PowerSchool Announces Second Quarter 2022 Financial Results

• PowerSchool exceeds high-end of outlook for both revenue and Adjusted EBITDA, raises outlook for full year 2022
• Subscription and Support revenue reaches $135.0 million in the second quarter of 2022, increases 11% year-over-year
• ARR of $580.3 million as of June 30, 2022, increases 10% year-over-year
• NRR of 107.3% as of June 30, 2022, improves 60 basis points sequentially
• Net loss margin reaches negative 4% and Adjusted EBITDA margin reaches 31% for the quarter

FOLSOM, Calif.–(BUSINESS WIRE)–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, 2022.

“Our second quarter results were excellent, driven by disciplined execution that delivered broad-based growth. We exceeded our expectations for revenue and Adjusted EBITDA, had our best ever quarter for cross-sell, added new state and top district contracts, and exited the quarter with a very strong pipeline. Since our IPO last July, our teams have done an incredible job growing our customer base by nearly 3,000 logos, increasing the number of multi-product customers by nearly 30%, expanding our unified platform from 14 to 19 products, and materially incrementing our margins,” said Hardeep Gulati, PowerSchool CEO. “We are looking forward to building upon our first half momentum, supported by the resilience and stability of the K-12 market we serve and the customer growth we have seen.”

Second Quarter 2022 Financial Results

• Total revenue was $157.6 million for the three months ended June 30, 2022.
• Subscriptions and Support revenues were $135.0 million, up 11% year-over-year.
• Gross Profit was $89.6 million, or 57% of total revenue, and Adjusted Gross Profit* was $107.2 million, or 68% of total revenue.
• Net loss was $6.5 million, or negative 4% of total revenue, and non-GAAP net income* was $42.9 million or 27% of total revenue.
• Adjusted EBITDA* was $48.7 million, or 31% of total revenue.
• GAAP net loss per basic and diluted share was $0.03 on 158.2 million shares of Class A common stock outstanding. Non-GAAP net income per diluted share* was $0.22 on 198.2 million shares of Class A common stock outstanding.
• Net cash used in operations was $15.8 million, and free cash flow* was negative $28.2 million.
• Annual Recurring Revenue (ARR)* was $580.3 million, up 10% year-over-year, and Net Revenue Retention Rate* was 107.3%, up 60 basis points quarter-over-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

• Continued Cross-Sell Momentum: Closed nearly 500 cross-sell transactions in the second quarter, including a major state Department of Education that added Unified Insights and a 6-product deployment at one of the largest school districts in Canada.
• Platform Expansion: Introduced three new products to boost student success and to support educators:
  • Connected Intelligence®, a data-as-a-service solution that provides a unified, global, fully managed, and secure view of school data so administrators, teachers, and students can benefit from centralized data access and management, predictive insights, and improved efficiencies.
  • Unified Insights™ MTSS (Multi-Tiered System of Support), which helps educators support the needs of the whole child by providing a single solution to analyze, collaborate, and act on critical student data.
  • Unified Classroom® Curriculum and Instruction, a product from our recent acquisition Chalk, which better connects curriculum mapping and instructional delivery, giving teachers and students more time to focus on teaching and learning.
• Awards: Awarded SIIA’s prestigious CODiE Award for Best Data Management Tool and was recognized by the EdTech Breakthrough Awards as the School Information Systems Solution Provider of the Year.
• Acquisitions: Added Headed2, a leading career and military readiness platform, with state-specific solutions for all 50 states and statewide contracts with California, Nevada, and Pennsylvania. Headed2 expands Naviance’s leading college, career and life readiness (CCLR) platform with deeper career, military, and life readiness functionality for students of all ages.
• Leadership: Expanded the executive leadership team with the hiring of Grayson Williams as Chief Information Officer, who brings over 24 years of experience directing and transforming highly-effective IT operations at several large corporations.

Commenting on the Company’s financial results, Eric Shander, PowerSchool CFO, added, “We are especially pleased with our performance in the quarter, and particularly happy to see the sequential 60-basis-point improvement in our Net Revenue Retention, highlighting the tremendous value we provide to our customers. Our focus on product, go-to-market, cross-selling, customer support, and infrastructure fueled this success and will drive us well into the future.”

Financial Outlook

The Company currently expects the following results:

Third quarter ending September 30, 2022 (in millions)

Year ending December 31, 2022 (in millions)

* Adjusted EBITDA, a non-GAAP financial measure was not reconciled to net loss, the most closely comparable GAAP financial measure because net 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 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 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

The conference call will begin at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) on August 8, 2022. Those wishing to participate via webcast should access the call through PowerSchool’s Investor Relations website. An archived webcast will be made available shortly after the conference call ends.

Those wishing to participate via telephone may dial in at 1-877-407-0792 (USA) or 1-201-689-8263 (International) by referencing conference ID 13731611. The telephone replay will be available from 5:00 p.m. Pacific Time (8:00 p.m. Eastern Time) on August 8, 2022, through August 15, 2022, by dialing 1-844-512-2921 (USA) or 1-412-317-6671 (International) and referencing the replay passcode 13731611.

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 45 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 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: potential effects on our business of the COVID-19 pandemic; 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, 2021, 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 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.

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”). Beginning in the first quarter of 2021, we intend to 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 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 supplemental informational purposes only, and should not be considered 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, unit-based compensation expense, restructuring and acquisition-related expenses and 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, unit-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 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 provided by 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.

Contacts

Investor Contact:
Shane Harrison

investor.relations@PowerSchool.com
855-707-5100

Media Contact:
Kari Sherrodd

public.relations@PowerSchool.com
206-295-2826

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