Yahoo Finance PowerSchool Holdings Inc (PWSC) (Q1 2024) Earnings Call Transcript Highlights: Robust Revenue ...
Annual Recurring Revenue (ARR): Grew 18% year over year.
Net Revenue Retention Rate (NRR): Improved to 107%, up 30 basis points sequentially.
First-Quarter Revenue: $185 million, up 16% year over year.
Subscription and Support Revenue: $167 million, up 18% year over year.
Adjusted EBITDA: $61 million, up 24% year over year, with a 33% margin.
Gross Profit Margin: 69.2%, a 110 basis point improvement year over year.
Free Cash Flow: Negative $103 million, compared to negative $70 million year over year.
Cash and Equivalents: Ended the quarter with $17 million, down 73% year over year.
Net Debt Leverage: 3.8 times, compared to 3.3 times a year earlier.
Q2 Revenue Outlook: Expected to be between $192 million to $197 million.
Q2 Adjusted EBITDA Outlook: Expected to be between $67 million to $69 million.
Full Year Revenue Guidance: Reiterated at $786 million to $792 million.
Full Year Adjusted EBITDA Guidance: Raised to $268 million to $273 million.
Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
PowerSchool Holdings Inc (NYSE:PWSC) reported a strong start to 2024, with first-quarter revenue totaling $185 million, a 16% year-over-year increase.
Subscription and support revenue grew by 18% year-over-year to $167 million, accounting for 90% of total revenue.
Adjusted EBITDA improved by 24% year-over-year to $61 million, representing a 33% margin and an expansion of over 2 percentage points year-over-year.
Annualized recurring revenue balance increased to $720 million, up 18% from the previous year, driven by strong cross-sell activity and recent acquisitions.
Net revenue retention rate improved to 107%, up 30 basis points sequentially, indicating strong customer retention and satisfaction.
Negative Points
First quarter free cash flow was negative $103 million, compared with negative $70 million in the same period last year, driven by increased interest expense and acquisition-related costs.
Revenue from license and other, mainly related to third-party revenue, totaled $1 million for the quarter, slightly below expectations.
The company ended the quarter with $17 million in cash and equivalents, a decrease of 73% over the same period last year, largely due to seasonal Q1 cash flow and payments related to acquisitions.
Net debt leverage increased to 3.8 times, up from 3.3 times a year earlier, reflecting higher debt levels relative to EBITDA.
Non-GAAP net income per fully diluted share was $0.17, down from $0.18 in the same period last year, affected by higher interest expenses and noncash tax expenses related to acquisitions.
Q & A Highlights
Q: It's Dan Berger for Matt Hedberg. So Eric, you called out more efficient implementations in the prepared remarks. I think that's something you've been working on. Are there any incremental undertakings maybe this year with the services team to accelerate implementations and time to value, anything new or maybe incremental you want to point out there? A: Eric Shander, CFO of PowerSchool Holdings Inc, responded by highlighting the company's focus on continuous improvement in implementation processes. He mentioned the success of a large student information system implementation in Puerto Rico, completed in seven months, as an example of their efficiency. Shander emphasized ongoing efforts to enhance efficiency levels and the expansion of their factory approach in India.
Q: Internationally, you highlighted that as a key growth factor. It sounds like the pipeline is 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? A: Hardeep Gulati, EVP of Product Development at PowerSchool, addressed the company's international expansion, noting a 200% growth in the pipeline and a 50% expected growth in international markets. He mentioned the strategic addition of partners and the successful onboarding of a new General Manager of International, which has improved pipeline and execution. While more partners may be signed, the focus is on enabling current partners and executing and closing deals.
Q: In 2024, are there any particular product sets that you're prioritizing for cross-sell? And like what has been most successful selling back into the customer base? A: Hardeep Gulati discussed PowerSchool's strategy for cross-selling, emphasizing the company's broad platform that addresses various district needs. He highlighted the demand for data and analytics products, budgeting solutions like Allovue, and parent engagement and communication solutions as key areas of focus. Additionally, he expressed excitement about the potential growth from newly introduced AI capabilities.
Q: With the rollout of the PowerBuddy's Gen AI capabilities, what is some of the early user feedback so far? How do you view PowerBuddy's potential for further increasing the product stickiness with schools? A: Hardeep Gulati shared positive feedback on PowerBuddy's AI capabilities, noting significant time savings for teachers in creating lesson plans and assessments. He mentioned that the beta versions of other PowerBuddy features are also receiving positive feedback, highlighting the potential for PowerBuddy to enhance efficiency across various school functions and increase product stickiness.
Q: Can you talk a little bit about the build-out for PowerBuddy capabilities for the 2024 and 2025 school year? And if there's any focus specifically given customer demand? A: Hardeep Gulati elaborated on the expansion plans for PowerBuddy, indicating that it will be integrated across all of PowerSchool's solutions. He outlined the development of specific PowerBuddy applications for different functions, such as data analysis and college career planning, aiming to transform user experiences by leveraging AI to provide personalized, contextual, and conversational support.
Q: On the competitive front, how would you say the competitive dynamics in your international markets are different from what you see domestically? A: Hardeep Gulati explained that in international markets like the Middle East, Latin America, and India, there is no clear market leader, presenting untapped opportunities for PowerSchool. He highlighted the lack of comprehensive platforms in these regions, which contrasts with more mature markets like Western Europe where established players exist.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
