pwsc-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-40684

PowerSchool Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware			85-4166024
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
150 Parkshore Drive Folsom, CA (Address of Principal Executive Offices)			95630 (Zip Code)

(877) 873-1550

(Registrant’s telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share	PWSC	The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The registrant had 203,652,282 shares of common stock outstanding as of April 30, 2024.

TABLE OF CONTENTS


Part I - Financial Information		4
	Item 1. Condensed Consolidated Financial Statements (Unaudited)	4
	Condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023	4
	Condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023	6
	Condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2024 and 2023	7
	Condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023	8
	Notes to unaudited condensed consolidated financial statements	10
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	43
	Item 4. Controls and Procedures	43
Part II - Other Information		44
	Item 1. Legal Proceedings	44
	Item 1A. Risk Factors	44
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	44
	Item 3. Defaults Upon Senior Securities	44
	Item 4. Mine Safety Disclosures	44
	Item 5. Other Information	44
	Item 6. Exhibits	45
Signatures		46

Part I - Financial Information

Item 1. - Condensed Consolidated Financial Statements (Unaudited)

POWERSCHOOL HOLDINGS, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for number of shares and par value)


	As of March 31, 2024		As of December 31, 2023

Assets
Current Assets:
Cash and cash equivalents	$	17,425	$	39,054
Accounts receivable—net of allowance of $6,543 and $7,930 respectively	61,121		76,618
Prepaid expenses and other current assets	51,609		40,449
Total current assets	130,155		156,121
Property and equipment - net	8,181		5,003
Operating lease right-of-use assets	15,900		15,998
Capitalized product development costs - net	112,810		112,089
Goodwill	2,770,971		2,740,725
Intangible assets - net	692,953		710,635
Other assets	35,897		36,311
Total assets	$	3,766,867	$	3,776,882
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	12,686	$	13,629
Accrued expenses	110,858		116,271
Operating lease liabilities, current	3,837		4,958
Deferred revenue, current	275,461		373,672
Revolving credit facility	125,000		—
Current portion of long-term debt	8,379		8,379
Total current liabilities	536,221		516,909
Noncurrent Liabilities:
Other liabilities	1,902		2,178
Operating lease liabilities—net of current	13,461		13,359
Deferred taxes	276,629		275,316
Tax Receivable Agreement liability	375,647		396,397
Deferred revenue—net of current	8,196		6,111
Long-term debt, net	810,497		811,325
Total liabilities	2,022,553		2,021,595
Commitments and contingencies (Note 12)


Stockholders' Equity:

Class A common stock, $0.0001 par value per share, 500,000,000 shares authorized, 165,726,673 and 164,796,626 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.	16		16
Class B common stock, $0.0001 par value per share, 300,000,000 shares authorized, 37,654,059 and 37,654,059 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.	4		4
Additional paid-in capital	1,532,371		1,520,288
Accumulated other comprehensive loss	(2,828)		(2,094)
Accumulated deficit	(237,945)		(218,387)
Total stockholders' equity attributable to PowerSchool Holdings, Inc.	1,291,618		1,299,827
Non-controlling interest	452,696		455,460
Total stockholders' equity	1,744,314		1,755,287
Total liabilities and stockholders' equity	$	3,766,867	$	3,776,882

See notes to condensed consolidated financial statements.

POWERSCHOOL HOLDINGS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands except for per-share data)


	Three Months Ended March 31,
	2024		2023
Revenue:
Subscriptions and support	$	166,927	$	141,073
Service	16,686		16,233
License and other	1,354		2,148
Total revenue	184,967		159,454
Cost of revenue:
Subscriptions and support	46,327		38,194
Service	13,383		14,323
License and other	1,071		951
Depreciation and amortization	19,080		16,021
Total cost of revenue	79,861		69,489
Gross profit	105,106		89,965
Operating expenses:
Research and development	31,651		25,421
Selling, general, and administrative	52,432		49,558
Acquisition costs	753		—
Depreciation and amortization	17,349		15,771
Total operating expenses	102,185		90,750
Income (loss) from operations	2,921		(785)
Interest expense—net	20,996		14,029


Other expenses (income)—net	(99)		44
Loss before income taxes	(17,976)		(14,858)
Income tax expense (benefit)	4,872		(45)
Net loss	(22,848)		(14,813)
Less: Net loss attributable to non-controlling interest	(3,290)		(2,960)
Net loss attributable to PowerSchool Holdings, Inc.	(19,558)		(11,853)
Net loss attributable to PowerSchool Holdings, Inc. Class A common stock:
Basic	$	(19,558)	$	(11,853)
Diluted	$	(24,131)	$	(11,853)
Net loss attributable to PowerSchool Holdings, Inc. per share of Class A common stock, basic and diluted	$	(0.12)	$	(0.07)
Weighted average shares of Class A common stock:
Basic	165,037,089		160,506,571
Diluted	202,691,148		160,506,571
Other comprehensive income (loss), net of taxes:
Foreign currency translation	(734)		86
Change in unrealized loss on investments	—		3
Total other comprehensive income (loss)	(734)		89
Less: Other comprehensive income (loss) attributable to non-controlling interest	$	(136)	$	17
Comprehensive loss attributable to PowerSchool Holdings, Inc.	$	(20,156)	$	(11,781)

See notes to condensed consolidated financial statements

POWERSCHOOL HOLDINGS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)


	Class A common stock			Class B common stock			Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit		Non-controlling interest		Total
	Shares	Amount		Shares	Amount
Balance—December 31, 2023	164,796	$	16	37,654	$	4	$	1,520,288	$	(2,094)	$	(218,387)	$	455,460	$	1,755,287
Issuance of common stock upon vesting of Restricted Stock Awards	931	—		—	—		—		—		—		—		—
Share-based compensation	—	—		—	—		14,843		—		—		—		14,843
Net share settlement of equity awards	—	—		—	—		(65)		—		—		—		(65)
Other comprehensive income (loss)	—	—		—	—		—		(734)		—		—		(734)
Allocation of equity to non-controlling interests	—	—		—	—		(526)		—		—		526		—

Adjustments to deferred taxes and Tax Receivable Agreement liability	—	—		—	—		(2,169)		—		—		—		(2,169)
Net loss	—	—		—	—		—		—		(19,558)		(3,290)		(22,848)
Balance—March 31, 2024	165,727	$	16	37,654	$	4	$	1,532,371	$	(2,828)	$	(237,945)	$	452,696	$	1,744,314


	Class A common stock			Class B common stock			Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Non-controlling interest		Total
	Shares	Amount		Shares	Amount
Balance—December 31, 2022	159,596	$	16	39,928	$	4	$	1,438,019	$	(2,122)	$	(187,250)	$	485,277	$	1,733,944
Issuance of common stock upon vesting of Restricted Stock Awards	1,000	—		—	—		—		—		—		—		—
Share-based compensation	—	—		—	—		15,280		—		—		—		15,280
Net share settlement of equity awards	—	—		—	—		(1,284)		—		—		—		(1,284)
Other comprehensive income (loss)	—	—		—	—		—		89		—		—		89
Allocation of equity to noncontrolling interests	—	—		—	—		(772)		—		—		772		—
Exchange of Class B common stock for Class A common stock related to secondary offering	2,274	—		(2,274)	—		27,642		—		—		(27,642)		—
Adjustments to deferred taxes and Tax Receivable Agreement liability related to secondary offering	—	—		—	—		(1,255)		—		—		—		(1,255)
Net loss	—	—		—	—		—		—		(11,853)		(2,960)		(14,813)
Balance—March 31, 2023	162,870	$	16	37,654	$	4	$	1,477,630	$	(2,033)	$	(199,103)	$	455,447	$	1,731,961

See notes to condensed consolidated financial statements.

POWERSCHOOL HOLDINGS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net loss	$	(22,848)	$	(14,813)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization	36,429		31,792
Share-based compensation	14,155		14,549
Amortization of operating lease right-of-use assets	851		788
Change in fair value of contingent consideration	20		(450)
Amortization of debt issuance costs	1,487		876
(Benefit from) provision for allowance for doubtful accounts	(1,272)		369
Loss (gain) on lease modification	(37)		52
Loss (gain) on sale/disposal of property and equipment	(816)		48
Changes in operating assets and liabilities — net of effects of acquisitions:
Accounts receivables	17,748		8,360
Prepaid expenses and other current assets	(9,922)		(7,135)
Other assets	191		(2,283)
Accounts payable	(646)		250
Accrued expenses	(25,371)		(16,512)
Other liabilities	(1,654)		(1,753)
Deferred taxes	4,533		(494)
Tax Receivable Agreement liability	323		16
Deferred revenue	(102,856)		(73,687)
Net cash used in operating activities	(89,685)		(60,027)
Cash flows from investing activities:
Purchases of property and equipment	(3,887)		(356)

Investment in capitalized product development costs	(8,956)		(9,676)

Acquisitions—net of cash acquired	(36,062)		—

Payment of acquisition-related deferred consideration	(5,800)		—
Net cash used in investing activities	(54,705)		(10,032)


	Three Months Ended March 31,
	2024		2023
Cash flows from financing activities:
Taxes paid related to the net share settlement of equity awards	(65)		(1,284)
Proceeds from Revolving Credit Agreement	140,000		—




Repayment of Revolving Credit Agreement	(15,000)		—

Repayment of First Lien Debt	(2,095)		(1,938)




Payment of contingent consideration	(245)		—

Net cash provided by (used in) financing activities	122,595		(3,222)
Effect of foreign exchange rate changes on cash	166		73
Net decrease in cash, cash equivalents, and restricted cash	(21,629)		(73,208)
Cash, cash equivalents, and restricted cash—Beginning of period	39,554		137,981
Cash, cash equivalents, and restricted cash—End of period	$	17,925	$	64,773
Supplemental disclosures of cash flow information:
Cash paid for interest	$	19,129	$	13,695
Cash paid for income taxes	890		390
Supplemental disclosures of noncash investing and financing activities:
Property and equipment additions in accounts payable and accrued liabilities	$	507	$	317
Capitalized interest related to investment in capitalized product development costs	374		296
Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents	$	17,425	$	64,273
Restricted cash, included in other current assets	500		500
Total cash, cash equivalents, and restricted cash	$	17,925	$	64,773

See notes to condensed consolidated financial statements.

POWERSCHOOL HOLDINGS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. BUSINESS

Background and Nature of Operations

PowerSchool Holdings, Inc. (the “Company,” “PowerSchool,” “we,” “us,” or “our”) was formed as a Delaware corporation on November 30, 2020 for the purpose of completing an initial public offering (“IPO”) and a series of transactions in order to carry on the business of PowerSchool Holdings LLC (“Holdings LLC”), formerly known as Severin Holdings, LLC. Our Principal Stockholders are Onex Partners Managers LP (“Onex”) and Vista Equity Partners (“Vista”).

The transactions included amendments to the Company’s operating agreement to modify its capital structure by replacing the membership interests then held by its existing owners with a new class of membership interests (“LLC Units”) held initially by Severin Topco LLC (“Topco LLC”), a portion of which have a participation threshold (the “Participation Units”) and appointing the Company as the sole managing member of Holdings LLC; issuance of unrestricted and restricted Class A common stock in exchange for vested and unvested pre-IPO share-based awards, issuance of 39,928,472 shares of Class B common stock, par value $0.0001 per share to Topco LLC, on a one-to-one basis with the number of LLC Units (other than Participation Units), restructuring of certain entities (“Blocker Entities”) associated with the Principal Stockholders, and execution of an exchange agreement (the “Exchange Agreement”) with Topco LLC. Pursuant to the Exchange Agreement, Topco LLC is entitled to exchange LLC Units (other than Participation Units), together with an equal number of shares of Class B common stock, for shares of Class A common stock on a one-for-one basis or, at its election, for cash from a substantially concurrent public offering or private sale. Participation Units may be exchanged for a number of shares of Class A common stock based on an exchange formula that takes into account the current value of a share of Class A common stock and a pre-determined participation threshold. Additionally, the Company entered into a tax receivable agreement (the “TRA”) with Topco LLC, and the Principal Stockholders that provides for the payment by the Company to Topco LLC and the Principal Stockholders, collectively, of 85% of the amount of cash savings, if any, in U.S. federal, state and local income taxes. Collectively, these transactions are referred to as “Organizational Transactions”.

The Company’s cloud platform is an integrated, enterprise-scale suite of solutions purpose-built for the K-12 education market. The Company’s platform is embedded in school workflows and is used by educators, students, administrators, and parents. Its cloud-based technology platform helps schools and districts efficiently manage state reporting and related compliance, special education, finance, human resources, talent, registration, attendance, funding, learning, instruction, grading, assessments, communications, and analytics in one unified platform. The Company’s integrated technology approach streamlines operations, aggregates disparate data sets, and develops insights using predictive modelling and machine learning.

The Company is headquartered in Folsom, California, and together with its subsidiaries has locations in the United States (“U.S.”), Canada, India, and the United Arab Emirates.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying interim condensed consolidated balance sheet as of March 31, 2024, the interim condensed consolidated statements of operations and comprehensive loss and stockholders’ equity for the three months ended March 31, 2024 and 2023, and cash flows for the three months ended March 31, 2024 and 2023, and the notes to such interim condensed consolidated financial statements are unaudited.

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. As permitted under those rules, we have condensed or omitted certain footnotes or other financial information that are normally required by GAAP for annual financial statements.

These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in management’s opinion, include all adjustments necessary to state fairly the consolidated financial position of the Company as of March 31, 2024, the results of operations for the three months ended March 31, 2024 and 2023 and cash flows for the three months ended March 31, 2024 and 2023. These adjustments consist of normal and recurring items. The results of operations for the three months ended March 31, 2024 and cash flows for the three months ended March 31, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024 or any future interim or annual period. Our unaudited interim condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and related notes provided in our Annual Report on Form 10-K for the year ended December 31, 2023.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

Use of estimates is required in the preparation of the consolidated financial statements in conformity with GAAP. Management makes estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that it believes are reasonable under the circumstances.

The estimates the Company evaluates include, but are not limited to:

•the fair value of assets acquired and liabilities assumed in business combinations, including acquired intangible assets, goodwill, contingent consideration, and liabilities associated with deferred revenue and deferred taxes;

•the average period of benefit related to contract cost assets;

•the allowance for doubtful accounts;

•the fair value of certain stock awards;

•the useful lives and recoverability of long-lived assets, including capitalized product development costs

•the recognition, measurement, and valuation of deferred income taxes

•the actual amounts and timing of payments under the Tax Receivable Agreement

Actual results could differ from those estimates under different assumptions or conditions.

Accounting Pronouncements Recently Adopted

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosure. This update enhances the disclosures for income tax rate reconciliation whereby entities are required to disclose specific categories in the rate reconciliation and provide additional information for reconciling items which meet a certain qualitative threshold. The guidance is effective for the Company beginning on January 1, 2024. The accounting pronouncement did not have a material impact on our Consolidated Financial Statements and related disclosures.

Cash and Cash Equivalents

The Company considers all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents.

Significant Accounting Policies

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2023 that have had a material impact on our condensed consolidated financial statements and related notes.

3. BUSINESS COMBINATIONS

The Company completed one acquisition during the three months ended March 31, 2024 and two acquisitions in fiscal year 2023. The purchase price allocation for these acquisitions, discussed in detail below, reflects various fair value estimates and analyses, including certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income taxes and goodwill. Measurement period adjustments are recorded in the reporting period in which the estimates are finalized and adjustment amounts are determined. The measurement period is one year from the acquisition date. The fair value of the assets and liabilities acquired are based on valuations using the Level 3, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The valuation techniques include the use of a discounted cash flow model in an income or market based valuation approach.

The results of operations of these business combinations have been included in the Company’s consolidated financial statements from their respective acquisition dates.

Fiscal 2024 Acquisitions

Allovue, Inc (“Allovue”)

On January 22, 2024, the Company acquired all of the equity interests of Allovue. Allovue is a leading provider of K-12 financial budgeting and planning software. The purpose of the acquisition was to enhance and expand PowerSchool’s product offerings.

The total purchase price for Allovue was $38.2 million, which included cash of $37.0 million and deferred consideration of $1.2 million. Transaction costs of $1.3 million were incurred related to this acquisition and are recorded in acquisition costs in the consolidated statements of operations and comprehensive loss. The Company has accounted for this acquisition as a business combination and recognized net tangible liabilities of $1.9 million and recognized $9.0 million of intangible assets consisting of developed technology of $5.4 million, customer relationships of $2.8 million, and trademarks of $0.8 million. The acquired net assets assumed were recorded at their estimated fair values. The estimated values of the intangible assets were determined by the assistance of valuation specialists and estimates made by management.

The Company recorded goodwill of $31.0 million, none of which is expected to be deductible for tax purposes. The goodwill is a result of the growth expected by creating a comprehensive education technology portfolio.

Fiscal 2023 Acquisitions

Jarulss Software Solutions Private Limited (“Neverskip”)

On August 9, 2023, the Company acquired all of the equity interests of Neverskip. Neverskip is a leading provider of school solutions software in India. The purpose of the acquisition was to enhance and expand PowerSchool’s product offerings.

The total purchase price for Neverskip was $10.0 million, which was paid in cash. Transaction costs of $0.7 million are recorded in acquisition costs in the consolidated statements of operations and comprehensive loss. The Company has accounted for this acquisition as a business combination and recognized net tangible liabilities of $2.4 million and recognized $6.6 million of intangible assets consisting of developed technology of $1.8 million customer relationships of $4.9 million and $0.01 million of trademarks. The Company recorded goodwill of $5.7 million arising from the acquisition, none of which is expected to be deductible for U.S. income tax purposes.

The goodwill is a result of the growth expected from continuing to create a comprehensive education technology portfolio.

SchoolMessenger

On October 2, 2023, the Company acquired all of the equity interests of SchoolMessenger. SchoolMessenger is a leading provider of K-12 communication tools in North America. The purpose of the acquisition was to enhance and expand PowerSchool’s product offerings.

The total purchase price for SchoolMessenger was $300.3 million, which included cash of $290.3 million and deferred consideration of $10.0 million. Transaction costs of $2.3 million were incurred in the year-ended December 31, 2023 related to this acquisition and are recorded in acquisition costs in the consolidated statements of operations and comprehensive loss.

The Company has accounted for this acquisition as a business combination. The consideration and the acquisition date fair values of the assets acquired and liabilities assumed are as follows (in thousands):

SEC Form 10-Q filed by PowerSchool Holdings Inc.