PowerSchool(PWSC) - 2024 Q2 - Quarterly Results

Q2 Financial Performance Overview PowerSchool achieved robust Q2 2024 financial performance with 10% total revenue growth and 16% subscription revenue growth, alongside a 9% increase in Adjusted EBITDA Q2 2024 Financial Highlights PowerSchool achieved robust Q2 2024 financial performance, with total revenue growing 10% to $191.6 million and subscription and support revenue increasing 16%, while Adjusted EBITDA rose 9% to $66.6 million, representing 35% of revenue Q2 2024 Financial Highlights | Metric | Q2 2024 (million USD) | Year-over-Year Growth | Percentage of Total Revenue | | :----------------------- | :----------------------- | :------- | :------------- | | Total Revenue | 191.6 | 10% | - | | Subscription and Support Revenue | 170.1 | 16% | - | | GAAP Gross Profit | 111.8 | - | 58% | | Adjusted Gross Profit | 133.6 | - | 70% | | GAAP Net Loss | (25.7) | - | 13% | | Non-GAAP Net Income | 48.1 | - | 25% | | Adjusted EBITDA | 66.6 | 9% | 35% | | GAAP Diluted Net Loss Per Share | (0.12) | - | - | | Non-GAAP Diluted Net Income Per Share | 0.23 | - | - | | Net Cash Outflow from Operating Activities | (47.4) | - | 25% | - CEO Hardeep Gulati expressed satisfaction with the second-quarter results, emphasizing the company's leadership in the K-12 software market and the sustained demand for its mission-critical platforms, also noting the launch of MyPowerHub and two AI-powered PowerBuddy platform modules[2] - The company announced a partnership with Bain Capital, with the transaction expected to close in the second half of 2024, leading PowerSchool to discontinue earnings conference calls and suspend financial guidance[2][5] Recent Business Highlights PowerSchool demonstrated strong customer growth and market penetration in Q2, securing key deals and launching innovative AI-powered products Customer Momentum PowerSchool secured significant deals in Q2, including a Data-as-a-Service cross-sell with the Arkansas Department of Education and multiple school districts, showcasing strong customer acquisition and market penetration - The company secured several key deals, including a Data-as-a-Service (DaaS) cross-sell with the Arkansas Department of Education, and cross-sells with Springfield School District 186, Idea Public Schools, Hawthorne School District, and Orleans Parish School District[3] New Product Launch and AI Innovation The company launched MyPowerHub, a next-generation communication platform, and two AI-driven PowerBuddy solutions for personalized learning and data analysis, enhancing its education technology innovation - MyPowerHub, a next-generation communication platform, was launched to provide grades, assignments, attendance, schedules, personalized notifications, and secure messaging through a single, seamless interface, aiming to enhance communication and collaboration within the K-12 community and save costs for school districts[3] - Two AI-powered PowerBuddy solutions were released: - PowerBuddy for Learning Student Assistant: Integrated into the Schoology Learning Management System, offering personalized guidance through conversational AI based on student grade level, course content, and assignments[4] - PowerBuddy for Data Analysis: Functions as a co-pilot for data analysis, allowing users to access data through natural language, automate data visualization, and generate comprehensive data analysis to improve decision-making speed and efficiency[4] 2024 Education Focus Report and International Expansion PowerSchool released its 2024 Education Focus Report, analyzing US education challenges and innovations, and launched localized products for the Middle East market - The PowerSchool 2024 Education Focus Report was released, based on a national survey of 1,620 educators, revealing key challenges and innovations shaping the U.S. education landscape, with main findings including: personalized learning driving student success, the growing importance of AI in education, bold leadership and data utilization as key priorities, an evolving education workforce, and strengthened home-school connections[3][4] - Translated and localized products were introduced for the Middle East market, featuring Arabic translation, right-to-left interface display, and a Hijri calendar overlay, designed to empower educational institutions and foster learning in diverse communities in the region[4] About PowerSchool PowerSchool is North America's leading K-12 education cloud software provider, empowering the education ecosystem through unified technology for educators and students Company Overview PowerSchool is North America's leading K-12 education cloud software provider, dedicated to empowering the education ecosystem with unified technology to help educators and students reach their full potential - PowerSchool is North America's leading K-12 education cloud software provider, with a mission to empower the education ecosystem with unified technology, helping educators and students realize their full potential[6] - Its unified platform supports schools and districts in efficiently managing state reporting, compliance, special education, finance, human resources, talent, enrollment, attendance, funding, learning, instruction, grading, assessments, and analytics[6] - The company serves over 60 million students and 18,000 customers globally, including over 90 of the 100 largest school districts in the U.S., and sells solutions in over 90 countries worldwide[6] Forward-Looking Statements This press release contains forward-looking statements, which are not guarantees of future performance, and actual results may differ materially due to various risk factors Disclaimer and Risk Factors This press release contains forward-looking statements, not guarantees of future performance, with actual results potentially differing significantly due to factors like accumulated losses, competition, and data security risks - This press release contains "forward-looking statements" which are not guarantees of future performance, and actual results may differ materially from expectations[7][8] - Factors that could cause actual results to differ materially from current expectations include: a history of accumulated losses, competition, the ability to attract new customers and retain existing ones, maintaining and expanding revenue and profitability, talent retention, acquisition integration, strategic relationships, sales seasonality, reliance on third-party software and intellectual property licenses, the ability to protect intellectual property, and information technology or data security breaches[8] - The company undertakes no obligation to publicly update any forward-looking statements to reflect future events, developments, or new information[9] Use and Reconciliation of Non-GAAP Financial Measures The company utilizes various non-GAAP financial measures to supplement GAAP results, providing a more consistent view of operational performance and liquidity by adjusting for non-cash and non-recurring items Non-GAAP Measures Definitions The company uses non-GAAP metrics like Adjusted Gross Profit, Non-GAAP Net Income, and Adjusted EBITDA to provide a clearer view of core operational performance and liquidity, adjusting for items such as depreciation, amortization, and stock-based compensation - Non-GAAP financial information is intended to provide consistency and comparability with past financial performance and assist in comparisons with other companies, but should not be considered in isolation or as a substitute for GAAP financial information[10] - Adjusted Gross Profit: Defined as gross profit, adjusted for depreciation, stock-based compensation expense, related employer payroll taxes, restructuring and acquisition-related expenses, and amortization of acquired intangible assets and capitalized product development costs[11][13] - Non-GAAP Net Income (Loss): Defined as net income (loss), adjusted for depreciation and amortization, stock-based compensation expense, related employer payroll taxes, management fees, restructuring expenses, and acquisition-related expenses[14] - Adjusted EBITDA: Defined as net income (loss), adjusted for all the aforementioned items, plus net interest expense, non-recurring litigation expenses, provision (benefit) for income taxes, and other one-time costs[14] - Free Cash Flow: Defined as net cash provided by operating activities less cash expenditures for purchases of property and equipment and capitalized product development costs, plus proceeds from the sale of property and equipment[15] - Unlevered Free Cash Flow: Defined as free cash flow plus interest paid on outstanding debt[15] Consolidated Financial Statements PowerSchool's Q2 2024 consolidated financial statements show a 10% increase in total revenue to $191.6 million, but a significant GAAP net loss of $25.7 million, alongside shifts in assets, liabilities, and cash flows Consolidated Statements of Operations and Comprehensive Loss In Q2 2024, PowerSchool's total revenue grew 10% to $191.6 million, with subscription and support revenue up 16%, yet the company reported a GAAP net loss of $25.7 million, significantly wider than the prior year Consolidated Statements of Operations and Comprehensive Loss | (thousand USD) | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :----------------------------------- | :------------- | :------------- | :----------- | :----------- | | Revenue: | | | | | | Subscription and Support | 170,129 | 146,503 | 337,056 | 287,576 | | Services | 19,321 | 20,197 | 36,007 | 36,429 | | License and Other | 2,142 | 7,197 | 3,496 | 9,345 | | Total Revenue | 191,592 | 173,897 | 376,559 | 333,350 | | Gross Profit | 111,761 | 104,868 | 216,867 | 194,832 | | Operating Expenses: | | | | | | Research and Development | 30,616 | 25,862 | 62,267 | 51,283 | | Sales, General and Administrative | 71,621 | 53,129 | 124,052 | 102,687 | | Operating Income (Loss) | (8,096) | 10,113 | (5,174) | 9,327 | | Net Loss | (25,704) | (4,295) | (48,552) | (19,108) | | Diluted Net Loss Per Share | (0.12) | (0.02) | (0.24) | (0.09) | Consolidated Balance Sheets As of June 30, 2024, PowerSchool's total assets slightly decreased to $3.76 billion, while total liabilities marginally increased to $2.02 billion, with a notable shift in cash and revolving credit Consolidated Balance Sheets | (thousand USD) | June 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :------------- | | Assets: | | | | Cash and Cash Equivalents | 20,678 | 39,054 | | Accounts Receivable—Net | 89,393 | 76,618 | | Prepaid Expenses and Other Current Assets | 45,797 | 40,449 | | Total Current Assets | 155,868 | 156,121 | | Goodwill | 2,768,966 | 2,740,725 | | Intangible Assets—Net | 666,591 | 710,635 | | Total Assets | 3,761,242 | 3,776,882 | | Liabilities: | | | | Accounts Payable | 14,200 | 13,629 | | Deferred Revenue, Current | 206,482 | 373,672 | | Revolving Credit Facility | 187,000 | — | | Total Current Liabilities | 547,553 | 516,909 | | Long-Term Debt, Net | 809,669 | 811,325 | | Total Liabilities | 2,022,623 | 2,021,595 | Consolidated Cash Flow Statements In Q2 2024, PowerSchool reported a net cash outflow from operating activities of $47.355 million, with net cash inflow from financing activities reaching $59.853 million, primarily due to net borrowings under its revolving credit facility Consolidated Cash Flow Statements | (thousand USD) | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :----------------------------------- | :------------- | :------------- | :----------- | :----------- | | Net Cash Outflow from Operating Activities | (47,355) | (32,711) | (137,039) | (92,741) | | Net Cash Outflow from Investing Activities | (9,339) | (10,854) | (64,044) | (20,886) | | Net Cash Inflow (Outflow) from Financing Activities | 59,853 | 7,921 | 182,448 | 4,700 | | Cash and Cash Equivalents—End of Period | 21,178 | 28,894 | 21,178 | 28,894 | Reconciliation of GAAP to Non-GAAP Financial Measures This section provides detailed reconciliations between GAAP and non-GAAP financial measures, illustrating how adjustments for non-cash and non-recurring items impact reported profitability and cash flow metrics Reconciliation of Gross Profit to Adjusted Gross Profit In Q2 2024, PowerSchool's GAAP gross profit was $111.761 million (58.3% margin), while Adjusted Gross Profit reached $133.577 million (69.7% margin) after adjustments for non-cash and non-recurring items Reconciliation of Gross Profit to Adjusted Gross Profit | (thousand USD) | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :----------------------------------- | :------------- | :------------- | :----------- | :----------- | | Gross Profit | 111,761 | 104,868 | 216,867 | 194,832 | | Plus: | | | | | | Depreciation | 61 | 163 | 212 | 415 | | Stock-Based Compensation | 3,015 | 2,654 | 5,288 | 5,112 | | Restructuring | (62) | 524 | 1,216 | 537 | | Acquisition-Related Expenses | 158 | 47 | 334 | 134 | | Amortization | 18,644 | 15,945 | 37,573 | 31,715 | | Adjusted Gross Profit | 133,577 | 124,201 | 261,490 | 232,745 | | Gross Margin | 58.3% | 60.3% | 57.6% | 58.4% | | Adjusted Gross Margin | 69.7% | 71.4% | 69.4% | 69.8% | Reconciliation of Net Loss to Adjusted EBITDA In Q2 2024, PowerSchool's GAAP net loss was $25.704 million, but after adjusting for non-cash and non-recurring items, Adjusted EBITDA reached $66.557 million, representing a 34.7% margin Reconciliation of Net Loss to Adjusted EBITDA | (thousand USD) | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :----------------------------------- | :------------- | :------------- | :----------- | :----------- | | Net Loss | (25,704) | (4,295) | (48,552) | (19,108) | | Plus: | | | | | | Amortization | 35,162 | 31,050 | 70,654 | 61,924 | | Depreciation | 887 | 822 | 1,824 | 1,741 | | Net Interest Expense | 23,193 | 16,101 | 44,189 | 30,130 | | Income Tax Benefit | (4,732) | (1,724) | 139 | (1,769) | | Stock-Based Compensation | 20,014 | 17,910 | 34,699 | 33,391 | | Management Fees | 81 | 95 | 161 | 158 | | Restructuring | 17,228 | 917 | 21,086 | 2,283 | | Acquisition-Related Expenses | 1,226 | 314 | 4,428 | 1,848 | | Change in Tax Reserve | (798) | — | (798) | — | | Adjusted EBITDA | 66,557 | 61,190 | 127,830 | 110,598 | | Net Loss Margin | (13.4)% | (2.5)% | (12.9)% | (5.7)% | | Adjusted EBITDA Margin | 34.7% | 35.2% | 33.9% | 33.2% | Reconciliation of Net Loss to Non-GAAP Net Income In Q2 2024, PowerSchool reported a GAAP net loss of $25.704 million, or $0.12 per diluted share, which converted to a Non-GAAP Net Income of $48.096 million, or $0.23 per diluted share, after various adjustments Reconciliation of Net Loss to Non-GAAP Net Income | (thousand USD, except per share data) | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :----------------------------------- | :------------- | :------------- | :----------- | :----------- | | Net Loss | (25,704) | (4,295) | (48,552) | (19,108) | | Plus: | | | | | | Amortization | 35,162 | 31,050 | 70,654 | 61,924 | | Depreciation | 887 | 822 | 1,824 | 1,741 | | Stock-Based Compensation | 20,014 | 17,910 | 34,699 | 33,391 | | Management Fees | 81 | 95 | 161 | 158 | | Restructuring | 17,228 | 917 | 21,086 | 2,283 | | Acquisition-Related Expenses | 1,226 | 314 | 4,428 | 1,848 | | Change in Tax Reserve | (798) | — | (798) | — | | Non-GAAP Net Income | 48,096 | 46,813 | 83,502 | 82,237 | | GAAP Diluted Net Loss Per Share | (0.12) | (0.02) | (0.24) | (0.09) | | Non-GAAP Diluted Net Income Per Share | 0.23 | 0.23 | 0.41 | 0.41 | Reconciliation of GAAP to Non-GAAP Cost of Revenue and Operating Expenses PowerSchool's reconciliation shows that non-GAAP cost of revenue and operating expenses are lower than GAAP figures after excluding non-cash and non-recurring items, reflecting the core business cost structure Reconciliation of GAAP to Non-GAAP Cost of Revenue and Operating Expenses | (thousand USD) | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :----------------------------------- | :------------- | :------------- | :----------- | :----------- | | GAAP Subscription and Support Cost of Revenue | 47,768 | 36,781 | 94,095 | 74,975 | | Less: Stock-Based Compensation | 2,147 | 1,700 | 3,696 | 3,256 | | Less: Restructuring | (62) | 523 | 959 | 523 | | Less: Acquisition-Related Expenses | 121 | 38 | 257 | 61 | | Non-GAAP Subscription and Support Cost of Revenue | 45,562 | 34,520 | 89,183 | 71,135 | | GAAP Services Cost of Revenue | 12,210 | 15,123 | 25,593 | 29,446 | | Non-GAAP Services Cost of Revenue | 11,305 | 14,160 | 23,667 | 27,503 | | GAAP Research and Development Expenses | 30,616 | 25,862 | 62,267 | 51,283 | | Non-GAAP Research and Development Expenses | 25,032 | 21,033 | 50,158 | 40,901 | | GAAP Sales, General and Administrative Expenses | 71,621 | 53,129 | 124,052 | 102,687 | | Non-GAAP Sales, General and Administrative Expenses | 42,043 | 41,947 | 83,655 | 81,171 | Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow and Unlevered Free Cash Flow In Q2 2024, PowerSchool's net cash outflow from operating activities was $47.355 million, resulting in negative free cash flow of $56.694 million and negative unlevered free cash flow of $36.053 million after adjustments Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow and Unlevered Free Cash Flow | (thousand USD) | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :----------------------------------- | :------------- | :------------- | :----------- | :----------- | | Net Cash Outflow from Operating Activities | (47,355) | (32,711) | (137,039) | (92,741) | | Proceeds from Sale of Property and Equipment | 839 | — | 839 | — | | Purchases of Property and Equipment | (1,064) | (582) | (4,951) | (938) | | Capitalized Product Development Costs | (9,114) | (10,272) | (18,070) | (19,948) | | Free Cash Flow | (56,694) | (43,565) | (159,220) | (113,627) | | Plus: Interest Paid on Outstanding Debt | 20,641 | 13,973 | 39,770 | 27,669 | | Unlevered Free Cash Flow | (36,053) | (29,592) | (119,450) | (85,958) | Contact Information This section provides PowerSchool's investor relations and media contact details for further inquiries Investor and Media Contacts This section lists PowerSchool's investor relations and media contact information for inquiries - Investor Contact: Shane Harrison, Email: investor.relations@powerschool.com, Phone: 855-707-5100[29] - Media Contact: Beth Keebler, Email: publicrelations@powerschool.com, Phone: 503-702-4230[29]