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Instructure, Inc.  (NYSE:INST)
Q3 2018 Earnings Conference Call
Oct. 29, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Instructure Q3 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Erin Kasenchak. Please go ahead.

Erin Kasenchak -- Investor Relations

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

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

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

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

Josh Coates -- Chief Executive Officer

Thank you, Erin, and thank you everyone for joining us on our Q3 2018 earnings call. Let me start with a quick highlight of the quarter. Q3 revenue was $55.2 million, up 28% from the same quarter last year. And we realized year-over-year non-GAAP operating margin improvements of almost 7 percentage points. In Q3, in addition to consistent wins in the education space, we saw increased momentum in executing against our long-term strategy by offering a more robust suite of Bridge modules. Also, we had continued success winning key deals in the extended enterprise.

Let me share with you some of our wins for Q3. Looking first within the higher education and K-12 domestic Canvas markets. Frisco Independent School District in Texas selected Canvas to replace Moodle for their 36,000 students. Oklahoma State with close to 30,000 students and faculty selected Canvas and Arc to replace Desire2Learn. The University of Texas at Arlington replaced Blackboard with Canvas for their 40,000 students. Fresno State selected Canvas to replace Blackboard for their 20,000 students. And in less than three months of announcing practice to our Canvas community, we are pleased to have closed the deal to train all teachers in the 17th largest school district in the country, Montgomery County Public Schools with 28,000 faculty and staff.

Looking at Canvas, in our international markets, we made progress around the globe. Canvas was selected to replace Blackboard at the University College Cork in Ireland for their 17,000 students and Lund University in Sweden for their almost 27,000 students. Our ease of use and accessibility were some of the key factors for winning these deals. The Pontifical Catholic University of Chile selected Canvas to replace Moodle for their 31,000 students. De La Salle University, one of the top institutions in the Philippines, selected Canvas for their 16,000 students, and Faculdade das Americas also known as FAM in Brazil, chose Canvas and Arc to replace Blackboard for their 20,000 students. The positive response to Canvas across the globe has been great. And just under five years, we've expanded to over 70 countries, 30 languages and are approaching 1,000 international customers.

Turning to the corporate side, we made good early progress in executing against our long-term strategy of offering a more robust suite of Bridge modules, as well as winning key deals in the extended enterprise. Let me start with our domestic market. This quarter, we successfully expanded our relationship with Vivint, a provider of smart home technology, replacing Cornerstone and BD Network day (ph) learning. Now Vivint's 17,000 employees will use the full Bridge suite of Learn, Perform, Practice and Arc.

Empire Today, a national flooring company chose the full Bridge suite for their sales team of over 4,000 employees. Bridge will replace Oracle learning management for employee onboarding and training across the organization. MassMutual Life Insurance selected Bridge Learn for their 25,000 field agents. StubHub, the largest ticket marketplace shows Bridge Learn and Arc to replace Cornerstone for their call center employees. Fiserv, a leader in financial service technology chose Bridge Learn and Arc to replace Cornerstone for a division of their lending solutions group. Our ease of use and the platform's ability to effectively deliver training were key components in winning this deal.

SafeAuto Insurance selected Bridge Learn, Arc and Perform to replace Moodle for their HR and compliance training. Our strategic vision for Bridge aligned with Safe Auto's needs and allowed us to win this deal over Cornerstone.

Turning to our international Bridge wins, Paragon Group, the UK's largest direct mail producer chose Bridge Learn for internal compliance and learning and development for their employees. Also in the UK, a division of a global multi-billion dollar consumer goods company, selected Bridge Learn and Arc to train channel and distribution partners. TheCityUK, the representative body for the UK-based financial and related professional service industry, selected Bridge Learn and Arc. We're excited by the exposure across their 160 member organizations that comprise over 1 million employees. We are encouraged to see early multi-module sales of Bridge increasing and that our long-term vision for Bridge is resonating with companies that share our focus around employee engagement.

Let me wrap up today by discussing the management transition that I'm sure you've all read about in the press release. Dan Goldsmith, our President, will be taking over the reins as CEO, at the beginning of the New Year. And to be perfectly honest, I could not ask for a better replacement. This has been a thoughtfully contemplated transition as succession planning is something the Board has been working on for over a year. In the last six months that I've worked with Dan, he has demonstrated that he is extremely capable of running a dynamic organization. His prudent experience driving growth and making meaningful improvements across an organization makes me more optimistic about Instructure than I've ever been before.

As for me, I'll be stepping into the role of Executive Chairman of the Board where I'll continue working in areas I'm passionate about, product innovation and the strategic directions of the Company.

Now, let me turn it over to Dan.

Dan Goldsmith -- President

First, let me say how excited I am to be taking on the CEO role at Instructure. The past six months have afforded me a great opportunity to meet with our customers, investors, partners and employees. During those interactions, I've seen firsthand our culture of openness, a relentless commitment to customer success and an unwavering dedication to innovation, have established Instructure as a leader in the marketplace. I've also had the opportunity to get to know our leadership team and I'm excited about working with them as we advance our business. When it comes to Instructure's future, I could not be more bullish.

In the near term, we are focused on continuing our journey with Canvas in education and expanding with Gauge and other add-on offerings. In addition to the large remaining market for Canvas, we are also uniquely positioned for long-term growth in education. Bridge is progressing nicely. Josh highlighted a number of strategic wins and important projects, you heard demonstration that our Bridge suite strategy focused on employee development and engagement is working and we are also seeing larger opportunities come into the pipeline. Additionally, I am excited for our launch of new offerings over the next several quarters.

Bridge will fuel Instructure's growth both in the mid and long term making contributions to the business against a large TAM. My focus over the past six months has been on assessing the overall business and affecting changes in our execution, operations and strategy. This will continue to be my focus as we get ready for 2019. Improving our execution is a high priority. Much of this initiative is focused on our go-to-market approach. Improving execution is particularly important with Bridge as we up-level our sales efforts and focus on large enterprise opportunities. With a background in driving sizable transactions, I'm confident in both the opportunity and Instructure's ability to capture larger deals in the corporate market.

From an operational perspective, we've launched an effort to identify efficiencies across the Company. I see this as a way to make further investments in the business, as well as drive our path to profitability opening more opportunities for growth, both organically and inorganically.

Now, let me turn it over to Steve to go over the numbers.

Steve Kaminsky -- Chief Financial Officer

Thanks, Dan. In Q3, as Josh mentioned, revenue grew 28% year-over-year to $55.2 million and subscription revenue was $49.2 million, up 29% from last year. The revenue outperformance relative to our guidance was primarily driven by better-than-expected non-recurring revenue and to a lesser extent, early starts. It's important to remember that both of these items represent one-time increases to quarterly revenue that do not impact future quarters.

Trailing 12-month billings at the end of Q3 were $226.4 million, up nearly 30% in the third quarter of last year, also calculated on a rolling 12-month basis. As you've heard me highlight before, given the seasonality of our business, we calculate billings on a rolling 12-month basis, which provides a more consistent perspective for growth, and I'd encourage all of you to view billings growth in this manner as well. For the remainder of my commentary, unless otherwise noted, I will discuss non-GAAP results and all EPS numbers are on a per common share basis.

Gross margin was 72.5% for Q3, up modestly from the same quarter a year ago. As I mentioned on the last several calls, we expect improvements in gross margin to be incremental as we get closer to our long-term target of 75%. Total operating expenses in Q3 grew 19% year-over-year to $45.7 million, while we grew revenue at 28%. Operating loss for the quarter was $5.7 million or 10% of revenue, a 670 basis point improvement over the same quarter in the prior year. As Dan mentioned, we instituted a push to identify and realize cost savings throughout the organization as we continue along our path to profitability. Our 670 basis point improvement in operating margin this quarter is in part a direct result of this initiative.

GAAP net loss for the third quarter was $11.5 million, an improvement of $0.06 per share year-over-year. Net loss for non-GAAP EPS calculations was $5.2 million, an improvement of $0.09 per share over the third quarter of 2017.

Turning to the balance sheet, our ending balance for cash and cash equivalents and marketable securities for September 30th was $171.4 million and free cash flow was $53.2 million. This quarter, our strong cash position is a result of our normal seasonal Q3 patterns.

Let me conclude with a discussion of our expectations for the fourth quarter and full-year 2018. For the fourth quarter, we expect revenue in the range of $55.2 million to $56.2 million; non-GAAP net loss of $5.8 million to $4.8 million; and non-GAAP net loss per share of $0.16 to $0.14. For the full-year 2018, we expect revenue in the range of $208.5 million to $209.5 million; non-GAAP net loss, $26.2 million to $25.2 million and non-GAAP net loss per share of $0.76 to $0.74. For calculating EPS, we expect our shares to be 35.2 million for the fourth quarter and 34.2 million for the full year.

I'd also like to share our thoughts around total cash flow for 2018. Given the progress we have already made with our cost-savings initiatives, I'm happy to report that even with the increased investments in new products this year, we anticipate we will be total cash flow break even for the full year 2018.

Let me walk you through the numbers to make it very clear. We ended 2017 with approximately $41 million. In February, we raised $110 million. So we expect the cash balance at year-end to be at least $151 million. Q3 was a solid quarter for Instructure with good top-line growth and meaningful improvements in operating margins. I look forward to updating you all again in a few months.

With that, let's open it up to questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And we'll take our first question today from Brian Peterson with Raymond James.

Brian Peterson -- Raymond James -- Analyst

Hi, gentlemen. Thanks for taking the question, and congrats, Dan. Really look forward to working with you. So, just want to hit on the margin performance this quarter. It was much better than I expected. You guys called out some cost savings. Just curious, are those in the run rate numbers now and how should we think about the pace of savings versus investments as we think about the next few quarters?

Steve Kaminsky -- Chief Financial Officer

Well Brian, we've given you some guidance for Q4. So you have a good indication of where we think we are going to come in. The cost savings that we're looking at, we'd like to think that we can carry forward as much as possible. However, we're always going to be very open to making investments as we think about our business for the long term. So hopefully, the Q4 guidance will resteer you in the right direction.

Brian Peterson -- Raymond James -- Analyst

Got it. Thanks, Steven. And maybe just on the Canvas business for a second, you guys called out some decent wins again this quarter. Just curious, any update on your domestic Canvas targets? Any thoughts on how bookings trends have looked so far this year? Thanks, guys.

Steve Kaminsky -- Chief Financial Officer

Yeah. So we have talked about that we might grow domestic Canvas by a little bit. We're not so sure that's going to happen at this point throughout the year. We'll probably have more information on that on the Q4 call.

Brian Peterson -- Raymond James -- Analyst

Thank you.

Operator

Next we'll hear from Scott Berg with Needham.

Scott Berg -- Needham & Company -- Analyst

Hi, Josh, Dan, Steve, congrats on a good quarter. I've got two questions here. Let's start out with the R&D investments. Dan, I know you spoke a lot about them over the last couple of times that we've had discussions and they were obviously key to some increased spending on the Q2 call, yet your non-GAAP R&D results were actually flat quarter-over-quarter. I guess when should we expect those investments to hit because I would have expected that line item to step up or have they already hit and they're just part of some of the new cost containment efforts?

Dan Goldsmith -- President

Yeah. So, Scott. We've got -- there's a lot of moving parts. It's not quite as simple. We've been talking about making incremental investments on the Bridge side, but that doesn't mean we haven't found opportunities to save money on the Canvas (ph) side. So -- and again, the other thing is a little bit technical, as there is a little bit more money sitting in the cash flow statement that got pulled off the P&L as we capitalize software. So the number is a little bit higher than it looks like if you just stare at the P&L.

Scott Berg -- Needham & Company -- Analyst

Got it. Helpful. That's very helpful. And then Josh, you'd -- you called out a number of good quality Bridge wins in the quarter. If you look at the total number of deals that you've closed throughout so far year-to-date in 2018, how is that compared versus your expectations for Bridge sales that have a broader kind of suite sale with either practice or the performance management products?

Josh Coates -- Chief Executive Officer

Yeah, good question. I think because we've just started to be able to share more of a sweet story, I don't think at the beginning of the year, we really frankly, tabulated this -- an estimate about what that would be. I think where we really started getting traction actually is when Dan came in and said, hey, guys, from an outsider's perspective, let me come in and help really rewrite the script to make sense of this Bridge suite approach and we've seen pretty incredible uptake since then. And like I mentioned before, the first half of next year, we'll be announcing a couple more modules to make that Bridge suite story even stronger.

Dan Goldsmith -- President

And Scott, this -- this is Dan, let me comment on that as well. We're still sort of seeing that motion not only in terms of adoption of the Bridge suite and those products, but we're also developing more of a muscle around sort of that up-sell, cross-sell. So how do we develop a foothold in that camp (ph) and then how quickly will things progress from there. Obviously, there's been some key wins in this quarter. Vivint is a great example where we've seen both expansion and cross-sell within the environment that is helping to extend that story full.

Scott Berg -- Needham & Company -- Analyst

Great, helpful. I'll jump back into the queue. Thank you.

Operator

Next, we'll hear from Brian Schwartz with Oppenheimer.

Koji Ikeda -- Oppenheimer -- Analyst

Hi, this is Koji Ikeda hopping on for Brian Schwartz. Thank you for taking my question. Just a quick question on the add-on products for Canvas, the Arc and Gauge products, and for Bridge, the Perform and Practice, just curious to hear how the tax rates have been overall for these add-ons? And maybe if you could, have you seen any unexpected adoption of these products by either customers or even industries that you haven't originally targeted for these products that maybe have provided some upside to numbers in the quarter? Thanks.

Dan Goldsmith -- President

Yeah , so -- so thank you. There's a few sort of elements in that question. Let me try and piece it apart, so you can understand. On the edgy side with Canvas, when we think about Arc and Gauge, with Arc, we're seeing across the board both with Canvas and with Bridge, great attachment rate. I think that's hitting the market in the right way and the need for video-based capabilities within -- inside of these solutions. So we're seeing Arc attached to a great number of deals and that's expanding the size of those deals as well as making us more competitive both on the Canvas and the Bridge side. And with Gauge, and we've mentioned this before, we had a bit of a missteps sort of coming into this year. We built the product. We did all of the right things from an approach perspective and designed the product, but we sort of mis-estimated what would be needed to accelerate in the market, pull back a little bit on Gauge and we're going to be ready for 2019 with Gauge to be driving more sales around that market. So good market, we will be ready with the product coming into 2019 to go broader with Gauge. So that's underperformed expectations around how we grow Gauge.

With Bridge, again it's around the suite story. What we're looking for is the attachment both on initial deals and sort of cross-sell across the Bridge suite. To your question, are we seeing increased deal size and are we seeing acceleration from a financial perspective, we're definitely seeing the increases in deal size. But I think more so what you should pay attention to around the Bridge suite and elements like Practice and Perform and Some of the announcements we have upcoming with new products, is our ability to compete more with larger -- larger organizations as a foothold into those accounts and then expanding from there.

Koji Ikeda -- Oppenheimer -- Analyst

Great. Thank you for taking my question.

Operator

Next, we'll hear from Corey Greendale with First Analysis.

Corey Greendale -- First Analysis -- Analyst

Hey, good afternoon. First question on the competitive front, when you listed -- Josh, when you listed the wins for Bridge, it seemed like there was a -- there was disproportionate number where there were Cornerstone replacements. Is that representative of all of the Bridge wins in the quarter? And if you could just comment on sort of what -- if there's a theme to what you're winning on, is it features and how much price -- higher pricing relative to Cornerstone?

Josh Coates -- Chief Executive Officer

Sure. We're definitely seeing more wins against the larger competitors in the field, Cornerstone, of course, being one of them; Oracle learning management, also SAP, and I think that, that's indicative of us getting higher up in the market attaching to larger opportunities and winning those. And also correlated with that is our ability to sell more of a suite. I think a year ago -- two years ago, we were just selling the Learn module and it just wasn't as compelling to some of these larger enterprises. And now that we have more of a suite story, we're starting to be competitive and win, and so, yes, we are taking you know a little bit of business away from folks like Cornerstone.

Dan Goldsmith -- President

Hey, Josh just to add a little bit to that. This is Dan. Two quick points. This is -- globally we're seeing some success in competition as I've worked with the sales teams across the globe. We successfully competed and won against the landscape of competitors out there, big and small. And that just gives us more data points to build into our pattern recognition as well as accelerate our confidence as we go into different areas throughout the market. Additionally, what's really resonating with prospects is the vision long term. So you can think of, we moved from an LMS focus to a suite focus. Now as we articulate that longer-term vision, it's resonating in many areas of the market. And as Josh mentioned earlier on the call, we see a number of wins that are not only adopting sort of the Bridge suite now, but are extremely excited about the vision of where we're going with Bridge long-term.

Corey Greendale -- First Analysis -- Analyst

Great. And Dan, congratulations. And I -- you made the -- I think your last sentence in your script was about cost savings in some areas and reinvesting in others. Philosophically, as you get into the CEO role, how do you think about the balance between growth and profitability? Do you think about things like the Rule of 40? Do you emphasize growth or just kind of set expectations for how you think about those things?

Dan Goldsmith -- President

Yeah. Thank you. I appreciate the question. So, I think about growth. We have a lot of TAM to go after, both in corporate, obviously a large TAM. And we have extended opportunities for expanding TAM in -- in the edu space as well. In fact, the company I came from Veeva Systems, we doubled our TAM of our initial product where we achieved a large market penetration. And you can do that through movements both, with add-on products, as well as extended larger products. So that's a recipe that we will be applying here as well, and you'll see that happen over time. I don't think much about sort of the Rule of 40 and some of those financial metrics, but we're absolutely focused on growth of the Company, both in terms of the coming years as well as long term and setting us up for that growth.

Steve Kaminsky -- Chief Financial Officer

Cory, you shouldn't worry, because I think a lot of about profitability.

Corey Greendale -- First Analysis -- Analyst

So, I said about -- so Steve like keeping the reins on, got it. All right. Thanks very much.

Operator

We'll now hear from Brian Essex with Morgan Stanley.

Brian Essex -- Morgan Stanley -- Analyst

Hi, good afternoon, and thank you for taking the question. I was first wondering. Steve, can you talk about the renewal environment, I think you touched on it really briefly, but as you kind of finish off 2018 and you see some initial indications maybe of deals coming on in 2019, any thoughts on how robust that market might be considering what we've seen for deceleration and billings this year versus last?

Steve Kaminsky -- Chief Financial Officer

So I want to make sure I'm answering your question. You're talking about renewals with respect to Canvas to Canvas, or you are talking about what might come up in the Blackboard world that we may convert?

Brian Essex -- Morgan Stanley -- Analyst

Just renewals in the industry, right. So I think you've growth prior -- you've had prior conversations where some of the reason for the decel this year was a little bit lighter renewals in the market, but I think things turn around from 2019, I was just looking for maybe a refresh on some of those comments and what you're seeing now, and then what you might expect for Bridge versus Canvas contribution for 2018.

Steve Kaminsky -- Chief Financial Officer

Right. So for renewals, we -- what we've seen specifically this year is fewer large deals in the multi $100,000 range than we had seen in previous years. It's a little -- it's too early to talk about 2019, we'll be doing that in a few months, but we have seen that. And when I referenced earlier that -- it didn't look like we were going to grow domestic Canvas by much if at all. That's what I was really referring to, that's the key driver there. You know Bridge is still on track to do, we've been talking about 15% to 20% of new bookings for this year. And again we'll have more to report on next quarter. But so far, it looks like it's on track.

Brian Essex -- Morgan Stanley -- Analyst

Got it. And then competitively, I mean you mentioned Blackboard, any sense of their presence in the market? What percentage of deals you see them competing in versus Moodle and others, particularly as we've kind of finished out this year?

Dan Goldsmith -- President

Yeah. Brian, this is Dan, I can take that. So we still see Blackboard quite a bit within the market especially in higher ed. When we go outside of the US or into the K-12 markets, obviously a bit of a different dynamic. Our win rates remain very strong and the motions around competing with Blackboard or frankly any of the competitors in the market are still working for us. What we're doing a lot in the sales area for edu is -- in the US is really taking around how can we sort of make the market move and accelerate little bit more by applying sort of different types of pressure in different approaches. So that's obviously in the planning phase right now. And we're starting to institute some of those mechanisms also.

When you talk about Blackboard in terms of their activity in the market and you talk about things like Ultra, we don't really see that doing anything one way or another. We don't see a lot of companies oriented toward moving toward Ultra. We don't see it creating a lot of tailwinds either. So it's really sort of a non-factor at this point.

Brian Essex -- Morgan Stanley -- Analyst

Okay, that's helpful color. Thank you.

Operator

Terry Tillman with SunTrust Robinson Humphrey has our next question.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Yeah. Hey, gentlemen, can you hear me, OK?

Josh Coates -- Chief Executive Officer

Okay. Hey, Terry.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Okay. Hey, Josh, Dan and Steve. Thanks for taking my questions. I guess, first congrats, Dan. Josh, are you still -- this isn't actually part of quota of questions with Josh. Are you still going to get on these earning calls and here are amazing questions going forward after December?

Josh Coates -- Chief Executive Officer

Well, only if you keep calling in.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Great. I'll come back. Thank you. Thank you. All right. So the first question, maybe Dan, if you could take this. I'm curious about the Bridge on the corporate business as we go into '19, a couple of new products. Could you level that for us in terms of how meaningful these new products could be? Are these strategic products or are they kind of smaller, kind of modules or -- just trying to understand, how much they can move the needle and how to think about their impact in '19?

Dan Goldsmith -- President

Yeah. I mean there is, I would think -- they're definitely strategic products. The products we're going to introduce will add significant momentum, both in terms of the markets that they are -- they are addressing individually, as well as expanding the suite story. But they do play as a component of the Bridge suite capability. I mean that's the story that's resonating , it's resonating with products or with prospects, and we're seeing a lot of momentum in that direction. So we're continuing with that strategy as we build into the expanded Bridge resources.

Steve Kaminsky -- Chief Financial Officer

So you know just one thing to add to that, when you're buying the products, you'll be buying them, do you want this, or do you want these three things or these five things put together. When you're using the product, you're not going to know the difference. It's about -- it's very focused on the employee and the engagement of the employee and what they're trying to do in the moment that's natural to their day as opposed to well, I need to go into the learning management module; now, I need to skip over into the career management model. You won't realize where you are in the suite. You will just know you're doing what you need to do.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Yeah, yeah. Okay, thanks, Steve. And I guess, since you're talking there, Steve. Maybe my second and final question is just related to the edu business, talking about the activity this year, maybe not as robust as you thought. Would that related to higher ed in the US and K-12 or is it more just higher ed and have you all had enough time to think about it in terms of I assume every year there is a certain amount of business up for grabs and maybe this yes it's a -- there was actually less renewals than you thought. Just any more commentary on your comments earlier. Thank you.

Steve Kaminsky -- Chief Financial Officer

Yeah. so, very briefly, primarily higher ed and that's exactly what the issue is, that there were just less deals that came up. Our win rates are strong and very, very consistent as they've been over the past several years. I think the folks are doing the channel checks on the outside are seeing the same thing. So, the business is still strong, everything is good on our end, but when there's less deals to chase, there's only so much you can do with that.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

All right. Thank you.

Operator

We'll now hear from Justin Furby with William Blair.

Vinay Mohan -- William Blair -- Analyst

Hey guys, this is actually Vinay on for Justin. Thanks for taking on my questions. Dan, congrats on the new role. At Analyst Day, you talked about sort of flushing out the partner ecosystem. I guess as you think through 2019, any additional color or thoughts there? And then could you give us an update and sort of efficiency for Bridge from a calculation perspective or sales productivity perspective? Thanks.

Dan Goldsmith -- President

Let me, so -- and I thank you, this is Dan. I'll talk about -- well, Steve, do you want to address the CAC (ph) first real quick?

Steve Kaminsky -- Chief Financial Officer

Sure. Like -- yeah, I mean, we will go in reverse order. So we've never really disclosed what the CAC is for Bridge and that's the same position that we're taking today. It is the highest of all the CACs and it is the place where we might most likely invest in the future. We're fully staffed for the domestic Canvas business. As we think about international, that's a region by region story in terms of do -- where do we grow, but Bridge has by far the biggest opportunity for growing the sales expense envelope, sales and marketing. So that's really all we can say about it.

Dan Goldsmith -- President

Yeah. So now let me talk about the partner story. So, yeah, as we mentioned previously, we've had a very robust partner ecosystem and partner network is part of our Canvas business and we're building out on the Bridge side of the business as well. We'll continue to invest in and have a highly capable sort of partner network in our Canvas business, and we're exploring and expanding actively our sort of partner network on Bridge and on the corporate side. And that takes a number of forms. It takes a number of services partners, which sort of accelerates and enables us to drive more adoption in the market with typical services types of partners.

And then as we look at different strategic markets or use cases like the sale of (inaudible) use case for example, on an industry segment we might be focusing on, we're finding a lot of great partner opportunities where we might have training content developers or other types of services partners that work very well with the model we have for Bridge delivered through the cloud and sort of the expansion capabilities. So we're going to continue to explore that and expand that through the end of this year and obviously through 2019 and beyond as well.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Got it, thanks.

Operator

Next, we'll hear from Rishi Jaluria with D.A. Davidson.

Rishi Jaluria -- D.A. Davidson -- Analyst

Hey guys, thanks for taking my questions. Josh, congrats on all you've done with Instructure over the past 10 years, and Dan congrats to you as well. We very much look forward to working with you. Two Bridge-related questions. First, Josh, in your prepared remarks, you talked about Bridge with some compliance use cases, which was a little bit of surprise to me. Can you maybe dive a little bit more into, is that going to be a growing use case with Bridge beyond the kind of talent management that you've talked about before? Then I've got a follow-up.

Josh Coates -- Chief Executive Officer

Well, with Bridge Learn, we've done a lot of compliance work with our customers. That's a common use case for the Learn modules. So there is no particular industry-specific features Bridge has for compliance, but it works generally for most compliance situation. So that's something we've been doing since really the early stage of Bridge.

Rishi Jaluria -- D.A. Davidson -- Analyst

Got it. That's helpful. Thanks. And then on the international front for Bridge, Josh, you talked a lot about Bridge and Cornerstone replacements domestically. Just curious, what does the landscape tend to look like internationally, is it more greenfield, is it kind of smaller or home-grown competitors? How should we be thinking about when you're gaining international traction, is it replacement of the greenfield, what are the dynamic they look like?

Josh Coates -- Chief Executive Officer

I'll let Dan to answer that one.

Dan Goldsmith -- President

Yeah. So thanks for asking, Rishi. Actually this is one of the areas I'm very excited about. I've made a number of trips already in my time here at Instructure to Europe and also down to Australia. Had the chance to talk to a number of customers of Bridge, as well as prospects who are becoming customers. So the nice thing about the corporate space is, there is a lot more commonality across the globe, so -- whereas in the education, you have to really go through individual country by country, market by market and figure out sort of the localization in that market in the selling motion. The nice thing about Bridge and corporate is, you can engage at a multinational level for global program, a regional level or a local level with markets and the selling motions tend to be relatively similar. Now we're just beginning our story with Bridge. We're still in the very early stages, but we're -- what we're already seeing is some great uptake and some amazing stories and customer results in Europe. In Asia-Pac, we'll see more coming through Latin America as well moving forward. The trick for us in Bridge, which is universal in all geographies is to drive more of our enterprise size business. And I look at that through two lenses, one, are we getting into larger organizations even if it's just with the starter project or one division of the organization. And then two, are we able to sort of sell the Bridge story and transact in larger -- in larger transactions. Underneath that, it's really around building the sales teams and building the sales competencies and motions. But the uniformity of the business and when the selling patterns for corporate across the globe will help us in that market.

Rishi Jaluria -- D.A. Davidson -- Analyst

Perfect. Thank you.

Operator

(Operator Instructions). We'll now take a follow-up from Brian Essex with Morgan Stanley.

Brian Essex -- Morgan Stanley -- Analyst

Sorry about that. I was on mute. Yeah, thanks for taking the follow-up. I just want to follow up to some of the Bridge commentary. Again, I think we had a conversation previously about some of the employee engagement and satisfaction components of the enterprise space. And I was wondering if that's any more meaningful now and is that, I guess how do we gauge the demand side for the enterprise market and how meaningful that might be?

Dan Goldsmith -- President

Yeah, it's -- gauging that is a little bit harder to measure. I think what we see as we interact with more and more prospects and customers and we look at larger sized organizations and frankly as we grow our teams and we bring in more pattern recognition for enterprise deals, what we're seeing as we expected, is an even greater need for organizations to be managing their employees, engaging their employees in driving that employee engagement. That's driven by a lot of business factors attracting talent, retaining talent, developing talent, keeping people as productive as possible within the organizations. And what we see over and over again with large organizations is an even harder prospect because you have a more distributed organization and it's harder for organizations to stay in touch with their people. So we believe that the current story for Bridge and Bridge suite obviously helps to address that agenda in that priority. And then two, as we introduce new products within the Bridge suite it is going to continue to extend kind of the capabilities for organizations going into that space. What you're seeing. Brian, though and what we're seeing is, for large organizations, it's just slower for them to move. It takes more time for them to make decisions, there's more people involved and so as we invest and up-level in our sales organization, we're going to get better and better at doing that. What's nice is, when we get to that dialog around employee engagement, organizations are very receptive and we find that, that's the best opportunity for us to compete well.

Brian Essex -- Morgan Stanley -- Analyst

Okay, that's helpful. Thank you.

Operator

That will conclude today's question-and-answer session. I will now turn the conference over to Josh Coates, CEO, for any additional or closing remarks.

Josh Coates -- Chief Executive Officer

Thanks, everyone, for joining the call. As I mentioned in my prepared remarks, I'm excited for the future of Instructure as we focus on the continued growth of Canvas, the expansion of Bridge and the international execution. I have great confidence in Dan's ability to propel the Company forward to our next phase of growth. Thanks so much. And we'll talk to you next time.

Operator

That does conclude today's conference call. Thank you for your participation, you may now disconnect.

Duration: 40 minutes

Call participants:

Erin Kasenchak -- Investor Relations

Josh Coates -- Chief Executive Officer

Dan Goldsmith -- President

Steve Kaminsky -- Chief Financial Officer

Brian Peterson -- Raymond James -- Analyst

Scott Berg -- Needham & Company -- Analyst

Koji Ikeda -- Oppenheimer -- Analyst

Corey Greendale -- First Analysis -- Analyst

Brian Essex -- Morgan Stanley -- Analyst

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Vinay Mohan -- William Blair -- Analyst

Rishi Jaluria -- D.A. Davidson -- Analyst

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