Ladies and gentlemen, thank you for standing by, and welcome to Instructure's Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's 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 our first speaker, April Scee, Investor Relations. April, please go ahead. Good afternoon and welcome to Instructure's Third Quarter 2022 Earnings Call. We will 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 actual results may differ materially. For a discussion of the 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 a reconciliation of our GAAP to non-GAAP measures included in our press release, which is posted in the investor relations section of the website. All of our non-revenue financial measures we discuss today are non-GAAP unless we state that the measure is a GAAP measure. With that, let me turn the call over to Steve. Thank you, April, and good afternoon, everyone. Thank you all for joining us for our third quarter 2022 earnings call. During today's call, Dale and I will provide an overview of company results for the third quarter and provide fourth quarter and updated full year 2022 guidance. Instructure delivered another strong performance in the third quarter, exceeding our guidance across all metrics as we benefit from the digital transformation of education, favorable federal funding dynamics, our strong reputation for innovation and leading market positions. Third quarter GAAP revenue was $122.4 million, up 14.2% year- over- year, while allocated combined receipts or ACR was $122.5 million, up 12.8% year- over- year. We think ACR, which adds back the impact of fair value adjustments to acquired unearned revenue, gives investors better visibility into the underlying growth of our business. We delivered this growth while continuing to demonstrate the strength of our business model with a non-GAAP gross margin of 77.8% in the third quarter, up roughly 90 basis points year-over-year as we optimize our third-party technology costs and improve the efficiency of our support operations. Third quarter adjusted EBITDA grew 15.4% year-over-year to $47.6 million, a 38.9% margin of ACR as we further demonstrated operating leverage on both the gross margin and adjusted EBITDA lines. I'm proud of these results and excited about the future and want to thank our employees for their continued dedication. I'd now like to review three things. Our results across the K-12, higher education, and international markets, continued evidence that our platform strategy is working, and our progress penetrating non-traditional education opportunities. First, across our K-12, higher education, and international businesses, our focused go-to-market and expanded set of offerings are driving continued strength and bringing new logos onto the platform. Starting with North American K-12. Market research firm ListEdTech reported last month that 33% of all districts are using Canvas, displacing Google Classroom as the share leader in this segment of the market. We are proud of this achievement and continue to see high win rates. Our pipeline remains very healthy and budgets for digital transformation projects are robust as ever, with 70% of ESSER funds yet to be invested according to the Department of Education. However, record teacher retirements and strained capacity are slowing decision-making and impacting K-12 sales cycles near term. On the other hand, we continue to hear from K-12 decision-makers that Instructure products are more critical than ever. This validates the long-term demand for our platform, and we expect the funding environment to remain favorable for the foreseeable future. We remain confident we will continue to gain share in K-12 because of the essential role the Instructure Learning Platform plays in the classroom in the post-pandemic era. For example, we converted a 600-student pilot program with Wichita Public Schools, a large K-12 district, to a district-wide implementation of Canvas with a plan already in place to expand the Instructure Learning Platform further once Canvas is live. Now, turning to North American higher education. Canvas is a leading learning management platform with more than 40% market share. Win rates remain high as higher education institutions continue to select Canvas for ease of use, scalability, flexibility, and superior user experience. During the quarter, the University of Texas at San Antonio selected Canvas as its LMS, replacing a long-term relationship with one of our larger competitors. UTSA was already using our Impact product and after a long evaluation process, decided to migrate to Canvas because of our engaging learning platform and the power of combining Canvas, Studio, Catalog, and Impact. Looking ahead, we expect North American higher education growth opportunity to remain strong as nearly 40% of higher education institutions in the US still use legacy LMS systems, providing plenty of opportunity. Finally, international remains the fastest-growing part of the business during the third quarter, up 21.5% year- over- year. Our international market focuses on a narrow group of markets where we go direct, like Ireland, where there is strong connectivity, a high student-to-device ratio, and a propensity to spend on education. During the quarter, the University of Galway selected Instructure Learning Platform after a lengthy evaluation process due to its world-class user experience and unrivaled interoperability. As you know, we also launched a channel program in January of this year, and that enables us to cost-effectively enter new international markets and address the next tier of growth. We are gaining momentum, adding 13 value-added resellers. Looking ahead, the international higher education LMS market share that we have is in the single digits. We expect this segment to remain our fastest-growing segment in the year ahead. We believe the international business will continue to drive durable growth as institutions continue to upgrade from legacy, open source, and sluggish on-premise systems. Second, I want to talk about the growing success of our platform strategy. During the quarter, our Instructure Learning Platform strategy gained further traction with strong success with both cross-sell and up-sell. Since 90% of instructional workflows are facilitated by an LMS, we are well-positioned to cross-sell additional modules. During the quarter, we saw several examples, including the Providence School District, which, after a competitive RFP process, added Elevate and MasteryConnect onto an existing Canvas base due to our ability to scale assessments and curriculum across the district. We also saw a meaningful win with the Iowa Department of Education, including implementations for more districts and also adding Studio to their state contract. Looking ahead, we are still in the early innings on cross-sell and see meaningful opportunity. Our current product portfolio alone represents roughly a $750 million cross-sell opportunity in our existing customer base. We expect to continue investing in the platform through organic development and M&A as we increasingly connect every aspect of teaching and learning and expand our addressable market. Finally, I wanted to update you on successes with nontraditional education opportunities. We believe our investments will contribute to long-term durable growth, and we are excited about the early traction we are seeing. Canvas, when combined with Catalog, Studio, and Credentials, increasingly allows universities to address not only individuals within the four walls but also those beyond it. We are also seeing strong interest from innovative institutions that are looking to us to harness nontraditional education opportunities that expand their addressable market. Our focus on innovation and our ability to creatively address opportunities in a changing higher education landscape drove several wins during the quarter, including Arizona State University. ASU has been a long-time strategic customer and has now chosen Canvas to power ASU's Thunderbird School of Global Management's 100 Million Learners Global Initiative. This initiative aims to offer online global education in 40 different languages to learners across the globe, 70% of whom will be women. We believe this advances Thunderbird's mission to empower and influence global leaders and advance equitable and sustainable prosperity worldwide. At Instructure, we share ASU's mission to improve the world through education, and we are proud to power this initiative, which is one of the many ways we are advancing our strategy to address the estimated $5 billion nontraditional online market opportunity. We also had a large win with PeopleCert, a leading provider of professional assessments and certifications that does the majority of its business outside the U.S. As part of their digital transformation and business growth strategy, PeopleCert chose Canvas as the learning management system that will deliver training to its 250,000 learners on their journey to certification. PeopleCert chose Canvas due to our ability to scale their worldwide application, and this partnership helps us cost-effectively enter new international markets. In summary, I am confident and optimistic about our business. Even with the challenges our K-12 customers are facing, we believe the diversification of our business across higher education and K-12, with leading shares in North America and growing market share across the world, positions us for long-term durable growth. In addition, we believe our focus on continuous improvement will drive enhanced profitability versus our already industry-leading margins. I will now turn the call over to Dale to talk about our third quarter financial results. Thank you, Steve, and thanks again to everyone for joining us today. Before discussing 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 the 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. Instructure continues to display a unique combination of both strong organic growth and best-in-class margins. For the third quarter of 2022, we remained a Rule of 50+ company with 12.8% ACR growth and 38.9% adjusted EBITDA margins, further validating the underlying quality of our business. As Steve mentioned, we generated third quarter 2022 total GAAP revenue of $122.4 million, up 14.2% year-over-year, and ACR of $122.5 million, up 12.8% year-over-year. As a reminder, ACR adds back the impact of fair value adjustments to acquired unearned revenue, so it provides investors better visibility into the underlying health of our business. Subscription and support revenue accounted for 89.6% of our third quarter revenue at $109.7 million, up 14.1% year-over-year, primarily as a result of the continued momentum within our core Canvas LMS product, both domestically and internationally. In addition to strong upsell and cross-sell of our other products. Professional services and other revenue accounted for 10.4% of our third quarter revenue at $12.7 million, up 14.9% year-over-year, driven by strong implementation and training services delivery in our higher education business. Deferred revenue at the end of the third quarter was $320.9 million, up 11.8% from the third quarter of 2021. Remaining performance obligations, or RPO, were $792.6 million in the third quarter, up 16% year-over-year. We recognized revenue on approximately 75% 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 counts are on a non-GAAP basis. Please note that when I refer to margins in the upcoming comments, we calculate margins based upon ACR. Our gross margin profile remains very strong, with our optimized cloud architecture and flexible support structure that scales to demand to meet customer demands. In the third quarter, our gross profit was $95.3 million, representing a gross margin of 77.8%. This is compared to a gross margin of 76.9% in the third quarter of 2021. Turning now to operating expenses. Sales and marketing expenses for the third quarter were $24.1 million or 19.7% of ACR, up from 18.7% in the third quarter of 2021. Research and development expenses for the third quarter were $15.6 million or 12.7% of ACR, up from 12.3% in the third quarter of 2021 as we invested in engineering headcount to pursue our ambitious product roadmap. General and administrative expenses for the third quarter were $9.3 million or 7.6% of ACR, down from 8.8% in the third quarter of 2021. non-GAAP operating income for the third quarter was $46.2 million, representing a 37.7% operating margin, up from 37.2% margin in the third quarter of 2021. In the third quarter, adjusted EBITDA was $47.6 million, representing a 38.9% adjusted EBITDA margin, up from 38.0% in the third quarter of 2021. This result was better than our expectations and reflective of both our strong top-line growth and disciplined management of our cost structure. We are pleased with the roughly 90 basis points improvement in operating margins and adjusted EBITDA margins, demonstrating the power and efficiency of our model. Non-GAAP net income for the third quarter was $42.4 million or net income of $0.30 per share, compared to $33.7 million or $0.25 per share a year ago. Turning to the balance sheet and cash flow statement. We ended the third quarter with $263.4 million in cash equivalents, and restricted cash, and $491.5 million of long-term debt, net of discounts, resulting in a 1.3x net debt to trailing twelve months adjusted EBITDA ratio. As a reminder, the timing of cash collections is highly seasonal in our business, with the vast majority of annual license fees invoiced in the second and third quarters and collected during the third and fourth quarters. As a result, our cash balances and cash flows are lower during the first half of the year and grow significantly during the second half of the year. Operating cash flow in the third quarter was $179.9 million compared to $161.2 million in the third quarter of 2021. Free cash flow was $178.3 million in the third quarter compared to $160.0 million in the third quarter of 2021. Our adjusted unlevered free cash flow was $187.6 million in the third quarter compared to $174.3 million in the third quarter of 2021. As a reminder, our strong free cash flow conversion is driven by our favorable billing terms, low capital expenditures, and our accumulated tax assets, which we believe will act as a shield for the next several years. I will now conclude the call by providing guidance for the fourth quarter and updated guidance for the full year of 2022 for ACR, unlevered free cash flow, and adjusted EBITDA. We have provided additional guidance details in our earnings press release. We expect fourth quarter 2022 ACR in the range of $120.7 million-$121.7 million, or a growth rate of 8.8% at the midpoint of the range. We are raising our full year fiscal 2022 ACR guidance to $472.1 million-$473.1 million, or a growth rate of 14% at the midpoint of the range and a $4.8 million increase versus our prior guidance. Normalizing for the Bridge divestiture, our full year ACR guidance growth rate is up 15% at the midpoint. As a reminder, in February of 2021, we sold Bridge, our corporate LMS business. Bridge contributed approximately $4 million of ACR during the first quarter of 2021. We expect fourth quarter adjusted EBITDA in the range of $43.8 million-$44.8 million, representing an adjusted EBITDA margin of 36.6% at the midpoint of the range. For the full fiscal year 2022, we expect adjusted EBITDA in the range of $174.8 million-$175.8 million, representing an adjusted EBITDA margin of 37.1% at the midpoint of the range and a $5.8 million increase versus the prior guidance. Our increased fiscal year 2022 adjusted EBITDA guidance reflects higher growth and stronger gross margins as we continue to optimize our third-party technology costs. We are also adjusting our full year 2022 adjusted unlevered free cash flow guidance down to a range of $181.5 million-$182.5 million. To summarize, the strength of our international business, our industry-leading efforts in non-traditional education, and the exceptional dedication of our team allowed us to deliver balanced growth and profitability again in the third quarter. We are particularly proud of the top line performance in the current teaching and learning backdrop, where higher ed students are returning to class less quickly than anticipated and decision-making is slowed in K-12. The diversification of our business is helping to offset this, and as highlighted by our increasing market share, we are gaining momentum as a platform of choice. This positions us well to win a disproportionate share of business both now and when the educational backdrop improves. In addition, we believe our focus on continuous improvement will drive enhanced profitability versus our already industry-leading margins. With that, Steve and I are happy to take any of your questions. At this time, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad. To withdraw your question, press star one again. Our first question will come from the line of Josh Baer with Morgan Stanley. Please go ahead. Great. Thanks for the question. The question is on M&A and the platform strategy. Just wondering, when you think about all the potential spend per student budget dollars up for grabs, which areas are most attractive outside of the current portfolio? Then, what are you seeing in the current M&A environment? If you could touch on valuation and willingness to sell, that would be great. Thanks. Great questions, Josh. You know, there are a couple areas that are very interesting to us from an M&A perspective. I'll start first, though, with your second question, which was what does the current environment look like? You know, it's still pretty active, so we've got a lot of activity going on. We're engaged with a lot of different companies. I would say, you know, valuations are not necessarily coming down. You know, expectation isn't coming down as quickly as we've seen in the public markets, so there's still a little bit of froth, more frothy expectations, I would say. There are still a lot of opportunities, and like I said, we're very busy, and we're really excited that, you know, we've got such a. You know, our balance sheet is in such a good position to be able to react and to those opportunities. Now, the areas where we're interested in is, you know, we still think there's some things that we can do within assessment to kind of broaden our reach in assessments, in K-12 and higher ed. You know, we're still looking in online and non-traditional areas that we can continue to build. You know, we're building a lot there, but that we can add to that. Student success is a new area that we don't have a lot of technology in today that we think there's an opportunity, yes, to buy in. Then we're always looking for, you know, platform tech tuck-ins, like a couple that we've done in the last, you know, 6 or 9 months, to help us kind of build out that platform even more quickly. A lot of opportunity, and we feel really good about our position to be able to act on those things. Great. Thank you. Your next question will come from the line of Fred Havemeyer with Macquarie. Please go ahead. Thank you, and congratulations on reporting a strong quarter here. I wanted to ask, you know, there's been some shifts in some of the players in both the K-12 and the higher education market, and I'd love to get some context on what you're seeing there. I think, Edmodo is certainly noting some or planning for certain levels of shutdown in the K-12 market, and we're about a year after the Anthology and Blackboard merger. I'm wondering, have these dynamics shifted at all some of the conversations you're having in the market, opened up additional market share or offered any disruption points? Yeah. Good to hear from you, Fred. Yes, I would say that, you know, within K-12, we see, you know, Edmodo was not a huge factor in the U.S. You know, had some position outside of the U.S. I wouldn't say, based on their position, it's really changed a lot, the dynamics within that K-12 space. You know, we're still, you know, we're still in there talking about digital transformation. We're still talking about, you know, the bigger picture of how a platform can help that. I wouldn't say there's been a big change as far as the conversations go. You know, as we mentioned in the remarks, we're seeing you know, still a focus on digital transformation, a lot going on in K-12 right now, and they're dealing with a lot of things outside of you know, these kind of platform installations, but I wouldn't say there's any change there. Anthology is interesting. Fred, in higher education, you know, it's been a while since Blackboard was acquired by Anthology. We've seen. You know, we saw kind of a pickup in our RFP activity. We still see that in the pipeline for next year as well. You know, the main competitors that we're replacing are either Moodle or Blackboard. We feel good about our success and the wins that we've been having and the activity in the pipeline against that Anthology portfolio. We feel pretty good about, you know, where we sit competitively. Haven't seen a ton of change in the dynamics over the last 3-6 months. Thank you. Just a follow-up on ESSER funding in general here. I'm curious, could you just contextualize how you're seeing your K-12 schools and your clients deploying ESSER funding and where that might be focused and, how that could continue to play out? Yeah. It's a good question. You know. Go ahead. No, just if it's assessment, if it's LMS, if there's any particular product focus. Yeah. You know, it's interesting as we dig in. You know, there's been a lot of press about this. The K-12 districts are really dealing with a lot right now. They're dealing with teacher shortages. They're dealing with administrators having to sub in classes. They're dealing with collective bargaining agreements. There's a lot going on right now. You know, the ESSER funds are budgeted. The plans have been submitted to the federal government. They've been approved. They're not getting spent as fast as we thought they would get spent because of a lot of these other competing priorities. We still see LMS as the foundation for a digital transformation strategy, and we're seeing success, you know, as demonstrated in our market leading share now. Assessment is a big opportunity for us. We're still early innings, but a big part of where money is starting to go, Fred, is in addressing learning loss, right? That's a huge deal. It's going towards things like tutoring, but ultimately, the districts are needing to prove, "Is what I'm doing working?" Right? That's where the assessment technologies come in and play a critical role. Again, this is a long-term trend and, you know, we've got another couple years of ESSER funds before they expire. We do think that it's gonna be a key part of that, those strategies in the future. Thank you. Mm-hmm. Your next question will come from the line of Joe Vruwink with Baird. Please go ahead. Great. Hi, everyone. Steve, to go back to your comment on sales cycles in K-12. Since the second quarter is the biggest selling period, and I think a quarter ago sounded fine, is this all new development post the peak season? Then how does this end up manifesting in your model? Because you know, guidance looks good, RPO looks good. Is it the case that you know, K-12 is behind plan, but we're just seeing higher ed and international you know, more than offset it? Yeah. I would say, Joe, the sales. I mean, we talked in our last earnings call about kind of sales cycle. You know, the fact that ESSER funding wasn't being spent, right? There was a lot of competing priorities for digital transformation in the current environment. That has continued. We continue to see, you know, that they just are struggling with the capacity to make decisions. As you said, you know, we're pleased with our performance this quarter. We're confident in our guidance for next quarter. We do see this as kind of a transient, you know, kind of near-term challenge in getting the money kind of freed up in the K-12 system to buy technologies in the classroom. You know, we still feel good about the long-term growth of that part of the business, and you know, we also feel good about where we are from a higher ed continues to be kind of the foundation and consistent performer for us, and our international markets are successful. You know, I feel good about where we are and the fact that we were able to raise guidance and the confidence we have in that guidance. Okay. Great. Just a quick one for Dale. Why is the free cash flow guidance moving down? Yeah. Joe, as you know, our underlying free cash flow is a bit of a noisy number. There's a lot of things that go into this metric and a number of ins and outs. Let me just hit a few highlights. First, Steve mentioned this. The K-12's got some longer sales cycles. Another element is higher ed. We're really performing well there. Some of our wins are competitive takedowns that begin next year. You'll see that evidenced in our RPO, but not necessarily the current unlevered free cash flow. Then the last one is just keep in mind that we've got some currency changes impacting the international business. Overall, we're just really pleased with our unlevered free cash flow, and that conversion remains 100% as we guide through the end of the year. Okay. Thank you very much. Your next question will come from the line of Brian Peterson with Raymond James. Please go ahead. Hi, thanks for taking the question. Steve, you know, I appreciate all the commentary on sales cycles. I actually wanna focus maybe a little bit more about pipeline and where do you feel like that is strongest as we kind of head into 2023? You know, would love to get any thoughts there. Yeah. So, yeah, thanks for the question, Brian. You know, we're right in the middle of our, you know, planning for 2023, so we're not gonna give you any guidance, even if you ask it with a sneaky pipeline question. But we are. I'll do my best. Yeah, I know. You always do. That's why we love you. You know, the pipeline is building nicely. You know, what we're seeing more in K-12 is that, you know, just deal lengths are lengthening, right? The time to close is lengthening. The deals aren't going away. They're still there. It's just a question of the capacity to be able to close those deals. We feel good about where our pipeline is right now. Got it. Maybe a follow-up. How are you guys thinking about investing in the business in the current macro? I think we're all aware that, you know, your end market is much less immune to the macro, but we're also seeing a lot of talent become available in certain areas, and it's a very high margins. I just didn't know if your philosophy, your thoughts on kind of investing in the business have changed over the last couple quarters. Any thoughts on that? Thanks, guys. Yeah. No, to your point, I would say the labor market for us, it's been, you know, a little easier to hire in the recent months. We, you know, we have a very focused kind of investment strategy. We're looking, you know, we've made a number of investments. You look at our R&D spending, we've added a lot of engineers over the last 2 years, our quota capacity. We continue to invest in quota capacity. We're gonna continue to make those investments. It'll be very targeted. We feel, you know, based on our disciplined investment approach, right? What we know in the business, we can continue to make the right investments to continue to, you know, that durable top-line growth, while still being able to expand our margins. We don't feel like we're impinging on our growth, while still being able to expand those margins. Your next question. Thanks, Brian. ... will come from the line of Terry Tillman with Truist Securities. Please go ahead. Hey, guys. This is Joe Mierzwa for Terry Tillman. Thanks for taking the question. Just wanna hit the higher ed, K-12 international question from a bit of a different angle. The growth in international is great, 21.5% this quarter. ACR grew 13%. Could you just give us maybe, you know, qualitatively whether or not K-12 or higher ed grew greater or less than that 13%? Then kind of what are your expectations over the medium term for these three portions of the business in terms of growth rates? Thank you. Yeah. We're pleased with the you know growth that we're seeing across the board. We you know continue to see success in each of our markets. Our win rates are still trending above 70%. We're now number one market share in higher ed and K-12. Higher ed continues to be kind of our consistent performer, and more importantly, you know the foundation for future growth reaching into that non-traditional, like the announcement that we made with ASU. We feel good about those overall. You know our K-12 sales cycles are lengthening, as we talked about. It's not really related to macro, it's really a capacity to spend. We are seeing some currency headwinds in the international market. You know, we still expect international to be our fastest-growing market, and we still feel in the long term that's the right way to be thinking about it. You know, as we talked about last time, we think kind of that North American market between the two is a high single digit to low double digit grower. That mix between which is growing faster or slower is gonna change on a almost quarterly basis. But that's the way I would think about it long term for our business, Joe. Super helpful. Just as a follow-up on the international business, I mean, given the macro, is there any slowdown in RFPs or is it just the fact that you guys still have, I think you said low single-digit, you know, single digit market share that, you know, the growth trajectory there is still so much white space that you're not having to worry about the macro as much? Yeah. I would say, you know, again, our business is less impacted by kind of macroeconomic trends, right? I think the labor shortage has obviously been a challenge in K-12 for us. You know, it traditionally and historically, you know, when we go into an uncertain economic time, higher ed actually enrollments increases during those times. We do think we're gonna be kind of insulated against those things. I think the biggest challenge for us just from an international perspective is what everybody else is seeing, which is currency, right? The strength of the U.S. dollar is putting pressure on those growth rates in the short term. Good stuff, and congrats on displacing Google. Thanks, guys. Yeah, thank you. Thank you. Your next question will come from the line of Matt VanVliet with BTIG. Please go ahead. Hey, good afternoon. Thanks for taking the question. I guess digging into the K-12 market a little deeper, curious if you're seeing much of a difference in a propensity to spend from some of your existing customers looking at either expansion or cross-sell deals relative to net new customers, just sort of how those are progressing. It sounds like the net new are probably slow, but curious if the cross-sell is seeing any better traction. Yeah, it's a good question. You're right, with the net new, you know, and some of our examples that we use demonstrated kind of cross-sell, right, and selling into the existing base, which is always easier. I think it's balanced with, you know, with the fact that when we're short on teachers, right, there's a reluctance to kind of introduce new things into the classroom at this point, right. They don't wanna kind of disrupt what the teachers are trying to do. you know, it's pretty across the board where we're seeing that kind of lengthening cycles as they try to deal with some of these teacher shortages and, you know, collective bargaining agreements they're trying to get through now and all that kind of stuff. Okay. Then as we look towards the midterm elections here, next week, do you feel like any of the issues, whether it's on a state-by-state basis or some of the more national level issues and potentially switching of party in control of Congress will make any difference in some of these sales cycles either opening up, or projects maybe getting pushed forward, at the state level? Anything that you're monitoring closely that we should be aware of? Well, you know, I think that's just having some clarity, right, and just getting through it and having some stability and, you know, more, you know. It really comes down to what the districts are focused on right now. If we can get more stability, we can get more, you know, teachers in the classrooms, you know, regardless of what happens with the parties in power, that's gonna be the biggest determinant of sales cycle and how quickly these ESSER funds can get spent. You know, frankly, from a political party's perspective, you know, student outcomes is, you know, everybody can get behind good student outcomes going forward. We do not see anything related specifically to the midterms that'll affect one way or the other. All right. Great. Thank you. Thanks, Matt. Your next question comes from the line of Stephen Sheldon with William Blair. Please go ahead. Hey, thanks. First wanted to ask about gross retention rates, you know, kind of what they look like heading into the new school year. Any major changes relative to what you've seen historically in either higher ed or K-12 as contracts came up for renewal, just given I think it was a heavier renewal quarter? Just any detail there. Yeah. You know, Stephen, we've, you know, we're pretty proud of our reputation and the investment that we make in our customer success teams. They're really plugged in and really take good care of our customers. You know, we haven't seen any substantial changes in kind of gross retention. You know, we're in higher ed with reduced enrollments, our business model, the way we contract in a B2B type of fashion kind of mutes any dramatic changes there. You know, while we may see some downgrades, it's not been a massive, and we expect that to continue. You know, in the K-12 space, you know, we've been through renewal cycles on some of the state deals. They're renewing. We haven't seen anything change dramatically on the gross retention side. Got it. Good to hear. Wanna follow up on the international side, just given that it sounds like it continues to outperform your expectations and sounds like the channel partnerships are working well. Just given that success, is there more you can do to feed that traction in terms of building even more partnerships, expanding direct sales capacity in select regions? Just how are you thinking about that? Yeah, you know, the plan that we put in place was a plan that we felt that we could execute. You know, there is a limit. You can't just keep throwing dollars at it, right? You get a marginal return. We feel like the investments that we're making, the quota capacity that we're adding for those direct countries that we're going after, we've got the right amount of quota capacity. From the international perspective, I mean, from the channel perspective, you know, we feel good about the partners that are signing up, the number of partners that we're signing up. You know, I've said this from first quarter, right? This is a 24-month investment before we really start to see those pay off. We're deep into training and enabling our channel partners to be able to sell. We feel good, pipelines building. We've already seen some big bookings come through our channel partners, so we're pleased with our progress so far. Great to hear. Thank you. Mm-hmm. Your next question will come from the line of Brent Thill with Jefferies. Please go ahead. Hey, guys, this is David Lustberg on for Brent. Thanks for taking my questions. Wanted to ask a little bit about the impacts of higher ed enrollment. We saw the recent report of a 1% decline in higher ed enrollment. Obviously, you guys have contracts from 1-5 years, right? And your annual basis is paid up front, non-cancelable. Just talk about how enrollment declines might impact the model into 2023. You know, obviously the potential recession in 2023, which, you know, should potentially be good for higher ed enrollments. Like, just talk about how that impacts your ability to grow revenue, that'd be helpful. Yeah. It's a good question, David, and good to hear from you. The way to think about it is you're right. We are insulated to a certain extent. Dampened is probably a better word, right? We won't see the massive swings when enrollments were down 4% last, you know, during the pandemic. The 1% is actually a little bit better than what was, you know, everybody was thinking the decline in enrollments was going to be this year. It does roll into our guidance that we've given you know, going into Q4. We've taken all those downgrades into account. I think, you know, the important thing, though, is that the number of people that are seeking education isn't going down, right? What we're seeing is a reduction in kind of traditional degree-seeking enrollments and our investments in the non-traditional, you know, the going to market with somebody like an ASU or like PeopleCert, right, is addressing a whole new set of students that isn't included in that enrollment data. You know, long term for us, it's a net. You know, it doesn't matter which, you know, where learners are, we will meet the learners wherever they're at. We do feel good about our growth prospects in higher ed longer term just because of that. That's helpful. Maybe just one more from me, if I may. On cross-sell, I think in the past you guys have said about 30, maybe it's high 30s customers are using more than one product today. I know you guys called it a $750 million cross-sell opportunity. Just talk a little bit about, you know, the different products you have in cross-sell, what's doing best. I think you pointed out assessment. But ultimately, as we look forward, how many products do you think you can, you know, realistically sell into some of these different districts and schools? That'd be helpful. Yeah. We're gonna sell hundreds in, David. There's a lot of opportunity. You know, we have four or five products today that we can cross-sell, whether it's higher ed or K-12. You know, as we've talked about in the past, our assessment solutions carry big average selling prices. So has kind of an outsized impact on revenue as we get success there. You know, we're still early days in that cross-sell. You're right, it's in the 30-some% across the board that have more than one product. We're seeing an increase, so the number of customers grew this quarter. We're seeing success there. Again, there's still a lot of opportunity to sell more of those products. Great. Thanks, guys. Your next question will come from the line of Steve Enders with Citigroup. Please go ahead. Great. Thanks for taking the question here. I just wanna ask about the investments that you are making in R&D and you know, continuing to hire engineering there. You know, I guess what's kind of the biggest area that you're focused on in terms of the product roadmap and you know, where that could potentially go and how it fits into the you know, kind of the current portfolio? Yeah. One area that we've been investing in over the past couple years, we'll continue to, is that non-traditional space. Investment in products like Studio and Catalog, Impact, our newly acquired, you know, Concentric Sky, our badges and our certifications. Those are areas where we're continuing to make organic investments for growth, and feel really good about the progress. Again, with, you know, the deal we just signed with ASU, with our PeopleSoft cert deal, right? A lot of that is because we're investing to address that non-traditional. You know, we continue to make investments in integration and the platform and how we bring the solutions together, you know, with the idea that as you marry the learning management system with the assessments, you now have a rich set of data to help teachers be able to, you know, to teach to student by student. That's been the big area for us, is integration and the platform. We're continuing to make investments in our core Canvas, and within higher ed and K-12. To again continue to advance those, make it easier to use, make it more intuitive, allow us to differentiate against, you know, against our competition, but really to address the evolving needs of both our higher ed and K-12 customers. Okay, great. That's helpful. Maybe just on the margin profile. I mean, you know, good leverage that showed here in the quarter and in the guide. You know, how much more room is there to continue kind of driving that up? You know, what are kind of the key areas that maybe we should be thinking about of where we could see some incremental opportunity there? You cut out. Just you said, "Maybe thinking about a. Yeah, just in terms of the margin profile and the leverage that you're showing, what are some of the, you know, areas that maybe we could see some incremental opportunity to drive a little bit more there? Yeah, you know, I think there's still room in our gross margins. You know, with the operations and engineering teams are very focused on continuing to kind of optimize our infrastructure to reduce our hosting costs and our third-party providers. We continue to make, you know, program and systems investments in customer support to help drive down our cost to support our customers as well. We have room. You know, we continue to get leverage in our sales and marketing spend. Again, as we gain, you know, market share as we're the leader, this is such a referential sale that there's kind of this virtuous cycle that happens, and we get much more efficient and effective in how we go to market. We get looks at all the deals that come along. You know, our channel investment, we believe, is a good way to scale the business without adding a bunch of direct costs into the model. There's a number of areas in the P&L where we believe we can get more leverage from a profitability perspective. Okay, perfect. Thanks for taking the questions. Mm-hmm. There are no further questions at this time. I'll turn the call back over to Steve Daly, CEO, for closing remarks. All right. Well, thank you everybody for joining us today. We are super excited about the future of Instructure. We're happy with our performance. I just wanted to thank our employees, our partners, and our customers for the important work that you all do in helping bring education to the world. You know, we're confident in our ability to grow both our revenue and our margins in the future. We look forward to continuing to share our success with you all. Thank you. Ladies and gentlemen, that does conclude today's meeting. Thank you all for joining. You may now disconnect.