PowerSchool Holdings, Inc.

being recorded. I would like now to turn the conference over to Shane Harrison, Senior Vice President of Investor

Relations. Please go ahead. Thank you, operator. Welcome everyone to Power Schools earnings conference call for the first quarter ended March 31st, 2024. I wanted to first let you know that we posted a slide deck to the investor relations section of our website that accompanies our remarks here. On the call today we have Power Schools CEO Hardeeb Gulati and President and CFO Eric Schander. Before getting started, I would like to emphasize that this call, including the Q&A portion, will include statements related to the expected future results for our company, which are therefore forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings. Today's remarks will also include references to non-GAAP financial measures. Additional information, including definitions and reconciliations between non-GAAP financial information to the GAAP financial information, is provided in the corresponding press release and results presentation, which are both posted on Power Schools investor relations website at .powerschool.com. A replay of this call will also be posted at the same website. With that, let me now turn the call over to Hardeeb.

Thank you, Shane, and thank you everyone for joining us today. We are starting 2024 with continuous strong momentum, beating the midpoint of our revenue outlook and exceeding the high end of our outlook for adjusted EBITDA. ARR grew 18% -over-year, while NRR improved 30 basis points sequentially to 107%. Post-coronavirus revenue totaled $185 million, up 16% -over-year, and subscription and support revenue growing 18% to $167 million. Adjusted EBITDA improved 24% -over-year to $61 million, representing a 33% margin and expansion of over 2 percentage points -over-year. These first quarter results showcase the robustness of software spend in K-12 market and the continued demand and stickiness of our market-leading mission critical solutions that drive better education outcomes, empower educators, and help districts run more efficiently. These results are driven by the strength of our multiple growth vectors which create the diversity and sustainability of our business model and enable us to deliver consistent results quarter after quarter, now 11 consecutive quarters since our IPO of meeting or beating guidance. I will highlight the updates in the quarter based on each of the four key growth vectors we have shared in the past. First, significant cross-sell and net new opportunity across North America for our comprehensive and broad 20 plus products meeting a variety of district and state strategic initiatives. Second, our expansion and successes in the untapped large international market. Third, continued strategic M&A that expands our TAM and add solutions that address the most important growth areas such as our recent all of you budgeting and planning acquisition. Fourth, launching new disruptive high growth innovations like PowerBuddy, a K-12 industry first AI assistant for everyone. Let's start with our first growth vectors and share with you some of the highlights of customer momentum in cross-sell and new logos with our key wins in Q1. As we briefly previewed in our last call, we are thrilled and honored to have signed in Q1 one of our largest deals in recent history to serve the Indiana Department of Education to provide special program solution to the state and all its districts to modernize systems, processes, and improve special education program needs for every student at every school in Indiana. Our solution replaced their existing vendor as we provide a more modern interoperable platform with enhanced compliance for federal and state reporting requirements. We also saw several other notable cross-sell wins during the quarter, including the Lido Public Schools, who selected our SIS and ERP solutions, Visalia Unified School District, who chose our communication and our new My Power School product, then Bernardino City Unified School District, who selected our analytics and talent modules, Leap Social Enterprise and Puerto Rico, who broadened their presence with us on multiple products, including SIS, Schoology, enrollment, and Naviance. The volume and the types of deal across these broad solutions show our ability to meet the varying needs and priorities for districts of different sizes and across regions. During the quarter, we also added great new logos, including Manitoba First Nations Education Resource Center, who purchased our student information system to power their district operations and reporting. In fact, one of the reasons for ongoing cross-seller new logo successes is our key differentiator of strong unparalleled leadership of our student information system, or SIS, along with many of our other solutions. The SIS is the heartbeat, the source of truth. It stores and manages all student data within a school district or charter school system. Schools use the SIS for compliance reporting to the Department of Education and to provide reports to key stakeholders to inform decision-making to help students succeed. Power School SIS is a premium solution and a clear market leader with gross retention rates in the high 90s and a strong customer satisfaction scores. We continue to win new accounts in SIS and have brought in over a million new students over the past two years, with now reaching over 20 million K-12 students globally and roughly one-third of North American students. The SIS is one of the keys to cross-selling additional products, and we have much stronger win rates with customers who already use our SIS. During the first quarter, we made great progress in our second growth vector of international expansion, particularly in the high-growth target markets in the Middle East, Latin America, and India. In the Middle East, through our board Middle East BME partnership, we signed a new logo Knights of Knowledge International Schools in Saudi Arabia, who purchased SIS, Schoology, and other modules to benefit all their students and teachers. We also continue to cross-sell into an international customer base with customers like Arabian Education Development, who expanded their deployment from student cloud to personalized learning cloud, talent cloud, and now our analytics cloud. Another example of international cross-sell is in Latin America, where we broadened our presence with the International School of Tegucigalpa in Honduras in an existing Schoology customer who expanded to a broader platform, including SIS, enrollment, eCollect, and other modules. In India, we've won new business with Kalkidhar Education and Edufice, among many others. We are very excited about the international prospects this year, as our full-year international pipeline has grown over 200% year over year. This includes large deals and pipeline through our partner channels. Before we move to our third growth driver, I want to touch on funding and the key priorities in front of our customers. As you know, K-12 is one of the largest spend categories globally, with over $700 billion in U.S. alone and over $5 trillion globally. The core budgets are resilient and are relatively insulated from inflationary and other macroeconomic events. Budgets are funded from multiple sources, federal, state, and local, and education is a bipartisan priority. ESSER injected an additional 5 to 10% per year to the overall budget targeted towards one-time purchases and managing additional staffing, supplemental content, and services needs during the past few years. While in some cases, districts use ESSER to fund their initial implementation and rollout of K-12 technologies, districts are largely required to allocate their ongoing contract spend from their regular core ongoing budgets. The broader tailwinds driving the software growth in K-12 has been the need for digital transformation to support more automation of their back office, eliminate costly manual tasks, reduce teacher administrative time, modernize the classroom to drive more engagement with students, and also get better insight so districts can optimize their investments to create better student outcomes. That is why education software spending is forecasted to remain one of the highest growth areas in K-12 education. In March, we conducted a survey of our annual education focus report, where we received nearly 2,000 educator responses from across the U.S. from every state and U.S. strategy on a wide range of questions, including top K-12 technology priorities, budgets, and much more. I'd like to share some of the preliminary results from our market research, which will be formally released in July. The top five technology priorities districts identified are integrating technology solutions, connecting data across systems, implementing attendance solutions to address chronic absenteeism, providing AI guidance and infrastructure, cybersecurity and protecting student data. Conversely, the top areas of budget management that districts identified were limiting additional staffing budgets, hardware spend, and reducing tutoring spend. These survey results directly align with our solutions and platform strategy to provide secure, modern, integrated systems and data with mission-critical needs like MTSS, attendance intervention, and data insights to provide the right help efficiently and surgically based on individual student needs and drive better attendance and engagement to help keep students in school. In fact, helping districts with budgeting and spending efficiency and efficacy was a key rationale behind our recent strategic acquisition of all of you. As we discussed during our last earnings call, we acquired all of you in January of this year, and we are already seeing very strong demands for its capabilities. Results from the second annual All of You education financial survey found that roughly half of the educators surveyed said that their budget tools are out of date and are in need of modernization. By adding all of you, Power School can now provide schools, districts, and state education leaders with the most comprehensive suite of K-12 data and analytics tools available to accurately plan budgets and provide clear visibility for the communities into district spending and the impact on student outcomes. This showcases how we are leveraging our third growth vector of strategic M&A expansion to drive additional growth on current district priorities. Now turning to our fourth growth vector of differentiated innovation. In January, we announced our generative AI platform, Power School PowerBuddy, a K-12 industry first AI-powered assistant for everyone. PowerBuddy is designed to deliver conversational, personalized, contextual, and embedded experiences for educators, students, administrators, and parents. We recently announced general availability of two new AI-powered solutions, PowerBuddy for learning and PowerBuddy for assessment. These two solutions are targeted for teachers to save them countless hours spent generating student assignments, lesson plans, and assessments personalized to different reading levels, subjects, languages, and state standards. They seamlessly integrate within Schoology and Performance Matters and are built on Microsoft Azure OpenAI but designed and tuned by Power School specifically for K-12 with controls for responsible AI principles and complied with district and state standards and content. Demand for PowerBuddy has been very strong and we already have signed dozens of customers including Epic Charter Schools and Dual County Public Schools. We have several other PowerBuddy solutions under beta with districts representing approximately 2 million students and have built roughly 10 million of opportunity to create a pipeline for these solutions. Additionally, we have received impactful testimonials from teachers saying they have reduced the amount of time needed to create a standards-aligned assessment item by more than two-thirds. We are excited to launch additional PowerBuddy products including PowerBuddy for data analysis, custom AI, college and career engagement, and coaching and mentoring which will be available for 2024 and 2025 school year. Given our leadership in reach, scale, breadth, and impact, we are uniquely positioned to provide generative AI solutions that personalize experiences, leveraging whole child information, and are embedded into existing solutions that students, parents, teachers, and administrators use every day and provide a contextualized help and assistance for all their needs. We are also helping districts formalize their data platform for AI with our data solutions differentiated, connected intelligence data lake solution that enables districts to ensure their data sovereignty and empower their educators and students to leverage N-AI by bringing AI to their data. When it comes to data, PowerSchool leads the K-12 industry in student data privacy and data security, a responsibility we take very seriously. To that end, we are certified by industry leaders such as TrustArk and Prevo, and we proudly adhere to all applicable federal and state laws pertaining to student data, including federal laws such as Family Education Rights and Privacy Act, COPA, and the Child Online Privacy Protection Act, COPA, as well as state regulations including California Student Online Personal Information Protection Act, so PIPA, and its data security. We are proud signatories of the Student Privacy Pledge and the White House Secure by Design Initiative, a voluntary pledge developed by the Cybersecurity and Infrastructure Security Agency, CISA, and the U.S. Department of Education. We also pledged our commitment to further secure the education technology ecosystem by offering free and subsidized security resources to all U.S. schools and districts. For more information on our student privacy compliance, security investments, and our responsible AI guidelines, please refer to the accompanying earnings presentation for links to our data security policies and our Chief Compliance Officer Privacy Blog. PowerSchool today is a vastly larger and fundamentally different company than it was five years ago. Since 2019 and based on the midpoint of our 2024 outlook, we will have more than doubled our revenue and nearly tippled our adjusted EBITDA while expanding our adjusted EBITDA margins by nearly 10 percentage points. Over the same period, we have acquired 11 companies and nearly doubled the number of our products in our portfolio. We have started to put boots on the grounds in international markets and built out a channel partner network of 14 partners across all of our targeted international markets. Delivering this kind of growth requires exemplary executive talent and high performance culture. I'm proud to have been able to attract and retain the world-class executive leaders and team needed for PowerSchool of today, many of them drawn to the company's powerful mission. Highlighted by these strong first quarter results, we remain focused and confident about our continued success and ability to execute in line with the strategy and targets we shared at our investor day last year to reach one billion plus in revenue in the next three years. Now I will turn over to Eric to discuss the financial results and outlook. Eric?

Thank

you,

Hardeep. We kicked off 2024 with a strong first quarter that demonstrated continued execution in line with our strategy. We delivered double-digit top-line growth, expanded our adjusted EBITDA margin by more than two points over the prior year, and continue to invest in product innovation and international initiatives that will drive long-term value to our customers and to the company. First quarter total revenue came in at $185 million, representing 16% -over-year increase in line with the guidance range we provided on our last earnings call. Subscription and support revenue came in at 18% -over-year, $167 million, and accounted for 90% of total revenue in the quarter. As Hardeep mentioned, we are thrilled and honored by the opportunity to serve the Indiana Department of Education with our special budget program. program solution, reaching the entire special education population of the state. This large deal represents approximately $5 million in subscription and support revenue and approximately $9 million in services revenue that will span into 2025, given the significant scope of this opportunity. Revenue from our services business totaled $17 million in the quarter, representing a slight increase over the prior year. We continue to see more efficient deployment cycles from our implementations, which drives quicker time to value for our customers using our platform. Revenue from License & Other, which relates mainly to our third-party revenue and is the smallest revenue stream, totaled $1 million for the quarter. This came in slightly below our expectations, based on the mix of third-party partner activity in the quarter. We ended the quarter with an annualized recurring revenue balance of $720 million, representing an 18% increase over the same time period last year. This strong performance was driven largely by the strongest cross-sale activity we have ever seen in a first quarter, as well as the addition of our recent acquisitions. Our net revenue retention rate came in at 107%, up 30 basis points on a sequential quarterly basis. A adjusted gross profit for the quarter came in at $128 million, with a .2% margin, representing a 110 basis point -over-year improvement driven by our continued focus on cost management and operational scale. Moving to the first quarter operating expenses. Non-GAAP research and development expense came in at $25 million, representing a .6% of revenue compared with .5% in the same time period last year. This 110 basis point increase in adjusted R&D expense as a percentage of revenue reflects our continued focus on investing in the data and AI products that will shape the future of education. Including capitalized R&D expenditures, our total invested in R&D was .4% of revenue, compared with .5% in the prior year. Non-GAAP SG&A expense totaled $42 million in the first quarter, representing .5% of revenue, compared with $39 million, or .6% of revenue in the same time period last year. This 210 basis point improvement was largely due to lower G&A expense driven by our operational scale, which was partially offset by the investments we are making in sales and marketing, focused on -to-market activities, and our continued international build-out. First quarter adjusted EBITDA was $61 million, representing a .1% margin, exceeding the high end of our guidance range, and reflecting our continued commitment to margin expansion. Non-GAAP net income in the first quarter was $0.17 for fully diluted share, down one penny from the $0.18 for fully diluted share we reported in the same time period last year. Higher interest expense was a headwind of approximately three cents for a non-GAAP earnings per share, and we had a non-cash tax expense related to the acquisition of Allaview, which had an impact of approximately four cents. First quarter free cash flow, which typically reaches a seasonal low point in Q1 due to the timing of renewals and bonus payouts, was a negative $103 million compared with negative $70 million in the same time period last year. This reduction is driven by the increase in interest expense, acquisition related costs, and the changes in working capital, which we believe to be timing related. Moving to the balance sheet. We ended the quarter with $17 million in cash and equivalents, a decrease of 73% over the same time period last year. This was due largely to the seasonality of cash flow and cash payments related to the school messenger and Allaview acquisitions partially offset by a $125 million draw on a revolving credit facility. Net debt leverage as of the end of the quarter was 3.8 times compared with 3.3 times a year earlier. As a reminder, our net leverage decreases in the second half of the year given the collection of cash flow and cash payments. Now turning to our 2024 second quarter and full year financial outlook. For the second quarter, we expected to deliver total revenue in the range of $192 million to $197 million and adjusted EBITDA in the range of $67 million to $69 million, representing a 35% margin at the midpoint. For the full year 2024, we are reiterating our guidance with total revenue expected to be in the range of $786 million to $792 million with the midpoint representing a 13% -over-year growth rate. We are raising our full year adjusted EBITDA guide to a range of $68 million to $73 million, representing a .3% adjusted EBITDA margin at the midpoint. For modeling purposes, we expect full year capital expenditures including capitalized software of approximately $48 million to $52 million and share-based compensation expense of approximately $80 million to $84 million. Fully diluted shares by the end of the year are expected to be in the range of $203 million to $207 million. Overall, we're very pleased with the progress in the first quarter. We demonstrated continued execution against our strategy by delivering double-digit, top-line growth and margin expansion. We are intensely focused on delivering market-leading innovation and value to our customers through a comprehensive and differentiated platform. This concludes our prepared remarks.

Alan, will you please open the call for Q&A? We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Matt Hedberg of RBC Capital Markets. Please go ahead.

Hey, it's Dan Berchster from Matt Hedberg. Thanks for taking our questions. Say, Eric, you called out more efficient implementations in the prepared remarks. I know undertakings, maybe this year with the services team to accelerate implementations of time to value, anything new or maybe incremental you want to point out there?

Yeah, no, look, it's a good question. I appreciate that. And as you all have seen, last year, we have seen a lot of success. When we did Puerto Rico, which large student information system implementation, the team's super proud of what they did. They did it in seven months. Years ago, that never would have been possible. But this team, and we're always focused on continuous improvement, so we are continually looking at how we're packaging up the work, where the work is being placed. So I would tell you, while I'm certainly pleased with the progress, we're not done. So I would tell you, we're going to continue to focus on efficiency levels. And then certainly, the other areas will continue to build out our factory approach in India. So I guess I would say stay tuned, because we'll continue to see efficiencies there. But I'm super proud of the progress the team made last year, which was significant. And we're not going to stop with that.

That's great. Thanks. And then you mentioned Puerto Rico there. Internationally, you highlighted that as a key growth factor. Sounds like the pipeline's building nicely there. I think you had a lot of success last year adding new international partners. I guess looking at this year, are you targeting maybe adding a similar level of partners or more focusing on the ramp of what you signed up so far?

Sure, Dan. This is Adip. I'll jump in on that. Overall, we're very excited about the international. I think as we look at the dimension of the pipeline, we're almost seeing 200% growth in the pipeline, with some especially good sized large deals, helped by the partners, the 14 plus partners channels we have built across the entire globe. What's also exciting is that we're still expecting almost 50% growth on international this year as well. So we definitely have built a pretty strong engine through the partner, as well as our own management team, especially we did brought in a new GM of international. And we have seen a lot of success, both in terms of improving our partner channel pipeline as well as our own execution about bringing these deals in. We do expect to sign more partners, but we also have a pretty good coverage of these partner and the most focused agents. As we expand it to Southeast Asia, some of the Western Europe, you're going to see a little bit more coverage on the partners in Africa as well. And we will continue to develop that. But the big focus is actually the partners we do have kind of enabling and bringing the pipeline and actually executing and closing those.

That's great.

Thanks. The next question comes from Brian Peterson of Raymond James. Please go ahead.

Hi, this is Jessica on for fine. Start off with in 2024, are there any particular product sets that you're prioritizing for cross sell? And like what has the most success selling back into the

rest of the platform is that we have really all these different solutions addressing all the variety of needs. So when we are going to the, when we're looking at the demand we see on the cross sell and where we are focusing on what we call is an X block. We will work with the customer and they find each of these customers, key pain points where the critical needs. And with the, as you can imagine, with the 20 plus solutions and the different elements, whether it's in their back office, whether it's their talent management needs, whether it's in the classroom, whether it's in terms of improving graduation rates or overall funding, we really help drive the right solution to the key priorities these districts face and be able to bring a solution to them. So our cross sell motions actually are across the globe. We have the largest K through 12 software sales channel in the whole country. We are engaging with these districts on all levels, all the way from CIOs to their chief academic officers to the ZipRendix and as well as the CFOs and HR and building that core transformation plan from them based on what are the key strategic plans. Now we do see certain levels of areas which are really at the high demand of this, for this year as well. One, as we, in continuation of what we have seen in the last year, data analytics products are a big focus, especially as these districts deal with how do they manage more with the limited investment on supplemental learning, but reaching out to every specific kid, we are able to help them with the data to identify which kids need what help and how they can optimize their funding and spend so they can reach every child based on their need. We also, as I mentioned in the prepared remark, all of you is a big growth area for us this year. We're seeing a lot of exciting demand of that with a pipeline of about 10 million, where we are seeing the need for budgeting solutions that they can help manage all the different elements. Parent engagement and communication remains one of the top priorities. That's why the school messenger along with our My Power School is one of our big growth areas as well. And then as I mentioned, we are actually very excited about the demand we are seeing on the AI. We have been doing about 40 plus luncheon and series with our customers across the nation. And we are really excited about the pipeline that we are seeing for districts. We are pretty much universally seeing almost 20% of the districts have shown interest or they are already started looking at how the AI can be brought into their districts. So we are expecting that to be a phenomenal growth area as well.

That's really cool. And just like digging further into what you're saying just now about your AI, with the rollout of the PowerBody's general AI capabilities, what is some of the early user feedback so far? Like how do you view PowerBody's potential for further increasing the stickiness with schools?

Yeah, you know, as I was mentioning that there is already, you know, the feedback we're getting quantitatively that this is a significant time saving for districts, especially for teachers to create lesson plans and items. The beta of some of the elements which we are launching around data insights as well as custom AI allows them to actually create better efficiency and understanding of their data and how they can get in front of all the principals and teachers and their boards in real time. There's also value of, you know, the MyPower School and College Career as well as coaching where the PowerBody helps you drive efficiency across. So the feedback across all these different PowerBodies which we have general ability as well as the ones in the beta has been pretty instrumental. In fact, we do see that districts are seeing this be one of the big areas of how they can actually help navigate on their improved efficacy of education outcomes. And we have actually a few testimonials which have got good media coverage from Epic Charter as well as District 11. And we encourage you guys to check those news outlets as well where teachers are clearly seeing having the ability to be able to provide help to a teacher and student. It has been a phenomenal game changer.

Awesome. Thank you.

The next question comes from Saket Kalia of Barclays. Please go ahead.

Great. Hey guys, thanks for taking my questions here. Thanks, Saket. Hardeeb, hey, maybe I'll start with you. You know, I appreciate it in your prepared remarks. Just, you know, kind of flushing out a little bit the impact that, or the little impact that ESSER funding I think has kind of had on the business. Can you just maybe remind us what the timeline for ESSER funding is for your customers? And, you know, maybe related to that. I mean, are you seeing any change in pipeline as a result of it, kind of positive or negative?

Yeah, when you look at the overall ESSER fund, Saket, that, you know, depending upon states, again, there is the federal portal on ESSER transparency where people can check it out. You will see that almost 70 to 80 percent of the ESSER funds have been spent. And I would say even more of that has been already allocated. We, as we mentioned, right, that ESSER funds were largely towards one-time purchases, district staffing, supplemental content, tutoring to help learning loss. When they're buying software, they're buying it from their normal ongoing budgets, right? So, we don't see a very direct impact to that. We did see some benefit of that on the implementation of the ESSER funding. We did see some benefit of that on the implementation of the ESSER funding. And we're seeing that in the second half of the pipeline. So, we're not seeing that to be a material impact to our pipeline. In fact, our pipeline has grown year over year. And we, even while we have put more validation and qualifications on our pipeline, and we're also seeing actually the second half pipeline, especially as we have launched our new My Power School solution, our AI PowerBuddy, as well as bringing the integrations of all of you, and our international ramp-up, we are actually seeing a second half pipeline, which is already showing a lot of further improvement to that as well. So, we do see this from a business perspective, our pipeline to be very healthy. And given these solutions are mission critical, as you can imagine, our growth retention and overall over-retention actually are showing given similar trends or if not further positive trends on that.

Got it. That's good to hear. Eric, maybe for my follow-up for you, can we just talk a little bit about how you think about free cash flow, either this year or just kind of more broadly? The EBITDA guide is always helpful and it's good to see that go up a little bit. But the cash flow here is just nice to see. I'd love to kind of hear how you think about just even anecdotally or just kind of broad brush.

Yeah, sure. So, just as I mentioned in my prepared remarks, so we're expecting full year adjusted EBITDA to be around $268 million to $273 million. We took it up on the top end, which is well over 100 basis points of where we finished the year. As you think about and as I focused in on free cash flow last year, we were roughly 19% margin. While we don't guide on free cash flow, what I will tell you, a couple of the key components to it, we will have about an incremental $20 million in interest expense this year, almost three percentage points. However, we are still targeting to be in the range of flat from last year while we're also absorbing those three percentage points of interest. And then certainly, who knows what's going to happen with interest rates in the back half of the year, so we could certainly get some benefits from there. But what I would just say is we are very much focused on free cash flow, very much on track with what we said back in September on our investor day. We will be in the mid 20s by 2026 and we're marching towards that and the company as well as I have a very keen focus on that. So, hopefully that gives you some color around where we're thinking about from an overall margin standpoint with some of the ins and outs that go into that.

Very helpful. Thanks, guys. Thanks, Zach. The next question comes from Brent Fill of Jefferies. Please go ahead.

Thanks. I go to market this year. Any big changes you're making in terms of quota carrying wraps or new distribution partners or any differences in strategy and changes that you're putting in to help the adoption of the broader platform?

Yeah, Brent, we are always optimizing our sales team but also expanding it as well. We've actually increased our Salesforce coverage model by at least 10 to 15% each year. As you will see from our investments, that that's an area where we continue to focus on. As our platform continues to grow, we are actually reducing the territories for our sales team so they are able to further engage on that platform with each of the personas in the districts at all levels and be able to continue to do that. So, that is a constant motion for us each year. We have actually seen that to actually create better results from our bringing new business both on the cross-sell as well as Netmute. International, we started this investment last year where we started creating the international. That has definitely ramped up. We are continuing to ramp that up this year as well. Both supported by partner channel, partner channel coverage from our site but then also boots on the ground in Middle East, India as well as in Latin America to kind of support both partner as well as some direct deals. So, one of the exciting parts of Power School is the coverage model that we are in front of these 19,000 we call it buying entities in North America. We are in front of them in pretty much periodically to make sure that we are addressing the most strategic needs with one of the solutions which we offer.

Okay, and when you think about just your overall pipeline, the visibility that you see, how would you characterize the pipeline versus in the past? What are the differences, the nuances of what you are seeing, anything to be concerned about or do you feel better about maybe where your pipeline is at even six to nine months ago?

Yes, as mentioned, we have seen definitely the increase in the pipeline. Even as over the last 12 to 18 months, we have put in a lot more controls on our pipeline and implemented clarity to give us better visibility as well as AI on our pipeline and close rates so we have a better visibility on how things are going to be. So, we are actually very comfortable with that. I did mention some of the growth areas, for example, just the all of you piece, the PowerBuddy piece, these are the areas where we actually already seen some exciting pipeline. If you think about PowerBuddy, we have just launched it less than two months back, the PowerBuddy for Learning Assessment and not only we have closed a handful of deals almost with 400K of revenue, the fact that we are sitting on 100 plus opportunities on PowerBuddy with our pipeline almost close to 10 million just tells you how much opportunity that exists and we do see that that is going to be definitely give us a pretty exciting growth area. So, as you can imagine, going back to the survey I highlighted, districts still are dealing with a lot of old systems which they are worried about data security and they are looking at automation. Districts are still worried about integrations of their different siloed systems and not having the ability to have seamless integration which is a big nightmare and time sync for them. Districts are worried about continued way for their budgets to be more efficient and more efficacy so they are looking at data and insights and they are also looking at managing their budgets and continuing to empower teachers. When you look at the breadth and depth of the solutions and everything that we do, we are hitting on all of these strategic priorities for districts. So, whenever we are sitting with the customer, we are walking away with at least one if not five opportunities on which they want to prioritize over the next month and year. So, the more we are getting from our customers, the more pipeline we are seeing and that is why we continue to invest in the coverage model.

Thanks, Hardee. Thank you. The next question comes from Steven Sheldon of William Blair. Please go ahead.

Hi, you have Pat McAwee on for Steven today. So, my first question, you announced a nice of knowledge win this quarter and I just wanted to ask for a win like that. Is the implementation burden, is that any heavier than it would be for a customer domestically or does that require any customization of your existing platform to go live with a customer like that?

Yeah, Patrick, when you look at from the international, there are a couple of models. One is the, especially with that deal where BME, which is one of our partners involved, they will be actually doing some of the implementation elements of it as well. So, that is the reason why we have such strategic partnerships where they are providing the local support and services, provided an oversight and with some of the support from our global as well as our India implementation teams. Second, in terms of the localization questions you have, we actually do already have translated our student systems, our Schoology for the full Middle East, Arabic as well as left to right and right to left for the Middle East region, including localizations of calendars and other elements which are also in the product. We already now have local schools, not just international schools, but actually local schools who are implementing our SIS as well as Schoology in the Middle East. So, the localization element has already been the investment which we have done over the last few years, but the actual implementation of that would be supported through partner and we do have extensive partner network in the region, including the BME who will carry the majority of the load.

Okay, understood. And so, then just as a follow up to that, under that partner model and with some of those additional customizations, we will call them, I know it is early, but generally as you scale outside of the US, are there any considerations we should be thinking about with the price point of your solutions there or the margin profile of selling them internationally?

Yes, so Patrick, two things. One is that one of the big differentiator of our student information system is that the level of extensibility both from actually how you view the application, configure the application, put different rules, different attributes as well as integrations to other systems and local elements. That is why we have been so pervasive in North America across all states, in Canada across all the provinces and even also having SIS deployments at almost 80 to 90 countries. So, that inherent level of configurability is actually very easy and built into the product. That is our big differentiator. In terms of the margins, we expect actually Middle East to be very close to the price points we are seeing is very close to wherever North America point is, but there is some adjustment of GDP pricing we do. We do see the Latin America and India regions to be a little bit more lower price points. So, we have built our support service and hosting models based on the local pricing so our margins are not dilutive even as we are expanding to international.

Okay, great. That is all really helpful. Thank you, Ardeep. Yes, thanks, Patrick.

Our next question comes from Gabriela Borges of Goldman Sachs. Please go ahead.

Hi, this is Maura Ahn for Gabriela. Thanks for taking the question. On the PowerBuddy products, they seem like a really exciting pipeline and there is a lot of interest for them. Can you talk a little bit about the build out for PowerBuddy capabilities for the 2024 and 2025 school year and if there is any focus specifically given customer demand?

Yeah, no, this is really exciting because you can imagine the opportunity here for PowerBuddy for us is to transform the entire experience. We are such a unique position because we have such a huge install base. We understand everything about the student, what is happening in the classroom. We are able to personalize and contextualize the experiences and leveraging generative R&I, make them conversational but then also embed them into our solution so they are easy for districts to adopt. They will be pretty much a PowerBuddy element to every one of our solutions. We have launched in Schoology and Performance Matters. There will be a PowerBuddy for talk to your data and unified insights. There is a PowerBuddy for custom AI with our connected intelligence so we can bring even district rest of the data and allow them to be able to easily search and be able to have conversational elements to those. There is PowerBuddy within Naviance which will help them with college and career planning, with talent to help them with coaching and mentoring as well as with My PowerSchool so parents and students can engage and ask any questions. So we pretty much, PowerBuddy is going to be a pervasive part of all our platforms supported by one PowerBuddy which is also a big differentiator because you are not going to have any, all other niche providers are not going to have the broader depth of understanding and personalizing but also having been able to embed it into these different applications. Not only is it creating us a huge amount of additional time and growth for PowerBuddy with the AI components, it is actually making our core platform even more differentiators. We are actually seeing more sales of our talent and ecology and assessment platform thanks to PowerBuddy because it is helping us differentiate from some of the niche solutions who do not have ability or have not invested strongly in having a more comprehensive AI platform. So we do think this allows us to really address a lot of the value for districts in supporting all these different elements whether they are trying to provide interventions or help but also improve our solutions and experiences and making them even more different shares. So it is going to help us even improve our cross-sell growth of our existing platform.

That's helpful, Kalar. Thanks. And sticking with the PowerBuddy products, can you talk a little bit about the pricing models and how you're thinking about pricing for teachers versus students versus parents and admins?

Absolutely. We share this in our investor data. We are looking at PowerBuddy to be about, you know, the value to make such that these are bite-sized so districts can start adopting them more quickly. So we have a PowerBuddy for, you know, as I said, for each of these solutions which would be about $3 to $5 per student. But somebody wants the full platform, that would be in the range of almost $40 to $50 per student. We are seeing that price points to be pretty attractive given, you know, the overall where we are seeing the market and we do see the value they are creating. We are actually getting a pretty good response on those.

Great. Thanks. Thank you.

Our next question comes from Koji Ikeda of Bank of America Securities. Please go ahead.

Hi. This is George McGree and I'm for Koji. Thanks for taking my question. You know, I just kind of wanted to ask in terms of the international markets that you guys are in, kind of on the competitive front, you know, how would you say the competitive dynamics in your international markets are kind of different from what you see domestically?

Yeah, George, when we look at the markets, especially where we are focused on like the Middle East, the Latin America, and in India, we don't see a clear leader which has established. These are untapped markets. They are high-growth, population growth areas. There's a lot of investment going on in creating new private schools. Even some of the government schools are putting better infrastructure. And one of the reasons we have prioritized these regions is that there is no clear leader and even when you do see some of the niche solutions, they don't have the full platform. And as you can see from these deals, when these districts or private schools or even national schools are looking at it, they want the platform. They want a student system. They want an MS. They want ability to do enrollments. They want analytics. They even want college and career planning. And we have a unique company, even globally, which has this full depth and breadth of the platform with -in-class. And that's why we are seeing a lot of great opportunity. One of the big things also we see in the pipeline, we have literally country-level opportunities. So we definitely see that to be a big differentiator. I think some of the more mature markets like Western Europe, especially UK and all, they are established players, but those are also the markets where we don't see a very high level of growth either. But that's why we are investing in these high growth areas where there is not much strong competition.

Thank you. Our next question comes from Rich Hilliker of UBS. Please go ahead.

Hi. Thanks for taking my question. The first one is for Eric. In the past, we have talked about the 3,000 to 50,000 student segment and how that is an important driver for organic growth moving forward. I'm wondering if we could talk a little bit or if you could give us a little bit of color on how that segment performed in the quarter. Any color or any metrics would be really helpful. Thanks.

Yeah. And just for…yep, thanks, Rich. Just for everybody's benefit. What Rich is referring to is our enterprise customers. These are the 3,000 to 50,000 students. And then obviously the larger ones in that are the strategic. That actually has performed quite well. And I can talk both from a retention standpoint as well as a bookings momentum standpoint. As you all can appreciate, our first quarter from a renewal standpoint is a low point for just renewals volume. Our renewals volume really happens in Q3. But what we are seeing is good retention rates with the enterprise segment. As our teams are working on the upcoming renewals, they are partnering with the sales teams. From that, as Hardee mentioned, there's a lot of good opportunities within that segment. And we've made some sales changes with some of the leadership teams over the past year on that. And what we're seeing both in terms of bookings as well as pipeline, that is a very good segment for us and will continue to be a nice contributor as we kind of look…as we go through the rest of the year.

Okay, great. Thanks for that helpful color. Maybe my next question here, you've given us a lot of helpful details around what customers are interested in and adopting and how you're broadening your portfolio. One remark was that you have the strongest cross-sell ever in a Q1. I'm wondering if we could more pointedly talk about which specific products drove that or if there's any sort of commonality or trends that you could just re-highlight for us. Thanks so much.

Yeah, I mean, so I'll start, Rich, on that. So, as we announced our Indiana Department of Education, it's actually our largest special programs opportunity that we've ever had in the company's history. But that is an existing customer. It is a large cross-sell opportunity for us from an ARR perspective, well over $5 million on that. This is the largest cross-sell we've seen, obviously, Indiana being a big contributor to that. But even back to some of the prior comments I made, we did see nice momentum across our enterprise segment as well. And I don't know, Hardee, if there's anything else you'd add.

Yeah, typically what we see, Rich, is that every one of our products would actually have deals in any of the quarter. So when you look across the Verintara 20 press product, there'll be always some deal happening on every one of the products, right? So whether it's Unified Insights, CI, Naviance, each of the talent products, each of the areas of CCLR, there's always multiple cross-sells happening for us. And that's the exciting part of it is just the breadth and the depth of the volume of the cross-sell we do in any quarter.

Our next question comes from Joe Ruink of Baird. Please go ahead.

Great. Thanks for taking my questions. I wanted to go back a little bit to the conversation around pipeline. It seems like you've gone through kind of a more robust grading and validation process around pipeline. When, you know, on the outside, looking in, we look at your guidance for not just this year, but also the midterm framework. Does that embed a certain conservatism, maybe conversion rates below prevailing trends, just on the potential that schools become distracted when trying to finalize budget decisions into the next school year? And similarly, what about the forward gross retention assumptions that you've baked into the midterm forecast?

Yeah, Joe and Cerek, let me start and then Hardeep can add in. In terms of the guide, as you all can appreciate and have seen over the last several quarters, large deals will drive quarterly variability, but yet, as we look at the full year achievement, we're certainly very firm on where we believe we're going to end from a full year. So what you're really kind of seeing is just us kind of recalibrating a little bit just in terms of some potential larger deal variability, but yet reaffirming the full year. So that's all you're seeing in the guidance that we provided. And then just from a gross retention standpoint, you know, we continue and like I said, Q1 is our lowest period from a renewal standpoint, but Q1 was very successful. We're obviously ramping up through Q2 for our Q3 period. And the early signs are extremely positive there as well. So I would just say that there isn't anything that we've seen to date that has us concerned that we're going to see something unexpected.

And Joe, I guess the other part of your question on just the different trends that we see, right? I think this is the beauty of our business. When you look at compared to a niche solution, right, they might have suddenly a growth and suddenly that particular area of demand is impacted for whatever reason. They might slow down and then come back up, right? But what happens in our solution is because we are pretty much selling to all the different mission critical elements, all the critical software elements, as well as with our data products, pretty much impacting the entire decision making for these districts, we see a lot more consistent results. Now, certain products might have up and down depending upon the area. We've mentioned like classroom was a bigger growth area for us and back in the 2021 area. And then data picked up to all that demand and we saw a lot more growth out of the data products. So we will do see some variations. I think this is what we are highlighting is when we look at this here, right, some of the big areas focus, as you mentioned, like budgeting is a big area and that's why you still see the demand for our data products, demand for our all of you products is top of the mind as they continue to look at how they improve attendance so they can improve their funding. We see a lot of demand for our attendance intervention, our MTSS to help provide the intervention support, as well as our communication so they can actually engage. So these are the kind of things. This is what we are able to have the front row seats with this district on their strategic priorities and the broader need that allows us to both invest our innovations as well as our acquisitions to one of the top priorities we see in the trend. Having that full view across the nations with 80% of the school districts and sitting in front of superintendents, CIOs, academic advisors, we are able to get that view, which allows us to make sure our sales motions, our sales players, our marketing plays, and our innovation is all aligned to where we see the priorities. And that gives us that robustness of demand what you don't see in other K-12 players because they don't have the mission capability solutions and they don't have the breadth and depth of the view and the coverage model.

Okay, that's great. And then I wanted to actually ask about AllaView. That's a good brand and it's come up a couple of times on this call. What sort of financial impact might that have had in the quarter and maybe the full year? And then is that all going to be in software or is there actually kind of a consulting or services component to that business as well?

Yeah, we've already closed a couple of deals like Chesterfield and Columbus, but largely this is, you know, we've built into our models, what you guys have shared with the guidance. When we gave the full year guidance, we already had that visibility. Most of this is going to be arrived. I would tell you there are some, you know, one or two large big services deal in the pipeline as well. If there are those things, we'll let you guys know. But largely this is again, most of it ARR based business.

Okay, great. Thank you.

The next question comes from Fred Havemeyer of Macquarie. Please go ahead.

Okay, thank you very much for putting me in here. I wanted to begin on competition. There's been a couple of points out there about infinite campus and others in the core SIS space. So I want to just drill into SIS in particular and ask, from our percentage point, you're the largest market shareholder and market share leader in North American SIS and K-12. What are you seeing and are there any major changes in

the competitive landscape? Fred, as I mentioned, right, we are still the clear market leader. We're more than double the share of our nearest competitor. We're best in class if you look at the deals like Strive, which is a public company which decided their SIS solutions. Puerto Rico, if you look at from a perspective of Toronto Public School, these are major districts which looked through all the different competitions and selected us as an SIS. Our gross retention is our top class. So, you know, there would be deals where we might lose one or two deals, but when you look at from our win rates, we win more than we lose. And we are all, you know, we are definitely in terms of capabilities, the most modern solution and the rest of our platform gives us even more differentiator into SIS because we allow them to integrate with all these other pieces.

Thank you, Hardee. I wanted to then also ask about multi-product adoption as well. That's something you gave quite a bit of good detail about actually back at the investor day this past fall. And as I recall, I think four to six plus products customers were among your fastest growing groups of customers. So I wanted to ask, I guess, two-parter here. Firstly, what are you seeing in terms of multi-product adoption and how that's trended since the analyst day? And secondly, as we're going into the primary months of the K-12 buying cycle, are there any major products or pain points in particular this year that you think are of particular importance going into that June purchasing timeframe?

Yeah, Fred, when we ran the analysis, we pretty much seen the similar trends to what we shared with. So there's not a major update. The trends on the growth on cross-seller multi-products are pretty similar to what we shared. We're happy to share that in maybe the next learning calls or later this year about a little bit more update on that. So you guys can get a little bit more full -over-year view on that as well. The trends, what we're seeing is that, you know, we are seeing more student cloud, like all the different pieces. Similarly, we are seeing a lot more interest on the full talent cloud as well as the data product integrated with that. So those are definitely the areas of the cloud we are seeing the highest growth.

Great, Hardee. Thank you very much.

The next question comes from Ryan McDonald of Needham and Company. Please go ahead.

Thanks for taking my questions. You know, fully realizing that obviously, as you said very clearly, Essar is not really a beneficiary for your business and its core spend. I wanted to get a little bit creative on maybe potential impacts here and it relates to PowerBuddy. It's great to see, obviously, you're starting to see all that success in the automation. But one thing we keep picking up from districts and schools that we talked to is that a lot of this additional funding was spent on staffing. And in 2025, you know, that staffing is going to be challenged, you know, those budgets because of that one-time spend. Is that acting as a driver of maybe schools and districts looking for more automation around PowerBuddy to make, you know, the fewer staff that they have more effective, more streamlined? Just anything around that? Thanks.

Absolutely. I think you touched on a key point here is that when you look at from a perspective and whether they're putting supplemental content, they're tutoring, they're putting help and interventions, it's very hard to reach every student based on the need. In fact, one of the large school districts gave us a data point is that they spent tens of millions on tutoring and the 10% of the kids who actually used it, they need it. And the 40% of the kids who needed it never even touched it and they were able to engage with them. This allows them to provide the -in-time contextual help in tutoring as well as overall support and assistance to every student so they can now optimize their overall spend, they're putting on supplemental contracts, services and everything. This allows us to tap into almost $1,000 per student in help they're providing today and we'll be able to have more surgical and more effective way to do that. This is why it's expanding over time. It's also allowing us to even differentiate and help us disrupt the broader kids who are on the market.

That's really great here. I appreciate the color on that already. But maybe just as a quick follow-up for Eric, as PowerBuddy, you continue to have more success with that. We talked about the pricing, but is it priced at a point where we should expect it to be gross margin neutral, if not accretive?

Yeah, so what I would say, Ryan, is you should assume that it will not be dilutive. We have designed it such a, you know, there are certain elements that we've kind of put in the pricing such that some of the calls into the AI algorithms, they kind of get capped so that we don't get into a situation where there's a high volume of calls in there that are causing our costs to get out of whack. So the way that we've set it up now is that it'll be very similar to the current margin profile that we have. And, you know, look, this technology is expanding quite rapidly and whatnot. So as we continue to kind of look at all the different AI algorithms and, you know, the open, you know, some of the open source possibilities, we do expect these costs to come down. So at some point, I would say, yes, it can be accretive. But, you know, what I would say in the short term here, short to medium term, just assume that it's going to be in line with what our current margins are. Our biggest focus, candidly, was to make sure that it was not going to be dilutive to the margins.

Excellent. Appreciate the color.

Thanks. The next question comes from Brett No Block of Camp Torfee's Cheryl. Please go ahead.

Hi, guys. Thanks for taking my question. Maybe just on AI. As you guys are talking to customers, I guess, how big of a focal point is that in every conversation? Is that a driving factor in deals? I guess, what's the add on rate that you have seen? Is it as good or better than expected? And maybe just some commentary on what you think that the revenue opportunity for the AI related products is. Maybe not this year, given, you know, a lot of it just went to EA, but as we look to next year and 2026. Thank you.

Yes, Brett. So I think you'd be surprised how many of the conversations actually front and center. As I mentioned, we are doing a luncheon series, almost 40 plus across the nation. We started in Q1 and going into Q2. And pretty much universally, what we are running a campaign called Get Ready for AI. And what we are seeing is that the participation in the number of districts, almost 70 to 80% of these audience have already formed AI committees. The teachers have already using some, you know, open source versions or which they are worried about their data privacy and security because what is being loaded there and every district data is at risk. So with our strategy, with connected intelligence, they are able to get ready for AI by giving better data so they can bring AI to the data rather than taking their data to the AI. But then also they are using these different elements to start improving the efficacy we were talking about just in the last question. So we are seeing this to be front and center for a lot of the leaders. And that's why you see, you know, such an exciting pipeline and the growth opportunity there. We are expecting the revenue. I shared this a little bit in the last year, last earnings release, is that we do expect this to be in a few millions of dollars of revenue for us this year already, but really doubling up from there into the next year. So we do expect this to almost become a material business for us in the next few years.

Thank you so much. I appreciate it.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Gulati for any closing remarks.

Yeah, thank you, operator. Thank you again, everyone, for joining us today. Our team delivered a strong start to 2024 and a continued double-digit growth, margin expansion, and excellent innovation momentum with the launch of our AI products. As you can see, our business fundamentals remain strong and robust. We provide sticky mission-critical software products to a stable and durable K212N market. Our cross-sell engine continues to drive repeatable, sustainable growth, and we continue to win new logos. Innovation in the areas of data, AI is the top strategic focus, and I'm thrilled about the success with PowerBuddy as well as the opportunity ahead of us. We also continue to execute thoughtful and timely M&A, such as our latest acquisition of all of you, whose financial planning and budgeting software is a -of-mind concern for the district, and we continue to build out proof points in key international markets that will support our long-term growth. I look forward to updating you on these key strategic growth drivers in the next quarter. Thank you again, everyone, for joining today.

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