Instructure Holdings Inc

NYSE:INST

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to Instructure's First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that this conference is being recorded.

I would now like to turn the conference over to your first speaker, April Scee, Investor Relations. April, please go ahead.

[April Scee, Investor Relations]

Good afternoon, and welcome to Instructure's first quarter 2023 earnings conference call. We'll be discussing the results announced in our press release issued after the market closed today. With me are Instructure's Chief Executive Officer, Steve Daly; and Chief Financial Officer, Dale Bowen.

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 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 other reports and filings we file from time to time with the Securities and Exchange Commission.

All of our statements are made as of today, based on information available to us today, and except as required by law, we assume no obligation to update any such statements. During the call, we will also refer to both GAAP and non-GAAP financial measures. You can find the reconciliation of our GAAP to non-GAAP measures included in our press release, which is posted on the Investor Relations section of our website.

With that, let me turn the call over to Steve.

[Steve Daly, Chief Executive Officer]

Thanks, April. I'm delighted to welcome everyone to Instructure's Q1 2023 earnings call. During today's call, Dale and I will share the details of our first quarter results and provide guidance for Q2 and the full year 2023. First quarter 2023 results exceeded our previously commuted guidance ranges for revenue and adjusted EBITDA, fueled by our efficient go-to-market organization and unyielding dedication to customer satisfaction.

First quarter revenue was $128.8 million, up 13.6% year-over-year, including an 80 basis point headwind from foreign exchange. First quarter adjusted EBITDA grew 10.8% year-over-year to $48.3 million, a 37.5% margin. The strength of our first quarter performance demonstrates the power of our business model.

I'll next share five areas that contributed to our continued success: strong new logo sales, the power of our platform strategy, our wins in non-traditional education, traction from acquired businesses and continued operational efficiency.

First, our new logo win rates remain strong across all of our markets. Success is being driven by our focused go-to-market engine, best-in-class customer experience, expanded set of offerings and our ability to solve real-world challenges across the teaching and learning landscape.

In one win this quarter, we scored a perfect 100% in our RFP response in categories such as vision and innovative power, completeness of the solution and problem-solving power. These are areas above and beyond our features and functions of our product where Instructure consistently shines, and that helps us to drive our growth.

In North American higher ed, we have a greater than 40% market share, and we continue to see RFP activity in line with our expectations. We win a very high percentage of new deals as customers recognize the value we offer.

During the quarter, we had a significant win with the University of Massachusetts Amherst, which chose the Instructure learning platform based on positive feedback from students and faculty during a successful pilot engagement.

UMass Amherst wanted a common experience for all their students and faculty, whether they were engaged in a traditional in-person, online or nontraditional education. They chose to partner with Instructure as their platform for the future. They were able to replace multiple LMS vendors with Canvas and also incorporate studio catalog and impact. We're proud to partner with UMass Amherst in providing an exceptional learning experience for their students and faculty.

In North American K-12, our platform and tailored services continue to drive success and continue to support our market-leading position with nearly 30% share according to List Ed Tech. The green shoots we mentioned during our last quarterly call, resulted in strong bookings for Q1 as K-12 decision makers continue to recognize our products as mission critical. We are particularly pleased with the traction and assessments.

During Q1, we won a competitive RFP for Sioux Falls School District, which included seven products; Canvas LMS, Studio and the full suite of mastery products. In doing so, we displaced the LMS and AMS incumbents due to our comprehensive solution, our customization capabilities and our ability to migrate the district's benchmark data to MasteryConnect. Looking ahead, we feel great about our prospects in K-12 as we continue to focus on multi-product suites and increasing deal sizes.

International remained the fastest growing part of our business during the quarter, excluding the impact from FX with strong performance from both our direct business and our channel partner program. We secured a direct win with CVO Gent, a continuing education school in Belgium to replace an outdated LMS. The customer chose Instructure, in part because no other vendor can meet the extensive requirements in its RFP.

Underscoring their high level of satisfaction with our platform, we have already received multiple referrals as a result of our relationship. Separately, we had our largest channel deal to date in APAC, highlighting the ongoing success of our channel partner program.

Second, our success in the education technology industry continues to be driven by our platform strategy and our ability to stay ahead of the curve in terms of innovation. We estimate that our current product lineup represents over $1 billion cross-sell opportunity to our existing customer base, and we continue to see strong success capturing this opportunity as customers take advantage of the breadth of our solutions.

Our pipeline is strong, and we are seeing positive trends in cross-selling as our customers look to expand their use of our products to improve teaching and learning outcomes. We are also proud to report a higher penetration year-over-year of our products across our customer base. Fueling the higher penetration rate are deals like Green Bay Area Public School District. This district added MasteryConnect and assessments, catalog and credentials.

Comparing our current contract with our new contract with them, we saw an increase of over eight times the contract value. In another win, we closed our largest credentials deal since the Concentric Sky acquisition, highlighting the potential for growth in this area. And the power of our platform strategy extends beyond our products. The platform allows us to elevate our partners and uniquely meet our customers' challenges together. These robust partnerships help drive our above average win rates and demonstrate the power of our platform and ecosystem. The super [ph] wins, for example, included a partner product that helped us set us apart from our competition. We were also able to win the Dutch Institute for Public Safety, NIPV, during the quarter since the Instructure learning platform's openness allowed Dream to seamlessly integrate their software products to provide a complete solution for NIPV's educational needs.

Third, our nontraditional capabilities have helped drive growth for our company, and we are committed to providing innovative solutions that meet the evolving needs of our customers. Our current focus on lifelong learning and vocational training has resulted in a number of exciting wins, including a multiyear deal with Delton College in the Netherlands this quarter, which we completed against four other competitors in a rigorous EU tender process.

With this partnership, Canvas will be made available to 18,000 students for continuing education, company training courses and more. Additionally, a large existing K-12 customer purchased Canvas Catalog to enable teachers to access professional development training on demand by self enrolling in courses.

Finally, an update on our -- on one of our large nontraditional deals. PeopleCert is now fully operational after less than two quarters. This is a significant milestone as Canvas will now be used to train and certify 250,000 PeopleCert learners worldwide. We believe that this partnership demonstrates the power of our platform to address nontraditional educational paths and we're excited to see how it will drive growth for our company in the years to come. We are confident, we will continue to unlock new opportunities and drive value for our customers in the dynamic education technology space.

Fourth, we are seeing strong results from our M&A strategy with the Recent Learn platform acquisition exceeding expectations for the quarter. The strong uptake and pipeline growth for Learn platform has revealed significant untapped potential from both new and existing customers. K-12 decision-makers are recognizing value and learn platform's ability to manage and evaluate their full suite of education technology tools. Learn Platform's evidence-based capabilities are top of mind with or partners, given the proof of efficacy required by regulators.

As we further integrate Learn platform into our go-to-market motion, we believe we can capitalize on this meaningful growth opportunity. We believe that our plan to continue to enhance our platform through organic and inorganic means, will keep us at the forefront of the education technology space.

Finally, I want to highlight our continued profitable growth. Our best-in-class margins have enabled us to make disciplined investments that expand our platform and drive long-term growth, including investments in embedded analytics for Canvas administrators, a new data access platform to extend the Instructure learning platform and making progress with new quizzes during the quarter. In addition to these product investments, we are also able to up-level our go-to-market engine under the leadership of Chris Ball. We believe we can maintain a healthy balance of growth and profitability, while maintaining flexibility to invest in high-return opportunities.

In conclusion, our impressive Q1 results and expanding impact on education position us as the clear leader in the Edge education technology space, and we look forward to continuing to drive value for our customers and shareholders in the months and years ahead.

Now, I will turn it over to Dale to provide further details on our Q1 financial performance and guidance for the Q2 and the full year 2023. Dale, please go ahead.

[Dale Bowen, Chief Financial Officer]

Thank you, Steve, and thanks again to everyone for joining us today. Before discussing our detailed financial results, I'd like to point out that in addition to our GAAP results, I'll be discussing certain non-GAAP results. Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results can be found in our earnings release, which is posted in the Investor Relations section of our website.

In the first quarter, we continue to show a combination of strong top line growth and best-in-class EBITDA margins. As Steve mentioned, we generated first quarter 2023 total GAAP revenue of $128.8 million, subscription and support accounted for 92% of our first quarter revenue at $118.5 million, up 14.5% year-over-year, primarily as a result of the continued momentum within our core Canvas LMS products, both domestically and internationally, in addition to the strong upsell and cross-sell of our other products.

Professional services and other revenue accounted for 8% of our first quarter revenue at $10.4 million, up 3.9% year-over-year. Deferred revenue at the end of the first quarter was $215.7 million, up 14.2% year-over-year. Remaining performance obligations, or RPO, were $703.7 million at the end of the first quarter, up 5% year-over-year. We expect to recognize revenue on approximately 76% of our RPO over the next 24 months.

In discussing the remainder of the income statement, please note that unless otherwise stated, all references to our expenses, operating results and share count are on a non-GAAP basis. Our strong gross margin profile was supported by our optimized cloud architecture and flexible support model that scales to meet seasonal customer demand. In the first quarter, gross profit was $100.4 million, representing a 77.9% gross margin, down from 78.4% in the first quarter of 2022.

Turning now to operating expenses. Sales and marketing expenses for the first quarter were $26.9 million or 20.9% of ACR, up from 19.7% in the first quarter of 2022. Research and development expenses for the first quarter were $17.0 million or 13.2% of ACR compared to 12.6% in the first quarter of 2022, as we invested to pursue our robust product road map.

General and administrative expenses for the first quarter were $9.4 million or 7.3% of ACR, down from 8.8% in the first quarter of 2022. Non-GAAP operating income for the first quarter was $47.2 million, representing a 36.6% operating margin down from 37.3% in the first quarter of 2022.

First quarter adjusted EBITDA was $48.3 million, representing a 37.5% adjusted EBITDA margin, down from 38.2% in the first quarter of 2022. Non-GAAP net income, normalized for the newly added tax effective adjustments, was $27.9 million in the first quarter, or $0.19 per share compared to $28.9 million or $0.21 per share a year ago.

Turning to the balance sheet and cash flow statement. We ended the first quarter with $109.1 million in cash, cash equivalents and restricted cash and $489.5 million of long-term debt, net of discount, resulting in a 2.06 times net debt to trailing 12-month adjusted EBITDA ratio.

Free cash flow for the quarter was negative $82.2 million compared to negative $67.3 million in the prior year, in line with our expectations. Adjusted unlevered free cash flow, which adjusts for the impact of transaction costs, sponsor costs, impaired leases and other non-recurring costs paid in cash was negative $63.4 million, a 5.2% year-over-year decrease from negative $60.3 million in the year ago quarter.

I will now conclude the call by providing guidance for Q2 and for the full year of 2023 for revenue and adjusted EBITDA. We have provided additional guidance details in our earnings press release.

For the second quarter of fiscal 2023, we expect revenue in the range of $128.5 million to $129.5 million. For the full year, we expect revenue to be in the range of $521.3 million to $525.3 million. We expect second quarter adjusted EBITDA in the range of $48.5 million to $49.5 million, representing an adjusted EBITDA margin of 38.0% at the midpoint of the range.

For the full year, we expect adjusted EBITDA in the range of $199.4 million to $203.4 million, representing an adjusted EBITDA margin of 38.5% at the midpoint of the range. For the full year, we expect adjusted unlevered free cash flow to be in the range of $202.5 million to $206.5 million.

In summary, the first quarter provided a great start to 2023. We executed at a very high level and exceeded our guidance and continuing -- while continuing to deliver a rare combination of double-digit growth and best-in-class margins. We couldn't be more pleased about our momentum in the marketplace and look forward to updating you on our progress throughout 2023.

With that, Steve and I are happy to take any of your questions.

[Operator]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Josh Baer of Morgan Stanley. Please go ahead.

[Unidentified Analyst]

Hey guys. It's Matt Austin [ph] on for Josh Baer. Thanks for taking the question. It's nice to hear that Q1 bookings are strong in K-12. I'm just curious if there's any kind of qualitative commentary that you guys can provide around what you're seeing there. I know last year, you guys had noted there are some staffing shortages and the other issues that were pushing deals out. So I'm curious if those have resolved or potentially the multi-product adoption is what is creating that uplift or potentially both? Just any kind of additional commentary there would be helpful. Thanks.

[Steve Daly, Chief Executive Officer]

Yeah, happy to. So in our last call, we talked about seeing a lot more activity in the K-12 space in particular and that continued throughout the quarter. So a couple of things that are happening there. First of all, the teacher shortage hasn't been resolved. So they're still dealing with that, but what they've started to recognize is that technology can play a role in helping deal with this on a longer term basis. And so we can free up some teacher time, we can help with subs, there's a lot of things that technology can help with to solve that problem.

The other piece was that from an administrator perspective, we are seeing more cycle spent, more activity, more interest in figuring out how to accelerate the digital transformation and recognizing that while the second half of last year, they were hunkering down, that they need to be ready for fall start come 2023. And so really, those are the two things -- two differences, I would say, in Q1 versus what we saw in the second half.

[Unidentified Analyst]

Yeah. Thanks. That’s helpful.

[Operator]

Your next question comes from the line of Fred Havemeyer with Macquarie. Please go ahead.

[Fred Havemeyer, Macquarie]

Hey, thank you very much, and congratulations on a very strong quarter here. I would love to ask, as you're looking at the shape of deals in the K-12 landscape and with ESSER funds still flowing this year, just kind of two parter here. Firstly, are you seeing or how are you seeing the pipeline build throughout this year and as you're going into the certainly the K-12 purchasing cycle?

And then secondly, are you seeing ESSER funds. How are you seeing being deployed? And is it something that's perhaps helping you and your ability to get some of these deals across the line perhaps on the implementation side?

[Steve Daly, Chief Executive Officer]

Yes. Those are good questions, Fred, good to hear for you. Thank you. So, from a pipeline build, we're seeing, along with that increased activity that we saw coming into the first of the year here, we're seeing the pipeline build nicely. And we're seeing a lot of interest, a lot of activity going into, as you mentioned, the end of the budget year this quarter and then the start of the new investment going into July. So the pipeline is looking good. We've got good coverage for the quarter. We're seeing good out pipeline build as well. So we've got -- we're on track to where we think we should be at this point of the year for the rest of the year.

I would say from an ESSER funding perspective, this is always the question we get asked and couple of things I would say. First of all, it's really -- it's difficult for us to tell directly. Are these ESSER funds that are being used or not? But I would say, what it's creating is a nice background in macro condition. In K-12, at least for the next 18 months, where there are still a lot of dollars in the system, we make sure in the sales process that we're working with our sponsors. We're working with local legislatures to ensure that the funding is enduring and that we've got durable funding for our solutions, as they are kind of the foundation of digital transformation and strategies that are multiyear. And so, I would say, it's more of a kind of a tailwind from the perspective of kind of that macro, lots of dollars in the system.

What we are seeing is that, a lot of these dollars are coming with this -- with a couple of things. So legislatively, show efficacy of tools that are being purchased with these dollars, and that's driving a lot of interest in pipeline build for the Learn platform technology that we had acquired, as well as, as we've kind of exploded in the number of apps being used in K-12, we're getting a lot of demand around help us rationalize that, help us get visibility on what's being used. Is it being used well? Is it having the outcomes that we expected? And so, we expect that to be some enduring demand for our products. Again, indirectly related to the fact that a lot of these tools were bought during this time of rich funding through ESSER, so that's how I would characterize the impact that ESSER's having on our overall business, Fred.

[Fred Havemeyer, Macquarie]

Thank you, very much for that context. I'd love to ask another question actually about market share, which you had called out, and you had quite robust market share in higher Ed. And I think there comes a time where there are some concerns that are raised about what has a company reached market share saturation. So I just wanted to ask, with respect to higher Ed, can you just also provide some context about how you're seeing pipeline build specifically there, whether you think that you hit a point of market saturation. And generally, what your kind of expanding platform strategy means for the company in general as you have this already robust market share?

[Steve Daly, Chief Executive Officer]

Yes, yes. It is a question that we've gotten a number of times, Fred. You're right. I would say that, first of all, we have -- looking at the latest data, about 44% by an enrollment perspective, about 36% by institution perspective. Still 40% of institutions in the US and higher Ed are using Blackboard and Moodle. And so there's still a lot of room for us to run from a market share perspective in US higher ed and not too worried and not really seeing slowdown, if you will, in the interest as people are looking for what's their digital transformation strategy for the future.

I would add also that our market share were much lower penetration internationally. On average, across all of the markets that we play in, it's high single digits. So there's still a lot of room for us to run from a market share perspective in international as well.

[Fred Havemeyer, Macquarie]

Thank you, very much.

[Operator]

Your next question comes from the line of Joe Vruwink with Baird. Please, go ahead.

[Joe Vruwink, Baird]

Great. Hi, everyone. You gave this interesting example with UMS Amherst where Canvas sort of becomes, I guess, it's an omnichannel learning platform. Is that a typical scope in RFPs you're now seeing where an institution wants to consolidate all of their offerings on to one platform, one vendor?

And when you made the comment that RFP activity is in line with your expectations in terms of higher ed, is that quantity of RFPs? I guess, embedded in that question, are the dollar opportunities getting larger, even if the number of opportunities is maybe in line?

[Steve Daly, Chief Executive Officer]

Yes. Good questions. So on the first one, yes, absolutely, is the short answer to your question about omnichannel. So with UMass Amherst in particular, right, they had a system and a whole process that they set up for online students. They had a different system with different processes that they've used for their matriculating or traditional on-campus and they're saying, look, we -- this is changing, right?

The students are going to be both at some point in their learning journey. And so, we're happy to -- we're -- we need to bring that together and we're -- that was part of our strategy as a university.

We are seeing that across the board in more and more thinking about this differently, whether they're an existing customer who now wants to bring their online program in line with the traditional matriculating students or not. So I do think that will be a key driver. It is a key driver from our sales perspective.

From a -- from the second part of your question around what are we seeing from a RFP perspective. So we are seeing deal sizes are varying. We are seeing some big deals like UMass Amherst. I think, by virtue of the fact that we are very successful in the existing R1s and some of the bigger ones, some of these deal sizes are a little smaller than they have been in the past, but we're seeing with the dollar perspective, it's very consistent as far as the dollar amount from an RFP perspective.

Volume is up more than the dollar amount is. So when we talk about that kind of consistent with our expectations, I was really referring to that dollar figure rather than the volume figure.

[Joe Vruwink, Baird]

Okay, great. And then I guess just on the updated EBITDA outlook. I think, the forecast entails higher margin, something probably 39% or better EBITDA margins in the back half. Anything you can touch on just in terms of the second half versus first half improvement that's embedded in the outlook?

[Dale Bowen, Chief Financial Officer]

Yeah. Sure. We do have -- so Q1 margins had a little bit of noise in the associated with the timing of some services. But as you've seen with the guidance that we provided and some sequential growth in our margins from Q4 of 2022, we've got confidence in where we have leverage in our business to expand our margins in the second half.

[Joe Vruwink, Baird]

Okay, Great. Thank you.

[Operator]

Your next question comes from the line of Brian Peterson with Raymond James. Please go ahead.

[Brian Peterson, Raymond James]

Congrats on the strong results, guys. So just starting on the international. Steve, I want to understand how the pace of the pipeline developed there is working? And would you say maybe there's more strength with the direct or indirect in certain regions? Maybe if you could double click on how that move into the pipeline is working in some of these international markets?

[Steve Daly, Chief Executive Officer]

Sure. Thanks, Brian. Yes. So I would say we're still in the pipeline build from a channel perspective as we're into new markets there. We're about almost a year into our development of the channel program. So our maturity, if you will, in the direct is much further ahead than indirect. So from that perspective alone, we're seeing good direct pipeline build.

Now at the same time, we track different metrics with our channel program, including enablement and selling capability, support capability, those types of things, and we're seeing really good progress from a channel build perspective from that -- in that space.

Now our channel, I would say, our channel efforts are going well in Latin America and APAC. Those are the more earlier and we've had some longer term channel partners in EMEA. And so EMEA is channel may be a little bit ahead of those others, too. But we're pretty -- seeing pretty good progress across the board, across geo. And I would say, in summary, that the direct is probably a little bit ahead of the international just from a maturity perspective.

[Brian Peterson, Raymond James]

Got it. Thanks for the color there, Steve. And maybe a follow-up. It sounds like if you're looking at the K-12 pipeline, there might be more interest in people buying multiple products at the same time. Is that a recent phenomenon, or is that something that's been building? I know you have a lot more products you can sell. I just -- I'd like to understand if people are really coming in with kind of this multi-product mentality more so now than they did in the past? Thanks guys.

[Steve Daly, Chief Executive Officer]

Yeah. So I think this has clearly been a focus from a strategy perspective for us for a while. I think part of it is -- are maturing in our solution selling and our platform as we've added more pieces, and we've integrated them more tightly in the process. We've also came out with some packaging models and ways for us to sell this better. So I would say the need hasn't changed, right, with -- coming out of the pandemic, they need to assess new learning loss, all those things have been top of mind for our K-12 customers. I think our ability to sell has gotten better. But I also think, again, second half of last year, we just saw a general kind of slowdown, and now it's picking back up. The interest and the activities picked back up in the first quarter. So, it's as much a market need as it is our ability to deliver on the integration of the platform and the strategy and the selling motion.

[Operator]

Your next question comes from the line of Terry Tillman with Truist. Please go ahead.

[Terry Tillman, Truist]

Hey good afternoon, Steve and Dale, and congrats from me. I had two questions. First, on the Learn platform side, evidence as a Services seems like an emerging market and very timely given the ESSER funds. What I'm curious about is, anything you can share in terms of the contribution of that acquisition? And where do you see the bigger revenue synergies? Are you just giving it care and feeding and driving a lot more evidence as the service deals? Because I do know that they had a monetization strategy or you all really driving K-12 in all the platform products you have into maybe their installed base or who they were engaging with? And then I have a follow-up.

[Steve Daly, Chief Executive Officer]

Yes. So, I would say, yes, you're absolutely right. Very timely. It was part of our investment thesis that the need for evidence and evidence as a service was going to be much more important over time. The -- there's a couple of things where we feel really good about our ability to kind of accelerate the business after the acquisition. Again, we're starting -- we saw good pipeline build in Q1. We believe that impact will happen kind of later in the year into 2024 to drive growth, which is, as we mentioned, we expect a kind of de minimis impact in 2023 from the Learn platform acquisition. But really, there's a couple of areas where we are uniquely positioned to help Learn platform go a lot faster than they could as a stand-alone.

The biggest is probably in the provider business. We have an ecosystem of 600, 700 partners that are already integrated into the structured learning platform. It's by combining it with some of the technologies that we already had through some of our other acquisitions like Kimono and with Certica, some of the technologies they had. We now have a much more robust solution to take to the ISV community, the ad tech community. And so it's adding to our ability from a go-to-market and just our reach perspective to go a lot faster. And that was a part of their business that was very new when we bought them, right? They'd only been operating about a quarter selling to providers. And so that's where we believe a lot of that acceleration will come.

In addition, we have a number of -- we have a lot of state-level contracts that we're taking learn into. We're using those to leverage our existing contracts. There's a lot of things that we can do to kind of grease the skids from a purchasing perspective within the state purchasing or the LEA within K-12 as well. So, a lot of good synergies that we believe we can leverage over the next three to four quarters.

[Terry Tillman, Truist]

Got it. That's helpful. And I guess on the Chris Ball side, I was going to ask about -- I'm assuming he's still in the honeymoon phase, but he's got several quarters under his belt. I don't know if the Wisconsin School District deal, kind of, is some of his work, but 8 times contract increase or contract value increase is impressive. What are some of the early kind of low-hanging fruit areas that Chris Ball is having an effect? Thank you.

[Steve Daly, Chief Executive Officer]

Yes. Great question, Terry. As always, you do great questions, Terry. The -- Chris has been on the job for 90 days. So I don't want to over sensationalize the impact. What I will say is, he has had a big impact on our focus on solution selling on how to sell that whole suite. And so, yes, there's a -- definitely, I would say, he had an impact on that deal in particular.

But really what he's done a really good job at and is bringing two teams together, right, the sales marketing and the customer success teams. So he's really -- they're excited, they're energized, they're really leaning in on how do we make sure that, that customer journey is seamless, how do we ensure that we are able to find more opportunities to help in more ways with our customers, marrying the customer success manager with the seller.

And we believe, ultimately, which will drive a much better cross-sell and allow us to help our customers much more deeply than just one or two products. And so, so good -- I'm really pleased with the progress so far that Chris has made, and I'm excited about what we'll be able to share with you in the coming quarters as you start to really put his fingerprints on our go-to-market motion.

[Terry Tillman, Truist]

It’s good to hear. Thanks.

[Operator]

Your next question comes from the line of Matt VanVliet of BTIG. Please, go ahead.

[Matt VanVliet, BTIG]

Yes. Thanks. I appreciate taking the question. Good afternoon. I guess, first, on the platform commentary and multi-product selling. Curious if we could get much of an update on how the catalog product is driving demand, especially in higher ed there?

Is it still something that a number of schools are looking at, either revamping or launching their own online programs and you're going to help them with that, or maybe just any commentary around the demand environment today versus 6 or 12 months ago?

[Steve Daly, Chief Executive Officer]

Yes. I'm going to address that in the context of really how do we help a school either go online or kind of bring that kind of omnichannel experience, right, on online or in the classroom. And the short answer is, yes, we see a lot of demand.

The pipeline has been building for a while. It's been -- the last two years, we've made a concerted effort and an increase in our investment in catalog, but also with the acquisition of Concentric Sky marrying that with now the credentials, the badging, the ability to map programs for online students that lead to a credential or a Aura Badge is a whole product now that really is starting to pay off for us.

It's doing a couple of things for us. One, it's really a differentiator as we go into a deal like UMass Amherst where we have a robust solution on both sides of the offering as well as it's giving us a lot of good cross-sell opportunity and ability to kind of, again, be much more of a solution provider for our existing customers. So, yes, that is a key part of the overall solution for delivering that kind of omni-channel experience for universities and it's creating a nice differentiation for us.

[Matt VanVliet, BTIG]

Okay. Very helpful. And then I guess as you look out towards a number of those Blackboard or Moodle renewals and higher ed that you've mentioned, still maybe 40% of the market. How often are you meeting sort of a -- I'm not sure we're going to do anything kind of no decision kick can down the road for another year or two. Is that already starting to happen, or have we gotten to the point now where schools understand that they need to upgrade to something more modern and it's just a matter of setting the right calendar, figuring out which year is best to implement it and their making vendor selections even if they haven't signed a contract yet?

[Steve Daly, Chief Executive Officer]

Yeah. It's much more the latter. It's -- we saw more of that behavior to say, I'm just going to renew when we were closer to the pandemic, right? And they weren't sure what was going to happen, and they had something in place -- so now is not the time for me to make a change. But we're -- a lot of activity, and it has been -- this isn't a new phenomenon, but a lot of activity trying to figure out, okay, what is my next platform for the next decade or two, right?

And so a lot of these that haven't moved are -- right, are very -- they've been very long-term customers of these existing technologies. But again, the -- recognizing it's time to change. And I think you articulated it right in that question, Matt, was that it's not -- we're just kicking the can down the road, but we're being very deliberate about how do we plan this out, how are we going to do change management and we'll either they're signing now or in the near future for, again, this stage rollout and deployment of the technology over time.

[Matt VanVliet, BTIG]

Right. Great. Thank you. Very helpful.

[Operator]

Your next question comes from the line of Stephen Sheldon with William Blair. Please go ahead.

[Stephen Sheldon, William Blair]

Hey, thanks. Another question here on LMS market share in higher ed and maybe falling off that last question. As you think about institutions on legacy or lower-end LMS solutions and the potential of stepping to replace them, do you have much visibility into the pace of renewals over the next few years? And if so, how does that look? Will there be steady opportunities near-term for market share gains relative to the 40% you have right now?

[Steve Daly, Chief Executive Officer]

Yeah. I mean, we have a reasonable view into those renewals, and it's part of the sales motion. Everybody in their territory is out mining for those renewals. So it is -- we expect it to be a fairly steady deliberate move. I don't see everybody is going to do it next year, for instance, but it will be a measured gain in market share, similar to what we've seen over the last year. I think we're in kind of more of a steady state than we did coming right out of the pandemic when there was a bunch of activity.

[Stephen Sheldon, William Blair]

Got it. That's great. And then just as a follow-up, would love an update on assessment adoption in K-12. When you win new customers on that side, is it mainly greenfield wins? How much is different does that look between bigger and smaller school districts? And is there any way to frame how quickly assessment solutions are growing across your platform? And do you think this will be an outsized area of growth over the next few years, given what you're seeing?

[Steve Daly, Chief Executive Officer]

Yeah. I would say this -- there is a move to try to consolidate on a number of vendors, as well as a platform. And so, when we go into a sales opportunity, really the value that we sell with our assessment solutions is that integration with the LMS and the fact that you can get a closed loop look at a student and how well they're doing, not only what's being taught, who's engaging with the content, but then how are they doing against the standards and closing the loop that way. And so, that really is where the value accrues.

It is a combination of moving people off of pen and paper, as well as one of the deals we talked about in the script, we displaced an existing assessment management system that was there already. So, it is a little bit of a combination of those two. But again, really, the opportunity is that we have a very tightly integrated solution that closes the loop, helps teachers understand whether some of those remediations that they're putting in place to address learning loss are working and get that feedback in near real time, so that they can make changes and address the individualized teaching that they're doing for each of the students. So a lot of -- still a lot of opportunity to cross-sell. It was -- I believe it was our fastest-growing product in K-12 this last quarter. So, I do believe that, that will be a growth contributor to us for a while, Stephen.

[Stephen Sheldon, William Blair]

Good to hear. Thank you.

[Operator]

Your next question comes from the line of Brent Thill with Jefferies. Please go ahead.

[Dave Lustberg, Jefferies]

Hey good afternoon guys. This is Dave Lustberg on for Brent. Sorry, if these have been addressed. I'm just getting off another call where -- they said that another education tech call where they said that AI has become a headwind to the story. And I don't think of AI as having too much of an impact on you guys, but maybe potentially some opportunities, right, to plug AI into the LMS and maybe cut down on some of the teachers' time and help improve the efficiencies of teachers. Just -- again, sorry if this has been asked, but at a high level, how are you guys thinking about the impact of AI? And is there anything that potentially you guys can do with it? And then I had a follow-up.

[Steve Daly, Chief Executive Officer]

Yes. I think, David, you answered the question pretty well, actually. So, thank you for leading the witness on that one. The reality is, we share your opinion, right? We think that AI is an opportunity for us. It's not -- doesn't really replace anything that we do in the environment. But when you marry this with the LMS, we think there's a number of areas that are really interesting that we're exploring. So, you mentioned one of them helping teachers get better at the manual tasks, simplifying some of their -- whether it's course creation, authoring, whether it's assessments and how do they generate those questions on their quizzes, those types of things. We think all of that will help teachers. And when we integrate it in as part of the ongoing workflow that they're engaged in and used to in the LMS, it makes their life much easier. There's also the opportunity to do things like virtual tutoring built into the LMS, Dave. And because of the way that the technology is designed by integrating it with the LMS, for instance, give institutions, give school districts the ability to control kind of the scope of that tutoring. So -- and they can limit it because of the LMS.

And then, the third is also, we think there's going to be a big opportunity in accelerating the ability to -- for universities or high schools, with students that are going directly into the workforce, to address skilled based work for training and reskilling, allowing institutions to map their course work to skills much more easily and simply, use the technology to map them against taxonomies, for instance.

So we do think it will actually accelerate competency-based or skills-based education going forward. All of those, again, we believe by integrating them in LMS, to your point, right, it's an opportunity for us.

And it's also an opportunity -- I mean, it's a unique opportunity for LMS providers because of the relationships we have with teachers and learners and the technology to manage the whole process of delivering on teaching and learning. So we're excited about the opportunity and working on things -- already working on things.

[Dave Lustberg, Jefferies]

Super helpful. Thanks for the color there. And then, shifting gears a little bit. I don't think this is how we would normally phrase it. But if I kind of break down the business, right, and think like core LMS and then everything else you have, right, assessments in K-12, you just mentioned is your fastest-growing product in K-12.

But if I take out the LMS and look at the business, talk a little bit about how those businesses are growing? And is growth accelerating? Are you seeing really strong commitments there?

Would just be super interesting to talk about like the non-LMS part of the business because, obviously, LMS tends to get the most focus, but now you guys are doing some interesting stuff as it relates to assessment and other things. So it would be great to hear any color you can provide there.

[Steve Daly, Chief Executive Officer]

Sure. I think, we've been pretty consistent in that, we're not breaking out those specifically the different types of products, the different areas that we are cross-selling. I would say that, cross-selling is improving. We continue to add both on the initial sale with new logos, the number of deals that have more than one product as well as the number of customers that have more than one solution from us.

We -- I think the biggest growers assessment is a huge opportunity right now, and we're seeing that acceleration. The not -- addressing the nontraditional learner opportunity is a great growth opportunity for us in two ways.

One is in cross-selling to existing learning institutions that we already have relationships with, as well as the nontraditional educators like a PeopleCert that we talked about in the script that is training outside of what you would traditionally consider a higher ed institution. And so, we do think those two are probably the biggest growth drivers and the ones that we're seeing the most growth and contributing the most to our growth in the near term.

[Dave Lustberg, Jefferies]

Super helpful. Appreciate it, guys.

[Steve Daly, Chief Executive Officer]

Yes. Thanks, Dave.

[Operator]

Your next question comes from the live -- sorry, the line of Steve Enders with Citi. Please go ahead.

[Steve Enders, Citi]

Okay, great. Thanks for taking the question here. I guess, I did want to ask a little bit on the guide and the revenue outlook, in particular. I guess good beat and raise that we're looking at in Q2 here. But how should we be thinking about here? Is there an added level of conservatism as I think at the second half in particular here?

[Dale Bowen, Chief Financial Officer]

Yeah. I don't think there's anything outside of what we've already talked about in the second half of the year that we're looking for the guide. We do put out numbers that we feel confident in achieving. And as Steve talked about, we had a great Q1, a little bit of over-performance there in our bookings. And so we feel good about the targets that we've shared with you and our ability to hit them.

[Steve Enders, Citi]

Okay. I guess, as we think about the funding environment in K-12, I think there's been reports of funding coming in at 75% plus at this point. So I guess, how do we think about how much is still left out there for you to go after? And how you're thinking about maybe the pace of that funding environment as that begins to close in the next six quarters or so?

[Steve Daly, Chief Executive Officer]

Yeah. The way that we think about it, Steve, is that it creates a nice macro backdrop for us in that the schools are still flush with cash. They still have the appetite to make these investments. The reality is, first of all, it's hard for us to really break down when we closed the deal, was that ESSER funds, or was ESSER funds in the background. But I will say that what we're seeing is an interest in digital transformation, the recognition that the technologies that we provide around -- particularly in K-12 around LMS and assessment management, our core infrastructure for digital transformation. There must-have in there. And so a lot of these conversations, again, when we're working with our decision makers as well as the funding sources at the state level is that we are ensured that these are durable funding sources. We still have 18 months left to spend the existing dollars that are out there. So we do think that this background is still a favorable macro backdrop for us. And we do expect that this will be -- we'll still have a lot of activity for the next 18 to 24 months.

[Steve Enders, Citi]

Perfect. Appreciate you taking the questions.

[Operator]

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

[Noah Herman, JPMorgan]

Hey guys, thanks for taking the question. Just one on our end. Sort of, coming back to the more so the non-traditional or non-university customer opportunity. The PeopleCert feel coming more into fruition after two quarters. That seems like a really strong bright spot data point. I mean, how do you see the opportunity with non-traditional customers really growing at this point? And how do you see that acting as another lever for durable revenue growth today? Thanks.

[Steve Daly, Chief Executive Officer]

Yeah. I'm glad you asked that question because when we talk about non-traditional, we have a whole installed base of institutions that are trying to figure out how do they address not just your traditional student but also that non-traditional. But we do believe that there is a market that we haven't -- we're just starting to tap into.

The PeopleCert is one of those, City & Guilds is another one. We talked about CBO Gent on the call today in Belgium, are all about those nontraditional institutions not just nontraditional students. And so, we do think that this is an emerging opportunity for us. It's a market that we haven't addressed in the past. So it opens up a nice TAM for us to address. And we're still early days in tapping into that market. So it gives us a lot of confidence in our ability to drive double-digit growth -- top line growth for the foreseeable future. And we're, really pleased with the early traction that we've gotten. And again, the PeopleCert quick turnaround up and running an excellent reference customer, well known in the market and kind of one of those lighthouse accounts to help us drive that ongoing growth.

[Noah Herman, JPMorgan]

Great. Thank you, so much.

Operator

There are no further questions at this time. I will turn the call back to CEO, Steve Daly.

[Steve Daly, Chief Executive Officer]

Thank you, operator. And thank you, everybody. As you heard today, our commitment to innovation, customer success and disciplined investments in our platform. We'll continue to unlock new opportunities like this nontraditional space and drive value for our customers and shareholders in this dynamic market that we're playing in with the educational technology. We're early days still we feel in our growth as a company. We're also seeing a lot of opportunity to drive digital transformation across education, and so we're very excited about the future. We look forward to continuing to drive that top line growth, but also world-class margins in the months and years ahead. So thank you for your time, and we look forward to talking to you in another quarter. Thanks, everybody.

[Operator]

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