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

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)

Total revenue		$162		to		$164
Adjusted EBITDA *		$49		to		$51

Year ending December 31, 2022 (in millions)

Total revenue		$630		to		$634
Adjusted EBITDA *		$188		to		$191

* 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.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited)

(in thousands except per share data)	Three Months Ended June 30,						Six Months Ended June 30,
		2022			2021			2022			2021
	(unaudited)						(unaudited)
Revenue:
Subscriptions and support	$	135,010		$	121,763		$	264,775		$	224,854
Service		19,119			16,083			35,182			29,036
License and other		3,462			7,557			7,227			9,660
Total revenue		157,591			145,403			307,184			263,550
Cost of revenue:
Subscriptions and support		37,260			33,632			75,294			62,664
Service		15,737			12,795			30,734			23,489
License and other		717			531			1,703			929
Depreciation and amortization		14,271			12,846			28,230			24,602
Total cost of revenue		67,985			59,804			135,961			111,684
Gross profit		89,606			85,599			171,223			151,866
Operating expenses:
Research and development		26,088			21,929			52,706			40,474
Selling, general, and administrative		47,484			30,653			87,587			55,984
Acquisition costs		1,043			177			2,618			5,780
Depreciation and amortization		16,137			16,154			32,095			30,713
Total operating expenses		90,752			68,913			175,006			132,951
Income (loss) from operations		(1,146	)		16,686			(3,783	)		18,915
Interest expense - Net		8,743			21,297			15,765			38,559
Other expenses (income) - Net		(498	)		(376	)		(576	)		(233	)
Loss before income taxes		(9,391	)		(4,235	)		(18,972	)		(19,411	)
Income tax expense (benefit)		(2,933	)		(1,690	)		1,605			(17,349	)
Net loss	$	(6,458	)	$	(2,545	)	$	(20,577	)	$	(2,062	)
Less: Net loss attributable to non-controlling interest		(1,933	)		—			(3,940	)		—
Net loss attributable to PowerSchool Holdings, Inc.		(4,525	)		(2,545	)		(16,637	)		(2,062	)
Net loss attributable to the PowerSchool Holdings, Inc. per share of Class A common stock - basic and diluted	$	(0.03	)	$	—		$	(0.11	)	$	—
Weighted average shares of Class A common stock outstanding - basic and diluted		158,229,171			—			158,171,056			—

Other comprehensive income (loss) - Foreign currency translation		345			(381	)		(125	)		(228	)
Total other comprehensive income (loss)		345			(381	)		(125	)		(228	)
Less: comprehensive income (loss) attributable to non-controlling interest	$	70		$	—		$	(25	)	$	—
Comprehensive loss attributable to PowerSchool Holdings, Inc.	$	(4,250	)	$	(2,926	)	$	(16,737	)	$	(2,290	)

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands)	June 30, 2022			December 31, 2021
Assets
Current Assets:
Cash and cash equivalents	$	15,445		$	86,479
Accounts receivable—net of allowance of $3,325 and $4,964 respectively		56,559			48,403
Prepaid expenses and other current assets		35,207			38,423
Total current assets		107,211			173,305
Property and equipment - net		7,084			15,676
Operating lease right-of-use assets		9,255			—
Capitalized product development costs - net		92,526			80,611
Goodwill		2,487,004			2,454,692
Intangible assets - net		768,377			804,909
Other assets		31,004			27,489
Total assets	$	3,502,461		$	3,556,682
Liabilities and Stockholders'/Members' Equity
Current Liabilities:
Accounts payable	$	6,766		$	12,449
Accrued expenses		65,595			71,167
Operating lease liabilities, current		7,094			—
Deferred revenue, current		172,992			294,276
Revolving credit facility		70,000			—
Current portion of long-term debt		7,750			7,750
Total current liabilities		330,197			385,642
Noncurrent Liabilities:
Other liabilities		2,326			7,423
Operating lease liabilities—net of current		9,284			—
Deferred taxes		297,584			295,959
Tax receivable agreement liability		400,022			404,394
Deferred revenue—net of current		5,032			6,881
Long-term debt, net		731,013			733,425
Total liabilities		1,775,458			1,833,724

Stockholders'/Members' Equity:
Class A common stock, $0.0001 par value per share, 500,000,000 shares authorized, 158,266,304 shares issued and outstanding as of June 30, 2022. 158,034,497 shares issued and outstanding as of December 31, 2021		16			16
Class B common stock, $0.0001 par value per share, 300,000,000 shares authorized, 39,928,472 shares issued and outstanding as of June 30, 2022. 39,928,472 shares issued and outstanding as of December 31, 2021		4			4
Additional paid-in capital		1,422,401			1,399,967
Accumulated other comprehensive income		(1,219	)		(216	)
Accumulated deficit		(183,101	)		(165,026	)
Total stockholders'/members' equity attributable to PowerSchool Holdings, Inc.		1,238,101			1,234,745
Non-controlling interest		488,902			488,213
Total stockholders'/members' equity		1,727,003			1,722,958
Total liabilities and stockholders'/members' equity	$	3,502,461		$	3,556,682

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
		2022			2021			2022			2021
(in thousands)
Cash flows from operating activities:
Net loss	$	(6,458	)	$	(2,545	)	$	(20,577	)	$	(2,062	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		30,372			33,227			60,307			61,778
Share-based compensation		14,060			1,373			25,610			2,737
Write-off of right-of-use assets and property and equipment		8,597			—			8,597			—
Change in fair value of acquisition-related contingent consideration		(6,088	)		—			(5,926	)		—
Other		(1,511	)		(268	)		804			(258	)
Changes in operating assets and liabilities — net of effects of acquisitions:
Accounts receivables		(11,418	)		(15,698	)		(6,643	)		(735	)
Prepaid expenses and other current assets		8,001			8,778			3,315			4,266
Other assets		(2,365	)		(8,422	)		(3,815	)		(10,535	)
Accounts payable		1,310			4,848			(5,112	)		1,669
Accrued expenses		3,057			11,135			(7,854	)		1,800
Other liabilities		1,348			(43	)		(5,217	)		(43	)
Deferred taxes		(3,314	)		(2,672	)		1,579			(18,892	)
Deferred revenue		(51,368	)		(29,190	)		(125,387	)		(90,659	)
Net cash used in operating activities	$	(15,777	)	$	523		$	(80,319	)	$	(50,934	)
Cash flows from investing activities:
Purchases of property and equipment		(440	)		(1,831	)		(2,201	)		(2,172	)
Proceeds from sale of property and equipment		—			—			—			13
Investment in capitalized product development costs		(12,007	)		(10,572	)		(20,927	)		(19,137	)
Acquisitions—net of cash acquired		(15,625	)		34			(31,155	)		(318,824	)
Partial payment of acquisition-related contingent consideration		(1,392	)		—			(1,392	)		—
Net cash used in investing activities	$	(29,464	)	$	(12,369	)	$	(55,675	)	$	(340,120	)
Cash flows from financing activities:
Proceeds from Revolving Credit Agreement		40,000		$	10,000			70,000		$	55,000
Proceeds from Bridge Loan		—		$	—					$	315,200
Repayment of Incremental Facility		—		$	(175	)	$	—		$	(350	)
Repayment of First Lien Debt		(1,938	)	$	(1,938	)		(3,875	)	$	(3,875	)
Payments for repurchase of management incentive units		—		$	—		$	—		$	(448	)
Payments of deferred offering costs		—		$	(1,268	)		(295	)	$	(2,655	)
Payment of debt issuance costs		—		$	(1,600	)	$	—		$	(2,100	)
Repayment of capital leases		—		$	(62	)		—		$	(108	)
Net cash provided by financing activities	$	38,062		$	4,957		$	65,830		$	360,664
Effect of foreign exchange rate changes on cash		(962	)		(178	)		(872	)		189
Net decrease in cash, cash equivalents, and restricted cash		(8,141	)		(7,067	)		(71,036	)		(30,201	)
Cash, cash equivalents, and restricted cash—Beginning of		24,096			30,112			86,991			53,246
Cash, cash equivalents, and restricted cash—End of period	$	15,955		$	23,045		$	15,955		$	23,045

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (unaudited)

Reconciliation of Gross profit to Adjusted gross profit

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except for percentages)		2022			2021			2022			2021

Gross profit	$	89,606		$	85,599		$	171,223		$	151,866
Depreciation		265			439			540			832
Share-based compensation⁽¹⁾		2,146			81			4,313			162
Restructuring⁽²⁾		1,129			893			2,102			1,480
Acquisition-related expense⁽³⁾		91			168			291			251
Amortization		14,005			12,407			27,690			23,769
Adjusted Gross Profit	$	107,242		$	99,587		$	206,159		$	178,360
Gross Profit Margin⁽⁴⁾		56.9	%		58.9	%		55.7	%		57.6	%
Adjusted Gross Profit Margin⁽⁵⁾		68.1	%		68.5	%		67.1	%		67.7	%

_______________
(1)			Refers to expenses flowing through gross profit associated with share-based compensation.
(2)			Refers to expenses flowing through gross profit related to migration of customers from legacy to core products, and severance expense related to offshoring activities, facility closures and executive departures.
(3)			Refers to expenses flowing through gross profit incurred to execute and integrate acquisitions, including retention awards and severance for acquired employees.
(4)			Represents gross profit as a percentage of revenue.
(5)			Represents Adjusted Gross Profit as a percentage of revenue.

Reconciliation of Net Loss to Adjusted EBITDA

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)		2022			2021			2022			2021

Net loss	$	(6,458	)	$	(2,545	)	$	(20,577	)	$	(2,062	)
Add:
Amortization		29,075			27,337			57,728			52,031
Depreciation		1,333			1,663			2,596			3,283
Net interest expense⁽¹⁾		8,743			21,297			15,765			38,552
Income tax expense (benefit)		(2,933	)		(1,690	)		1,605			(17,349	)
Share-based compensation		12,242			1,373			24,637			2,737
Management fees⁽²⁾		93			115			177			191
Restructuring⁽³⁾		10,037			1,200			10,182			2,737
Acquisition-related expense⁽⁴⁾		(3,393	)		1,476			(766	)		7,738

Adjusted EBITDA	$	48,739		$	50,226		$	91,347		$	87,858

Net loss margin		(4.1	)%		(1.8	)%		(6.7	)%		(0.8	)%
Adjusted EBITDA margin⁽⁵⁾		30.9	%		34.5	%		29.7	%		33.3	%

_______________
(1)			Interest expense, net of interest income.
(2)			Refers to expense associated with collaboration with our principal stockholders and their internal consulting groups.
(3)			Refers to costs incurred related to migration of customers from legacy to core products, remaining lease obligations for abandoned facilities, severance expense related to offshoring activities, facility closures, and executive departures, 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.
(5)			Represents Adjusted EBITDA as a percentage of revenue.

Reconciliation of Net Loss to Non-GAAP Net Income

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except share and per share data)		2022			2021			2022			2021

Net loss	$	(6,458	)	$	(2,545	)	$	(20,577	)	$	(2,062	)
Add:
Amortization		29,075			27,337			57,728			52,031
Depreciation		1,333			1,663			2,596			3,283
Share-based compensation		12,242			1,373			24,637			2,737
Management fees⁽¹⁾		93			115			177			191
Restructuring⁽²⁾		10,037			1,200			10,182			2,737
Acquisition-related expense⁽³⁾		(3,393	)		1,476			(766	)		7,738

Non-GAAP Net Income		42,929			30,619			73,977			66,655

Weighted-average Class A common stock outstanding used in computing GAAP net loss per share, basic and diluted		158,229,171						158,171,056
Weighted-average shares Class A common stock outstanding used in computing Non-GAAP net income, basic		158,229,171						158,171,056
Weighted-average shares Class A common stock outstanding used in computing Non-GAAP net income, diluted		198,209,855						198,150,174

GAAP net loss attributable to the PowerSchool Holdings, Inc. per share of Class A common stock - basic and diluted	$	(0.03	)				$	(0.11	)
Non-GAAP net income per share of Class A common stock - basic	$	0.27					$	0.47
Non-GAAP net income per share of Class A common stock - diluted	$	0.22					$	0.37

_______________
(1)			Refers to expense associated with collaboration with our principal stockholders and their internal consulting groups.
(2)			Refers to costs incurred related to migration of customers from legacy to core products, remaining lease obligations for abandoned facilities, severance expense related to offshoring activities, facility closures, and executive departures, 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.

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

	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)		2022			2021		2022			2021

GAAP Cost of Revenue - Subscription and Support	$	37,260		$	33,632	$	75,294		$	62,664
Less:
Share-based compensation		1,047			10		2,162			19
Restructuring		98			39		101			102
Acquisition-related expense		51			119		225			179
Non-GAAP Cost of Revenue - Subscription and Support	$	36,064		$	33,464	$	72,806		$	62,364

GAAP Cost of Revenue - Services	$	15,737		$	12,795	$	30,734		$	23,489
Less:
Share-based compensation		1,100			72		2,151			142
Restructuring		1,031			854		2,000			1,377
Acquisition-related expense		41			49		67			72
Non-GAAP Cost of Revenue - Services	$	13,565		$	11,820	$	26,516		$	21,898

GAAP Research & Development	$	26,088		$	21,929	$	52,706		$	40,474
Less:
Share-based compensation		3,024			234		6,128			471
Restructuring	$	–			—		—			684
Acquisition-related expense		849			322		894			457
Non-GAAP Research & Development	$	22,215		$	21,373	$	45,684		$	38,862

GAAP Selling, General and Administrative	$	47,484		$	30,653	$	87,587		$	55,984
Less:
Share-based compensation		7,071			1,058		14,196			2,104
Management fees		93			115		177			191
Restructuring		8,908			307		8,081			573
Acquisition-related expense		(5,377	)		810		(4,569	)		1,251
Non-GAAP Selling, General and Administrative	$	36,789		$	28,363	$	69,702		$	51,865

Reconciliation of Net Cash Used in Operating Activities to Free Cash Flow and Unlevered Free Cash Flow

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)		2022			2021			2022			2021
Net cash used in operating activities	$	(15,777	)	$	523		$	(80,319	)	$	(50,934	)
Less:
Purchases of property and equipment		(440	)		(1,831	)		(2,201	)		(2,172	)
Capitalized product development costs		(12,007	)		(10,572	)		(20,927	)		(19,137	)

Free Cash Flow	$	(28,224	)	$	(11,880	)	$	(103,447	)	$	(72,243	)

Add:
Cash paid for interest on outstanding debt		7,989			17,457			14,172			31,645

Unlevered Free Cash Flow	$	(20,235	)	$	5,577		$	(89,275	)	$	(40,598	)

PWSC-F

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PowerSchool Announces Second Quarter 2022 Financial Results