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PowerSchool Announces Second Quarter 2023 Financial Results

  • PowerSchool delivers second quarter total revenue growth of 10% to $173.9 million, meeting the high end of the second quarter guidance range, and reiterates full-year 2023 outlook for total revenue
  • GAAP net loss improves 33% over the prior year, and GAAP net loss per diluted share improves 33% over the prior year to $0.02
  • Adjusted EBITDA* grows 26% to $61.2 million, exceeding the second quarter guidance range, and full-year 2023 outlook for Adjusted EBITDA is increased
  • ARR* increases 10% over the prior year to reach $635.8 million as of June 30, 2023
  • NRR* of 109.5% improves 220 basis points from the second quarter of 2022

PowerSchool Holdings, Inc. (NYSE: PWSC) (“PowerSchool” or the “Company”), the leading provider of cloud-based software for K-12 education in North America, today announced financial results for its second quarter ended June 30, 2023.

“The momentum we are seeing in bookings, product innovation, platform expansion, and market development resulted in a great second quarter which we believe positions us well for the second half of the year," said Hardeep Gulati, PowerSchool CEO. "Our innovations around data are addressing key gaps our customers see in their operations and will enable us to personalize education to drive more efficient instruction and improve student outcomes, which we expect will drive durable long-term growth and returns."

Second Quarter 2023 Financial Results

  • Total revenue was $173.9 million for the three months ended June 30, 2023, up 10% year-over-year.
  • Subscriptions and support revenue was $146.5 million, up 9% year-over-year.
  • Gross profit was $104.9 million, or 60% of total revenue, and Adjusted Gross Profit* was $124.2 million, or 71% of total revenue.
  • Net loss was $4.3 million, or negative 2% of total revenue, and Non-GAAP net income* was $46.8 million, or 27% of total revenue.
  • Adjusted EBITDA* was $61.2 million, or 35% of total revenue.
  • GAAP net loss per diluted share was $0.02 on 200.7 million shares outstanding. Non-GAAP Net Income per diluted share* was $0.23 on 201.9 million shares outstanding.
  • Net cash used in operations was $32.7 million, and Free Cash Flow* was negative $43.6 million.
  • ARR* was $635.8 million, up 10% year-over-year, and NRR* rate was 109.5%, up 220 basis points year-over-year and up 40 basis points over the prior quarter.

* Definitions of the key business metrics and the non-GAAP financial measures used in this press release and reconciliations of such measures to the most closely comparable GAAP measures are included below under the headings “Definitions of Certain Key Business Metrics” and “Use and Reconciliation of Non-GAAP Financial Measures.”

Recent Business Highlights

  • Unlocking the Power of K-12 Data and AI:
    • Saw continued traction in the market for its data-centric solutions, which include Unified Insights™ and Connected Intelligence DaaS. Seven of the largest ten transactions in the second quarter included at least one of these analytics solutions, and four included both. These products enable districts and states to aggregate, connect, secure, and analyze their disparate student and systems data for more efficient operations and improved student outcomes.
    • Announced collaboration with Microsoft Azure OpenAI Service to use OpenAI’s large language models within PowerSchool Performance Matters and PowerSchool LearningNav, part of PowerSchool’s Personalized Learning Cloud.
    • Named Powered By Snowflake Growth Partner of the Year at Snowflake's Summit 2023 for ingenuity in building a turnkey fully managed data-as-a-service (DaaS) platform for education and government agencies on the Snowflake Data Cloud.
  • International Expansion: Announced a strategic partnership with Samart Telcoms to resell and support PowerSchool products in Thailand. The partnership is expected to extend PowerSchool’s mission-critical Student Information Systems, Schoology Learning, and Enrollment solutions throughout Thailand. As part of the agreement, Samart plans to serve more than 100,000 of those students in the next year.
  • Platform Expansion:
    • Announced an agreement to acquire pioneering K-12 communication technology company SchoolMessenger, which, if completed, would expand PowerSchool's platform to include critical family communication solutions, including mass, emergency, and two-way communications via voice, text, email, and social media. Combining this technology and team with PowerSchool's proven platform and market reach is expected to centralize, enrich, and innovate the communication processes that have been fragmented and inefficient for both districts and parents.
    • Introduced My PowerSchool, a cohesive user experience that consolidates relevant information and applications for specific user personas into a single, streamlined platform that is tailored for their day-to-day needs. My PowerSchool simplifies how families interact with their children’s school and how school technology leaders manage their PowerSchool solutions by providing a central point of access based on if the user is an educator, student, or family member.
  • Thought Leadership: Released the 2023 edition of the Education Focus Report, a deep analysis on the perspectives of over 1,750 educators that delivers insights to educators and district leaders on trends, priorities, and best-practices in the K-12 education space. Key findings include:
    • 83% of educators agree that when technology systems work together well, educators get important time back in their day
    • District's top technology priority is to provide teachers with actionable data to support students
    • 80% of educators cannot say what learning and behavior interventions are working with their students

Commenting on the Company’s financial results, Eric Shander, PowerSchool President and CFO, added, “This was a solid quarter highlighted by several large customer wins, broad-based solution demand, strong net retention, and continued growth in our profit margins. We look forward to building on our competitive differentiators to deliver an attractive combination of growth and profitability.”

Financial Outlook

The Company currently expects the following results, which do not include the expected financial contribution from the pending acquisition of SchoolMessenger, which is expected to close in September 2023:

Quarter ending September 30, 2023 (in millions)

Total revenue

$178

to

$181

Adjusted EBITDA *

$55

to

$57

Year ending December 31, 2023 (in millions)

Total revenue

$688

to

$694

Adjusted EBITDA *

$226

to

$230

* Adjusted EBITDA, a non-GAAP financial measure, was not reconciled to net income (loss), the most closely comparable GAAP financial measure, because net income (loss) is not accessible on a forward-looking basis. The Company is unable to reconcile Adjusted EBITDA to net loss without unreasonable efforts because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact net income (loss) for these periods but would not impact Adjusted EBITDA. Such items include stock-based compensation charges, depreciation and amortization of capitalized software costs and acquired intangible assets, severance, and other items. The unavailable information could have a significant impact on net income (loss). The foregoing financial outlook reflects the Company’s expectations as of today’s date. Given the number of risk factors, uncertainties, and assumptions discussed below, actual results may differ materially. The Company does not intend to update its financial outlook until its next quarterly results announcement.

Important disclosures in this earnings release about and reconciliations of historical non-GAAP financial measures to the most closely comparable GAAP measures are provided below under “Use and Reconciliation of Non-GAAP Financial Measures.”

Conference Call Details

PowerSchool will host a conference call to discuss the second quarter 2023 results on August 7, 2023, at 3:30 p.m. Pacific Time (6:30 p.m. Eastern Time). Those wishing to participate via webcast should access the call through PowerSchool’s Investor Relations website (https://investors.powerschool.com/events-and-presentations/default.aspx). An archived webcast will be made available shortly after the conference call ends.

Those wishing to participate via telephone may dial 1-877-407-0792 (USA) or 1-201-689-8263 (International) by referencing conference ID 13740013. The telephone replay will be available from 6:30 p.m. Pacific Time (9:30 p.m. Eastern Time) on August 7, 2023, through August 14, 2023, by dialing 1-844-512-2921 (USA) or 1-412-317-6671 (International) and referencing the replay passcode 13740013.

About PowerSchool

PowerSchool (NYSE: PWSC) is the leading provider of cloud-based software for K-12 education in North America. Its mission is to power the education ecosystem with unified technology that helps educators and students realize their full potential, in their way. PowerSchool connects students, teachers, administrators, and parents, with the shared goal of improving student outcomes. From the office to the classroom to the home, it helps schools and districts efficiently manage state reporting and related compliance, special education, finance, human resources, talent, registration, attendance, funding, learning, instruction, grading, assessments, and analytics in one unified platform. PowerSchool supports over 50 million students globally and more than 15,000 customers, including over 90 of the top 100 districts by student enrollment in the United States, and sells solutions in over 90 countries. Visit www.powerschool.com to learn more.

Forward-Looking Statements

Any statements made in this press release that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including our financial outlook and descriptions of our business plan and strategies. Forward-looking statements are based on PowerSchool management’s beliefs, as well as assumptions made by, and information currently available to, them. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future product development and their benefits, and future operating or financial performance or other events. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. Factors which may cause actual results to differ materially from current expectations include, but are not limited to: economic uncertainty, including high inflation, high interest rates, foreign currency exchange volatility, concerns of economic slowdown or recession, instability of the banking system, and reduced government spending or suspension of investment in new or enhanced projects; our history of cumulative losses; competition; our ability to attract new customers on a cost-effective basis and the extent to which existing customers renew and upgrade their subscriptions; our ability to sustain and expand revenues, maintain profitability, and to effectively manage our anticipated growth; our ability to retain, hire, and integrate skilled personnel including our senior management team; our ability to identify acquisition targets and to successfully integrate and operate acquired businesses; our ability to maintain and expand our strategic relationships with third parties, including with state and local government entities; the seasonality of our sales and customer growth; our reliance on third-party software and intellectual property licenses; our ability to obtain, maintain, protect, and enforce intellectual property protection for our current and future solutions; the impact of potential information technology or data security breaches or other cyber-attacks or other disruptions; and the other factors described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and our most recent Quarterly Report on Form 10-Q, each filed with the Securities Exchange Commission (“SEC”). Copies of such filing may be obtained from the Company or the SEC.

We caution you that the factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the benefits, results, or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. All forward-looking statements reflect our beliefs and assumptions only as of the date of this press release. We undertake no obligation to update forward-looking statements to reflect future events or circumstances except as required by law.

Definitions of Certain Key Business Metrics

Annualized Recurring Revenue (“ARR”)

ARR represents the annualized value of all recurring contracts as of the end of the period. ARR mitigates fluctuations due to seasonality, contract term, one-time discounts given to help customers meet their budgetary and cash flow needs, and the sales mix for recurring and non-recurring revenue. ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast, and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

Net Revenue Retention Rate (“NRR”)

We believe that our ability to retain and grow recurring revenues from our existing customers over time strengthens the stability and predictability of our revenue base and is reflective of the value we deliver to them through upselling and cross selling our solution portfolio. We assess our performance in this area using a metric we refer to as Net Revenue Retention Rate (“NRR”). For the purposes of calculating NRR, we exclude from our calculation of NRR any changes in ARR attributable to Intersect customers, as this product is sold through our channel partnership with EAB Global, Inc. and is pursuant to annual revenue minimums, therefore the business will not be managed based on NRR. We calculate our dollar-based NRR as of the end of a reporting period as follows:

  • Denominator. We measure ARR as of the last day of the prior year comparative reporting period.
  • Numerator. We measure ARR from renewed and new sale opportunities booked as of the last day of the current reporting period from customers with associated ARR as of the last day of the prior year comparative reporting period.

The quotient obtained from this calculation is our dollar-based net revenue retention rate. Our NRR provides insight into the impact on current year recurring revenues of expanding adoption of our solutions by our existing customers during the current period. Our NRR is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity.

Use and Reconciliation of Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for analytical and supplemental informational purposes only, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Adjusted Gross Profit: Adjusted Gross Profit is a supplemental measure of operating performance that is not made under GAAP and that does not represent, and should not be considered as, an alternative to gross profit, as determined in accordance with GAAP. We define Adjusted Gross Profit as gross profit, adjusted for depreciation, share-based compensation expense and the related employer payroll tax, restructuring and acquisition-related expenses, amortization of acquired intangible assets, and capitalized product development costs. We use Adjusted Gross Profit to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short-term and long-term operating plans. We believe that Adjusted Gross Profit is a useful measure to us and to our investors because it provides consistency and comparability with our past financial performance and between fiscal periods, as the metric generally eliminates the effects of the variability of depreciation, share-based compensation, restructuring expense, acquisition-related expenses, and amortization of acquired intangibles and capitalized product development costs from period to period, which may fluctuate for reasons unrelated to overall operating performance. We believe that the use of this measure enables us to more effectively evaluate our performance period-over-period and relative to our competitors.

Non-GAAP Net Income (Loss), Non-GAAP Cost of Revenue and Operating Expenses, and Adjusted EBITDA: Non-GAAP Net Income (Loss), Non-GAAP Cost of Revenue, Non-GAAP Operating Expenses, and Adjusted EBITDA are supplemental measures of operating performance that are not made under GAAP and that do not represent, and should not be considered as, an alternative to net income (loss), GAAP cost of revenue, and GAAP operating expenses, as applicable. We define Non-GAAP Net Income (Loss) as net income (loss) adjusted for depreciation and amortization, share-based compensation expense and the related employer payroll tax, management fees, restructuring expense, and acquisition-related expenses. We define Non-GAAP Cost of Revenue and Operating Expenses as their respective GAAP measures adjusted for share-based compensation expense and the related employer payroll tax, management fees, restructuring expense, and acquisition-related expense. We define Adjusted EBITDA as net income (loss) adjusted for all of the above items, net interest expense, and provision for (benefit from) income tax. We use Non-GAAP Net Income, Non-GAAP Cost of Revenue, Non-GAAP Operating Expenses, and Adjusted EBITDA to understand and evaluate our core operating performance and trends and to develop short-term and long-term operating plans. We believe that Non-GAAP Net Income and Adjusted EBITDA facilitate comparison of our operating performance on a consistent basis between periods and, when viewed in combination with our results prepared in accordance with GAAP, help provide a broader picture of factors and trends affecting our results of operations.

Free Cash Flow and Unlevered Free Cash Flow: Free Cash Flow and Unlevered Free Cash Flow are supplemental measures of liquidity that are not made under GAAP and that do not represent, and should not be considered as, an alternative to cash flow from operations, as determined by GAAP. We define Free Cash Flow as net cash used in operating activities less, cash used for purchases of property and equipment, and capitalized product development costs. We define Unlevered Free Cash Flow as Free Cash Flow plus cash paid for interest on outstanding debt. We believe that Free Cash Flow and Unlevered Free Cash Flow are useful indicators of liquidity that provide information to management and investors about the amount of cash generated by our operations inclusive of that used for investments in property and equipment and capitalized product development costs as well as cash paid for interest on outstanding debt.

These non-GAAP financial measures have their limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, these non-GAAP financial measures should not be considered as a replacement for their respective comparable financial measures, as determined by GAAP, or as a measure of our profitability or liquidity. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.

For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure, please see “Reconciliation of GAAP to Non-GAAP Financial Measures” below.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

 

(in thousands except per share data)

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

(unaudited)

 

(unaudited)

Revenue:

 

 

 

 

 

 

 

Subscriptions and support

$

146,503

 

 

$

135,010

 

 

$

287,576

 

 

$

264,775

 

Service

 

20,197

 

 

 

19,119

 

 

 

36,429

 

 

 

35,182

 

License and other

 

7,197

 

 

 

3,462

 

 

 

9,345

 

 

 

7,227

 

Total revenue

 

173,897

 

 

 

157,591

 

 

 

333,350

 

 

 

307,184

 

Cost of revenue:

 

 

 

 

 

 

 

Subscriptions and support

 

36,781

 

 

 

37,260

 

 

 

74,975

 

 

 

75,294

 

Service

 

15,123

 

 

 

15,737

 

 

 

29,446

 

 

 

30,734

 

License and other

 

1,017

 

 

 

717

 

 

 

1,968

 

 

 

1,703

 

Depreciation and amortization

 

16,108

 

 

 

14,271

 

 

 

32,129

 

 

 

28,230

 

Total cost of revenue

 

69,029

 

 

 

67,985

 

 

 

138,518

 

 

 

135,961

 

Gross profit

 

104,868

 

 

 

89,606

 

 

 

194,832

 

 

 

171,223

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

25,862

 

 

 

26,088

 

 

 

51,283

 

 

 

52,706

 

Selling, general, and administrative

 

53,129

 

 

 

47,484

 

 

 

102,687

 

 

 

87,587

 

Acquisition costs

 

 

 

 

1,043

 

 

 

 

 

 

2,618

 

Depreciation and amortization

 

15,764

 

 

 

16,137

 

 

 

31,535

 

 

 

32,095

 

Total operating expenses

 

94,755

 

 

 

90,752

 

 

 

185,505

 

 

 

175,006

 

Income (loss) from operations

 

10,113

 

 

 

(1,146

)

 

 

9,327

 

 

 

(3,783

)

Interest expense - net

 

16,101

 

 

 

8,743

 

 

 

30,130

 

 

 

15,765

 

Other expenses (income) - net

 

31

 

 

 

(498

)

 

 

74

 

 

 

(576

)

Loss before income taxes

 

(6,019

)

 

 

(9,391

)

 

 

(20,877

)

 

 

(18,972

)

Income tax (benefit) expense

 

(1,724

)

 

 

(2,933

)

 

 

(1,769

)

 

 

1,605

 

Net loss

 

(4,295

)

 

 

(6,458

)

 

$

(19,108

)

 

$

(20,577

)

Less: Net loss attributable to non-controlling interest

 

(1,100

)

 

 

(1,933

)

 

 

(4,060

)

 

 

(3,940

)

Net loss attributable to PowerSchool Holdings, Inc.

$

(3,195

)

 

$

(4,525

)

 

 

(15,048

)

 

 

(16,637

)

Net loss attributable to PowerSchool Holdings, Inc. Class A common stock:

 

 

 

 

 

 

 

Basic

$

(3,195

)

 

$

(4,525

)

 

$

(15,048

)

 

$

(16,637

)

Diluted

$

(4,080

)

 

$

(4,525

)

 

$

(15,048

)

 

$

(16,637

)

Net loss attributable to PowerSchool Holdings, Inc. per share of Class A common stock, basic

$

(0.02

)

 

$

(0.03

)

 

$

(0.09

)

 

$

(0.11

)

Net loss attributable to PowerSchool Holdings, Inc. per share of Class A common stock, diluted

 

(0.02

)

 

 

(0.03

)

 

 

(0.09

)

 

 

(0.11

)

Weighted average shares of Class A common stock:

 

 

 

 

 

 

 

Basic

 

163,067,859

 

 

 

158,229,171

 

 

 

161,794,290

 

 

 

158,171,056

 

Diluted

 

200,721,918

 

 

 

158,229,171

 

 

 

161,794,290

 

 

 

158,171,056

 

Other comprehensive income, net of taxes:

 

 

 

 

 

 

 

Foreign currency translation

 

21

 

 

 

345

 

 

 

108

 

 

 

(125

)

Change in unrealized gain on investments

 

 

 

 

 

 

$

3

 

 

$

 

Total other comprehensive income (loss)

 

21

 

 

 

345

 

 

$

111

 

 

$

(125

)

Less: comprehensive income (loss) attributable to non-controlling interest

 

4

 

 

 

70

 

 

$

21

 

 

$

(25

)

Comprehensive loss attributable to PowerSchool Holdings, Inc.

$

(3,178

)

 

$

(4,250

)

 

$

(14,958

)

 

$

(16,737

)

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

(in thousands)

June 30, 2023

 

December 31, 2022

Assets

 

 

 

Current Assets:

 

 

 

Cash and cash equivalents

$ 28,394

 

$ 137,471

Accounts receivable - net of allowance of $5,283 and $4,712, respectively

78,082

 

54,296

Prepaid expenses and other current assets

39,563

 

36,886

Total current assets

146,039

 

228,653

Property and equipment - net

5,286

 

6,173

Operating lease right-of-use assets

7,173

 

8,877

Capitalized product development costs - net

107,930

 

100,861

Goodwill

2,487,235

 

2,487,007

Intangible assets - net

674,843

 

722,147

Other assets

32,657

 

29,677

Total assets

$ 3,461,163

 

$ 3,583,395

Liabilities and Stockholders' Equity

 

 

 

Current Liabilities:

 

 

 

Accounts payable

$ 5,652

 

$ 5,878

Accrued expenses

98,399

 

84,270

Operating lease liabilities, current

4,503

 

5,263

Deferred revenue, current

185,781

 

310,536

Revolving credit facility

10,000

 

Current portion of long-term debt

7,750

 

7,750

Total current liabilities

312,085

 

413,697

Noncurrent Liabilities:

 

 

 

Other liabilities

2,121

 

2,099

Operating lease liabilities - net of current

5,150

 

8,053

Deferred taxes

270,799

 

281,314

Tax Receivable Agreement liability

392,671

 

410,361

Deferred revenue - net of current

6,096

 

5,303

Long-term debt, net

726,211

 

728,624

Total liabilities

1,715,133

 

1,849,451

Stockholders' Equity:

 

 

 

Class A common stock, $0.0001 par value per share, 500,000,000 shares authorized, 163,456,861 and 159,596,001 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.

16

 

16

Class B common stock, $0.0001 par value per share, 300,000,000 shares authorized, 37,654,059 and 39,928,472 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.

4

 

4

Additional paid-in capital

1,493,586

 

1,438,019

Accumulated other comprehensive loss

(2,012)

 

(2,122)

Accumulated deficit

(202,298)

 

(187,250)

Total stockholders' equity attributable to PowerSchool Holdings, Inc.

1,289,296

 

1,248,667

Non-controlling interest

456,734

 

485,277

Total stockholders' equity

1,746,030

 

1,733,944

Total liabilities and stockholders' equity

$ 3,461,163

 

$ 3,583,395

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

(in thousands)

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(4,295

)

 

$

(6,458

)

 

$

(19,108

)

 

$

(20,577

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

31,873

 

 

 

30,372

 

 

 

63,664

 

 

 

60,307

 

Share-based compensation

 

 

17,494

 

 

 

14,060

 

 

 

32,043

 

 

 

25,610

 

Amortization of operating lease right-of-use assets

 

 

811

 

 

 

(2,393

)

 

 

1,599

 

 

 

(482

)

Change in fair value of acquisition-related contingent consideration

 

 

(185

)

 

 

(6,088

)

 

 

(635

)

 

 

(5,926

)

Amortization of debt issuance costs

 

 

885

 

 

 

885

 

 

 

1,761

 

 

 

1,761

 

Provision for allowance for doubtful accounts

 

 

995

 

 

 

(19

)

 

 

1,364

 

 

 

(495

)

Loss on lease modification

 

 

1

 

 

 

 

 

 

53

 

 

 

 

Write-off of right-of-use assets and property and equipment

 

 

(7

)

 

 

8,613

 

 

 

41

 

 

 

8,617

 

Changes in operating assets and liabilities — net of effects of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivables

 

 

(33,510

)

 

 

(11,418

)

 

 

(25,151

)

 

 

(6,643

)

Prepaid expenses and other current assets

 

 

4,448

 

 

 

8,001

 

 

 

(2,687

)

 

 

3,315

 

Other assets

 

 

(994

)

 

 

(2,365

)

 

 

(3,277

)

 

 

(3,815

)

Accounts payable

 

 

(433

)

 

 

1,310

 

 

 

(183

)

 

 

(5,112

)

Accrued expenses

 

 

4,305

 

 

 

3,057

 

 

 

(12,207

)

 

 

(7,854

)

Other liabilities

 

 

(1,485

)

 

 

1,348

 

 

 

(3,222

)

 

 

(5,217

)

Deferred taxes

 

 

(2,339

)

 

 

(3,314

)

 

 

(2,834

)

 

 

1,579

 

Deferred revenue

 

 

(50,275

)

 

 

(51,368

)

 

 

(123,962

)

 

 

(125,387

)

Net cash used in operating activities

 

$

(32,711

)

 

$

(15,777

)

 

$

(92,741

)

 

$

(80,319

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(582

)

 

 

(440

)

 

 

(938

)

 

 

(2,201

)

Investment in capitalized product development costs

 

 

(10,272

)

 

 

(12,007

)

 

 

(19,948

)

 

 

(20,927

)

Acquisitions—net of cash acquired

 

 

 

 

 

(15,625

)

 

 

 

 

 

(31,155

)

Payment of acquisition-related contingent consideration

 

 

 

 

 

(1,392

)

 

 

 

 

 

(1,392

)

Net cash used in investing activities

 

$

(10,854

)

 

$

(29,464

)

 

$

(20,886

)

 

$

(55,675

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Taxes paid related to the net share settlement of equity awards

 

 

(141

)

 

 

 

 

 

(1,425

)

 

 

 

Proceeds from Revolving Credit Agreement

 

 

10,000

 

 

 

40,000

 

 

 

10,000

 

 

 

70,000

 

Repayment of First Lien Debt

 

 

(1,938

)

 

 

(1,938

)

 

 

(3,875

)

 

 

(3,875

)

Payments of deferred offering costs

 

 

 

 

 

 

 

 

 

 

 

(295

)

Net cash provided by financing activities

 

$

7,921

 

 

$

38,062

 

 

$

4,700

 

 

$

65,830

 

Effect of foreign exchange rate changes on cash

 

 

(235

)

 

 

(962

)

 

 

(161

)

 

 

(872

)

Net decrease in cash, cash equivalents, and restricted cash

 

 

(35,879

)

 

 

(8,141

)

 

 

(109,088

)

 

 

(71,036

)

Cash, cash equivalents, and restricted cash—Beginning of period

 

 

64,773

 

 

 

24,096

 

 

 

137,982

 

 

 

86,991

 

Cash, cash equivalents, and restricted cash—End of period

 

$

28,894

 

 

$

15,955

 

 

$

28,894

 

 

$

15,955

 

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(unaudited)

Reconciliation of Gross profit to Adjusted gross profit

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

(in thousands, except for percentages)

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

 

 

 

 

 

 

Gross profit

$

104,868

 

 

$

89,606

 

 

$

194,832

 

 

$

171,223

 

Depreciation

 

163

 

 

 

265

 

 

 

415

 

 

 

540

 

Share-based compensation(1)

 

2,654

 

 

 

2,146

 

 

 

5,112

 

 

 

4,313

 

Restructuring(2)

 

524

 

 

 

1,129

 

 

 

537

 

 

 

2,102

 

Acquisition-related expense(3)

 

47

 

 

 

91

 

 

 

134

 

 

 

291

 

Amortization

 

15,945

 

 

 

14,005

 

 

 

31,715

 

 

 

27,690

 

Adjusted Gross Profit

$

124,201

 

 

$

107,242

 

 

$

232,745

 

 

$

206,159

 

Gross Profit Margin(4)

 

60.3

%

 

 

56.9

%

 

 

58.4

%

 

 

55.7

%

Adjusted Gross Profit Margin(5)

 

71.4

%

 

 

68.1

%

 

 

69.8

%

 

 

67.1

%

(1)

Refers to expenses flowing through gross profit associated with share-based compensation.

(2)

Refers to expenses flowing through gross profit related to migration of customers from legacy to core products, and severance expense related to offshoring activities and executive departures.

(3)

Refers to expenses flowing through gross profit incurred to execute and integrate acquisitions, including retention awards and severance for acquired employees.

(4)

Represents gross profit as a percentage of revenue.

(5)

Represents Adjusted Gross Profit as a percentage of revenue.

Reconciliation of Net Loss to Adjusted EBITDA

 

 

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

(in thousands)

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

 

 

 

 

 

 

Net loss

$

(4,295

)

 

$

(6,458

)

 

$

(19,108

)

 

$

(20,577

)

Add:

 

 

 

 

 

 

 

Amortization

 

31,050

 

 

 

29,075

 

 

 

61,924

 

 

 

57,728

 

Depreciation

 

822

 

 

 

1,333

 

 

 

1,741

 

 

 

2,596

 

Net interest expense(1)

 

16,101

 

 

 

8,743

 

 

 

30,130

 

 

 

15,765

 

Income tax (benefit) expense

 

(1,724

)

 

 

(2,933

)

 

 

(1,769

)

 

 

1,605

 

Share-based compensation

 

17,910

 

 

 

12,242

 

 

 

33,391

 

 

 

24,637

 

Management fees(2)

 

95

 

 

 

93

 

 

 

158

 

 

 

177

 

Restructuring(3)

 

917

 

 

 

10,037

 

 

 

2,283

 

 

 

10,182

 

Acquisition-related expense(4)

 

314

 

 

 

(3,393

)

 

 

1,848

 

 

 

(766

)

Adjusted EBITDA

$

61,190

 

 

$

48,739

 

 

$

110,598

 

 

$

91,347

 

 

 

 

 

 

 

 

 

Net loss margin(5)

 

(2.5

)%

 

 

(4.1

)%

 

 

(5.7

)%

 

 

(6.7

)%

Adjusted EBITDA margin(6)

 

35.2

%

 

 

30.9

%

 

 

33.2

%

 

 

29.7

%

(1)

Interest expense, net of interest income.

(2)

Refers to expense associated with collaboration with our principal stockholders and their internal consulting groups.

(3)

Refers to costs incurred related to migration of customers from legacy to core products, remaining lease obligations for abandoned facilities, severance expense related to offshoring activities, facility closures, and executive departures.

(4)

Refers to direct transaction and debt-related fees reflected in our acquisition costs line item of our income statement and incremental acquisition-related costs that are incurred to perform diligence, execute and integrate acquisitions, including retention awards and severance for acquired employees, and other transaction and integration expenses. Also, refers to the fair value adjustments recorded to the contingent consideration liability related to the acquisitions of Kinvolved, Inc. ("Kinvolved") and Chalk.com Education ULC ("Chalk"). These incremental costs are embedded in our research and development, selling, general and administrative and cost of revenue line items.

(5)

Represents net loss as a percentage of revenue.

(6)

Represents Adjusted EBITDA as a percentage of revenue.

Reconciliation of Net Loss to Non-GAAP Net Income

 

 

Three Months Ended

J
une 30,

 

Six Months Ended

June 30,

(in thousands, except share and per share data)

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

 

 

 

 

 

 

Net loss

$

(4,295

)

 

$

(6,458

)

 

$

(19,108

)

 

$

(20,577

)

Add:

 

 

 

 

 

 

 

Amortization

 

31,050

 

 

 

29,075

 

 

 

61,924

 

 

 

57,728

 

Depreciation

 

822

 

 

 

1,333

 

 

 

1,741

 

 

 

2,596

 

Share-based compensation

 

17,910

 

 

 

12,242

 

 

 

33,391

 

 

 

24,637

 

Management fees(1)

 

95

 

 

 

93

 

 

 

158

 

 

 

177

 

Restructuring(2)

 

917

 

 

 

10,037

 

 

 

2,283

 

 

 

10,182

 

Acquisition-related expense(3)

 

314

 

 

 

(3,393

)

 

 

1,848

 

 

 

(766

)

Non-GAAP Net Income

$

46,813

 

 

$

42,929

 

 

 

82,237

 

 

 

73,977

 

 

 

 

 

 

 

 

 

Weighted-average Class A common stock used in computing GAAP net loss per share - basic

 

163,067,859

 

 

 

158,229,171

 

 

 

161,794,290

 

 

 

158,171,056

 

Weighted-average Class A common stock used in computing GAAP net loss per share - diluted

 

200,721,918

 

 

 

158,229,171

 

 

 

161,794,290

 

 

 

158,171,056

 

 

 

 

 

 

 

 

 

Weighted-average shares Class A common stock outstanding used in computing Non-GAAP net income per share - basic

 

163,067,859

 

 

 

158,229,171

 

 

 

161,794,290

 

 

 

158,171,056

 

Effect of RSAs, RSUs and MSUs

 

1,171,281

 

 

 

52,212

 

 

 

1,076,932

 

 

 

50,646

 

Effect of LLC Units

 

37,654,059

 

 

 

39,928,472

 

 

 

37,654,059

 

 

 

39,928,472

 

Weighted-average shares Class A common stock outstanding used in computing Non-GAAP net income per share - diluted

 

201,893,199

 

 

 

198,209,855

 

 

 

200,525,281

 

 

 

198,150,174

 

 

 

 

 

 

 

 

 

GAAP net loss attributable to the PowerSchool Holdings, Inc. per share of Class A common stock - basic

$

(0.02

)

 

$

(0.03

)

 

$

(0.09

)

 

$

(0.11

)

Non-GAAP Net Income per share of Class A common stock - basic

$

0.29

 

 

$

0.27

 

 

$

0.51

 

 

$

0.47

 

GAAP net loss attributable to the PowerSchool Holdings, Inc. per share of Class A common stock - diluted

$

(0.02

)

 

$

(0.04

)

 

$

(0.09

)

 

$

(0.11

)

Non-GAAP Net Income per share of Class A common stock - diluted

$

0.23

 

 

$

0.22

 

 

$

0.41

 

 

$

0.37

 

(1)

Refers to expense associated with collaboration with our Principal Stockholders and their internal consulting groups.

(2)

Refers to costs incurred related to migration of customers from legacy to core products, remaining lease obligations for abandoned facilities, severance expense related to offshoring activities, facility closures, and executive departures.

(3)

Refers to direct transaction and debt-related fees reflected in our acquisition costs line item of our income statement and incremental acquisition-related costs that are incurred to perform diligence, execute and integrate acquisitions, including retention awards and severance for acquired employees, and other transaction and integration expenses. Also, refers to the fair value adjustments recorded to the contingent consideration liability related to the acquisitions of Kinvolved and Chalk. These incremental costs are embedded in our research and development, selling, general and administrative and cost of revenue line items.

Reconciliation of GAAP to Non-GAAP Cost of Revenue and Operating Expenses

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

(in thousands)

 

2023

 

 

2022

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

GAAP Cost of Revenue - Subscription and Support

$

36,781

 

$

37,260

 

 

$

74,975

 

$

75,294

 

Less:

 

 

 

 

 

 

 

Share-based compensation

 

1,700

 

 

1,047

 

 

 

3,256

 

 

2,162

 

Restructuring

 

523

 

 

98

 

 

 

523

 

 

101

 

Acquisition-related expense

 

38

 

 

51

 

 

 

61

 

 

225

 

Non-GAAP Cost of Revenue - Subscription and Support

$

34,520

 

$

36,064

 

 

$

71,135

 

$

72,806

 

 

 

 

 

 

 

 

 

GAAP Cost of Revenue - Services

$

15,123

 

$

15,737

 

 

$

29,446

 

$

30,734

 

Less:

 

 

 

 

 

 

 

Share-based compensation

 

954

 

 

1,100

 

 

 

1,856

 

 

2,151

 

Restructuring

 

1

 

 

1,031

 

 

 

14

 

 

2,000

 

Acquisition-related expense

 

8

 

 

41

 

 

 

73

 

 

67

 

Non-GAAP Cost of Revenue - Services

$

14,160

 

$

13,565

 

 

$

27,503

 

$

26,516

 

 

 

 

 

 

 

 

 

GAAP Research & Development

$

25,862

 

$

26,088

 

 

$

51,283

 

$

52,706

 

Less:

 

 

 

 

 

 

 

Share-based compensation

 

4,675

 

 

3,024

 

 

 

8,747

 

 

6,128

 

Restructuring

 

9

 

 

 

 

 

113

 

 

 

Acquisition-related expense

 

145

 

 

849

 

 

 

1,522

 

 

894

 

Non-GAAP Research & Development

$

21,033

 

$

22,215

 

 

$

40,901

 

$

45,684

 

 

 

 

 

 

 

 

 

GAAP Selling, General and Administrative

$

53,129

 

$

47,484

 

 

$

102,687

 

$

87,587

 

Less:

 

 

 

 

 

 

 

Share-based compensation

 

10,580

 

 

7,071

 

 

 

19,532

 

 

14,196

 

Management fees

 

95

 

 

93

 

 

 

158

 

 

177

 

Restructuring

 

385

 

 

8,908

 

 

 

1,633

 

 

8,081

 

Acquisition-related expense

 

122

 

 

(5,377

)

 

 

193

 

 

(4,569

)

Non-GAAP Selling, General and Administrative

$

41,947

 

$

36,789

 

 

$

81,171

 

$

69,702

 

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow and Unlevered Free Cash Flow

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

(in thousands)

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Net cash used in operating activities

$

(32,711

)

 

$

(15,777

)

 

$

(92,741

)

 

$

(80,319

)

Purchases of property and equipment

 

(582

)

 

 

(440

)

 

 

(938

)

 

 

(2,201

)

Capitalized product development costs

 

(10,272

)

 

 

(12,007

)

 

 

(19,948

)

 

 

(20,927

)

Free Cash Flow

$

(43,565

)

 

$

(28,224

)

 

$

(113,627

)

 

$

(103,447

)

Add:

 

 

 

 

 

 

 

Cash paid for interest on outstanding debt

 

13,973

 

 

 

7,989

 

 

 

27,669

 

 

 

14,172

 

Unlevered Free Cash Flow

$

(29,592

)

 

$

(20,235

)

 

$

(85,958

)

 

$

(89,275

)

© PowerSchool. PowerSchool and other PowerSchool marks are trademarks of PowerSchool Holdings, Inc. or its subsidiaries. Other names and brands may be claimed as the property of others.

PWSC-F

Source: PowerSchool Holdings, Inc.

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