PowerSchool Announces Second Quarter Financial Results

• Second quarter total revenue increased 10% year-over-year to $191.6 million, meeting outlook
• Second quarter GAAP net loss was $25.7 million, representing 13% of total revenue, and Adjusted EBITDA* increased 9% year-over-year to $66.6 million, meeting outlook and representing 35% of total revenue

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, 2024.

"I'm pleased with our second quarter performance, which highlights our market leadership in K-12 software and the continued demand for our comprehensive platform of mission-critical products. We demonstrated continued innovation momentum with the launch of new and exciting products such as MyPowerHub and two additional modules of our AI-powered PowerBuddy platform," said Hardeep Gulati, PowerSchool CEO. "We look forward to the next chapter in PowerSchool's growth story with our partnership with Bain Capital."

Second Quarter 2024 Financial Highlights

• Revenue: Total revenue was $191.6 million for the three months ended June 30, 2024, up 10% year-over-year.
• S&S Revenue: Subscriptions and support revenue was $170.1 million, up 16% year-over-year.
• Gross Profit: GAAP gross profit was $111.8 million, representing 58% of total revenue, and Adjusted Gross Profit* was $133.6 million, representing 70% of total revenue.
• Net Income/Loss: GAAP net loss was $25.7 million, representing 13% of total revenue, and Non-GAAP Net Income* was $48.1 million, representing 25% of total revenue.
• Adjusted EBITDA: Adjusted EBITDA* was $66.6 million, up 9% year-over-year and representing 35% of total revenue.
• Earnings/Loss Per Share: GAAP net loss per diluted share was $0.12 on 203.7 million shares outstanding. Non-GAAP net income per diluted share* was $0.23 on 205.0 million shares outstanding.
• Cash Flow: Net cash used in operating activities was $47.4 million, representing 25% of total revenue.

* 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

• Customer Momentum: Won several notable deals in the quarter, including a data-as-a-service (DaaS) cross-sell win with the Arkansas State Department of Education and cross-sells to Springfield School District 186, Idea Public Schools, Hawthorne School District, and Orleans Parish School District.
• New Product Launch: Announced the launch of MyPowerHub, a next-generation communications platform designed to transform how schools communicate with parents, students, and staff. MyPowerHub offers a suite of features including student information such as grades, assignments, attendance, and schedules, as well as personalized notifications, event calendars, and secure messaging through a single, seamless interface, enhancing communication and collaboration within K-12 communities while generating significant cost savings for school districts by eliminating the need for multiple other software programs.
• 2024 Education Focus Report: Released the PowerSchool 2024 Education Focus Report for the 2024-2025 school year, offering an in-depth analysis of key challenges and innovations shaping the U.S. education landscape. Drawing from a national survey of 1,620 educators, the report provides critical insights into the evolving needs and priorities of the education community. Key findings include: 1) personalized learning drives student success, 2) growing importance of AI in education, 3) bold leadership and data utilization are key priorities, 4) evolving education workforce, and 5) strengthening school-home connections.
• Delivering AI: Announced general availability of two additional AI-powered solutions, PowerBuddy for Learning Student Assistant and PowerBuddy for Data Analysis, which enhance the educational experience and streamline data analysis:
  • PowerBuddy for Learning Student Assistant: Integrated into the popular PowerSchool Schoology Learning Management System, PowerBuddy for Learning is a secure AI assistant designed to offer personalized guidance and enhance the learning experience for students. By leveraging conversational AI, PowerBuddy delivers contextually relevant prompts that are customized to each student's grade level, lesson content, and assignments. This encourages deeper exploration of topics and ensures students receive the necessary guidance and resources aligned with district and state standards, all tailored to their individual learning styles.
  • PowerBuddy for Data Analysis: Acts as a co-pilot, revolutionizing data analysis by allowing users to access data seamlessly through natural language conversations. This cutting-edge AI assistant significantly reduces response times for data requests by removing the need for query writing, automating data visualizations, and generating comprehensive data analyses. These features enable educators and administrators to make well-informed decisions with unprecedented speed and ease.
• International Product Enhancements: Launched translated and localized products for the Middle East, which will allow educators in the region to accomplish critical administrative, classroom, and communication workflows by leveraging newly embedded Arabic translations, right-to-left interface display, Hijri calendar overlay, and more. By providing an Arabic interface, PowerSchool aims to empower educational institutions and facilitate learning for diverse communities.

Commenting on the Company's results, Eric Shander, PowerSchool President and CFO, added, "We delivered another strong quarter consistent with our philosophy of double-digit top line growth and margin expansion. I am confident our comprehensive suite of mission-critical software products will continue to meaningfully improve school district operations and drive significant long-term value for the entire K-12 ecosystem."

In light of the proposed transaction with Bain Capital, which was announced on June 7, 2024, PowerSchool will not host an earnings conference call and is suspending its practice of providing financial guidance. PowerSchool currently expects to close the transaction in the second half of 2024.

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."

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 60 million students globally and more than 18,000 customers, including over 90 of the 100 largest districts by student enrollment in the United States, and sells solutions in over 90 countries globally. Visit www.powerschool.com to learn more.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the safe harder provisions of the U.S. Private Securities Litigation Reform Act of 1995. 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 are not assurances of future performance and may 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: 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, 2023 (the "Annual Report"), filed with the Securities Exchange Commission ("SEC"). Copies of the Annual Report 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 publicly update forward-looking statements, whether written or oral, to reflect future events, future developments or circumstances, or new information.

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, 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, 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, nonrecurring litigation expense, provision for (benefit from) income tax, and other one-time costs. 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 plus proceeds from the sale of property and equipment. 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.

© 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.

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