PowerSchool(PWSC) - 2024 Q1 - Quarterly Results

Q1 2024 Financial and Business Performance PowerSchool reported strong Q1 2024 financial results, meeting revenue guidance and exceeding profitability targets with double-digit growth in total revenue and ARR Financial Highlights PowerSchool achieved double-digit growth in total revenue and Annual Recurring Revenue, alongside a 24% year-over-year increase in Adjusted EBITDA, reflecting improved margins Q1 2024 Key Financial Metrics | Metric | Q1 2024 | YoY Growth | | :--- | :--- | :--- | | Total Revenue | $185.0 million | 16% | | Subscriptions and support (S&S) Revenue | $166.9 million | 18% | | Annual Recurring Revenue (ARR) | $720.3 million | 18% | | Adjusted EBITDA | $61.3 million | 24% | | GAAP Net Loss | $22.8 million | N/A | | Non-GAAP Net Income | $35.4 million | N/A | | GAAP Net Loss per Diluted Share | $(0.12) | N/A | | Non-GAAP Net Income per Diluted Share | $0.17 | N/A | | Net Revenue Retention Rate (NRR) | 107.0% | N/A | Recent Business Highlights The company secured significant customer contracts, launched AI-powered solutions, expanded internationally, and strengthened its leadership team - Secured several major customer deals, including the largest-ever Special Programs contract with the Indiana Department of Education and significant cross-sells to large school districts[7] - Announced the general availability of two AI-powered solutions, PowerBuddy for Learning and PowerBuddy for Assessment, leveraging Microsoft Azure's OpenAI Services technology[7] - Continued international expansion with new partner deals in Saudi Arabia (Knights of Knowledge International Schools) and customer growth in the UAE and Latin America[9] - Strengthened leadership by appointing Jon Scrimshaw as the new Chief Accounting Officer[9] Management Commentary CEO Hardeep Gulati highlighted the strong start to 2024 with double-digit growth and improved adjusted EBITDA margin, while CFO Eric Shander emphasized operational excellence - CEO Hardeep Gulati stated the company met revenue guidance and exceeded the high end of profitability guidance, driven by strong market demand and a focus on operating leverage[3] - CFO Eric Shander commented on the company's continued operational excellence and execution, with the platform resonating with customers worldwide to drive sustainable double-digit top-line growth[8] Financial Outlook PowerSchool provided its financial guidance for Q2 and the full year 2024, projecting continued growth in total revenue and Adjusted EBITDA Financial Outlook (in millions) | Period | Metric | Low | High | | :--- | :--- | :--- | :--- | | Q2 2024 | Total Revenue | $192 | $197 | | | Adjusted EBITDA | $67 | $69 | | Full Year 2024 | Total Revenue | $786 | $792 | | | Adjusted EBITDA | $268 | $273 | Consolidated Financial Statements (Unaudited) This section presents PowerSchool's unaudited consolidated financial statements, including statements of operations, balance sheets, and cash flows Consolidated Statements of Operations Total revenue grew to $185.0 million in Q1 2024, but increased operating and interest expenses led to a larger net loss of $22.8 million Q1 Statement of Operations Highlights (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Revenue | $184,967 | $159,454 | | Gross Profit | $105,106 | $89,965 | | Income (loss) from operations | $2,921 | $(785) | | Interest expense—net | $20,996 | $14,029 | | Net loss | $(22,848) | $(14,813) | Consolidated Balance Sheets As of March 31, 2024, total assets were $3.77 billion, with Goodwill as a major component, and total liabilities stood at $2.02 billion Balance Sheet Highlights (in thousands) | Line Item | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $17,425 | $39,054 | | Goodwill | $2,770,971 | $2,740,725 | | Total Assets | $3,766,867 | $3,776,882 | | Deferred revenue, current | $275,461 | $373,672 | | Revolving credit facility | $125,000 | $0 | | Total Liabilities | $2,022,553 | $2,021,595 | | Total Stockholders' Equity | $1,744,314 | $1,755,287 | Consolidated Statements of Cash Flows Net cash used in operating activities was $89.7 million, primarily due to a seasonal decrease in deferred revenue, while financing activities provided $122.6 million Q1 Cash Flow Highlights (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(89,685) | $(60,027) | | Net cash used in investing activities | $(54,705) | $(10,032) | | Net cash provided by (used in) financing activities | $122,595 | $(3,222) | | Net increase (decrease) in cash | $(21,629) | $(73,208) | Non-GAAP Financial Measures and Key Metrics This section defines key business metrics and provides reconciliations for non-GAAP financial measures used to evaluate PowerSchool's performance Definitions of Key Business Metrics The company defines Annualized Recurring Revenue (ARR) and Net Revenue Retention Rate (NRR) to evaluate its recurring revenue performance and customer growth - Annualized Recurring Revenue (ARR) is defined as the annualized value of all recurring contracts as of the end of the period, mitigating fluctuations from seasonality and contract terms[16] - Net Revenue Retention Rate (NRR) is calculated as the ARR from renewed and new sales from existing customers divided by the ARR that was scheduled for renewal in the last twelve months[17][18] Use and Reconciliation of Non-GAAP Measures PowerSchool uses non-GAAP measures like Adjusted Gross Profit, Adjusted EBITDA, Non-GAAP Net Income, and Free Cash Flow to provide consistent and comparable performance evaluation - The company utilizes non-GAAP measures to supplement GAAP results, believing they help investors by providing consistency and comparability for evaluating operating performance[18] - Key non-GAAP measures defined and used include Adjusted Gross Profit, Non-GAAP Net Income, Adjusted EBITDA, and Free Cash Flow[20][21][22] Reconciliation of Gross Profit to Adjusted Gross Profit This table reconciles GAAP Gross Profit to Non-GAAP Adjusted Gross Profit, detailing adjustments for non-cash items Adjusted Gross Profit Reconciliation (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Gross profit (GAAP) | $105,106 | $89,965 | | Adjustments (Depreciation, SBC, Amortization, etc.) | $22,805 | $18,579 | | Adjusted Gross Profit (Non-GAAP) | $127,911 | $108,544 | Reconciliation of Net Loss to Adjusted EBITDA This table reconciles GAAP Net Loss to Non-GAAP Adjusted EBITDA, outlining various add-back adjustments Adjusted EBITDA Reconciliation (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss (GAAP) | $(22,848) | $(14,813) | | Adjustments (Amortization, Interest, Taxes, SBC, etc.) | $84,122 | $64,219 | | Adjusted EBITDA (Non-GAAP) | $61,274 | $49,406 | Reconciliation of Net Loss to Non-GAAP Net Income This table reconciles GAAP Net Loss to Non-GAAP Net Income, detailing adjustments for non-cash and non-recurring items Non-GAAP Net Income Reconciliation (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss (GAAP) | $(22,848) | $(14,813) | | Adjustments (Amortization, Depreciation, SBC, etc.) | $58,255 | $50,235 | | Non-GAAP Net Income | $35,407 | $35,422 | Reconciliation of Net Cash Used to Free Cash Flow This table reconciles GAAP Net Cash Used in Operating Activities to Non-GAAP Free Cash Flow, including capital expenditures Free Cash Flow Reconciliation (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash used in operating activities (GAAP) | $(89,685) | $(60,027) | | Purchases of property and equipment | $(3,887) | $(356) | | Capitalized product development costs | $(8,956) | $(9,676) | | Free Cash Flow (Non-GAAP) | $(102,528) | $(70,059) | Supplementary Information This section provides additional context, including conference call details, company overview, and forward-looking statements Conference Call Details The company scheduled a conference call and webcast for May 7, 2024, to discuss the first quarter 2024 financial results - A conference call to discuss Q1 2024 results was scheduled for May 7, 2024, at 2:00 p.m. Pacific Time[11] About PowerSchool PowerSchool is a leading provider of cloud-based software for K-12 education in North America, serving over 55 million students globally - PowerSchool is a leading provider of cloud-based software for K-12 education in North America, supporting over 55 million students and 17,000 customers worldwide[13] Forward-Looking Statements This section contains standard legal disclaimers regarding forward-looking statements, which are subject to risks and uncertainties - The press release includes forward-looking statements concerning future results of operations and business strategies, which are not guarantees of future performance[14]