Q4 2021 PowerSchool Holdings Inc Earnings Call
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Good afternoon, and evening, everyone and welcome to power schools fourth quarter 2021 earnings conference call.
As a reminder, today's call's being recorded and your participation implies consent to such recording.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
I would like to turn the call over to Ellen Taylor Investor Relations. Thank you Sir please begin.
Good evening, everyone and thank you for joining us for power Corp Financial results conference call for the fourth quarter and fiscal year ended December 31st 2021 on.
On the call today, we have powerful CEO Hardy Galotti and CFO , Eric standard before we begin allow me to provide a disclaimer regarding forward looking statements. This call, including the Q&A portion of the call May include forward looking statements related to the expected future results for our company and are therefore forward looking statements our actual results may.
Differ materially from our projections due to a number of risks and uncertainties the.
The risks and uncertainties that all statements are subject to are described in our earnings release and other SEC filings.
Today's remarks will also include references to non-GAAP financial measures additional information.
Reconciliations between non-GAAP financial information to the GAAP financial information is provided in the corresponding press release, which is posted on power schools Investor Relations site at Investor <unk> got power School Dotcom.
In addition, this conference call will be available for replay via webcast through the same website.
<unk> will begin with a review of power tools fourth quarter and full year highlights. Eric will then take you through a review of the financial before you proceed to Q&A.
We have also made an earnings presentation available in the events and presentations section of our Investor Relations website. So please feel free to download the presentation and follow along with today's call with that I'll now turn the call over to Hardy.
Thanks, Alan and good evening everyone.
Our school had an outstanding fourth quarter.
Finishing the year strong and laid the foundation for our continued growth and momentum into 2022.
We exceeded the top end up our guidance range for both revenue and adjusted EBITDA.
We delivered $146 1 million of revenue for the fourth quarter with 26% revenue growth.
On an adjusted EBITDA of $33 2 million a margin of 23%.
For the full year, we delivered a record $559 million in revenue.
Or 48% year over year growth.
Our adjusted EBITDA of 161 million a margin of 29%.
These results highlight the scale and the durability of our business.
Our industry, leading unified platform approach continues to differentiate us in the K 12 market.
Providing long term growth opportunities for many years as customers look for ways to digitally transform move.
Move to more integrated solutions.
Empower educators and offer best in class solutions for teachers students and parents for improving education outcomes for every child.
No other vendor in K through 12 fast can match over breadth.
And presence in North America.
We now offer 18 products, including our latest acquisition of Kingsport, SCL solution, and Kingwood communication platform, giving us significant opportunity to expand our footprint within our customer base and new customers to whom we can cross sell.
This cross sell engine fueled momentum and growth across of our business as we enter 2022.
Eric will share more details about our financial results and guidance for 2022 personally I'd like to spend more time today sharing some exciting updates on the key dimensions of our business that highlight our stability momentum and opportunity.
Adding to our confidence for 2022 and beyond.
I'll talk about the launch durable catch one market that we sell.
And our inaugural leadership position within that market.
Proof points that show our platform strategy is working.
As well as a comprehensive platform of <unk> to meet the changing needs of our customers, which create multiple growth vectors.
And the opportunity to continue expanding over offerings as well.
Let's start with the first key dimension and update on the K through 12 market.
The North American K through 12 market. That's b, so is very large and resilient.
Education represents the second largest discretionary spend category in U S public spending.
If you look at the K through 12 funding environment. It has mostly grown steadily over the last 30 years.
And it is largely insulated from the inflationary.
Or interests related pressures seen by many industries today.
Education spend is largely non cyclical and bipartisan, creating a relatively protected budget for districts and then in turn for our products.
Breaking this down further.
<unk> related spend is.
Currently small, but fast growing part of funding.
Doctor recently increased their estimates for external IP spending in K through 12 schools in the U S and Canada and expect it to grow at a 9% CAGR.
From $17 billion in 2022 26 billion by 2025.
Additionally, the market will benefit from the $122 billion in additional <unk> funds.
Much of which is still largely unspent and will provide additional funding over the next few years.
Second I'd like to update you on our continued leadership in K 12.
We enjoy a clear market leadership position in North American K through 12 cloud software.
We currently have over 14000 customers on our platform.
We added roughly 2000 customers since the end of 2020.
Through these customers, we reach over 45 million students representing over 70% of the K through 12 student population in U S and Canada.
This expensive reach fueled an incredible opportunity for growth across the product portfolio.
Even with this market leading position our market share represents only about 5% of Gartner estimated K through 12 software spend.
We certainly see the opportunity for growth ahead of the market.
Considering the relatively low penetration rates, we see across the product portfolio.
And the frequent cases, where our solutions are mainly replacing paper based processes legacy or fragmented solutions.
Third I'd like to update on the exciting success, we are seeing with our strategy.
Our platform and cross sell strategy is working.
For the past two years, we have seen a 65% increase in the number of customers, who use four or more power school products.
Cohort that grew from just over 1100 to more than 800 customers.
In fact, these most loyal customers now represent nearly half of her E. R. R.
This platform strategy creates a flywheel effect and which unified products benefit from each other.
Which compounds the value for the customer and increase the stickiness for our solution.
We're continuing to see successes in these multi product implementation across schools and districts of all sizes across North America.
Take as an example, the Washington County in Utah.
As a longtime customer using our student information system ERP of a psychology LMS, our formative assessment Dave.
They've added unified insights in Q4 to further their performance monitoring and administrative management capabilities across the district.
On air until the fourth largest school district in Maryland, representing about 90000 students is the poster child of the platform strategy working.
They used 13 of our products today and continue to expand usage, including extending their high school focused navios implementation into roughly 19000 additional students within their middle School.
We saw a 15% increase in active students year over year for <unk> across the U S. During this time of the year with $6 4 billion College applications year to date filed using our solution.
These stories, which reflect the success and impact of our customers are seeing from our solution.
Validate the power of platform strategy.
With over 14000 customers in total.
Broad portfolio of 18 products, we offer and 5% of software spend captured by parcel to date.
The opportunity in front of us is quite launch with a ton of room for growth.
The strength of our diversified comprehensive platform creates multiple growth vectors across our solution areas.
The most mission critical system to powered districts in K through 12.
Our breadth and depth gives us the confidence in our ability to grow no matter, how our customers' needs evolve.
A recent third party conducted brand survey of K through 12 customers.
Lift a variety of key priorities and challenges for the next 24 months across different functions.
You can find this in our earnings presentation.
We believe we are in a unique position to address most of the must have critical K through 12 administration's need today.
Our customers also recognize this the survey also shows power SKU has the highest brand awareness and about double the consolidation of any pure play education software company.
Take for example for 2021.
Elevated the focus on identifying unfinished learning, which led many of them to our insights and assessment products.
We are seeing these needs for student insights continue into future years and.
And we are well positioned to meet these needs.
In fact very excited to share it.
Five school district by student enrollment in U S. Just selected our performance matters assessment platform for a district wide assessment solution. In addition to the existing multiple products possible footprint.
One of the key challenges districts are facing today is talent shortage with higher teacher attrition given the stress and the impact from lost two years of Covid.
We recently published our talent Index survey with a third party firm, which clearly shows the teacher recruitment their wellbeing and the retention.
The three top priorities for all of our customers in 2022.
Unified talent helps them manage their staff from hire to retire.
And in Q4, we saw a state department of education select unified talent as the statewide educator recruitment platform for the entire state.
We're also seeing heightened focus on providing an integrated cosmic behavioral special needs and our social emotional support to give a holistic view of the student.
Big Board our behavior solution acquired recently November helps district identify students who need behavioral support.
We have further innovating to enable a holistic multi tier system of support process or districts.
We are seeing that student and community engagement is more critical than ever in this challenging time.
Districts are seeing major challenges with absenteeism and a need a centralized it credible way to reach the families to support.
Our most recent acquisition of Tynwald extends our product footprint in a way to help address this need.
This takes me to my last point the opportunity we have to continue expanding our platform and the market opportunity globally.
We saw these needs growing within our customer base and the acquisition of Kickboard and Cynwulf a great example of how we quickly provide a solution and in turn drive cross sell.
In World, which closed in February 1st is the latest addition to our portfolio, bringing us a morning.
Best in class solution for K through 12 communication.
And attendance intervention.
And we'll address is a massive market need for family engagement and reducing student absenteeism.
And improving student engagement and outcomes.
Alongside this M&A, we continue to focus our R&D dollars on innovation to launch new products and capabilities.
Including our competency based learning management system.
<unk>, Ses LMS and formative assessment platform.
A new graduation planning capability, leveraging our <unk> and <unk>.
Utilizing tick.
To tie SCO and Academy data together.
Our data Lake project.
And as I mentioned earlier, developing a new product to help districts better manage their mts's workflows.
All of these investments are a foundation for us to build and expand.
Into the global personalized learning market, which represents a $100 billion market opportunity.
Our vision the platform and the investments allow us to lead the charge towards game changing innovation to transform K through 12 education globally.
The combination of these factors I shared the strong market the clear leadership position.
Cross sell momentum from our platform strategy.
The multiple avenues to drive growth.
And the potential to continue expanding our platform speak to our success, our opportunity and the durability of our business.
Allowing us to capture the large opportunity in front of us.
We have a clear visibility into driving predictable and profitable growth well into the future generating free cash flow, which in turn gives us the ability to continue to invest and expand our platform.
I'm extremely proud of our team and all we have accomplished I'm also proud to help schools and districts through this pivotal time of rapid change and evolution.
It is our goal to move education forward.
By giving schools and districts that tools and real time access.
Meaningful data.
Which unlocks the keys to better student outcomes and thriving staff.
With that I'll hand, it over to Eric to provide a financial update for 2020.
And share more about our guidance for 2022.
Eric Thanks.
You heard Dave and good evening, everyone. We had a great finish to 2021 topline performance was strong driven by our continued cross sell momentum and strategic M&A.
In addition to driving double digit revenue growth, we maintained our strong adjusted EBITDA margin, which included absorbing public company related costs as well as additional go to market investments, we made to fuel our future growth.
For the full year total company revenue was $558 $6 million, an increase of 28% year over year, which included a beat on the top end of our Q4 guidance range by $4 $1 million.
We ended the year with an annual recurring revenue balance of $538 $6 million, an increase of 26% year over year and our net revenue retention rate was 106, 4% up 80 basis points on a sequential quarterly basis.
Lighting, both the stickiness of our products.
And our ability to expand within our customer base.
Full year gross profit totaled $317 7 million or 56, 9% margin up almost a full point from the prior year.
On a non-GAAP basis, adjusted gross profit was $375 $7 million or 67, 3% margin an improvement of 138 basis points from the prior year.
Margin expansion was driven by our top line performance, coupled with improved operational scale across our cloud operations and customer support organizations.
Full year operating expenses were $312 million or 55, 9% of revenue, which was approximately five points higher than the prior year, primarily driven by the addition of public company related costs, and an increase of $16 $3 million year over year and stock based compensation expense.
We delivered full year, adjusted EBITDA of $161 $2 million or 28, 9% margin, which exceeded the top end of our guidance range by $2 $2 million, reflecting the strength and durability of our business model.
We generated strong free cash flow in the year of $103 $2 million up 78% versus the prior year.
In addition, we significantly strengthened our balance sheet, ending the year with $86 $5 million in cash and cash equivalents up $33 $7 million versus the prior year and we reduced our net leverage by more than 50%, while still investing significantly in our business.
Now turning to our quarterly results, which were strong.
Revenue came in at $146 1 million up 26% year over year and exceeded the top end of our guidance range subscriptions.
Subscription and support revenue in the fourth quarter totaled $128 2 million up 29% year over year, driven by our growth across all our solutions.
Services revenue was $14 $4 million up 12% year over year, driven by increased product deployments.
Gross profit for the fourth quarter was $80 3 million or 54, 9% margin, representing an improvement of 80 basis points year over year.
On a non-GAAP basis, adjusted gross profit for the fourth quarter was $96 2 million or <unk> 65, 8% margin up 31 basis points year over year.
Now turning to expenses R&D expenses.
For the fourth quarter was $27 9 million or 19, 1% of total revenue compared with 19, 4% a year ago, which reflects the continued investments we're making in the platform to deliver the products and capabilities for our customers that rely on us to support their mission critical operations.
SG&A expense in the fourth quarter was $45 9 million or 31, 4% of total revenue versus 21, 8% from a year ago, which was primarily driven by an increase in anticipated public company related costs.
Our adjusted EBITDA was strong coming in at $33 $2 million or 22, 8% margin, beating the top end of our guidance range. We continue to focus on optimizing our business and we are pleased with the performance over the first few quarters as a public company.
Overall, we had a great fourth quarter and ended 2021 with a stronger financial profile.
<unk>, we made within the year position us well heading into 2022.
We continue to benefit from a favorable and resilient funding environment, our market leadership remains a competitive advantage and we have a broad product and we have a broad product platform that fuels, a sustainable cross sell strategy for years to come.
Now turning to our first quarter and full year 2020 to financial guidance, we expect.
To deliver total revenue for the first quarter of $145 million to $148 million, representing a growth rate of 23% to 25% year over year.
Adjusted EBITDA in the first quarter is expected to be in the range of $40 million to $42 million, representing a 28% margin at the midpoint.
For the full year, our guide reflects the World 40 business and we believe we can continue to operate in that range well into the future.
We expect total revenue for the full fiscal year in the range of $620 million to $626 million, representing 11% to 12% year over year growth.
Please note starting in March we lap the acquisition of <unk> in our year over year comparisons as a result full year guidance is primarily organic revenue growth.
Given our most recent acquisitions of Kickboard and Ken Bob are not material.
Full year adjusted EBITDA is expected to be in the range of $180 million to $184 million.
Representing a 29, 2% adjusted EBITDA margin at the midpoint.
For modeling purposes, we expect capital expenditures, which excludes capitalized software of approximately $7 million and share based compensation expense of approximately $60 million to $65 million for the full year.
Fully diluted shares for the year are expected to be in the range of 200 to 205 million shares.
In closing, we had an outstanding fourth quarter that capped off a record year for power school in terms of revenue and cash flow generation we.
We significantly improved our balance sheet paying down debt and setting the stage for another year of strong cash generation.
You have a large and growing customer base and our unified platform approach and market leading position provides significant cross sell opportunities for us.
K 12 funding environment remains resilient as educators look for ways to digitize their systems integrate data and improve student outcomes.
Our expansive product footprint and low penetration in this market gives us confidence as we head into 2022.
I am excited about the opportunities ahead, as we grow our market share and invest for long term growth.
With that we're now happy to open the call for questions. Operator, we please open up the line for Q&A.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q4 participants using speaker equipment, it may be necessary to pick up your hands.
Before pressing the star key our first question comes from the line of Stephen Sheldon with William Blair. Please proceed with your question.
Yeah.
Hey, thanks.
Results in guidance here.
First what can you share about the size of your sales team now versus maybe where it stood a year ago and how much capacity do you have in case, you start to see a big increase in demand as.
Some of the stimulus funding I guess close to the system.
Do you have the capacity in place at this point to capitalize and start to see that pick up.
Two Q3, Q and over the next couple of years.
Thanks, Steve.
Youre absolutely right there is a fair bit of demand and as you might remember from our road show.
A sales deleverage bar.
Every aspect of the different strategic <unk> debate a lot just strictly because we have an enterprise sales team, but also to the entire bias within the regional and then we have.
<unk> been selling <unk> to be positive and they lost student discount this breakthrough pirate fairy charter schools.
We have.
I Didnt coverage also in what we call solution sales team, which is just selling to the specific solution based on the key personas I'd like Alan that you are unlike the thoughts from citadel level is on the back office.
Integrate whatever sales coverage year over year.
Reflecting on the additional new thinking business. They are doing about that there is an addition of about a dozen or so resources around the core quarter, Gary and then also in terms of the overall <unk> and support staff as well.
Okay.
Got it yeah. There are some bad feedback there so I didn't catch all of that but.
Sure.
Maybe.
I guess just one other one it sounds like the M&A pipeline continues to be strong so how should investors be thinking about the potential for additional M&A. This year and how could the visibility into state and school district plans for the stimulus funds maybe influence what what targets you decided to pursue.
Great question.
IGT.
On to quite a bit.
Big focus is really on cross selling our platform, which now has a <unk> product. Thanks.
Our recent two acquisitions that add on.
And communication really really kind of continue to grow organically and glycol little engine segment.
All of that is to continue expanding the platform. So for M&A, but it was really focused on strategically and aligning the entire platform on how we clearly achieved the entire system of intelligence, which we can drive the personalized learning.
So hopefully you're getting catching up.
Yeah.
Although that was I'm, sorry, I'm sorry.
Alright.
I'm sorry.
Yes, there are some pretty big feedback on it.
Our eco.
Yeah.
Okay.
Okay.
Yeah.
Okay. So can you hear me.
Yes, now we can hear you.
Is there not a bad thing.
Yes, the echo is still there.
Okay.
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This hold on.
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Welcome to <unk> Conference Centre from Nick's upheld noble conference shortage of wisdom in La Maryland Rally.
Goodbye.
Ladies and gentlemen, please standby as we.
Try and reconnect the speakers.
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Operator can you hear us gentlemen, you're reconnected now.
Okay. Thanks.
Yes, <unk>, that's a lot better.
Alright, sorry about that definitely technical glitch.
So.
Kind of going back to see making sure I'll repeat bolt the responses. So number one on your sales we have a pretty good coverage to cover all of the large strategic enterprise and inside accounts and also we have OLED solution team, which sells to the solution and to your point, we have increased our sales team year over year by a dozen quota carrying peer people plus additional.
<unk> support staff to continue to focus on the additional demand we're seeing the second part of your question on the M&A.
As we've mentioned that our big focus is on the organic cross sell and how we are selling are at 18 plus products into the base. But then we do continue to expand our platform to kind of further we're going toward personalized learning, which is kind of building that system of intelligence everything about the student. So we do are seeing opportunity in adjusted fees also.
I'm, a tuck in and scaled options, which will continue to pursue into the year.
Hope that great. Thank you.
That's perfect. Thanks, Brian .
Our next question comes from the line of Matt Hedberg with RBC capital. Please proceed with your question.
Hi, guys. Thanks for taking my question and congrats on a strong close to the year.
I remember during the IPO process, you talked about I think the potential up to $5 billion of upsell in your base, which is always an impressive statistic and I guess seeing that now I think half of your <unk> comes from customers with more than four products is I think really indicative of that opportunity could you talk about how.
I know you've had some success there and maybe how you could even push that success, even higher with even even additional cross sell to tap into that opportunity.
Great point, Matt.
For the first the $2 5 billion that cross sell Tam continues to expand as we bring more integrated solutions and more acquisitions. Take example, the whole communication side with Orkin Walt that adds close to a half a billion of additional Tam for us to cross sell into our base no. So we continue to expand that cross sell total opportunity.
You have real as I mentioned also in my prepared remark, we are actually seeing a lot of increase of our adoption of our multiple products.
Especially as we shared almost 65% increase in year over year on customers, who have more than four products. So we definitely see an exploration of that cross sell we're still early in this game, we only have about 12% of our overall customer base, which have more than four products. So to your point there is still a huge opportunity, especially if you look.
At from an IRR contribution for those sticky customers, we can have five or six fold increase of array or by just continuing these cross sell motions are we have both our internal cross sell strategies on plus one product kind of really giving customers an opportunity to just add one of geraldo for 18 products and a lot of go to market.
Focus and functions around it. So there is definitely an upside opportunity there to X Ray back and we continue to drive our go to market functions on it.
That's really great to hear and then Eric one for you the trend in software. This earnings season has been strong results, but lower margin guidance for 2022, you guys aren't doing that you're guiding to it looks like about 30 basis points of improvement.
To start the year or if that math is correct.
Can you talk about how you sort of prioritizing those investments and then maybe just remind us about how we think about sort of that balance between growth and obviously strong and expanding profitability.
Yeah. Thanks, Matt. So first I would just say I mean, we were really pleased with where we ended the year and certainly you know ahead of our expectations and we wanted to continue the single the expansion on the margins, which we did in the guide.
As I've mentioned, we've got a lot of opportunity to continue to drive leverage.
In fact, we could we could increase the margin even more however, we do choose to look at longer term growth investments. So we really like to.
Continue the margin expansion, but then also and really wanted to be a rule of 40 plus.
But you know we are reserving capacity as I've mentioned before in the out years as we look at international and some of our other longer term growth opportunities. So we feel really really good strong finish to the year.
I'm going to show expansion into next year this year, and certainly I'd say, we could be well into the 30% margin EBITDA from a from a total perspective, but we are reserving that capacity for these longer term growth opportunities, which we feel really confident in.
That is a that's really good to hear the balanced growth and profitability. Thanks, a lot guys and best of luck.
Yeah, Thanks, Matt Thanks, Matt.
Our next question comes from the line of Fred have Naver with Macquarie. Please proceed with your question.
Hey, Thank you.
I think I wanted to start on Essar funding I know I know, it's a topic that we talked about in the past, but now with Azure funds distributed and at this point I believe fully funding all of these state level education plans no could you talk a little bit more about how this is shaping some of your purchasing conversations with schools and also you know.
As we progress with Essar funding through the 2023 timeline.
Do you see any risk of customers that have purchased power school of education technology with us or funding churning or where do you think that they would continue with the products after us or funding.
Great question, Frank So let me first kind of put into perspective right. We're talking about when you look at the full education spend yearly it's almost $700 billion and Essar money is about 122 billion additional <unk> spend over the next few years, which they can even do purchases for the next.
They can do what purchases in 2024 for the next three or four years as well. So it is going to get spread out over the next a lot of ears. So as you can see it.
It's actually another 10 or 15% additional benefit for school districts of having these additional funds.
We typically don't meet the stimulus money to really fund or.
Solutions most of our districts would actually buy from their normal.
We're typically for it spend which they are allocated and as you know that's still a small that's only two 3% of the oral so when they're buying these technologies, which are must have whether it's for classroom forsworn system or college career readiness theyre not necessity tapping it based on the seamless seamless does help them to leverage it for a quick Buck.
Management, so they can kind of really tap into it while they were covered long term funds. So we are not really expecting any kind of a really change because once you have these solutions are in they are really sticky there must have you're not really selling any nice to have capabilities. All of these are once you rollout to all the teachers and students and parents youre not going to really take them.
And majority of for funding of our solution still is happening from the core budgets.
Okay.
Okay.
Okay. Thank you there and then I wanted to also ask about the cross sell that youre seeing here because that that growth in customers adopting more than four products with looking particularly impressive during 2021, So I wanted to ask.
Could you talk about what has really been clicking with your cross sell motion that has driven this increase I think has brought to 1800 customers now with more than four products and also could you give us some color on where in your portfolio you're seeing the most cross sell traction. Thank you.
Great.
Frankly, a couple of things one is the flywheel effect I mentioned right the more customer spyware solutions, the more they need to integrate backbone. So as a buyer of a student system or scholar G learning management and they want assessment they want analytics. They want special Ed they won't commit communication. So it really kind of creates more stickiness for them to buy additional solutions so that.
The fly wheel effect, we are seeing that more and more of our offer integrated customers were taking advantage of that.
In terms of your second part of the question how do you really rich areas. We are seeing it is little bit dependent upon the areas I mentioned in the study the survey, which talks about their customer needs are evolving coming out of the pandemic customers focuses are evolving there was a lot of focus on assessment and analytics over the last year, we are seeing.
Kris focus on talent management, because they're trying to recruit and onboard managed substitute teachers that as well as retain teachers. We're also seeing increased demand for small social emotional and understanding the whole child, and providing the right interventions and as well as the communication piece, which I mentioned is why we acquired Kingbolt, we're seeing a huge demand we're really trying to engage.
Kids on and where their absenteeism to kind of address that area and reach out to the families. So we're really hitting on the ASIC customer needs of all we have an ability to really hit their key priorities and that's the beauty of our platform that we can really manage to the entire broader aspects of what the customer need for this digital transformation.
Jeremy.
Thank you.
Our next question comes from the line of <unk> Kalia with Barclays. Please proceed with your question.
Okay, Great Hey, guys. Thanks for taking my questions here.
Maybe for you just to start.
Given that it's year end, we've got we've got a nice guide here for next year can you just remind us roughly what.
What was the number of students that are currently on the platform as of the end of 2021 and kind of how youre thinking about that balance of growth and students versus growth in revenue per student next year, even even directionally.
Does that makes sense.
Yes that makes sense. Okay. So as you know we are.
When we talk about with reaching 70 person of the Markman market, that's roughly 45 million students across all of our different companies.
To your point about how we look at the <unk> in terms of per student share of the wallet.
When you look at the funding environment, which is largely stable in this times. We are looking at almost 12000 plus on average we talking still about between 10 to $15 per student.
With spending of software component, that's almost like they're spending about 152 to one dollar so theres a lot of room for us to grow that student.
<unk> per share of the wallet would really focus on less about from a dollar perspective as much about getting one more additional product borrowers districts. So a doctor or a cross sell motions are more designed to kind of really get more stickiness of the platform. So when we talk about the adoption of <unk> plus customer let me share another key stat.
Take an example of districts who are more than 25000 students. We now have more than three plus products on average with them. So generally part of a broader population that's two plus average but over larger customers now we actually have three plus.
Products with them, that's kind of the motion or it's really to get more stickiness and more adoption of our platform with our customer base.
Got it.
That's very helpful. Eric maybe for you a follow up in and somewhat related.
Great to see the stabilization in net revenue retention can you just talk about sort of the path from here as we go into 2022 on that metric you know I know, there's some mechanics in there that that are that are just weren't worth reminding everyone about just kind of how that sort of progressed through 2022, even directionally.
No you're absolutely accurate first appreciate the opportunity to say, yes, I mean look as we turned in.
Q4 at 104 point 106, 4%, which was up 80 bps from the third quarter and obviously I was really reflecting the strong cross sell that we saw in the quarter.
As we get into 2022.
You should expect the NR to continue each quarter to increase and in Peru.
And you know when we get to the end of the year I think people will be pleased we'll see at least a point of improvement. The other thing I would just say and to keep in mind and we had mentioned this.
If you look at the impact of <unk> and our our since it is a trailing 12 months.
Metrics you know there are two items in there.
Have impacted it we've got roughly a point of impact from dominance when we made that acquisition certainly their retention rates werent as high as the power School profile. So you would have added a point onto the the 106 and then you know obviously when we were in in 2020, we had extraordinarily strong bookings unrelated to COVID-19 , which would amount to about <unk>.
Another point. So you can think about two points of adjustment to that but you know as you look at the trailing or the the trending into 2020 to expect continued improvement from here on out every quarter.
That's very helpful. Thank you.
Thank you.
Our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.
Hi, guys. This is David on for Brian . Thanks for taking the question I wanted to ask about the funding environment.
Sorry.
A majority of the Ashford Prime is still yet to be spent I'm curious why that is and do you anticipate that all went in $22 billion will be spent by the time you did.
Ill.
Sure. So when you look at from the funding approval to your point only.
Less than five between 5% to 10% of what's actually spent but what we haven't seen our progress since the similar says that there is approvals now from states about how the funding needs to be spent and that accruals have now coming through pretty much. The majority of the states as well. So it is going to trickle down to lot of districts and districts have started using some of the.
These funds as additional dollars to that good example is one of the top school districts I mentioned, who use of our formative assessment platform. They are using a decent chunk from the current budget, but theyre also using some of the extra money to help them with initial set of implementation in the air So districts will tap into these funds over.
At the time there it is something they don't have the necessity spend all of it by the 'twenty 'twenty four they can spend for the period for.
For these even longer I do want to reiterate the overall funding environment is very stable one of the key things we want to keep driving to the factor is that we see a lot of discussion about interest rates and fishery would largely insulated in the funding environment in K 12 stimulus is giving an additional.
You know Joel to kind of help with the speed of the velocity, but launch it when you look at other deals we.
Given the key pieces, we sell which are must have funding is kind of really helps accelerate things, but not required component for districts or doctor a submission.
Got it and then maybe just a follow up on Allomap.
<unk>, obviously, a big beneficiary in 2020, and yeah, I think it's roughly half of K 12 schools are not using any paid allomap.
Would just love to hear how that.
That product is doing obviously I'm, assuming it's cooled off after big cocoa return Colgate, but any update there would be appreciated. Thanks.
Yes, you're absolutely right in the 2020, there was a huge amount we've talked about we almost added 4 million plus students on the core platform and LMS, but what we do see it every year. We are seeing about 1 million to 2 million additional adoption on LMS. When you look at the full 60 million population North America half of that and it doesn't have a best in class.
LMS. So there is still a lot of room to continue to us to grow our grow and add that one to 2 million students and grow double digit on our classroom products for many years to come given the how much the market opportunity still exists.
Great. Thanks, guys appreciate it.
Thank you.
Our next question comes from the line of Gabriela Borges with Goldman Sachs. Please proceed with your question.
Hello, and thank you for taking my question.
I wanted to parse that a little bit of commentary on one voyage during 2020 in 2021 and Kenny Klein patterns.
How do you think about how much of what you're projecting.
It's temporary.
It sounds like getting something structural happening in tenfold greater willingness to invest in education, and analytics and technology and maybe just some of your questions.
What you see as temporary.
Yeah.
Yeah.
Sorry, Gabriel the two factors one is a COVID-19 definitely in the last two years has put a broader enlightenment about how the school districts or don't have the right infrastructure support to handle disruptions like what we just encounter and that visibility has not gone just to the district owners and the teachers I think.
Much every person and every parent Kim voice about that as well that this technology can play a bigger role to help kind of managed school disruptions of any kind.
We are seeing a broader demand shift on having additional discussions around broader digital transformation as well as the <unk> to your point more insights to help understand where the students are had the department of education. So pretending for a state talk about that while the learning loss created 25% of the students in.
That state, who actually had learning loss they were already to begin with had 30% to 40% of the students which would not meeting the national standards. So that lending loss visibility is also pretty big So most of the things what we are talking about on the digital transformation that visibility on analytics as well as better understanding and communicating with.
So rents these are systematic shift and we are seeing the demand really happening across the entire nation on that.
That's helpful. Thank you and a follow up with one more.
Couple of comments on our records are all older warehousing smart folks with alcohol, our principal amount that opex or no longer a matter right now.
Anthony of Maricopa.
Colorado.
Thank you.
Absolutely our unified incentives right now the most broadest insight platform that exists in K through 12, not only we can do the staged and engagement data that human data. The CL data, we can bring the whole child view as we'll have predictive understanding of how the students really are impacted we are definitely with our snowflake implementation X rating.
Bring all kinds of additional data, which will feed into the districts that they have a better way to not just improve their operational operational efficiency, but also understand better the student and personalized education that is the Nirvana, which completely transforms K through 12 education and other initiatives are definitely in the direction to make that happen.
Thank you for the car.
Thanks, everyone.
Our next question comes from the line of Karl.
<unk> with UBS. Please proceed with your question Hey, Great. Thanks, Hey, Eric as we model Unlevered free cash flow for 'twenty. Two one obvious starting point is to look at the 50 bps increase in your adjusted EBITA margin based on your guidance and grow Unlevered free cash flow margins by the same.
Is that a reasonable starting point or anything funky you'd call out in terms of cash flow in calendar 'twenty two.
Yeah.
That's a reasonable cash flow assumption Carl.
And the only other thing I would say is.
Provided the capex less the product cost software project development costs.
That's being capitalized.
That I would just kind of use very similar ratios that we had in 2021, but there isn't anything unusual to expect in there got it good to hear thank you.
Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.
Thanks, gentlemen, and congrats on a strong closer to year or so so Eric maybe just starting with you you know as we think about the seasonality of the business.
Looking ahead to 2022 or is there anything that you would call it share in terms of seasonality in terms of our revenue metrics as we progressed through the course of the year any help on that.
Yeah, absolutely Brian first I appreciate the opportunity to continue to remind everybody around the seasonality of the business because that business isn't a little bit unique what I would say is if you think about <unk> youll continue to see upward growth, but then very similar to what you saw in 2021.
A lot less growth going from sequentially from Q2 to Q3 and the reason for that is because the majority of our renewals happen in Q3, so to the extent that there's any any churn that's going to be impacted there. So.
As we can and will continue to provide at least directional color around that but again I think from an IRR perspective, just a phenomenon of Q2 to Q3, not as big of a growth as you will see in other quarters. So and then certainly from a revenue standpoint, I would just remind everybody that when you think about <unk>.
<unk> revenue from Q3 to Q4 that will dip down as it did this past quarter and as all of our subs and services continued to grow and we continue to see the positive momentum there, but the decline from Q3 to Q4 is all related to services revenue because the decline in terms of projects that are happening.
Near the end of the year schools aren't focused on projects as well as training decline.
And then R. R <unk> license license and other activity in the fourth quarter is traditionally lighter just because the majority of the renewals happen in Q3 so.
Again, just I think it's important and we'll continue to remind everybody about that seasonality as we get into the subsequent quarters, but certainly appreciate you asking the question and giving me the opportunity to be able to just reemphasize that to everybody.
That's great color, Eric and Hardie, maybe just following up with you we heard a lot about the cross sell success. This year, obviously, there's a lot that you guys can go in and attack the market and the value, we're providing to the customers, but I'm curious if there were maybe one or two product categories that you really felt optimistic about 2022 and in terms.
The cross sell what would those be thanks guys.
Thanks, Brian So the number one I think we just touched upon in the last answer was that like the analytics, we almost seeing 30% growth and we expect that to continue in fact, even higher numbers because that is the universal need for most of the districts, 90% of the districts do not have good understanding of the broader data and insights. So we.
You do see that to a category continued to extremely well I mentioned talent management, a lot of focus on right now and teacher attrition in equipment and how do we handle that we are definitely seeing.
Double digit growth on that platform and we're seeing tremendous demand across the aspects as well, but then I do see coming out of the Covid as I mentioned, the broader digital transformation, whether it's enrollment whether that's our tour information system or ERP products. We are seeing more increased focus on it now this is where different districts at a different point.
So the demand is much more spread and that's the beauty of our platform. We can kind of meet the different evolving needs of our customers and we do kind of really see exploration of growth in certain product categories. But then we do are able to kind of still how all of our products growth because there are definitely districts. We're further behind in their transformation journey.
Thank you.
Thank you.
Our next question comes from the line of Joe <unk> with Robert W. Baird. Please proceed with your question.
Great.
Just a question on the total customer growth being in the hiking. This year are there any commonality is and where the new logos are coming from and.
Any trend maybe in new logos landing larger and you understand that a lot of your bookings came from existing accounts by <unk> 65 per ton and not from a product customers are there actually new logos contributing to that performance as well.
So there is definitely suite deals we still see through the later part of the question on Great example, Vanguard Academy Challenge of public school channels for a private school, we are seeing districts and charter school organization and even private school organizations, who are buying multiple products in street and directly moving to the Fort Bliss.
Category, but to your point broadly when you look at the pool of new there's a lot of inside accounts, which we typically would be the charter schools and districts, who are small, but we are seeing.
Seeing a broader.
Entrust and even new logos district, Bellevue in New Jersey, or fall River mass searches they are kind of really moving into our <unk> and the broader platform. So that <unk> adoption is kind of coming from multiple sources Navios definitely also contributed to that as well. So we know that's again the beauty of the oral platform.
We are able to address the multiple rent growth vectors across the different size of the customers as well.
Okay great.
And the earnings presentation looking at fly had said then and just the timelines associated in Western Europe .
If I read between the lines a little bit so multiyear solutions gather entrust six to 12 months, maybe before they're needed their implementation.
And you've also said that most of them. The stimulus is still on the horizon, that's a catalyst on the horizon.
So putting that together would you actually expect FY 'twenty three to be a more consequential Europe growth been eaten up by 'twenty two.
Yeah, I think the broader shift point of view is that both based on the trends we are seeing additional transmission our own cross sell momentum as well as funding environment to be very stable rich and further helped by the stimulus. We do expect that our growth is largely derisk not just for.
This year, but even for the next year and so on so we are definitely sitting on a very comfortable environment and we continue to expect the growth rates to be.
Continue to build on.
Great. Thank you very much.
Thanks Chip.
Yeah.
Our next question comes from the line of Koji I done with Bank of America. Please proceed with your question.
Hey, guys. Thanks for thanks for squeezing.
Squeezing me in here I'm hopping on a little late juggling a couple calls so apologies.
If this question was asked it's actually a question on the EBITDA guidance here.
And at the first quarter versus the full year it seems to imply a little bit of a back end loaded EBITDA linearity here on the profitability I mean could you just maybe help us out is that the right way to think about it or is there any sort of seasonality in our spend that we should be thinking about that could.
You know some of the quarterly seasonality with EBITDA gone throughout the year. Thanks, guys.
Yeah. Thanks, <unk>. So the way to think about it is if you look at Q4 or Q3 Q4 to the first quarter. We are shown expansion going from roughly 23% adjusted EBITDA in Q4.
To you know roughly 28% in Q1 and it continues to improve in each quarter subsequent to that getting us to the midpoint of 29 point too so.
We just see a continued progression and I think they're just the way that some of the models may have had the public company cost spread throughout the year and probably just needed to be readjusted, a little bit, but there is no notion of back end loading.
On a margin standpoint.
Got it got it thanks, alright, thanks for taking my questions appreciate it.
Welcome.
There are no further questions I'd like to hand, the call back over to her deep galotti for closing remarks.
Well. Thank you everyone. Thank you for your continued support for Pascua Landover mission. We're very excited as you can tell from our results on both to not over performance as well as the opportunity ahead for us in 2022 and beyond.
Market, we saw a very durable our leadership as you know is very clear and in arguable, our momentum you're seeing on the cross sell platform definitely shows that our platform strategy is working and as well as we had the ability to really meet the different evolving customer needs given our comprehensive platform really puts us into an opportunity to continue to expand our adjusting sees us.
Well. So we are very confident about our growth ahead, thanks, again and I appreciate it and have a wonderful evening.
Ladies and.
Gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.