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PH

POWERSCHOOL HOLDINGS, INC. (PWSC)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 revenue grew 16% year-over-year to $185.0M, while Adjusted EBITDA increased 24% to $61.3M; management said revenue “met our guidance” and profitability “exceeded the high end” of guidance .
  • GAAP net loss was $22.8M (net loss margin -12.4%) and non-GAAP diluted EPS was $0.17; gross profit margin was 56.8% and Adjusted EBITDA margin was 33.1% .
  • ARR rose 18% YoY to $720.3M with NRR of 107.0%, improving 30 bps sequentially versus Q4 2023 .
  • FY 2024 Adjusted EBITDA guidance was raised by $1M on both ends to $268–$273M (revenue maintained at $786–$792M); Q2 2024 guidance introduced: revenue $192–$197M and Adjusted EBITDA $67–$69M .
  • Product/contract catalysts: GA launch of PowerBuddy for Learning and Assessment (AI) and largest-ever Special Programs contract (Indiana DOE), plus notable cross-sells, which management framed as drivers of durable growth and operating leverage .

What Went Well and What Went Wrong

What Went Well

  • Double-digit growth: revenue +16% YoY to $185.0M and Adjusted EBITDA +24% to $61.3M, with a 200 bps improvement in Adjusted EBITDA margin; CEO: “we met our revenue guidance and exceeded the high end of our profitability guidance,” citing operating leverage .
  • Commercial momentum: largest-ever Special Programs contract with Indiana DOE and material cross-sells to Toledo Public Schools, Visalia USD, San Bernardino City USD, and LEAP Social Enterprise in Puerto Rico .
  • AI execution and expansion: GA of PowerBuddy for Learning and Assessment leveraging Microsoft Azure OpenAI, with responsibly designed workflows and educator/student use cases; AI readiness workshops and international events broadened demand .

What Went Wrong

  • GAAP profitability: net loss widened to $22.8M, and net loss margin deteriorated to -12.4% (vs -10.2% in Q4) amid higher interest expense ($21.0M) and tax expense .
  • Cash flow seasonality: net cash used in operating activities of -$89.7M and free cash flow of -$102.5M, driven by working capital (deferred revenue down $102.9M QoQ), typical of seasonality in the business .
  • License and other revenue softness: license revenue fell to $1.35M from $3.11M in Q4 and $12.45M in Q3, indicating volatility outside subscriptions and support .

Financial Results

Summary vs Prior Periods

MetricQ3 2023Q4 2023Q1 2024
Revenue ($USD Millions)$182.164 $182.136 $184.967
GAAP Diluted EPS ($USD)$0.00 $(0.10) $(0.12)
Non-GAAP Diluted EPS ($USD)$0.24 $0.17 $0.17
Gross Profit Margin %60.6% 59.6% 56.8%
Adjusted EBITDA ($USD Millions)$61.975 $59.365 $61.274
Adjusted EBITDA Margin %34.0% 32.6% 33.1%
Net Income Margin % (GAAP)-0.7% -10.2% -12.4%

Segment Revenue Breakdown

Revenue Segment ($USD Millions)Q3 2023Q4 2023Q1 2024
Subscriptions & Support$148.990 $163.623 $166.927
Service$20.722 $15.403 $16.686
License & Other$12.452 $3.110 $1.354
Total Revenue$182.164 $182.136 $184.967

KPIs

KPIQ3 2023Q4 2023Q1 2024
ARR ($USD Millions)$640.4 $701.5 $720.3
NRR (%)107.2% 106.7% 107.0%

Actual vs Q1 2024 Guidance

MetricPrevious Guidance (Q1 2024)Actual (Q1 2024)Outcome
Revenue ($USD Millions)$183–$186 $184.967 Met
Adjusted EBITDA ($USD Millions)$56.5–$58.5 $61.274 Beat (above high end)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($USD Millions)Q2 2024N/A$192–$197 New
Adjusted EBITDA ($USD Millions)Q2 2024N/A$67–$69 New
Total Revenue ($USD Millions)FY 2024$786–$792 $786–$792 Maintained
Adjusted EBITDA ($USD Millions)FY 2024$267–$272 $268–$273 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2023, Q4 2023)Current Period (Q1 2024)Trend
AI/Technology InitiativesQ3: “data-centric AI solutions” and runway for sustainable growth ; Q4: launch of PowerBuddy (persona-specific AI assistant) and plan to expand across ecosystem GA of PowerBuddy for Learning and Assessment; Azure OpenAI integration; Responsible AI principles; AI readiness workshops and UAE summit Productization and customer enablement advancing (launch + readiness programs)
International ExpansionQ3: added channel partners across MEA, Asia, Europe, South America, NZ ; Q4: 14 new LATAM partners Wins in Saudi Arabia (Knights of Knowledge) and UAE (Arabian Education Development) via partners; Latin America expansion (International School of Tegucigalpa) Geographic footprint broadened with concrete wins and partner-led deals
Customer Momentum / Large DealsQ4: ~2,000 cross-sell/new logo transactions; state/territory contracts (PR, FL, MT) Largest-ever Special Programs contract (Indiana DOE) plus large-district cross-sells Continued scale with bigger state-level wins
Data Privacy / SecurityQ3: joined “Secure by Design” pledge; offered subsidized security services to US schools Emphasis on Responsible AI principles in product and readiness content Ongoing focus on responsible, secure deployments
KPIs (ARR/NRR)Q3: ARR $640.4M; NRR 107.2% (down YoY/QoQ) ; Q4: ARR $701.5M; NRR 106.7% ARR $720.3M; NRR 107.0%, +30 bps sequential improvement KPIs trending higher sequentially

Management Commentary

  • CEO Hardeep Gulati: “We opened 2024 with a strong first quarter in which we met our revenue guidance and exceeded the high end of our profitability guidance… while our continued focus on operating leverage helped drive a 2-percentage point improvement in our adjusted EBITDA margin.”
  • CEO Hardeep Gulati: “Our platform of leading K-12 solutions continues to be the preferred choice for over 17,000 school districts and states…”
  • CFO/President Eric Shander: “We demonstrated continued operational excellence and execution in line with our strategy… helping drive sustainable double-digit top line growth.”
  • Prior context (Q4 2023): “We surpassed $700 million in ARR, grew revenue double digits, increased our Adjusted EBITDA margin by over 200 basis points, and reached a new record in Free Cash Flow margin.”

Q&A Highlights

  • Q1 2024 earnings call transcript exists (Document ID 58, 2024-05-07), but transcript content could not be retrieved due to a system database inconsistency; detailed Q&A highlights are unavailable from source materials [58:—].

Estimates Context

  • Wall Street consensus estimates via S&P Global were unavailable due to missing CIQ mapping for PWSC in the estimates tool; as a result, “vs estimates” comparisons cannot be quantified for Q1 2024 using S&P Global data [GetEstimates tool error].
  • Given the raise to FY 2024 Adjusted EBITDA guidance ($268–$273M vs $267–$272M), consensus EBITDA forecasts may need upward adjustments; revenue guidance was maintained ($786–$792M) .

Key Takeaways for Investors

  • Durable growth with ARR +18% YoY to $720.3M and NRR 107.0% (+30 bps sequential) supports revenue visibility and cross-sell intensity in core K-12 districts .
  • Profitability execution: Adjusted EBITDA rose 24% YoY to $61.3M and exceeded guidance, aided by operating leverage and a 200 bps margin improvement, reinforcing margin trajectory .
  • FY 2024 guide quality: EBITDA range raised while revenue maintained; Q2 2024 guide implies continued momentum (revenue $192–$197M; EBITDA $67–$69M), offering a near-term checkpoint for performance continuity .
  • AI as a differentiator: GA of PowerBuddy for Learning/Assessment and Responsible AI readiness programs position PWSC to drive teacher workload reduction and personalized learning—potential commercial catalysts as adoption scales .
  • Mixed cash flow optics (seasonality): Q1 operating cash flow (-$89.7M) and FCF (-$102.5M) reflect deferred revenue seasonality; monitor working capital normalization and interest expense trajectory through Q2 .
  • Subscription base resilience vs license volatility: strong S&S revenue ($166.9M) underpins stability, while license/other softness highlights limited reliance on non-recurring streams .
  • Contract scale expanding: largest-ever Special Programs contract (Indiana DOE) and international wins/partner deals indicate growing deal sizes and geographic reach, a medium-term TAM driver .