Prospectus Summary
Prospectus Summary This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common stock. For a more complete understanding of us and this offering, you should read and carefully consider the entire prospectus, including the more detailed information set forth under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes. Some of the statements in this prospectus are forward-looking statements. See “Forward-Looking Statements.”Instructure
Instructure’s mission is to elevate student success, amplify the power of teachers everywhere, and inspire everyone to learn together by applying the power of simple, purposeful, and transformative software to the important challenge of educating the world’s population.
From the inception of a teacher’s lesson through a student’s mastery of a concept, Instructure personalizes, simplifies, organizes, and automates the entire learning lifecycle through the power of technology. Our learning platform delivers the elements that leaders, teachers, and learners need – a next-generation Learning Management System (“LMS”), robust assessments for learning, actionable analytics, and engaging, dynamic content. Schools standardize on Instructure’s solutions as their core learning platform because we bring together all of the tools that students, teachers, parents, and administrators need to create an accessible and modern learning environment. Our platform is cloud-native, built on open technologies, and scalable across thousands of institutions and tens of millions of users worldwide. We are the LMS market share leader in both Higher Education and paid K-12, with over 6,000 global customers, representing Higher Education institutions and K-12 districts and schools in more than 90 countries. We are maniacally focused on our customers and enhancing the teaching and learning experience. As such, we continuously innovate to grow the footprint of our platform, including through our acquisitions of Portfolium to add online skills portfolio capabilities for Higher Education students and MasteryConnect and Certica to add K-12 assessment and analytics capabilities. Our platform becomes deeply ingrained into our customers’ instructional workflows.
Technology has fundamentally transformed the way education is delivered and consumed – putting the delivery of world-class experiences and the opportunities they engender within everyone’s reach. Despite technology’s potential to massively scale the impact of high quality instruction and elevate student outcomes, a variety of factors have historically led to slower adoption and implementation in academic institutions, including competing budget priorities, institutional resistance to change, low student-to-device ratios, and poor connectivity in school and at home.
The COVID-19 pandemic has created a set of conditions in which students of all ages have been learning remotely for a year, providing an opportunity to demonstrate the efficacy of distance learning at scale and opening up new possibilities for learners who previously could not access quality education. Almost overnight, schools and universities had to rapidly adopt or redeploy online platforms for students and teachers to conduct lessons remotely. As a result of government stimulus and realigned school and university budget priorities, hardware, software, and internet connectivity began to proliferate in regions and markets with historically low levels of access. The COVID-19 pandemic has been a massive tailwind to adoption over the past year, but the need for ongoing technology in education will persist well beyond the pandemic.
The opportunity for platform technologies in education is massive. According to the U.S. Census Bureau and the National Center for Education Statistics, in the U.S. alone, there are over 70 million students enrolled across over 137,000 schools. According to UNESCO, approximately 1.4 billion students worldwide were learning from home as of March 2020. According to HolonIQ, global spend on education technology was $163 billion in 2019 and will increase at a compound annual growth rate of 16% between 2019 and 2025. A new minimum threshold for the digital classroom experience has been reached and the LMS is now the de facto technology in any learning environment. Students and teachers have now fully embraced technology in education and the reputational and systemic risk from academic institutions of being unable to provide redundancy and contingency is too great to ignore. Further government stimulus in education is expected to drive technology funding and adoption, particularly in international regions which have seen comparatively less investment than in the U.S. The perfect storm of technology advancements, widespread access to devices, and increased classroom spending has created an extensive and long-lasting transformation of the education market.
Instructure has been a beneficiary of these tailwinds in education technology. We launched Canvas, our LMS application, in 2011 and quickly saw rapid adoption in the Higher Education market as we displaced legacy systems with our cloud-native and extendable platform and won greenfield opportunities where software solutions did not exist. We have grown our K-12 business over time and have experienced significant acceleration during the COVID-19 pandemic as device proliferation and technology acceptance within districts has advanced. Our extendable learning platform is comprised of the following solutions:
Our broad capabilities have expanded our total addressable market, provide significant upsell and cross-sell opportunities, and collectively form the basis of an extendable platform which has become a standard among many U.S. Higher Education and K-12 institutions and a growing number of international institutions.
Our global customer base spans from K-12 through Higher Education and Continuing Education, giving us a prominent position to accompany learners throughout their learning lifecycle. We continue to deepen our relationships with Higher Education customers by facilitating their strategic growth – often through powering their emerging Continuing Education initiatives that open their doors to a new universe of non-traditional learners. We are increasingly able to sell to large districts and statewide systems due to the scalability, adaptability, and reliability of our platform. Our customers include State Universities of California, Florida, and Utah, all of the Ivy League universities, the entire Higher Education systems for Sweden and Norway, international K-12 systems such as Queensland, Australia, which administers to over 1,200 schools, and many of our nation’s largest K-12 systems, such as Broward County, Florida and Clark County, Nevada.
Once implemented, Instructure serves as the connected hub for engagement between teachers, students, parents, content providers, and an always growing ecosystem of partners, including the largest commercial providers and the smallest education technology start-ups. As of December 31, 2020, our platform supported over 30 million contracted Canvas LMS users and a rich community of over 500 ecosystem partners. Our ecosystem partners are education technology organizations that provide adjacent services or complementary integrated solutions and have entered into a partnership agreement with us. This ecosystem contributes to our innovation and product development, and has resulted in students utilizing partner-integrated products over 2.7 billion times in the fourth quarter of 2020, an increase of 361% over the fourth quarter of 2019. We review certain metrics relating to partner-integrated products, which include learning tools that were integrated into our Canvas LMS platform, and allow users to access the learning tools directly from within our Canvas LMS platform. We count each “utilization” of a partner integrated product, or each instance where any user accesses those tools from within the Canvas LMS platform. The increase in utilizations resulted from increases in (1) online learning during the COVID-19 pandemic, (2) awareness of available tools by faculty and the resulting add-in of the tools for students, and (3) engagement of students with the Canvas LMS platform. Our best-in-class customer support organization supports our customers and ecosystem partners.
Our ecosystem has created a network effect of adoption where the embedded nature of our platform drives compounded usage of our applications and those that our partners deliver. The more our platform is used the more valuable it is to customers and users, increasing customer retention and positioning us to more rapidly expand both our customer base and the Instructure products each of those customers will use.
We went public in 2015 and were subsequently taken private by Thoma Bravo in 2020. Thoma Bravo saw the opportunity to combine our market leadership, tremendous customer loyalty, and superior technology with world class operations, to create a mission-driven company that could also be profitable and enduring. Over the past year, we have transformed our business into a more competitive and focused learning platform leader, well-positioned for long-term, durable growth. We have accomplished our strategic transformation through the following initiatives:
We have emerged from this transformation a stronger and more resilient company, poised to continue to win in the market. For 2018, 2019, 2020 (Predecessor) and 2020 (Successor):
For the unaudited three months ended March 31, 2021:
For definitions of adjusted EBITDA and free cash flow and reconciliations to their most directly comparable measures calculated in accordance with the U.S. general accepted account principles (“GAAP”), see “Management’s Discussion and Analysis of Financial Condition and Result of Operation—Non-GAAP Financial Measures.”
Industry Background
The Education Industry is one of the Largest and Most Important Sectors of the Global Economy
Success in education is a primary driver of economic well-being, quality of life, geopolitical competitiveness, and societal advancement. As such, the education market is massive and commands high spending from governments and private institutions worldwide. According to the U.S. Census Bureau and the National Center for Education Statistics, in the U.S. alone, there are over 70 million students enrolled across over 137,000 schools. According to UNESCO, approximately 1.4 billion students worldwide were learning from home as of March 2020. According to CB Insights, the U.S. spends over $1.6 trillion annually on education, representing one of the highest government spending categories. According to HolonIQ, global spend on education stands at almost $6 trillion. The overwhelming majority of educational spend goes toward traditional instruction – teachers, classrooms and classroom tools, student and teacher support services, and administration. A key component of broader education spend is funding directed to education technology. According to HolonIQ, global spend on education technology was $163 billion in 2019 and will increase at a compound annual growth rate of 16% between 2019 and 2025.
Technology is Disrupting Every Aspect of Education
Technology has fundamentally transformed the way education is delivered and consumed – creating the ability to democratize education and improve the quality of instruction for everyone. From traditional classroom teaching to full online learning, technology has brought disruptive tools to improve teaching efficiency, elevate student performance, enhance peer collaboration, and enable greater personalization. With technology, schools are able to provide equitable access to learning for lifelong development, build communities around education – including students, teachers, parents, and content providers – and scale quality education to bring best-in-class experiences to students at any time or place. Technology also enables blended learning environments, enhancing both face-to-face and online experiences by using data and analytics to inform instruction and enriching learning experiences outside of school hours.
The backbone of education technology is the LMS, a critical software platform that enables teachers to create, deliver, and track the effectiveness of learning programs and students to organize study materials, centralize access to learning content, and increase collaboration. Beyond the LMS, several adjacent technology tools have emerged to improve the experience for teachers and students alike, including student assessments, data and analytics, and interactive content. Collectively, these solutions are integral to achieving significant improvements in education accessibility, scalability, productivity, collaboration, engagement, and skill-building.
Technology Spend has Historically been Underpenetrated Relative to Overall Spend
While on an absolute basis the education technology market is large, spending on education technology in 2019 represented only 2.7% of overall education spending, according to HolonIQ. Despite technology’s disruptive capabilities, a variety of factors have historically led to a slower level of adoption and implementation in academic institutions, including:
As a result of these historical trends, schools across the world have struggled to provide a robust online learning experience and ensure equitable access to education for all.
Global Distance Learning Mandates Have Accelerated Adoption of Education Technology at All Levels
The COVID-19 pandemic has created a set of conditions in which students of all ages have been learning from home for a year. While the pandemic created unique problems and complexities for everyone, the resulting changes in education have removed historical impediments to implementation of education technology, thereby accelerating adoption at all levels, proving that distance learning can be done at scale and that technology will be a critical element of teaching and learning moving forward.
Almost overnight, schools had to rapidly adopt online platforms for students and teachers to conduct lessons remotely, given mandated distance learning orders. According to the U.S. Census Bureau, since the onset of the COVID-19 pandemic, 93% of U.S. households with school-aged children reported using some form of distance learning and 80% of people living with children in distance learning programs reported children using online tools for schoolwork between May and June 2020. Distance learning mandates resulted in three events:
The ultimate result of these events within the education sector has been widespread access to devices, with approximately 86% of students in the U.S. now having access to a device, according to the Center on Reinventing Public Education. In turn, this has allowed schools and institutions to reach more students through online learning platforms while remote learning is required, while also providing a firm basis for these devices to augment and enhance the learning experience for students who have and will return to classrooms. An LMS allows effective use of those computers as key tools within the expanding view of a learning environment, rather than mere portals to the un-curated Internet. As access to computers and connections becomes more widespread, the LMS proliferates, becoming even more useful and allowing for the democratization of education.
COVID-induced Transformation in Education is Permanent
Institutional Transformation: while distance learning mandates required schools to implement learning platforms, the need for such tools will continue to persist in hybrid and in-person learning environments. Students and teachers have now fully embraced technology in education, and the reputational and systemic risk from academic institutions of being unable to provide redundancy and contingency is too great to ignore. Schools and students no longer have to decide between in-person or online – we expect there will be a combination of both options to support various needs and various times. Examples of capabilities that will still be needed in face-to-face and hybrid environments include: content delivery, student assessments, homework submission, grading, student analytics, parent/teacher collaboration, and scheduling. In hybrid learning environments, the need for quality, personalized assessments is in fact even greater, as it is paramount that teachers can understand how students are performing in remote environments and track their progress from a distance. The capabilities of learning platforms along with the institutional scars from the pandemic make technology implementation an investment priority even if budgets tighten in the future.
Financial Transformation: future funding toward education technology is expected. According to the Office of Elementary and Secondary Education, in the U.S., $30.7 billion of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) stimulus was used to fund education initiatives, including the purchasing of educational technology, planning and coordination of long-term closures, and training and professional development for staff. In December 2020, U.S. Congress passed an additional COVID-19 relief package that includes approximately $82 billion for education. In addition, the American Rescue Plan, signed into law in March 2021, includes nearly $170 billion in dedicated public education funds to assist in reopening efforts, such as distance learning programs, the implementation of safety protocols, and emergency financial assistance. Importantly, the American Rescue Plan allocates $7 billion of funds for the specific purpose of purchasing technology for students to aid in digital learning. International regions have seen education stimulus as well, and we expect to see an increase in spending over the coming years. As a demonstration of the education technology’s funding momentum, it is estimated by HolonIQ that the share of education technology spend as a percentage of global education spend is expected to nearly double from 2.7% in 2019 to 5.2%, or $404 billion, in 2025.
As Adoption Accelerates, Platform Leaders Will Win
As the education technology market continues to grow, platform leaders are best positioned to win. The market is populated with three groups: legacy on-premises providers, point solutions, and platform leaders. Legacy providers are typically siloed, on-premises solutions, or cloud-enabled adaptations of on-premises solutions, designed to address only a limited scope of teaching and learning needs. Point solutions typically provide single features rather than a full suite of products. The weaknesses of these two market archetypes has allowed platforms with broad, best-in-class offerings to emerge and establish significant market leadership. There is now a bifurcation of enduring platform leaders and sub-scale players, with leaders consolidating to add incremental capabilities and expand reach.
Platform leaders have an integrated suite of product offerings, a partner ecosystem connected to the platform, scalable product architecture, and the ability to expand reach into adjacent markets. Platforms in education technology span across K-12, Higher Education, and Continuing Education – the full lifecycle of learning – and have become the centers of gravity for innovation and engagement. Platform leaders benefit from growth in customer base, reduced customer acquisition costs, and high barriers to entry for other competitors. Academic institutions everywhere are now focused on building their student experience and learning protocols around platform leaders with the greatest depth of features and offerings.
Industry Dynamics in U.S. Higher Education
Higher Education institutions were among the first adopters of LMS, and nearly every Higher Education institution in the U.S. has adopted an LMS of some kind to date. A major driver of this adoption has been high rates of access to devices among Higher Education student populations, with approximately 90% of individuals with at least high school degrees having a device, according to the U.S. Census Bureau. Additionally, Higher Education institutions utilize learning platforms to facilitate Continuing Education for alumni or non-matriculating students. However, as LMS adoption has taken place over the past 20 years, many schools are still reliant on legacy systems with limited features and functionality. The impact of the COVID-19 pandemic has driven Higher Education institutions to revisit their technology infrastructures and significantly increase investment in reliable, scalable, and feature-rich learning platforms.
Industry Dynamics in U.S. K-12
In contrast to Higher Education, K-12 adoption of LMS has not been as robust, with the paid LMS penetration rate of K-12 districts standing at approximately 41% as of August 2020. The lower penetration of LMS at the K-12 level represents a large greenfield opportunity for education technology to replace free solutions with paid learning platforms and monetize demand for broader product suites. The impact of the COVID-19 pandemic has driven K-12 schools to invest heavily in learning platforms to build resilience and redundancy and ensure equitable access to education for all students. Additionally, student access to devices now stands at approximately 86% according to the Center on Reinventing Public Education. We expect that the vast majority of K-12 schools will increase their technology investments going forward.
Industry Dynamics for Schools and Universities Internationally
The international market for LMS is highly fragmented and has historically been dependent on free, open source, and on-premises products that lack the functionality, scalability, and reliability of a leading learning platform. Since the onset of the COVID-19 pandemic, international academic institutions have experienced first-hand the scalability and capacity limitations associated with on-premises solutions, and the service and performance issues that can result. LMS penetration and device access vary by region, resulting in a patchwork of heterogeneous technology usage. The opportunity for leading learning platforms to expand internationally is significant, with Western Europe representing the most well-organized and well-funded region. As a result of the COVID-19 pandemic, international academic institutions are evaluating cloud-based platform solutions that can provide increased functionality, redundancy, and resilience in hybrid learning environments.
Requirements for an Effective, Modern Learning Platform
The changing education technology landscape has highlighted the necessity for a modern learning platform capable of meeting the evolving needs of students and teachers in diverse environments. Key elements of an effective, modern learning platform, include: