IPO Report: Instructure (INST)

Francis Gaskins |

Instructure.jpgInstructure (INST) provides an innovative, cloud-based learning management platform for academic institutions and companies worldwide. The company is based in Salt Lake City, UT.

Five other companies are scheduled for the week of Nov 9. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Morgan Stanley, Goldman Sachs, Jefferies
Co-managers: Needham, Oppenheimer, Raymond James

End of lockup (180 days): Wednesday, May 11, 2016
End of 25-day quiet period: Tuesday, December 8, 2015

INST scheduled a $75 million IPO with a market capitalization of $449 million at a price range midpoint of $17 for Friday, Nov. 13, 2015 on NYSE.

Summary

 INST provides an innovative, cloud-based learning management platform for academic institutions and companies worldwide.

INST built its learning management applications, Canvas, for the education market, and Bridge, for the corporate market, to enable its customers to easily develop, deliver and manage engaging face-to-face and online learning experiences.

Valuation

Glossary

Accumulated deficit (mm)

.

.

-$131

     

Per share dilution

.

.

-$15.12

     
             

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Instructure (INST)

$449

6.5

-8.2

8.8

9.0

17%

Annualizing Sept 9 mos

       
             

Conclusion

Neutral slightly plus

P/E of -8.2, indicating high cash burn rate relative to market cap

68% top line rev growth

68% gross profit growth

66% gross profit of rev

Never made money, lost -79% of rev in Sept 9 mos

Price to book of 8.8

Business

INST provides an innovative, cloud-based learning management platform for academic institutions and companies worldwide.

Canvas & Bridge

INST built its learning management applications, Canvas, for the education market, and Bridge, for the corporate market, to enable its customers to easily develop, deliver and manage engaging face-to-face and online learning experiences.

 INST’s platform combines powerful, elegant and easy-to-use functionality with the reliability, security, scalability and support required by its customers.

In today’s dynamic, knowledge-driven economy, quality education and constant learning are critical to compete and succeed.

Academic institutions recognize that for students to reach their maximum potential, they require a learning environment that is interactive and accessible. Similarly, companies need to deliver seamless and easy learning experiences to better attract, develop and retain talent and compete more effectively.

INST develops software that millions of students, teachers and employees use to help achieve their education and learning goals.

INST’s applications enhance academic and corporate learning by providing an engaging, easy-to-use platform for instructors and learners, enabling frequent and open interactions, streamlining workflow, and allowing the creation and sharing of content with anytime, anywhere access to information.

Platform

INST’s platform runs on a modern, cloud-based architecture that enables users to teach, learn and engage across a wide variety of application environments, operating systems, devices and locations at any time. INST’s open standards allow for integration with third-party publishers and software providers to deliver additional learning content and applications.

INST’s platform also provides data analytics capabilities enabling real-time reaction to information and benchmarking in order to personalize curricula and increase the efficacy of the learning process.

INST offers its platform through a Software-as-a-Service, or SaaS, business model.

Customers can rapidly deploy INST’s applications with minimal upfront implementation. Customers also benefit from automatic software updates with virtually no downtime.

INST’s SaaS business model substantially reduces the need for its customers to buy and support a broad range of IT infrastructure, and significantly reduces the cost, complexity and disruptions associated with implementations and upgrades of on-premise software.

Intellectual Property

INST is the registered holder of a variety of U.S. and international domain names that include the term Instructure, Canvas and Bridge.

Open Source Software

A substantial portion of INST’s Canvas application, including the base code, uses “open source” software INST licenses from third parties.

Open source software is made available to the general public on an “as-is” basis under the terms of a non-negotiable license.

Open source software is generally freely accessible, usable and modifiable.

Certain open source licenses, like the GNU Affero General Public License may require INST to offer the components of INST’s software that incorporate the open source software for no cost, make available source code for modifications or derivative works INST creates based upon incorporating or using the open source software, and license such modifications or derivative works under the terms of the particular open source license.

INST also relies on certain intellectual property rights that INST licenses from third parties under proprietary licenses. Though such third-party technologies may not continue to be available to INST on commercially reasonable terms, INST believes that alternative technologies would be available to us.

Competition

Canvas primarily competes with systems offered by Blackboard, Desire2Learn and Moodle in the education market.

Bridge primarily competes with systems offered by Cornerstone OnDemand, Saba Software and SumTotal Systems (owned by Skillsoft) along with dozens of small, specialized systems for specific industries to large, generalized systems provided as part of a larger human resources management suite.

INST may face future competition in its markets from other large, established companies, as well as from smaller specialized companies.

5% Shareholders Pre-IPO

Entities affiliated with OpenView Venture Partners           22.5%

Entities affiliated with Epic Ventures       21.8%    

Entities affiliated with Bessemer Venture Partners           12.3%    

Entities affiliated with Insight Venture Partners    11.3%  

Joshua L. Coates          12.1%

Byron B. Deeter            12.3%    

E. Nicholaus Efstratis       22.0%

Adam D. Marcus           22.5%

Brian C. Whitmer           5.7%    

Dividends

No dividends are planned.

Use of Proceeds

INST expects to receive $66 million from its IPO and use it for the following:

for general corporate purposes, including working capital, sales and marketing activities, research and development activities, general and administrative matters and capital expenditures. INST expects to use a significant portion of the net proceeds from this offering to fund the expansion of its business, including expanding its direct sales organization and marketing programs, particularly for corporate customers, and making investments in its research and development teams to support the development of new applications and new features for, and enhancements of, its existing applications.

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