now.

[Daniel Goldsmith, CEO & Director]

So right now, we're focused primarily on the domestic K-12 space. It's a relatively large market, and there's a lot of opportunity for us to grow into that market. That being said, the broader concept of assessments and assessment models does potentially have a play downstream in both the higher ed market as well as in the international market as well. However, that is not our focus right now. Our focus right now is on the core market around K-12 and what we're referring to as innovative assessments.

[Operator]

Your next question comes from the line of Justin Furby from William Blair.

[Justin Furby, William Blair & Company]

Guys, sorry. I'll it try again. Can you hear me now?

[Daniel Goldsmith, CEO & Director]

Yes, better. Thank you, Justin.

[Justin Furby, William Blair & Company]

Okay. I'll talk really fast and that way, I'll get it in. Dan, I wanted to ask about your -- I think coming up on your move this summer, and I just wanted to try to go back to an analogy around Veeva in your past life and sort of I know you're responsible for helping build out some of their adjacent markets. I was just curious, as you've had the history now at Instructure for a little while, does anything you'd say is maybe harder or what's been the hardest thing relative to what you did at Veeva? And then on the flip side, anything easier in terms of trying to take sort of the higher ed dominant and K-12 dominance into the corporate space? And then I've just got one quick follow-up.

[Daniel Goldsmith, CEO & Director]

Okay, good, a great question. I really appreciate it. It has been almost a year now. It will be a year in early June. So there's a good amount to reflect on. Yes, there's a number of differences and similarities. So one of the primary differences is even though we have good market leadership in many markets around education in Canvas both in higher ed and K-12, education is very much a localized business. So when we go from one market to the next to the next, although there's patterns that we can leverage and reputation that we can build on, there's work to be done in each individual market as we go into that market. So that's obviously very different than what I experienced at Veeva with the multinational companies driving a lot of business. And again, there's advantages and disadvantages to that. It definitely takes some work to break into markets, but it creates a much bigger impediment to competition and you end up being more sticky. So what's nice is as we go into markets now, Canvas already has a reputation coming into the markets and we have a playbook around expansion.

Another element on the educational space is really playing into our connected strategy between academia and corporate. We're seeing organizations in academia really inviting us to have a seat at the strategic table and help them think through their biggest challenges and opportunities. One of them is being able to tap into the professional workforce to be serving their curricula to and really redefining their pathways and curricula. That's a great opportunity for us here at Instructure. And that's something where, at Veeva, we did not have as much of that opportunity. At Veeva, we worked primarily through the IT organizations as well as some business organizations. At Instructure, within education, we're working primarily with presidents and provosts and, yes, CIOs and IT organizations, but it's much more a mixture of leadership and a seat at the strategic table, and that creates more opportunities for us both in terms of core Canvas as well as add-on opportunities with DIG and other initiatives. So that's a really great benefit.

In Veeva, we went into a horizontal market as the next product, and in fact, I think Veeva is about 3 or 4 years into the QualityOne mark, which is the foray with Vault out into the horizontal market. And there are a lot of parallels between that and what we're doing with Bridge, frankly. With Bridge, we started from scratch. But going from a verticalized SaaS market to more of a horizontal SaaS market that's focused on sort of a use case or a market-led employee development, there's a lot of similarities for what we experienced at Veeva with understanding how to structure the organization, how to go to market with a product, how to find the things that will work fast and then scale from there. So those are just some of the synergies and differences.

[Justin Furby, William Blair & Company]

Okay. Super helpful. And then I guess just a follow-up. I'm curious how your thoughts around K-12 have evolved. Dan, this last acquisition seems very focused on K-12. What does that growth rate look like relative to higher ed? And sort of how has your -- how has the focus evolved? I think I heard some comments early on when you joined around -- at Veeva, it may be more higher ed and Bridge-centric. I'm curious how that's evolved over the last 6, 9 months.

[Daniel Goldsmith, CEO & Director]

So I don't want to give that impression. K-12 is a very important market for us but it's -- in all of these, K-12, high ed, international education, they're all under sort of the same education umbrella and there's a number of synergies and similarities sort of how we go to market, how our product operates. K-12 is a very important market for us, even more so today than it has been in the past. So in the past, it's been selling primarily LMS in the K-12 market. We've had very healthy win rates and growth rates within K-12, but K-12 is more of a distributed market, and thus, it's a bit of a different go-to-market equation K-12 as well. However, with the addition of MasteryConnect and the focus on the AMS space as well as the addition of Portfolium, we're looking at more of the longitudinal journey of individuals throughout their academic and professional careers, which starts in the K-12 environment.

And so it's nice to see schools recognize that -- the role that we can play, supporting students' success in their early years, in the transition period from grade school to high ed, in high ed, in the transition from high ed to work. So in summary, K-12 is important to us. We continue to grow well, just slightly different go-to-market in the LMS space but there's a lot more opportunity now with MasteryConnect in the Instructure family and a focus on Portfolium in the longitudinal journey.

[Justin Furby, William Blair & Company]

Okay. Fabulous. And one more, if I could sneak it in for Steve. Just you mentioned some deals that slipped in Q4 on the Bridge side, and I apologize if this was already addressed. But it does close in Q1. And any feel for what the mix should look like this year? Is it north of 20%? Or any kind of directional guidance on Bridge bookings.

[Steven Kaminsky, CFO]

Sure. No problem, Justin. So the short answer is there was one deal and it has not yet closed. It is still sitting out there, and it doesn't have anything to do with stuff going on in our end. It has to do with their decision-making process. Regarding the mix, we made a decision late last year that we weren't going to talk about that again and so -- but what I can say is that the Bridge business continues to do well and we're happy with the results so far and we're looking forward to a successful 2019 and beyond.

[Operator]

There are no further questions at this time. Mr. Dan Goldsmith, I turn the call back over to you.

[Daniel Goldsmith, CEO & Director]

Great. So first, I'd like to thank everyone for joining us today. In closing, our leadership team remains focused on driving operational excellence, being a great partner to our customers and winning new business. We remain committed to sustainable revenue growth and generating shareholder value. Taking the necessary steps to strengthen and build our organization and execute our strategy for the long term will continue to move us forward on a path to profitable growth. I look forward to updating you all next quarter. Thanks.

[Operator]

This concludes today's conference call. You may now disconnect.