Q2 2021 PowerSchool Holdings Inc Earnings Call
And we will continue to lead our growth.
I will also like to thank our customers for trusting us as a partner in their success and we are honored to serve the education community.
A tremendous responsibility and we're deeply invested in helping new euro educators and your students realize their full potential.
We had a great start to the year the strong business momentum continued into our second quarter, resulting in strong and balanced results.
Our highly recurring business model provides us with visibility into our future results, giving us confidence in our ability to continually deliver in a predictable fashion.
We generated over $145 million of revenues in Q2, representing 41% year over year growth and over $50 million of adjusted EBITDA in Q2, representing 59% year over year growth and a 387 basis points improvement in margin compared to the prior year.
We continue to see.
Through cross sell with the IRR growing to over $526 million, representing 31% year over year growth.
And it will be providing more details on our Q2 financial results later in the call.
It was great to meet many of you during our IPO Roadshow, and we look forward to getting to know many of you in the future.
As some of you may be new to the story I would like to first spend a few minutes to take you through an overview of our scope.
Second I want to talk about our growth sectors, and then finish up on how these vectors drove growth in our first half of 2021.
Let's start with the overview of our scope.
At power square, we empower the K 12 education ecosystem of school districts and Education Department.
To enable educators administrators and parents to deliver the best education to every child, allowing them to realize their full potential.
What makes us unique we are the pioneer.
And the leading provider of cloud based software for K 12 education market.
Selling organization, representing over 45 million students <unk>.
Including 70% of all K 12 students in U S and Canada.
93 of the top 100 largest school district in U S. Auto customers. We also have 30 state province, and territory departments of education as other customers.
We differentiate by providing what we believe is the most comprehensive software suite for K 12, with a unified platform.
That not only includes the core system of record.
But also the system of engagement.
Our classroom products.
Our instructional products as well as system of intelligence used by school districts and state departments of education.
Our customers Elias.
To help power their operations instruction their financials their compliance and insights to drive better education outcomes.
We are the only company that brings together.
<unk> market, leading student information system with market, leading classroom tools like LMS assessment special education, and as well as our back office systems, like ERP talent management, and including college and career readiness solutions under one roof.
One of the other things, which makes US unique is we are mission critical to K 12.
Our customers rely on us for.
Key District and school Operation Take example, if you are among the 19 million students for using our student information system.
But danny attendance grades behavior, all the different information the school needs too.
Capture to scheduled classes and manage the school operations.
Gets managed and of our XI system.
If you are among the 19 million sooner.
Students also using of a classroom products.
We actually manage the learning management through our synergy LMS, which is one of the market leading LMS products in K 12.
As well as our best in class Formula Assessment platform, and also where market leading special education technology.
Through our ERP and our talent management, we are providing support for millions of features around talent management recruiting them onboarding them.
Professional development for them as well as managing ERP and payroll for many of those school districts.
30% of the high school students also have access to our <unk> College and career life readiness solution to help them apply for colleges as well as prepare them for life.
Our analytics platform actually has deployed around 12 state promising territories, managing unified insights to help them improve and managed better student outcomes.
We are truly invested in the boat educators around their student's success.
We believe our breadth of product and scale unmatched and provide differentiated and measurable benefits to all stakeholders.
According to a survey conducted by digital promised in 2017, 74% of the U S School districts used more than 26 different technology products and only 33% of those districts have integrated the majority of the technology tools.
We build the entire unified platform with that in mind, eliminating manual processes unifying disparate data sources.
Timidly, driving better teacher effectiveness in store and outcomes.
Today thousands of our customers are enjoying these benefits by using multiple products across the street likes of Detroit, Seattle States of Delaware and Arkansas.
Exclude district have suddenly increase investment in cloud based software solutions and we believe the adoption trend will continue fixed rate post COVID-19.
The past year and a half has been a seminal moment for education driving secular step function change in the pace of technology adoption.
Supported by government stimulus and proposed policy changes.
That will continue to drive spending growth in that tech and in ton well into this broader technology footprint well into the future.
We believe this trend towards increased adoption is here to stay.
Even more so now our customers need modern cloud based unified solutions like ours to operate in this hybrid environment.
Look to identify and assess the learning exploration opportunities.
Keep up with the changing regulations and guidance within K 12 education.
We are very well positioned to benefit from these ongoing trends and further exploration from this shift.
Our broad scale engagement with all constituents in a single sector focus has made US one of the most strict look nice and trusted brands and K 12 market.
It's still early in the game for us that has tremendous opportunity ahead of us.
And to provide more value to our customers and continue to expand our footprint within K 12 education.
With that let me go into our growth vectors.
The growth opportunity ahead for us as evidenced our focuses on sustainable predictable growth through a diversified portfolio of solutions.
And we've captured through several interrelated vectors.
Let's start with the Tam.
The Tam and net SEC is large and growing over.
Over 900 billion is spent each year on K 12 education in U S and Canada.
This funding has steadily grown over time.
External it spending represents a $13 billion and growth in software solution is outpacing the overall growth of education spending.
As you know, we only capture a fraction of that opportunity with our current IRR.
We have an opportunity to grow the business to a multiple of where we stand today, just through cross selling to our existing customer base.
As I mentioned earlier, we currently reach over 70% of the students in U S and Canada within our customer base.
Our average customer today only owns about to offer 15 available go to market products.
And thousands of customers have already.
Leverage and benefiting from multiple products.
Our sales and marketing team of four 370 individuals as one of the largest in casual at Tek in North America, and both organized and incentivize innovate that maximize them an ability to grow our share of the wallet within our customer and provide more value and impact of our educators.
Given that 70% of this market <unk> that is still a lot of white space.
And new customers with thousands of districts, we do not reach today to whom we are well positioned to bring our solutions.
The Quechua market is very large and underpenetrated in North America and globally with many districts either relying on legacy platform or manual processes. We are strategically positioned to grow as <unk> continued to digitally transform their instructional administrative and back office technology in favor of modern cloud solutions.
There is tremendous opportunity to expand our platform both organically and through M&A, Although we provide a broad suite of solutions to our customers today that is further opportunity to unify the.
Ecosystem.
As our customers demand more integrated processes and seamless experience.
Across the technology infrastructure.
We have identified several strategic agency that would benefit from a unified approach and we will continue to deepen our platform.
Through R&D investment as well as strategic partnerships and M&A.
We have completed four strategic acquisitions over the past two years.
Each of which has driven additional organic growth.
Through cross sell into our existing base and.
And we expect to continue to be very acquisitive in the future.
Beyond back then its future upside opportunity to grow well into the future.
The international market represents one 3 billion student and an opportunity to multiply our Tam from the 61 million students.
Which are our target in U S and Canada. Today. We also believe that we are best positioned to deliver upon a true personalized learning solution that brings contextualize competency based individualized learning support for every child and further expands our Tam.
We stay true to our mission of helping educators and students achieve their potential.
Our customers have seen real improvements in our cabinet outcomes have been able to use of analytics to identify and address loading gaps and improve the core operations and we are humbled to serve the education industry, especially during these times.
Let's move our focus to the first half momentum and growth.
<unk> environment for K 12 education remains robust.
Has ensured continued investment in technology from our customers and has helped to support the strong business philosophy.
That shows up in our Q2 results.
Let me highlight few of the key things our revenue and IRR grew 41% and 31% <unk> respectively.
We closed over 400 cross sell transactions in Q2 alone with net retention of 108%.
Overall over 750 transactions were north of $10000.
Almost all of them customers, we're engaged with our services team deploying solutions in Q2.
Including over 800 unique product go lives.
In first half alone we've reached millions of new students through cross selling.
Our additional solutions.
Our customers are continuing to invest.
In our unified solutions for digital transformation.
Superb operating in this hybrid environment required as well as providing blended learning identifying learning GAAP and then helping extra rate lending gains.
With proper intervention and support.
As well as improving the overall college and career readiness.
Trends, we are seeing even more critical with the current disruptions from Covid.
And supported by the additional stimulus available to them to support this transformation.
We continue to support our customers' digital transformation efforts.
Across their front and back office.
Over 200 cross sell and new product wins, and our student information system, ERP and talent product line.
Our assist leadership as I mentioned the <unk>.
30% market share in U S is key to our success.
We continue to build on that for.
For example, we recently were selected as the new SaaS provider for Epic Charter School.
Around 50000 students Lancaster city, and many other K 12 organization.
We also see expansion and upsell of our solutions like within South Carolina, a long time <unk> customer across the entire state.
That grew their deployment by adding a R E collect and enrolment products across the entire state.
Helping to further bring administrative value to them and their district.
We don't have our ERP in talent product line, similarly organizations like FERC clean Baltimore County.
<unk> and several of those have added these products or the deployments.
Similarly, the new classroom and LMS adoption is continuing in 2021.
We still believe over 50% of the districts do not use a true enterprise element.
For example, just this year, we have added over 1 million additional students towards Squillagee LMS add districts like Miami Dade Newark, Public school tolerance and send them on here in California.
We would already.
You have the largest single district paid elements implementation in the U S.
And we will have now the second largest with Miami Dade.
Who are the fourth largest school district by student enrollment in U S.
They selected a unified comps from machine learning products.
To modernize the instructional technology complementing their existing use of our formative assessment platform the performance matters, which have been deployed for many years across the entire school district.
Unified insights powered by our recent acquisition of <unk> has also performed well above expectations as the K 12 market has seen the critical need of analytics to help identify GAAP and help extra rate loaning games.
With over 60, plus customers, including logistics like San Bernardino, Virginia Beach have selected unified insight in the first half of this year to add a layer of data intelligence and transparency to their districts and community.
Our recent acquisition of <unk> has been very well received by our customers.
We're excited to see integration of Navient Smith breath of the possible solutions.
Especially your customers off.
Yes.
Our insights and <unk>.
<unk> C is real value and high school students by creating a unified experience.
Between the regular course work as well as the college and career planning.
The business continued to grow post acquisition, but dozens of new district selecting the platform in Q2, including <unk>.
Like Salinas and Rialto here in California.
Beyond backed integration of our organization and internal systems are progressing as planned and we are seeing the benefits of bringing the two teams together.
This demand for solutions that help accelerate learning outcome and improved school operation as evidenced our solutions are filling that need for our customers and helping to drive real impact but in their community.
We launched our unified costs from 2021 relief in Q2.
Which is the first solution in the market of its kind that connects our learning management tool.
Our <unk> product along with the formative assessment embedded solution.
Specialty program as well as connected deep into our CRM information system to help educate us deliver four slides all channel instruction.
Our products are receiving industry praise and recognition with multiple awards from Ed Tech breakthrough as.
<unk> Codie awards.
Excluding chi for unified inside <unk>, and our entire unified platform.
This momentum recognition and the impact we are seeing with our products.
Customers then people is very encouraging and gives us a confidence in our ability to deliver to our not only our 2021, but even our 2022 and future plans.
In closing we believe we are very well positioned to continue growth of our leadership position in K 12 vertical software.
Although we have great proud of all that we have achieved so far.
We acknowledge that this is just the next step forward in serving our customers colleagues and our shareholders.
Thank you for your time and continued support.
I'll now turn the call over to Eric to discuss our financial results for the quarter and guidance for the year.
Thank you Heidi and good afternoon, and good evening, everyone before I get started I would also like to acknowledge and thank our power school team around the world for all they're doing to ensure our platform meets the needs of the educators administrators and students that rely on our mission critical products and services every day.
As I get into the performance of the quarter I'll also be providing a brief overview of our financial model. Given this is our first quarterly earnings call.
Let me first start with revenue we have three primary components of our revenue first our subscription and support revenue, which is the largest component consisting of software as a service fees from our customers accessing our solutions.
Our typical contract term length is three years in duration. However, they can range from 1% to five or more years and they are billed annually in advance our pricing is on a per student per product basis, which aligns with how our customers are funded.
We expect this revenue stream to be in excess of 85% of our business, which results in a significant part of our revenue to be predictable, enabling us to make longer term investments for growth.
The next largest component is our services revenue.
Which consist primarily of fees related to new product implementations and customization and customer training.
We expect our services revenue to modestly increase over time on a dollar basis due to the continued growth in our new product sales, which result in additional implementation and training fees.
Lastly, as our license and other revenue, which represents the smallest contributor to overall revenue and consists primarily of onetime perpetual license and partner royalty fees given.
Given the nature of this revenue can be more variable from quarter to quarter.
I will now turn to our top line financial results overall, we experienced strong business momentum in the first half of 2021.
During the second quarter, we delivered top line revenue of $149.0 million, representing a 41% year over year increase.
This growth was fueled by a consistent low double digit organic growth coupled with the full quarter impact of our most recent acquisition of <unk>, which closed in March of this year.
Our subscription and support revenue performance was strong coming in at $129.0 million, resulting in a 37, 5% year over year increase.
Our services business continued to deliver for our customers as we completed many of our projects ahead of schedule, resulting in a 35, 8% year over year growth rate for $17.0 million in revenue for the quarter.
We ended the quarter with an annual recurring revenue balance of $532.0 million.
Which represent a growth of approximately 37% over the prior year.
This balance includes the impact from our most recent acquisition of Hopkins.
As a reminder, we define IRR is the annualized value of all recurring contracts at the end of the period.
This is a useful non-GAAP metric as it mitigates fluctuations and seasonality contract term and onetime discounts.
Within our IRR over 75% was generated from our cloud based solutions, representing the contemporary nature of our unified platform and our customers' desire to embrace the power and value of our cloud based platform.
Another metric we evaluate is net revenue retention are referred to as <unk>.
We define our net revenue retention as the percent derived by dividing current reporting period.
<unk> from renewed and new sale opportunities from customers with existing IRR by prior period.
We ended the quarter at 108%, which reflects our customers' ongoing commitment to our software and solutions as well as the ability of our sales team to continue to drive cross selling opportunities into our existing customer base.
With the acquisition of Hopkins in March of this year, we started to escalate.
From our calculation of net revenue retention any changes and are are attributable to intersect customers. As this product is sold through our channel partnership with <unk> and is subject to annual revenue minimum commitments. Therefore, the business is not managed with the net revenue retention focus.
Now, let's turn to the rest of the P&L. Please note unless otherwise stated all references are on a GAAP basis.
All non-GAAP financial measures are detailed and reconciled to our GAAP results in the earnings press release that was issued this statement.
Overall gross profit for the second quarter was $91.0 million, representing a 58, 9% gross margin.
This compares with a gross profit of $58.0 million and a 55, 4% gross margin in the same period last year.
The full quarter impact of the acquisition of <unk> is a large driver of the dollar increase year over year.
The year over year 350 basis point improvement.
Flex the impacts of our operational and hosting related efficiencies that we delivered this year.
Our non-GAAP adjusted gross profit for the quarter came in at $105.0 million or <unk> 68, 5%.
This compares to an adjusted gross profit of $70.0 million or 65, 2% for the same prior year period.
We believe this non-GAAP measure of adjusted gross profit is an effective indicator of the underlying business economics, given the impact of items, such as depreciation and amortization share based compensation restructuring and acquisition related costs have on cost of goods sold.
From our subscription and support standpoint, our gross margin came in at 72, 4% as compared to 69, 9% for the same period last year with the favorable variance being driven by the continued hosting and operational efficiencies driven in 2021.
Turning to our services business gross margins remained relatively consistent year over year coming in at 24% for the quarter compared to 23% for the same period a year ago.
Total operating expenses in the second quarter were $77.0 million or <unk> 47, 4% of total revenue a decrease of 308 basis points as compared to the same period last year.
A significant driver of this improvement as our revenue growth demonstrating the scale and operational leverage we are experiencing in our business model. We are far along in building out the necessary infrastructure to support our growth, while also allowing for the appropriate flexibility to adjust our processes for market changes as they occur.
A top priority for us continues to be our research and development investments that drive the innovation and product differentiation that our customers value, resulting in higher retention rates and increased cross sell opportunities.
This expense will continue to be in the high teens as a percent of revenue.
For the second quarter, our research and development expense was $30.0 million or 15, 1% of total revenue representing a slight decrease of 27 basis points year over year, which reflects the continued investments we are making to deliver the best possible platform for our customers.
Our SG&A functions are also scaling to support our growth plans at efficient expense to revenue levels. Our go to market capabilities are extensive and given that we're already served over 70% of our student base in the U S and Canada, our cost of customer acquisition very efficient.
For the second quarter SG&A came in at $37.0 million or 21, 1% of total revenue representing a slight decrease of 59 basis points year over year.
Which was primarily driven by lower employee medical expenses.
And a reduction on our facilities footprint, partially offset by increased third party expenses associated with our public company costs.
Depreciation and amortization was $18.0 million or 11, 1% of total revenue a decrease of 234 basis points year over year.
Our non-GAAP adjusted EBITDA was $52.0 million up 58, 8% year over year exceeding the high end estimate provided in our prospectus by $8.0 million.
This over performance was driven by the over achievement in subscription and support revenue and $3.0 million of expense, primarily lower cost of revenue and operating expenses we.
We delivered an adjusted EBITDA margin of 34, 5% in the current quarter, representing a 387 basis point improvement versus the prior year.
Which demonstrated the operational leverage in our business model, coupled with our strong business momentum we experienced in the first half of the year.
Our GAAP operating income was $23.0 million compared to $6.0 million for the same period last year.
Representing a significant year over year improvement driven by our overall operational performance.
GAAP net loss was $7.0 million compared to a net loss of $16.0 million in the same period last year.
Turning to our liquidity and cash flows.
We ended the second quarter, where there were $27.0 million in cash and cash equivalents and approximately $1 $587.0 million and total current and long term debt, which included a $95 million revolver due to the seasonal operational cash needs in the quarter.
After the completion of the IPO in July our underwriters exercise the option to purchase additional shares.
The aggregate net proceeds from the IPO and the option exercise was approximately $767.0 million.
We used the net proceeds along with our operating cash flows to repay in full the outstanding balances of our bridge loan in the amount of $320 million.
Our second lien term loan in the amount of $365 million in.
An incremental facility in the amount of $70.0 million.
As well as $85 million of the $95 million outstanding credit revolving facility.
Since this is our first earnings call and some of you are getting familiar with our business cycle I wanted to highlight that a significant amount of our renewals take place in July which is when the fiscal budgeting near starts for many of our customers. Therefore, our collections and cash flow generation peaks in the second half of the year.
During the second quarter of 2021, we had a negative $20.0 million and free cash flow, representing an improvement over the prior year of negative $20.0 million and free cash flow.
During the second quarter of 2021 with $11.0 million in Unlevered free cash flow compared to $17.0 million in the prior year period, representing a year to year decline of $6.0 million.
Which was primarily driven by the higher investments we made in our infrastructure of $7.0 million and capitalized product development costs of approximately $2 million in the quarter.
Now turning to guidance for the third quarter of 2021, we currently expect to deliver total revenue in the range of 140 to 143 million.
Reflecting a growth of 21, 1% to 23, 7% for the same time in the prior year.
It should be noted for modeling purposes in Q2, we had over $1 million, one time benefit to subscription revenue due to the release of our revenue provision given the strength of our collections within the quarter.
We expect to deliver Q3 adjusted EBITDA in the range of 36 million to $39 million.
And for the full year 2021, we expect to deliver the following results.
Total revenue in the range of 542 million to $545 million, reflecting an annual growth of 24, 6% to 25, 3%.
And adjusted EBITDA in the range of $150 million to $153 million.
For free cash flow modeling I would use an assumed estimated capex spending of approximately $7 million.
Overall, we are very pleased with the progress we have made on our strategic initiatives and performance and the momentum of the business that was experienced in the first half of the year.
We are well positioned to continue our growth trajectory as the leading technology provider to enable and address the needs of the K 12 ecosystem as the industry continues to embrace and accelerated digital transformation.
We are confident in the investments that we've made and continue to make to deliver the value and innovation that our customers expect from power school.
With that we're now happy to open the call for questions.
Operator will you. Please open the line for Q&A.
We will now begin the question and answer question, if you'd like to ask a question. Please press star followed by one on your Touchtone keypad for any.
Arrington, thereby term impact question. Please press star followed by team again to ask a question press Star one.
Joining today's call. Please dial in and then to Taiwan as they are.
Reminder, if youre using a speakerphone. Please remember to pick up your handset before asking a question as we conduct the Q&A session. Today, we kindly ask that you limit yourself.
One question and one follow up we will pause briefly to allow questions to generate and Ken.
The first question is from the line of key.
<unk> with Barclays You May proceed.
Thanks, Hey, guys. Thanks for taking my questions here and congrats on becoming a public company.
Thanks.
Hey.
Maybe first for you.
I was wondering if you could talk a little bit about the funding environment for K through 12 schools I think you've touched on this a little bit in the prepared remarks, but clearly theres. Some theres legislation out there sort of post pandemic. That's been aimed at this segment can you just outline the parts that youre personally most excited about and when do you think it.
Translate into higher spending from your customer base.
Sure.
So thanks again for the question.
As you know education broadly spend has been a very resilient even in the most troubled market, but the recent focus both from a legislative outflows from a stimulus mix the funding even more resilient and further benefitting the long term trends.
Ed Tech, even though it's a small portion of that overall spend it's definitely been growing much faster and in fact, what we.
<unk> seen especially over the last 18 months or so there has been a bigger recognition of how much importance of technology is going to play in providing not just continue to have for education learning, but different disruptions, but also the benefits of startup Astro hard to leverage that for more equitable as well as post slight learning broadly.
As I mentioned in my comments, we definitely supporting a lot of this fixed during the Tom Chuck Tom in terms of not only helping them with their blended learning environments for the classroom products, but also supporting them on addressing the learning loss, helping them for white device interventions and support towards analytics and assessment products and have a special programs, but then also.
Broadly, helping them with the digital transformation of all the back office systems.
That trends are not just short term, we're going to continue to benefit long term in fact, a stimulus to give them the support to help manage some of the change management costs. Both in the short term as well as being able to spend that over the next few years. So we do think that the broader similar and the forecast is already building on the continued momentum it helps us.
The growth even further but more importantly, it allows us to partner with this districts with increased velocity and focus to help them manage their broader digital transformation, which began in kind of in a unique position given the breadth of the portfolio.
Got it got it that makes sense.
Eric maybe maybe for my follow up for you.
Understanding we probably won't talk about it in sort of a huge level of detail, but I was wondering if you could sort of talk about the anecdotal performance across the three main product families, namely.
Yes, unified classroom and unified administration, and whether you think there maybe any areas that could be particularly strong this year in terms of growth rate.
That makes sense.
It does I appreciate the question I appreciate the opportunity to certainly address the growth we are seeing so I think it is.
If you look at 2021.
It's also important to frame it up with what we saw in 2020.
2020, we certainly saw a rotation towards classroom specifically LMS.
We got into 2021, we really saw balance across the platform and we're really really excited about the growth across all of the product sets.
What really excites us, we see especially with all of the LMS implementations. We did last year. We're now seeing this year a lot of assessments.
The schools are getting back in and the teachers and administrators are really looking at assessing the 2020 learning loss assessment has been really.
Really exciting for us analytics with our most recent acquisition who knew it has been a really big highlight but I would just say as I look across the whole product portfolio.
There's really been a nice rebalance across all of our products and we certainly LMS is not growing as fast as it did last year, but it is growing in line with our expectations. So we're.
We're really pleased with the balance spread across and I think what we're most excited about analytics certainly assessments and then as already mentioned with the most recent acquisition of Navient. We're excited to welcome them into the <unk> family and we're.
Well, along our plans in terms of the business.
The business plan, we set in place for the acquisition.
Got it very helpful. Thanks, guys I'll get back in queue.
Okay.
Thank you Mr Collier.
The next question is from the line of Matt Hedberg with RBC you May proceed.
Oh, great. Thanks for taking my question guys. Congrats from me as well I'm going IPO.
Quarter.
I think you noted that most of your customers take two with your 15 products.
For those districts or schools that see some of the highest levels of penetration.
Can you talk about that Aha moment that led to maybe that extension and perhaps how that can be replicated across your overall base.
Yes, Thanks, Matt the comment of IPO was a big miles for our company and we're very excited about the momentum in the first half to broaden cushion. This is what the possible mission has been is that what we saw is a clear opportunity in the market, but while there aren't being technology niche solutions. There is lack of unified platform, which.
Brings together and helps connect not just the seamless experience, but in fact, the data and insights to help districts banner improve education outcomes.
As we mentioned, we've gone and we actually saw almost 70% of the U S.
Canadian students, but what we see is still back on average it with districts are using almost too.
A little over to offer products.
We see as a big benefit to prolonged districts multiple modules, we already have thousands of customers actually who are using multiple modules.
Our customers like to try who has recently spoken on edge conference and talked about the value of a unified platform. We similarly have tons of the.
Districts, who are continuing to expand the platform. We gave an example of Nuomi did starting with performance matter assessment expanding to Squillagee Baltimore County is a great one signing with full achieved buying assessment analytics, we have.
The new.
New charter school less positions as I mentioned epic in my notes now, reflecting on an ASP spawn sfas, but actually selecting all of the multiple modules to kind of deploy unified suite there as well. So we see these districts are benefiting significantly from helping them make the experience for the peaches seamless.
So teachers won't have to navigate through five different systems to run the classroom, but more importantly, even from a student an opinion and perspective that you can actually give them the benefit of the full at whole child view and they are able to help things even like grade grading, making it easier to have it flow through from your learning management Antonio <unk>.
Whether you bring standard base, creating taking an assessment the understanding of the special needs requirement, bringing it altogether in a whole chunk deal. So you can actually every educator and every chance can benefit from that that has been a big aha moment for lot of our districts and that's why you see the lights of Detroit, Seattle, and many more who are kind of a bomb.
Things, it's multiple modules.
That's great and as a parent or a couple of kids that are.
Multiple power school users they don't necessarily know that but we certainly appreciate everything you've done for them.
I guess, Eric I mean, I think the growth algorithm is super interesting here I think one of the things Thats really.
Interest income you, obviously, you've still got a huge opportunity North American, Canada, but but internationally I know you touch less than 5% of global students you have a fairly wide international footprint a lot of them are U S based schools International schools, but how do you think about the expense allocation to go after that international opportunity and where does that stack up in terms of your priority list.
Yes, So first Matt I. Appreciate the question look we are given the fact that we're in 70% of the students in the U S and Canada today with average customer using two of our 15 modules. We've got a tremendous opportunity just to continue with the cross sell motion and achieve our growth plans for the next several years having.
Said that though we do we do look at the international opportunity.
We're going to look for the right opportunities and really the things that have made us successful in the U S and Canada and replicate those on the international stage.
I would say is it's not there isn't a significant amount of international growth Thats factored into my long range planning, but as we look out the next 12 to 18 months.
Absolutely are looking for opportunities to get into the international stage, but we're going to do it on a very metered fashion, because we've got enough growth opportunities with with the current.
With the current regions that we're in Meanwhile, obviously as we look a few years out we do know with the international representing $4.0 billion students that we're not serving.
If you just think about the math on that is even if we just got a couple of dollars per student right even half of the international students that makes the company a multiple of where it's at so longer term internationally as it is a nice opportunity for us, but we're going to really be metered in how we look at it and really make sure that.
We go after the right opportunities at the right time, so what I would just encourage everybody to think about it it's a little bit on the mid range plan in terms of from an investment cycle and then certainly a couple of years out before we start to see any kind of meaningful contribution from the international space.
Makes it makes a lot of sense, thanks, guys and best of luck.
Yes, Thanks, Matt <unk>, calling on behalf of tubing and hospital based I think this is the exactly the vision, what we have and the value we provide them with insights as a repayment in every student and teacher sees that the challenge of dealing with multiple technologies and how that impacts learning as well as improving education outcome. So thank you for the comment.
Thank you Mr Hedberg.
The next question is from the line of Frederic has merit.
With Macquarie you May proceed.
Hi, Thank you for this.
On the I suppose the other end of the spectrum back.
A while ago now aggregate <unk> kids and I believe that in those days.
And powerful with effectively the entire digital transformation strategy among public school districts. So now coming full circle, if a pleasure to be hosting parcel in the public markets and be able to actually ask questions to the team that helped by smooth.
Steps towards being a digital institution.
I'd like to begin with a question around M&A and powerful is unclear about how M&A of course with growth strategy globally.
Global SaaS, how do you typically approach that build versus buy versus partner debate when we find platform extensive opportunities.
When do you think that M&A is the correct.
Do you think about managing both margin and leverage of an acquisition.
Great question, Frank again, great to have you guys. Our next few that are possible as you know we've been a pioneer in broader web based and cloud based.
Solutions for K 12 for almost more than two decades of our solutions our leadership not just in insurance system, but most of our products, which we brought into the possible family lifestyle Lucci liked <unk> they've been around for a long time and really are market leaders in each of their segments. So definitely we have a lot of fans following people who have actually yielded into what actually have called the.
Revenue for the <unk> to your point as.
As we look at M&A.
It's actually.
A couple of key factors that we definitely as you know looking at technologies, which can scale not just within North America better than international.
The first look at that.
M&A is always around the strategic fit for the value we are creating for our districts as well as looking through the leadership, we can in terms of being able to not just address that solution for that particular market, but look at broadly as well as to how scalable that platform is and be able to do that and more.
And no surprise, if you look at it.
Acquisitions, even over the last two years like school with <unk>.
The leadership they have the platform scalability, what they have in it.
Millions of students.
Really a test to the the scalability, but also from the impact tubular education outcomes. So take example law for our customers who are actually using our suite of information our <unk> as well as a lobbyist are really excited about our recent acquisition of <unk>, because they see that imagine being able to bring the collagen <unk>.
Craziness into the normal course planning so that the kids are able to select the right courses, which will help them towards their goal, but then also being able to have the bureau flow that easily and be able to better engage and re Charles in pattern in that process, our districts and commenting that bringing these pieces together.
Increasing the contribution rates in college.
Application by significant just by bringing these solutions together so thats. The dialogue, we have with also a districts or whatnot that just some fees around the entire hall charter around the entire loading process, which helps other districts of cheap better education outcomes and we continue to expand that analytics is going to has been another acquisition recently.
That was very timely given the focus not just in shock them learning loss, but broadly being able to understand actress Kate and being able to provide the right intervention on health and then having the beauty of the mall.
Longer term predictability as well so we have a compounding who recently spoken about edge pump.
All of them, helping up not just district on the throne outcome, but also on better operational and financial management of cost the district as well. So these are all strategic adjacencies as we continue to expand but we do look at it from the angle from the product strength in terms of your point about how do we really dialed back on.
<unk>.
On the margins as well.
Given the scale of our school both from.
Infrastructure of the one of the big sales and market channel along with our R&D.
<unk> gives us a lot of potential to be able to bring more profitability to these acquisitions, both from a growth top line as well as from a bottom line improvements so pretty much in majority of the acquisitions that we've done we have been able to have them accretive on growth side as well as being able to have them accretive on the profitability side.
That engine allows us to really go after a fixed.
A big spectrum of comp.
These out there we already have hundreds of partners awarded another possible ecosystem and that also gives us a good ability to understand what companies and what products are resonating with our customers and then being able to select the zombies different criterias offer good value to the customer leadership as well as being able to have them as growth.
So when we look at that Holistically in our approach to bump is M&A and some of them. We actually look at buy build in terms of the investment required for us to organically do it as well as the if the technology is not there then we will organically build those pieces of technology like what we have done it with our unified cloud from components.
Okay I'll answer your question.
Okay.
Thank you Mr half man.
The next question is from the line of Karl Keirstead with UBS.
You May proceed.
Oh great.
Thank you everyone, maybe I'll ask one for Hardie one for Eric.
So Eric mentioned that July tends to be a big renewal period for power school. So I'm sure we'll talk about it more on the.
The next earnings call and I'm sure. It's reflected in your third quarter guidance, but Im wondering if you could offer some high level perspective on how that renewal performance went and then for Eric Eric It looks like the full year adjusted EBITDA of $51.0 to 153 is.
Above at least what we were modeling by a factor much more than the amount by which revenues are above so it looks like there is some.
Some cost control.
Helping on the adjusted EBITDA side do you mind, describing that is it perhaps less dilution from hopkins or any of the other acquisitions, perhaps you could.
Identify the two or three things that are resulting in that outcome. Thanks. So much.
Thanks, Col. One right kick it off and then I'll hand, it over to Eric culture point about the neural generally for any <unk> July August are typically in September are typically the big renewals.
<unk> given the budgeting cycles.
We have definitely been on plan with our.
Renewal cycle.
As you know that our solutions are very mission critical to school districts like without a student information system to Comtech attendance Dupont scheduled across those two concepts.
For the state and the federal requirements without a special education you cant.
Be compliant with the ideas federal requirement or if you are.
Sure.
States acquired lots of Accountability Bash flows, which are coming through our analytics as well as through our assessment and our loan management component and as well as on the future.
Management side as well so all of these.
Very mission critical to the flows the districts need to operate so they are very sticky and especially we have been playing a and a bigger role.
In terms of these districts.
As they are looking at continuing hybrid learning and also being able to manage through the process. So as you can imagine of our renewals are definitely reflective of the ongoing mission criticality, but also further benefiting and we have definitely seen that to be a trend in that split those are reflected on our broader metric pension trends under the new person.
What we shared in the call as well.
Let me talk to electronics, so he can comment on.
Carl I appreciate the question and certainly the recognition of the continued expansion of our margin so as we've.
Historically, we've always been focused on topline growth as well as profitability. So we do run a very very efficient.
Organization, and what I would just offer up as some of the some of the efficiency Youre, saying is there is a little bit of.
We are slowly coming back to work not as quickly as we thought we were going to so there's a little bit of efficiencies from the COVID-19 effect.
But then the other areas are we continue to really look across the whole organization and just.
Be mindful of how we're managing our expenses some of our public company expenses are phasing in a little bit slower than anticipated.
We do expect to deliver.
Above what we originally anticipated from a margin standpoint, but certainly there are absolutely no trade offs from a investment we're making our products investment we're making in our people.
It's really just around running the organization as efficiently and effectively as you would expect we would.
Terrific. Thank you both and congrats.
Thanks Kyle.
Okay.
Hello.
Thank you. The next question is from the line of Dell.
And you May proceed.
Great Hi, everyone.
I wanted to ask about higher Ed.
That market is going through.
The same evolution in thinking around AD tech adoption like K through 12.
Understanding higher Ed is only about 10% I think of your revenue today, but are you experiencing similar levels of growth and does a transaction actually like <unk> give you more of an in road so that higher end <unk>.
And increasingly important going forward.
Yes.
Thanks, Joe and you're absolutely right.
Actually do.
<unk> talent management solutions for many of the higher education industry, almost 700 of them and with the recent acquisition of <unk> with an interesting product.
Really work closely with the <unk>.
Hundreds of higher education institutes in helping better alignment of oncology applications of students announcement led to success in a better education outcomes motto strategic <unk> on all of it into the higher education.
So there is definitely momentum for us on the high rate and.
And we do continue to look at how we can bridge that continually more so so that we can help benefit both of our kids full customer base as well as Ohio.
You should continue to see us investing both organically and inorganically bridging that continuum, which is something which hasnt been addressed by a lot of other vendors out there and we are in a unique position given our leadership in K 12, as well as our relationship progress to make an impact.
And maybe just one quick follow up the customer examples you shared are interesting because there is natural pathway as a customer can take.
I land on special programs or performance matters, now im, adding some <unk> to do it.
An example of four core solutions the averages two.
Do you typically see kind of that evolution, where a customer lands in one area ventures out of that natural pathway in sort of the intermediate cross sell opportunity is kind of peace with these core solution blocks on the way to eventually achieving hopefully all 15.
<unk> solutions.
Yes.
<unk> I think when you look at it there are some natural adjacencies and adoption cycles right. So.
We've talked a lot of out of Australia, and commission, which is kind of the core system of record for majority of the K 12 districts. There not just understanding of the student roster, but also understanding of how the reporting happened at the source of chips and a lot of school districts. So it's a mission critical there everything else into indicate.
Well typically needs to talk to.
The role of <unk> play in <unk> is much bigger than in higher Ed given the value of how much of the state requirements as well go into things like grid behavior tracking of attendants. So SaaS is a very critical system of record for any Kytril organization. So as we look at adjacency.
<unk> been selling through multiple modules in the platform the natural our biggest cross the momentum comes from other customers expanding their footprint to have learning management or have an assessment have an enrollment solution as well as integration into the.
ERP, so that they can do a better budget planning as well now what we're seeing.
Alluded to the fact, we also saw huge tremendous scope of LMS last year, not just within on Fifa's, but even outside of.
<unk> is a great example of an auto assess customer continuing to expand.
Into that base as well like 90 days. So one we did see the license Miami Dade Lights of Virginia Beach Fairfax, They haven't expanded Baltimore County, even though they may not have I'm going to fire that also expanding from the classroom into not just of our assessment solution, but also in our talented professional learning so that teachers can be trained.
As well as even looking through other components of analytics, which has been a big selling point into these districts. So they can better in the sense from engagement. So we are seeing motions of cross sell from fifth we're seeing motion on cross sells from LMS and as well as as we continue to link all the ERP talent and cost.
Together, we're seeing talent and ERP getting pulled into these districts as well and thats kind of the motions, we see across our customer base.
That's great. Thank you very much.
Thank you Mr <unk>.
The next question is from the line of Brent.
<unk> with Jefferies you may.
Currency.
Part D. Just an LMS I'm curious if you could just drill and you mentioned, 50% don't use an LMS solution I guess when you see the attach of <unk>. What are you seeing in terms of.
The ASP bump and effectively.
Maybe just give us a sense of it just seems like a natural progression what are you seeing in the pipeline.
And close time rates on <unk>, specifically thank you.
Sure.
Kenneth mentioned, if you look at our historical we mentioned with <unk>, we almost added.
$5 million.
Or the LMS was 18 months period prior to going public and that benefited it.
Based on also last year, the immediate need is district comp to kind of support more fine tuning as.
As we mentioned even in the first half we added ammonia more strategic so we are seeing the growth of LMS take them to continue and we believe.
Districts as they further aligns the importance of how much LMS for all players into an ongoing blended learning as well not just another more of a.
A hybrid but even on ongoing blended learning the recognition.
As blocking happening that is also the more device adoption.
The more adoption of technologies like Google classroom or zoom or teams in the classroom further gives us adoption cycle for LMS because once they start adopting at the next thing is that need and on our math to kind of help manage all of that interaction and clinical alcohol that is being able to understand how the childhood doing based on different standards. So definitely on the mis.
Growth, we expect it to continue on these healthy leverage of $1 million to $2 million additional students every year. So.
So higher than what we are seeing given what's happened in the past two years, even prior to Covid.
To find about attach rates.
Very committed little bit to best that we definitely saw a lot of assessment and analytics demand one of the first half.
In not just of our size space, but also in our LMS space. We gave a few examples of that.
Houston, Good reason Baltimore County.
Virginia BD is a great example of districts who are.
Taken back adoption and be able to really.
Look at the student engagement Holistically, because they can't get to understand how the students are doing harmony at attending zoom how many are.
Actually not just in the <unk>.
Our hybrid customer, but obviously engaged and how their achievement is doing so all of that stuff is actually helping us be high partner. So that when we look at the pipeline. We look we are seeing very healthy pipeline as well as higher than normal entrust at August some of that could happen in the short term districts to work immediately trying to address.
But we expect that trend to go over the next three to five years as districts or lives even that having these technologies integrated is key to their business.
Success to be able to go into some of the home channel.
Thank you.
Thank you Mr <unk>.
A question and answer session has now come to an end I will now pass the conference to <unk> CEO.
Powerful for closing remarks.
Well. Thank you again for everyone for joining our first earnings call and we appreciate the questions and we'd love to take sequentially more questions I apologize for not having enough time that given our funds 70. Following hopefully the overview about power school of growth factors as opposed to a broader momentum was helpful. As <unk>.
You can tell we're very pleased.
Our Q2 performance, but what we also most excited about is that our market leadership. We continue to further build on that our unified platform Differentiators are unmatched.
Mission criticality to K 12 has been further validated as well as the growth opportunity. We are seeing and continue to project based on cross sell net new Angela Merkel of continued platform expansion through M&A is further validated by the momentum we are seeing in the first half.
We are really excited about the opportunity as well as our recent IPO given how significant that milestone was for the company and a real offer an important voice I do want to.
Thank each and every one of my parcel colleagues for their exceptional effort as well as our districts and educators because their partnership is what led us to build what we are today, but also more importantly help us take this as a first step towards within the longer journey to make education and impactful to reach out. Thank you for your interest in possible and I appreciate again, everyone joining for the call.
Today.
That concludes today's conference call. Thank you for your participation and then the way the rest of your day.