PowerSchool Announces Third Quarter 2022 Financial Results
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 third quarter ended September 30, 2022.
"We are thrilled with our results in the third quarter, particularly with our revenue retention and profitability. Our ARR grew 11% over the prior year as record renewals and continued cross-selling momentum drove significant NRR growth. Our Adjusted EBITDA margin improved as we benefit from the consistent scaling of our predictable revenue streams over our operational base," said Hardeep Gulati, PowerSchool CEO. "We are pleased with the strength and resilience of our addressable markets, as demonstrated through our growing pipeline and demand for our differentiated unified platform of best-in-class solutions. This platform puts us in a unique position to provide mission critical solutions that help districts manage their current challenges, such as addressing teacher shortages through our talent management solutions, improving learning loss with our analytics and MTSS solutions, and enabling secure teacher-student-parent collaboration using our student solutions."
Third Quarter 2022 Financial Results
Total revenue was $162.4 million for the three months ended September 30, 2022. Subscriptions and Support revenues were $137.1 million, up 10% year-over-year. Gross Profit was $92.6 million, or 57% of total revenue, and Adjusted Gross Profit* was $111.1 million, or 68% of total revenue. Net loss was $3.9 million, or negative 2% of total revenue, and non-GAAP net income* was $41.9 million or 26% of total revenue. Adjusted EBITDA* was $52.2 million, or 32% of total revenue. GAAP net loss per basic and diluted share was $0.02 on 158.8 million shares of Class A common stock outstanding. Non-GAAP net income per diluted share* was $0.21 on 199.0 million shares of Class A common stock outstanding. Net cash flow from operations was $187.1 million, and free cash flow* was $174.1 million. Annual Recurring Revenue (ARR)* was $585.4 million, up 11% year-over-year, and Net Revenue Retention Rate (NRR)* was 108.7%, up 140 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
Expanding Footprint: Recorded nearly 500 new logo and cross-sell transactions in the quarter, including several sizable wins for our Student Information System, Unified Analytics, and Learning Management System products. Leader in Virtual Learning: Online education leader Stride, Inc. purchased PowerSchool's Student Information System and Enrollment solutions during the third quarter, which, when combined with PowerSchool's other online-focused customers, positions PowerSchool as the leader in providing mission-critical solutions to the growing online K-12 schooling market. Enabling Back-to-School: Completed over 1,750 new product go-lives that prepared schools and districts to be ready for the 2022-2023 school year. Awards: Received three awards from Tech & Learning's Awards of Excellence program, "The Best Tools for Back to School," one each for PowerSchool's Unified Classroom, Unified Talent, and Naviance products. Thought Leadership Driving Demand: Released the 2022-2023 edition of the Education Focus Report, a deep analysis on the perspectives of over 3,500 educators that delivers insights to educators and district leaders on trends, priorities, and best-practices in the K-12 education space. Enriching Our Community: Employees donated nearly 2,000 volunteer hours as part of PowerSchool's Volunteer Paid Time Off program and PowerSchool's signature back-to-school social impact events. Also donated over 150 school supplies-filled backpacks to elementary school students via three community partner organizations. Leadership: Promoted CFO Eric Shander to the role of President & CFO, adding oversight of PowerSchool's customer renewal operations to his exemplary leadership of finance, accounting, human resources, investor relations, and IT. Also added new Chief Revenue Officer Tony Kender, who brings 30+ of experience in building scaled global sales organizations, most recently as CRO at FinancialForce and SVP and GM at Oracle.
Commenting on the Company's financial results, Eric Shander, PowerSchool President & CFO, added, "We are pleased to see our results fulfilling our raised expectations. In the first nine months of 2022, we delivered 14% year-over-year revenue growth and 31% Adjusted EBITDA margins, which are significantly ahead of the long-term targets we laid out during our IPO. Our strategy execution, operational discipline, and opportunistic investment in technology is positioning our customers, our company, and our shareholders for long-term success."
Financial Outlook
The Company currently expects the following results:
Fourth quarter ending December 31, 2022 (in millions)
Total revenue $161 $161 to to $164 $164
Year ending December 31, 2022 (in millions)
Total revenue $631 $631 to to $634 $634
* 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 November 7, 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 1-855-327-6837 (USA) or 1-631-891-4304 (International) by referencing conference ID 10020512. The telephone replay will be available from 5:00 p.m. Pacific Time (8:00 p.m. Eastern Time) on November 7, 2022, through November 14, 2022, by dialing 1-844-512-2921 (USA) or 1-412-317-6671 (International) and referencing the replay passcode 10020512.
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"). 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 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.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
(in thousands except per share data) Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------------------
2022 2021 2022 2021
------------------------------------------------------ --------------------------------------------------- ------------------------------------------------------ ---------------------------------------------------
(unaudited) (unaudited)
Revenue:
$ 137,095 $ 124,272 $ 401,870 $ 349,126
Subscriptions and support
19,933 18,497 55,114 47,533
Service
5,406 6,183 12,633 15,843
License and other
-------------------- -------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------- -------------------- -------------------- ----------- --------------------
162,434 148,952 469,617 412,502
Total revenue
-------------------- -------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------- -------------------- -------------------- ----------- --------------------
Cost of revenue:
39,009 35,138 114,303 97,802
Subscriptions and support
14,852 14,482 45,585 37,971
Service
1,087 618 2,790 1,547
License and other
14,839 13,094 43,069 37,696
Depreciation and amortization
-------------------- -------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------- -------------------- -------------------- ----------- --------------------
69,787 63,332 205,747 175,016
Total cost of revenue
-------------------- -------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------- -------------------- -------------------- ----------- --------------------
Gross profit 92,647 85,620 263,870 237,486
Operating expenses:
27,821 24,400 80,528 64,874
Research and development
45,530 47,276 133,117 103,260
Selling, general, and administrative
11 295 2,630 6,074
Acquisition costs
15,955 16,103 48,050 46,816
Depreciation and amortization
-------------------- -------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------- -------------------- -------------------- ----------- --------------------
89,317 88,074 264,325 221,024
Total operating expenses
-------------------- -------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------- -------------------- -------------------- ----------- --------------------
Income (loss) from operations 3,330 (2,454 ) (455 ) 16,462
Interest expense - Net 11,158 12,857 26,923 51,416
Loss on extinguishment of debt -- 12,905 -- 12,905
Other expenses (income) - Net (3,100 ) (403 ) (3,677 ) (634 )
-------------------- -------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------- -------------------- -------------------- ----------- --------------------
Loss before income taxes (4,728 ) (27,813 ) (23,701 ) (47,225 )
Income tax expense (benefit) (811 ) (2,685 ) 794 (20,035 )
-------------------- -------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------- -------------------- -------------------- ----------- --------------------
Net loss $ (3,917 ) $ (25,128 ) $ (24,495 ) $ (27,190 )
Less: Net loss attributable to non-controlling interest (1,389 ) (5,752 ) (5,330 ) (5,752 )
-------------------- -------------- -------------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------------- ----------- --------------------
Net loss attributable to PowerSchool Holdings, Inc. (2,528 ) (19,376 ) (19,165 ) (21,438 )
==================== ============== ==================== ==================== ==================== =========== ==================== ==================== ==================== ============== ==================== ==================== ==================== =========== ====================
Net loss attributable to the PowerSchool Holdings, Inc. per share of Class A common stock - basic and diluted $ (0.02 ) $ (0.12 ) $ (0.12 ) $ (0.14 )
==================== ============== ==================== ==================== ==================== =========== ==================== ==================== ==================== ============== ==================== ==================== ==================== =========== ====================
Weighted average shares of Class A common stock outstanding - basic and diluted 158,812,536 156,962,167 158,387,266 156,962,167
Other comprehensive income (loss) - Foreign currency translation (741 ) (336 ) (1,744 ) (564 )
-------------------- -------------- -------------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------------- ----------- --------------------
(741 ) (336 ) (1,744 ) (564 )
Total other comprehensive income (loss)
-------------------- -------------- -------------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------------- ----------- --------------------
Less: comprehensive income (loss) attributable to non-controlling interest $ (149 ) $ (11 ) $ (350 ) $ (57 )
-------------------- -------------- -------------------- -------------------- -------------------- ----------- -------------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------------- ----------- --------------------
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands) September 30, December 31,
2022 2021
------------------------------------------------- ------------------------------------------------------
Assets
Current Assets:
$ 108,873 $ 86,479
Cash and cash equivalents
102,402 48,403
Accounts receivable--net of allowance of $6,160 and $4,964 respectively
36,889 38,423
Prepaid expenses and other current assets
-------------------- --------- -------------------- -------------------- -------------------- -------------- --------------------
248,164 173,305
Total current assets
Property and equipment - net 6,793 15,676
Operating lease right-of-use assets 9,962 --
Capitalized product development costs - net 98,338 80,611
Goodwill 2,486,423 2,454,692
Intangible assets - net 745,805 804,909
Other assets 28,562 27,489
-------------------- --------- -------------------- -------------------- -------------------- -------------- --------------------
Total assets $ 3,624,047 $ 3,556,682
Liabilities and Stockholders'/Members' Equity
Current Liabilities:
$ 6,509 $ 12,449
Accounts payable
73,255 71,167
Accrued expenses
6,419 --
Operating lease liabilities, current
363,754 294,276
Deferred revenue, current
7,750 7,750
Current portion of long-term debt
-------------------- --------- -------------------- -------------------- -------------------- -------------- --------------------
457,687 385,642
Total current liabilities
Noncurrent Liabilities:
2,315 7,423
Other liabilities
9,241 --
Operating lease liabilities--net of current
294,682 295,959
Deferred taxes
397,679 404,394
Tax receivable agreement liability
4,962 6,881
Deferred revenue--net of current
729,818 733,425
Long-term debt, net
-------------------- --------- -------------------- -------------------- -------------------- -------------- --------------------
1,896,384 1,833,724
Total liabilities
Stockholders'/Members' Equity:
16 16
Class A common stock, $0.0001 par value per share, 500,000,000 shares authorized, 159,365,089 shares issued and outstanding as of September 30, 2022. 158,034,497 shares issued and outstanding as of December 31, 2021
4 4
Class B common stock, $0.0001 par value per share, 300,000,000 shares authorized, 39,928,472 shares issued and outstanding as of September 30, 2022. 39,928,472 shares issued and outstanding as of December 31, 2021
1,429,664 1,399,967
Additional paid-in capital
(1,960 ) (216 )
Accumulated other comprehensive income
(185,629 ) (165,026 )
Accumulated deficit
-------------------- --------- -------------------- -------------------- -------------------- -------------- --------------------
1,242,095 1,234,745
Total stockholders'/members' equity attributable to PowerSchool Holdings, Inc.
-------------------- --------- -------------------- -------------------- -------------------- -------------- --------------------
485,568 488,213
Non-controlling interest
-------------------- --------- -------------------- -------------------- -------------------- -------------- --------------------
1,727,663 1,722,958
Total stockholders'/members' equity
-------------------- --------- -------------------- -------------------- -------------------- -------------- --------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------
2022 2021 2022 2021
------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------
(in thousands)
------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------
Cash flows from operating activities:
Net loss $ (3,917 ) $ (25,128 ) $ (24,495 ) $ (27,190 )
Adjustments to reconcile net loss to net cash provided by operating activities:
-- 12,905 -- 12,905
Loss on extinguishment of debt
30,812 29,181 91,119 84,496
Depreciation and amortization
12,490 10,719 38,100 13,455
Share-based compensation
-- 23 8,597 27
Write-off of right-of-use assets and disposal of property and equipment
340 -- (5,586 ) --
Change in fair value of acquisition-related contingent consideration
412 2,125 1,216 8,329
Other
Changes in operating assets and liabilities -- net of effects of acquisitions:
(46,008 ) (28,246 ) (52,651 ) (28,982 )
Accounts receivables
(1,680 ) (8,599 ) 1,635 (4,333 )
Prepaid expenses and other current assets
2,289 8,866 (1,526 ) (1,667 )
Other assets
(508 ) (4,405 ) (5,621 ) (1,995 )
Accounts payable
7,332 (554 ) (521 ) 1,246
Accrued expenses
(3,073 ) (150 ) (8,290 ) (192 )
Other liabilities
(2,086 ) (2,513 ) (507 ) (21,406 )
Deferred taxes
190,700 178,852 65,312 88,193
Deferred revenue
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
$ 187,103 $ 173,076 $ 106,782 $ 122,886
Net cash provided by operating activities
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Cash flows from investing activities:
Purchases of property and equipment (643 ) (308 ) (2,844 ) (3,222 )
Proceeds from sale of property and equipment -- (14 ) -- --
Investment in capitalized product development costs (12,358 ) (9,141 ) (33,285 ) (28,278 )
Acquisitions--net of cash acquired -- (406 ) (31,155 ) (319,230 )
Partial payment of acquisition-related contingent consideration -- -- (1,392 ) --
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
$ (13,001 ) $ (9,869 ) $ (68,676 ) $ (350,730 )
Net cash used in investing activities
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Cash flows from financing activities:
Taxes paid related to the net share settlement of equity awards (8,824 ) -- (8,824 ) --
Proceeds from Revolving Credit Agreement -- -- 70,000 55,000
Proceeds from Bridge Loan -- -- -- 315,200
Repayment of Bridge Loan -- (320,000 ) -- (320,000 )
Repayment of Second Lien Debt -- (365,000 ) -- (365,000 )
Repayment of Revolving Credit Agreement (70,000 ) (95,000 ) (70,000 ) (95,000 )
Repayment of Incremental Facility -- (68,425 ) -- (68,775 )
Repayment of First Lien Debt (1,938 ) (1,938 ) (5,813 ) (5,813 )
Payments for repurchase of management incentive units -- -- -- (448 )
Payments of deferred offering costs -- (9,099 ) (295 ) (11,753 )
Payment of debt issuance costs -- (723 ) -- (2,823 )
Repayment of capital leases -- 81 -- (25 )
Proceeds from initial public offering -- 766,075 -- 766,075
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
$ (80,762 ) $ (94,029 ) $ (14,932 ) $ 266,638
Net cash (used in) provided by financing activities
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Effect of foreign exchange rate changes on cash 88 (698 ) (782 ) (515 )
Net increase in cash, cash equivalents, and restricted cash 93,428 68,480 22,392 38,279
Cash, cash equivalents, and restricted cash--Beginning of period 15,955 23,045 86,991 53,246
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(unaudited)
Reconciliation of Gross profit to Adjusted gross profit
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------
(in thousands, except for percentages) 2022 2021 2022 2021
----------------------------------------------- ----------------------------------------------- ----------------------------------------------- -----------------------------------------------
----------------------------------------------- ----------------------------------------------- ----------------------------------------------- -----------------------------------------------
Gross profit $ 92,647 $ 85,620 $ 263,870 $ 237,486
-------------------- ------- -------------------- -------------------- ------- -------------------- -------------------- ------- -------------------- -------------------- ------- --------------------
Depreciation 263 489 803 1,322
Share-based compensation(1) 2,144 1,324 6,458 1,486
Restructuring(2) 1,223 905 3,325 2,385
Acquisition-related expense(3) 266 233 558 484
Amortization 14,576 12,604 42,266 36,374
-------------------- ------- -------------------- -------------------- ------- -------------------- -------------------- ------- -------------------- -------------------- ------- --------------------
Adjusted Gross Profit $ 111,119 $ 101,175 $ 317,280 $ 279,537
==================== ======= ==================== ==================== ======= ==================== ==================== ======= ==================== ==================== ======= ====================
Gross Profit Margin(4) 57.0 % 57.5 % 56.2 % 57.6 %
_______________ (1) Refers to expenses flowing through gross profit associated with share-based compensation. 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. 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. 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. Represents gross profit as a percentage of revenue.
Reconciliation of Net Loss to Adjusted EBITDA
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------
(in thousands) 2022 2021 2022 2021
------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------
------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------
Net loss $ (3,917 ) $ (25,128 ) $ (24,495 ) $ (27,190 )
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Add:
Amortization 29,680 27,530 87,409 79,562
Depreciation 1,114 1,667 3,710 4,950
Net interest expense(1) 11,158 12,857 26,923 51,409
Loss on extinguishment of debt -- 12,905 -- 12,905
Income tax expense (benefit) (811 ) (2,685 ) 794 (20,035 )
Share-based compensation 13,222 10,719 37,859 13,455
Management fees(2) 85 424 262 615
Restructuring(3) 1,523 839 11,706 3,576
Acquisition-related expense(4) 2,535 923 1,769 8,662
Other expense (income) due to tax rate change(5) (2,342 ) -- (2,342 ) --
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Adjusted EBITDA $ 52,247 $ 40,051 $ 143,595 $ 127,909
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Net loss margin (2.4 ) % (16.9 ) % (5.2 ) % (6.6 ) %
_______________ (1) Interest expense, net of interest income. Interest expense, net of interest income. (2) Refers to expense associated with collaboration with our principal stockholders and their internal consulting groups. 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, and event cancellation fees related to COVID-19. 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, and event cancellation fees related to COVID-19. (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 and Chalk. These incremental costs are embedded in our research and development, selling, general and administrative and cost of revenue line items. 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. (5) Refers to benefit received from the remeasurement of the tax receivable agreement liability due to a change in Pennsylvania statutory income tax rate. Refers to benefit received from the remeasurement of the tax receivable agreement liability due to a change in Pennsylvania statutory income tax rate.
Reconciliation of Net Loss to Non-GAAP Net Income
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share data)
2022 2021 2022 2021
------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------
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Net loss $ (3,917 ) $ (25,128 ) $ (24,495 ) $ (27,190 )
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Add:
Amortization 29,680 27,530 87,409 79,562
Depreciation 1,114 1,667 3,710 4,950
Share-based compensation 13,222 10,719 37,859 13,455
Management fees(1) 85 424 262 615
Restructuring(2) 1,523 839 11,706 3,576
Acquisition-related expense(3) 2,535 923 1,769 8,662
Loss on extinguishment of debt -- 12,905 -- 12,905
Other expense (income) due to tax rate change(4) (2,342 ) -- (2,342 ) --
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Non-GAAP Net Income 41,900 29,879 115,878 96,535
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Weighted-average Class A common stock outstanding used in computing GAAP net loss per share - basic 158,812,536 156,962,167 158,387,266 156,962,167
Weighted-average shares Class A common stock outstanding used in computing Non-GAAP net income per share - basic 158,812,536 156,962,167 158,387,266 156,962,167
Weighted-average shares Class A common stock outstanding used in computing GAAP net loss per share - diluted 158,812,536 156,962,167 158,387,266 156,962,167
277,744 1,496,710 62,048 1,496,710
Effect of Restricted Shares and RSUs
39,928,472 39,928,472 39,928,472 39,928,472
Effect of LLC Units
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
Weighted-average shares Class A common stock outstanding used in computing Non-GAAP net income per share - diluted 199,018,752 198,387,349 198,377,786 198,387,349
-------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- -------------------- -------------------- -------------- --------------------
GAAP net loss attributable to the PowerSchool Holdings, Inc. per share of Class A common stock - basic $ (0.02 ) $ (0.12 ) $ (0.12 ) $ (0.14 )
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Non-GAAP net income per share of Class A common stock - basic $ 0.26 $ 0.19 $ 0.73 $ 0.62
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GAAP net loss attributable to the PowerSchool Holdings, Inc. per share of Class A common stock - diluted $ (0.02 ) $ (0.12 ) $ (0.12 ) $ (0.14 )
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_______________ (1) Refers to expense associated with collaboration with our principal stockholders and their internal consulting groups. 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, and event cancellation fees related to the COVID-19 pandemic. 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, and event cancellation fees related to the COVID-19 pandemic. (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. 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,
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(in thousands) 2022 2021 2022 2021
---------------------------------------------- -------------------- ------------------------------------------------------ ----------------------------------------------- -------------------- ------------------------------
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GAAP Cost of Revenue - Subscription and Support $ 39,009 $ 35,138 $ 114,303 $ 97,802
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Less:
Share-based compensation 1,501 554 3,663 573
Restructuring (13 ) 10 89 112
Acquisition-related expense 183 180 408 359
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Non-GAAP Cost of Revenue - Subscription and Support $ 37,338 $ 34,394 $ 110,143 $ 96,758
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GAAP Cost of Revenue - Services $ 14,852 $ 14,482 $ 45,585 $ 37,971
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Less:
Share-based compensation 643 770 2,795 912
Restructuring 1,236 895 3,236 2,272
Acquisition-related expense 83 54 150 126
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Non-GAAP Cost of Revenue - Services $ 12,890 $ 12,763 $ 39,404 $ 34,661
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GAAP Research & Development $ 27,821 $ 24,400 $ 80,528 $ 64,874
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Less:
Share-based compensation 3,709 1,892 9,837 2,363
Restructuring 265 -- 265 684
Acquisition-related expense 1,252 224 2,146 681
-------------------- ------ -------------------- -------------------- -------------- -------------------- -------------------- ------- -------------------- -------------------- ----------
Non-GAAP Research & Development $ 22,595 $ 22,284 $ 68,280 $ 61,146
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GAAP Selling, General and Administrative $ 45,530 $ 47,276 $ 133,117 $ 103,260
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Less:
Share-based compensation 7,368 7,503 21,564 9,606
Management fees 85 424 262 615
Restructuring 35 (66 ) 8,116 507
Acquisition-related expense 1,005 171 (3,565 ) 1,422
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Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow and Unlevered Free Cash Flow
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------
(in thousands) 2022 2021 2022 2021
----------------------------------------------- -------------------- ----------------------------------------------- -------------------- ----------------------------------------------- -------------------- -----------------------------------------------
Net cash provided by operating activities $ 187,103 $ 173,076 $ 106,782 $ 122,886
(643 ) (308 ) (2,844 ) (3,222 )
Purchases of property and equipment
(12,358 ) (9,141 ) (33,285 ) (28,278 )
Capitalized product development costs
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Free Cash Flow $ 174,102 $ 163,627 $ 70,653 $ 91,386
Add:
10,528 13,129 24,700 44,774
Cash paid for interest on outstanding debt
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(C) 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
View source version on businesswire.com: https://www.businesswire.com/news/home/20221107005900/en/
SOURCE: PowerSchool Holdings, Inc.
Investor Contact: Shane Harrison investor.relations@PowerSchool.com 855-707-5100 Media Contact: Kari Sherrodd public.relations@PowerSchool.com 206-295-2826
COMTEX_418299132/1006/2022-11-07T16:15:17