Q4 2022 PowerSchool Holdings Inc Earnings Call
Ladies and gentlemen, greetings and welcome to the public school fourth quarter 2022 earnings call.
At this time all participant lines are in a listen only mode.
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.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce you to your host Shane Harrison SVP Investor Relations. Please go ahead.
Thank you operator, welcome everyone to power schools, earning conference call for the fourth quarter ended December 31 2022.
I wanted to first let you know that we posted a slide deck to the Investor Relations section of our website that accompanies our remarks here on the call today, we have power school CEO of her deep Gulati and CFO Eric Shanda.
Before getting started I'd like to emphasize that this call, including the Q&A portion will include statements related to the expected future results of our company, which 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 forward looking 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, including definitions and reconciliations between non-GAAP financial information and the GAAP financial information is provided in the corresponding press release and results presentation, which are both posted on power schools Investor Relations website at investors <unk> Tower School dotcom.
And a replay of this call will also be posted to the same website, let me now pass the microphone over to Hardy.
Thank you Shane and thank you everyone for joining us today.
We are excited to discuss our performance in Q4 and full year 2022.
We had a strong close to a very successful year.
We have committed to you that we will continue to deliver annual double digit topline growth coupled with margin expansion.
As you see from this quarter results. We delivered this commitment in 2022 by significantly expanding our EBITDA margin.
And growing revenue double digits for the year.
You will also see from our guidance, which Eric will discuss in more detail. Later, we are looking forward to another year of double digit revenue growth and further margin expansion.
As you see on slide four fourth quarter revenue reached 161 million.
10% over the prior year.
Adjusted EBITDA grew 59% year over year to 53 million.
Presenting a 32, 8% margin.
E. R. R grew 11% over the prior year to $596 million as we continued our trend of strong net revenue retention.
Now looking at the specific highlights in the quarter and for the full year 2022 on slide five our strong business momentum continued across all product lines with breakout performance from our unified insights data analytics product suite.
In this quarter, we won our largest state by unified insights contract with value ramping up to $5 million per your E. R. R.
Alabama State Department of education to enable their learning exploration and student support program.
This adds to the states used to just fix or other platform products, which work together to benefit all students in the state.
During the quarter the unified insight solution suite.
Also had its biggest snowflake connected intelligent spin for coal trade analytics.
Second largest school district in the U S. Los Angeles, Judy quite school district.
Integrating two numerous systems.
Another important cross sell in the quarter wants to Philadelphia School District.
To date, our customer our Navios college career and life bring newness tool. They are now expanding their use of our platform by implementing two off of our talent solutions that will help them more efficiently evaluate train and develop their teachers.
One key new customer win was of a spin off or unified communication solution to one of the top 50 largest school district in U S.
Jefferson County public schools in Louisville.
They chose our unified home communication solution to improve their capabilities in family engagement and student attendance.
These wins across the platform helped drive our record Q4 cross sell performance.
Propelling over and not all rate to a record 109, 1% in the quarter.
While we also added over 100, new logos in the same period.
I'm proud of the tremendous progress we have made as a company in 2020 two.
For the full year, we eclipsed 600 million in revenue.
Finished with annual revenue growth of 13%.
Improved adjusted EBITDA margin by two two percentage points to 31, 1%.
And generated $104 million of free cash flow.
Our go to market teams were very successful during the year.
Adding almost 600, new customer store base and during the year the number of students benefiting from our solution now exceeds $50 million.
As we look at these 2022 results and our go forward 2023 plans.
I would like to give you a progress update on the four key foundations, which we have reinforced with you in the past.
And are the pillars of our success strategy and go forward commitment.
First the resiliency of our business and the K 12 market.
Second the differentiation of our comprehensive diversified platform.
Hood, our financial durability that drives predictable double digit topline growth coupled with consistent margin expansion.
Both the opportunity and the further upside through international expansion innovation and M&A.
The first foundation is about business strategy lengthy a key factor in the predictability of our success.
As shown on slide six this resiliency is built by several factors strong customer demand of sticky mission critical products with robust budgets.
U S education funding continues to be robust.
As we have seen over decades, it's ability to remain relatively insulated in the face of the macroeconomic headwinds.
In 2020 to the U S Department of Education received its greatest increase in discretionary spending since the start of the pandemic.
Additionally, $100 billion of federal relief funds still remains to be spent.
The robust budgets are supporting the continued increase in strong demand for our products, which are fueled by the urgent and growing need of digital transformation across a variety of K 12 processes.
As shown in our continued strong deal velocity.
And we are seeing pipeline growth of nearly 25% year over year for the first half of the year.
Reinforcing the resiliency of our business we.
We saw increased demand across our product portfolio.
Our largest and most mission critical product line.
Children information system.
Center of all the technology infrastructure of any K 12 organization.
Saw extra good growth of Iraq in the low teens for the full year 2022.
From many new customers large and small.
And 2023 is off to a great start.
We're very excited to share that we have been chosen for a tenner D white.
S I S deployment for Puerto Rico.
The Puerto Rico Department of Education is seeking to modernize and transform their K 12 education infrastructure by selecting I would've thought yet as the core to power their scheduling registration attendance compliance.
Morning, grading and a lot more for the 250000 students.
We look forward to partnering with them on this critical project and therefore, the technology initiatives.
To drive improved operational continuity and educational outcomes for every student in the territory.
Our differentiated platform is the second key foundation of our strategy and success.
On slide seven as you know no other player in the industry had the comprehensive and diversified.
Platform that cover all the key pillars of Ses and operations.
Awesome and talent and had market leadership in all of these pillars.
We are also continuing to see broader adoption of the full breadth of our platform.
The number of customers.
That are using products from each of her pillar is approaching 1000.
And the amount of ore that comes from customers with seven or more products is now over 100 million.
We continue to differentiate even further with increased leadership and expanded opportunity in data centric solutions.
Unified insights and connected intelligence data as a service grew well over 50% in 2020 two and we are confident of a strong growth of these products in the coming years.
On slide eight.
We update you on the progress on our third key foundation, our financial durability.
The attractiveness of our financial model comes from large Underpenetrated and growing 3 billion dollar cross sell tap.
Within U S and Canada.
And with a significant percentage off the market still using outdated legacy and paper based solutions.
With over 15000 existing customer and a growing platform of products.
Our extra rating cross sell opportunity for white, the meaningful park to a sustained durable long term growth. When you consider these customers currently only having to offer 19 products on average.
We have demonstrated continued momentum in cross selling the platform.
But the number of customers with four or more of our products growing nearly 30% to over 2400 ads off the end of 'twenty to 'twenty two.
We are seeing this cross sell success being further amplified by the flywheel effect and which products benefit from each other compounding the value for our customers and increasing the stickiness of our suite.
Our recently announced six persona, that's big multi product cloud bundles will further increase our cross sell velocity.
And create more operating leverage.
We also have several other margin expansion opportunities given our scalable fast and operating business model.
2022 we grew our international operations in India to now total over 1200 employees and koa nearly all functions within the company.
Our fourth key foundation is the further upside through international expansion innovation and M&A.
As shown in slide nine.
We are delivering double digit growth in North America.
And expect this to continue over the long run.
With additional upside through international expansion.
We announced late in the year that we will be opening our sales and support office in debate. This spring.
To support growth in the middle East, but several new logo wins and a strong pipeline for 2020 three.
Today, I'm very excited to announce our expansion into Africa.
Through our strategic partnership with one connect.
Based in Johannesburg, one connect is a provider of full service technology solutions in Africa, and is committed to bringing power school solution to over half a million students this year.
With a strong long term opportunity for us to support improving education outcome for over 240 million students across the sub Saharan Africa.
Innovation is at the heart of our company and we are investing in product Roadmaps.
An example of this innovation is our recent announcement last month.
All forward, new learning map and content Nab solutions.
Key milestones in the push towards a data centric automated and highly impactful personalized learning solution.
Our market opportunity, we estimate to be over $100 billion.
These tools utilize artificial intelligence to automate our students' learning pathway and ease the selection of customer approved content resources that support those destruction of pathways.
Yeah.
M&A has been an important tool for expanding our technology capabilities and growth opportunities and we have the bonds traded tremendous success with each of our acquisitions.
The recent acquisition of Kickboard.
<unk> chalk and headed to have already been integrated and are outperforming our deal models driving growth in each of the pillars and have expanded our cross sell time by over $500 million.
We intend to continue acquiring best of breed technologies to enhance our platform and global presence in 2023 and beyond.
I think I have outlined in these four key takeaways.
We have proven our capability to execute on our financial metrics and goals.
During our IPO in the summer of 2021 we communicated several targets for our key metrics most of which we have surplus in our past one and a half yourself being a public company.
On Slide 10, you will see that our stated long term target and our rate of between 105 to 107 person what's surprised this year, reaching 109% in this fourth quarter.
We also have already met our long term net debt leverage target of three to four times EBITDA, finishing the ear at three times.
Our IPO targets for 2022 revenue and adjusted EBITDA were eclipsed.
And on the Unlevered free cash flow, we beat our 'twenty two target of $127 billion by 6 million.
This speaks to our ability to perform and deliver on our commitments and you can expect us to increase many of these targets in our 2023 Investor day that Eric will chair.
With these strategies our team and the Brazilian market, we expect to deliver another year of low double digit revenue growth combined with meaningful margin expansion, which you will see in our guidance let.
Let me now pass the call over to Eric to review the financial details of the fourth quarter and the full year 2022 and provide the details of our guidance for 2023 Eric.
Thank you Heidi we're pleased to finish 2022 with such a great quarter looking back on the year I'm proud of the performance. We delivered we drove top line growth of 13% coupled with an adjusted EBITDA margin of 31, 1%, which reflects a 220 basis point year over year improvement.
All of this was achieved while continuing to invest in innovation for long term durable growth.
Our customer base has expanded to over 15000 districts and our differentiated unified platform of mission critical products drove record cross sell performance during the year.
This resulted in a meaningful improvement in our net revenue retention rate, which has increased each quarter since we IPO in mid 2021.
As <unk> outlined we are already well ahead of many of the long term targets, we laid out at the time of the IPO, which is a testament to our team's tremendous ability to execute.
Moving to the results and summarized on slide 11 fourth quarter total revenue came in at $161 million.
Up 10% year over year and in line with the guidance range, we provided on our last earnings call.
Full year 2022 revenue was $631 million, representing a growth rate of 13% for the year.
Subscription and support revenue our most strategic revenue stream grew 10% year over year and accounted for 88% of total revenue in the quarter.
For the year SMS grew 14% and represented 86% of total revenue.
Our services business generated revenue of $15 million, an increase of 6% year over year, which has moderated from prior period growth rates driven by our faster implementations and more efficient deployment cycles on a full year basis, our services business grew 14% over 2020 one.
Revenue from license and other which relates mainly to our third party revenue came in at $4 million for the quarter, representing a 21% increase over last year.
As a reminder, Elena is our least strategic and non material revenue stream, representing only 3% of total revenue.
We ended the year with an annual recurring revenue balance of $596 million, an 11% increase over last year.
Net revenue retention rate war, and our or came in at 109, 1%, representing a sequential improvement of 40 basis points and our fifth consecutive quarter of sequential improvement.
Year over year at RR improved 270 basis points. This strong performance was driven primarily by higher cross sell and our normal contracted price increases.
Our net retention success reflects the deep value and ROI, we provide to our customers who continue to expand the relationship with power school.
Adjusted gross profit for the quarter came in at $112 million with a 69, 5% margin representing a 110 basis point sequential increase and a 370 basis point year over year improvement.
For the full year adjusted gross profit reached $429 million or a 68, 1% margin, representing an 80 basis point improvement over 2021.
Looking at fourth quarter operating expenses, our non-GAAP research and development expense came in at $22 million, representing 13, 8% of revenue compared with 16, 9% last year.
Including capitalized R&D expenses. The total invested in R&D was 19% of revenue compared with 22, 1% last year.
Full year, non-GAAP R&D expense grew 5% to $95 million.
non-GAAP SG&A expense declined 3% year over year in the fourth quarter to $37 million Rep.
Representing 23% of revenue.
Which is 320 basis points lower than the 26, 2% in Q4 of last year.
non-GAAP SG&A expense for the full year 2022 increased 11%.
Our fourth quarter, adjusted EBITDA was $53 million or 32, 8% margin exceeding the high end of our guidance range by $2 million.
Full year, adjusted EBITDA was $196 million, representing a 31, 1% margin.
And 22% higher than 'twenty, 'twenty, one and 190 basis points higher than the original guidance, we provided at the beginning of 2022.
non-GAAP net income in the fourth quarter was 27 cents per fully diluted share, which is nearly double the 14th cents per diluted share in the same time period last year.
Full year 2022, non-GAAP EPS was <unk> 85 cents.
35% higher than the 63, we earned in 2021.
On Slide 12, you will see a summary of our 2022 margin improvement driven by multiple levers. The strong adjusted gross profit performance was driven by improved operational scale with <unk>.
Barnstable hiring and a continued focus on process efficiencies.
non-GAAP R&D expense declined as a percent of revenue as their development as streamlined associated with more cloud bundles and our India Center of excellence continues to accelerate the pace of our innovation.
On adjusted SG&A, we saw a 40 basis point improvement year over year in spend as a percentage of revenue as we realize savings from our 2022 facilities consolidation savings from various G&A processing cost rationalization initiatives.
And the normalization of fixed public company costs, we brought on in 2020 one.
Yeah.
One of our biggest priorities is to continue improving our already strong margins in 2020 three and beyond.
We will do this by being laser focused on operational efficiencies and innovation initiatives.
As I have mentioned before our target is to improve our adjusted EBITDA margin by 50 to 100 basis points each year.
2023 we expect to exceed the high end of this range delivering almost 150 basis points of improvement.
Fourth quarter free cash flow, a non-GAAP measure was $33 $2 million up 182% from the same time period last year and was driven primarily by increased profitability.
Full year free cash flow was $104 million or 16, 5% of revenue.
Moving to the balance sheet, we ended the quarter with $137 million in cash and equivalents an increase of 59% over the same period last year driven by strong free cash flow performance.
Net debt leverage at the end of the year was three times, a meaningful improvement over the $4 one times a year earlier.
Now turning to our 2023 full year and first quarter financial outlook on slide 13.
For the full year 2023 we expect total revenue in the range of $688 million to $694 million with the midpoint, representing a 10% year over year growth rate and adjusted EBITDA of 222 million to $227 million, representing a 32, 5% adjusts.
Margin at the midpoint.
For the first quarter, we expect to deliver total revenue in the range of 158 million to $160 million, representing a 7% year over year growth rate at the top end and we remain committed to our low double digit full year top line growth expectations.
This Q1 growth rate is being impacted by the delay of a very large deal, which affected the timing of services and Illinois revenue recognition.
For the first quarter adjusted EBITDA, we expect a range of 47 million to $49 million, representing a 32% margin at the midpoint.
Our adjusted EBITDA margin for the first quarter is impacted by some seasonal in person events, such as our sales kickoff, which are held early in the year to maximize their impact for.
For modeling purposes, we expect capital expenditures, excluding capitalized software of approximately $5 million to $8 million and share based compensation expense of approximately $70 million for the full year.
Fully diluted shares by the end of the year are expected to be in the range of 200 to 205 million shares.
And we're excited to announce we will host our first Investor day, which will take place on Wednesday July 12th in conjunction with our edge 2023 event, which is our flagship user group event attendees will hear from our executive leadership team, including updated long term goals and will also have the opportunity.
To meet with our top customers and product leaders and 10 breakout sessions to dive deeper into power schools products.
This will be our first edge events since the pandemic began in 2020 and our inaugural Investor day. So we're very excited to share the latest and greatest with all of you.
In closing we are proud of our team and the execution in 2022 and look forward to continuing our momentum in 2023.
We believe the large and resilient global K through 12 market is recognizing the importance and impact of technology, and advancing student outcomes, which positions us to deliver long term durable growth and provide significant value to our customers and shareholders.
This concludes our prepared remarks, operator will you. Please open the line for Q&A.
Thank you Larry.
Ladies and gentlemen at this time, we will be conducting a question and answer session.
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Confirmation tone will indicate your line is it the question queue.
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Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Our first question comes from the line of socket Calliope from Barclays. Please go ahead.
Hey, guys. Thanks for taking my questions here and nice way to end the year.
Thanks, Okay.
Or they maybe.
Maybe maybe for you a couple of big wins that you called out.
In your prepared remarks, and in the press release, which which included unified insights I believe in and in and one or two of them. I was wondering if you could just remind us how unified insights in maybe the broader data portfolio complements the broader product slate for power school, how that that.
That unified insights offering is priced.
And maybe how much room there is inside of your base for further adoption.
Sure socket.
But you know the answer.
You're right one of the beauties of a unified and safe product that is not only the most differentiate it given that we have the breadth of the platform. So we were able to offer ultra analytics. It's also a very large opportunity we have multiple products, but didn't unified insights around student success and essential talent analytics operational it accessible.
Courtyard of analytics as well so when you look at the breadth of that right, that's almost 10% to $20 per student.
So you know, it's just within North America, that's a billion dollar plus Tam, we're still only penetrated less than 10% of our base and in the market. So there's a significant upside more we already seeing phenomenal growth up almost 50% plus so the unified insight and given our leadership today as well as with some of the investment.
Once we have done by adopting snowflake and on AWS as a backbone would actually opening up a whole slew of opportunities that aren't connected intelligence that we're able to even go beyond the K 12 districts two counties to states to even countries on whole workforce analytics, bringing not just K through 12, but case to a 20 gig so very strong in.
Big opportunity ahead of us.
Yeah, Yeah, that's really interesting.
Eric maybe for my follow up for you great to see the margin expansion for next year off of off of already a year that that that's expanded margins nicely maybe maybe for 'twenty. Three maybe you could just talk to us about about two things within that expansion first how youre thinking about services mix right because of course that has.
Gross margin Yeah, you know our gross margin impact and then also how youre thinking about the investment in in international scaling just as the revenue there grows but but also as you continue to continue to invest there.
So let me just as you think about the adjusted gross margins you know as mentioned, we've expand them in over 220 basis points year over year.
You know 2021 versus 2022 and then you know in our guide you're seeing another 150 basis points within that I think it's important that we'd been really.
Reiterating this is investments like personalized learning investments like the international which are key priorities for us. Those are still you know folded into that so while we're able to continue to manage the margin expansion. We're also reinvesting significantly in these key priority. So I think it's important in the international personalized learning those are.
So those are going to continue to be primary investments when.
When you think about the services business and our deep had mentioned one of the large deals in.
In Q1 that you know where we've been chosen for a you know you'll see some of the impacts that the services business will have in the results certainly the Q1 revenue guide was a bit lower that's all driven and as I mentioned in my prepared remarks by services revenue as well as L and O revenue. So I think it's important that you know.
We are going to stay as we continue to get larger and more strategic there will be some services variability and you know as as you mentioned you know it does come with a little bit of a lower margin profile, but however, we're still going to manage the overall margin profile to expand them and then you know some of the services variability will impact just the the revenue that we see from quarter to quarter.
But I think it's important then we reiterated it very much so in our prepared remarks that we are absolutely absolutely committed to driving low double digit.
You know revenue growth obviously, the most strategic piece of our revenue is our is our subs and support and we remain committed to driving that low double digits. So I think it's important that I hit that head on because I know certainly some of you know some of you as you look at the Q1 guide we will note that it's you know, it's gonna be lower but obviously full year, we're right at the 10%, which.
Is our commitment.
That's all very clear thanks, guys.
Thank you.
Thank you.
Our next question comes from the line of Brent Thill from Jefferies. Please go ahead.
Hey, guys. This is David on for Brad Appreciate you guys, taking the question wanted to ask about the one connected.
Partnership that you guys have in Africa.
Just talk to us a little bit about how the economics vary there, but you know you guys kind of going in and doing it yourself and how we should think about you guys deploying the strategy a little bit further in some of the other international regions.
Sure David Thank you.
As you know that we've already talked about some upfront investment in middle East for the food.
You know boots on ground because it office as they are we have also seen expansion in India. We continue to further invest there. This is very exciting with our partnership with <unk> connect which is an exclusive partnership.
We have got a partner who's committing up half a million students who are going to adopt it but the multimillion dollar commit and that's the kind of partnership we're looking for or expect that before year end, we pretty much most of the regions across the globe you could have various crews there tight relationship with dozens of partners, who are going to have major commitments around adopt.
Adopting possible solutions with the local school districts, not just international and private schools, but even with government schools.
We do expect international to almost double up this year, but over the next three to five years. We expect this to go almost $80 million to $100 million and we are gonna be walking through some of that roadmap at the Investor day with you guys.
Got it that's Super helpful. And then maybe as a follow up and I'm sorry to keep.
He founded on the international side, but obviously, it's equally exciting growth opportunity.
I know it's Super early you know you haven't even opened up all the opposite but as you guys think about maybe some of the biggest roadblocks you've experienced maybe a localization of content.
Or if out of the product or regulation, just curious like what are some of the roadblocks that you got coming up again.
Well the beauty is that when you look kind of of course this block form N number of school did your platform, we actually have adoptions already in multiple countries almost 90 countries not just with American education schools international, but even with local and private schools. So the platform best localized we still do need to to your point invest in partnerships and content and curriculum with the local partners that's weird visa.
Closer partnerships really come into picture as they invest with us in building those.
Integrations to the local kirker and providers and allows us to have full turnkey solutions. So are we already seeing some great success. In these partnerships will help us X Ray this pretty quickly.
Got it I appreciate it guys take care.
Okay.
Thank you.
Next question comes from the line of Koji Ikeda from Bank of America. Please go ahead.
Hey, guys. Thanks for taking the questions I actually wanted to kind of go back to a previous question in thinking about the guidance and you know really really kind of honing in on the subscription and support revenue line.
So looking at the guide and the commentary previously on the services and kind of the <unk> revenue I guess the question is you could subscription or should subscription revenue for 2023 stay at the double digit level or or is there is there. An instance, where this could dip into the nines, you know kind of like 9% growth range to kind of get to that guidance.
Yeah, we are.
So could you. Thanks for the question, we absolutely do not see any case, where on a full year basis that the SNS revenue will dip below 10%, we just don't see that.
Got it Okay. That's super helpful. And then on the net revenue retention 109, 1% a.
Really nice there six straight quarters of expansion too I mean, we.
Where can this metric go you know how how should we be thinking about this metric could it expand into the you know kind of the 110 plus range here in 2023, and and what assumptions do you have for net revenue retention for the guidance for 2020, Thanks, guys Yep Yep. So so what you see when we finished the year is really a reflection of the strong cross sell them that we saw as well as <unk>.
As the you know our industry, leading gross retention rates that we see so that's why we ended you know as high as we did and you know as I mentioned in my prepared remarks, we've seen a nice increase since the beginning of the year.
What I would say and if you could go back to the long term guidance that we provided when we went public as we said we would be in the 108 to 110 range. You know what I would tell you is were you know tighten that up a little bit to the 109 to 110 range. This year and you know you'll see a little bit of variability from quarter to quarter, but you know I think this year what I.
Would tell you is we should be in the high one O 9% range and then you know as we as.
As we start to get you know a little bit further into this year.
We can provide some further guidance on that in terms of in or does it go into 110 or or some level beyond that you know in the future, but at this point I would say remaining within our long term guide of one Oh wait to 110.
And with the current results I would say that will be on the higher end of that range.
Got it thanks, guys. Thanks for taking the questions.
Yeah. Thanks Koji.
Thank you our.
Next question comes from the line of Stephen Sheldon from William Blair. Please go ahead.
Hey, Thanks, and congrats on the strong into the year here first question just when you think about this and I think you talked about revenue acceleration there in 2022.
I think you've talked about 40% market share in the U S still being held by a variety of smaller fragmented kind of legacy players. So.
I guess when do you expect to see a continued pick up in school districts on smaller more legacy solutions convert to a higher end solution over the next few years and what's the hold up and then doing so in this type of environment.
Sure. So thanks for your comments about the quarter.
We definitely very excited about the success broadly on the platform with a record cross sell for Q4, but then also to your point successes, but they know what products like over the longer the largest product base, which is and that's I guess, having almost grossing teens. So we do expect that with the wins like what you buy.
Sure.
Puerto Rico, choosing us, we definitely see that the growth to sustain as more and more of the 40%. The legacy space is seeing challenges around being able to cope up with some of the digital transformation needs, whether that's around to more automation more data visibility as well as more data security and all those.
Things are kind of key drivers, which are actually driving the legacy customers customers do X Ray and that's why you see what growth actually accelerating post pandemic and we expect that to continue as most of the districts who are you know kind of kept himself went through the pain during the pandemic under license.
They got to start modifying justice.
Got it that's helpful.
And then as a follow up wanted to ask about the pipeline and I think I heard that the pipeline is up 25% year over year. So just wanted to confirm that and as we progress towards the key selling season.
Coming up here are you seeing anything surprising about the level of interest across different products.
Your portfolio at this point.
Yeah of course re traded in my comments, our pipeline is 25% even for the first half it's still early for the full year pipeline and then we'll get more visibility throughout the year for you and we will provide that our deal velocity of a deal demand across the proxy remains consistent.
I mentioned, the bright spot definitely yard the analytics. The S. I S transformation talent management continues to grow actually very strongly as we left the classroom products. So we've seen pretty much growth in all of our major product lines.
Yeah.
Great. Thank you.
Thank you.
Thank you. Our next question comes from the line of Matt Hedberg from RBC. Please go ahead.
Oh, Hey, guys. Thanks for taking my questions. Congrats from me as well on this.
Strong ended the year.
Her deep you know.
Obviously, one of the standouts was was the new wins, but also the cross sell and are are that somebody asked about previously I guess I'm curious you know, we've we've sort of been impressed with the true platform play that power School, we think it is.
That said can you talk about the competitive environment have you when we have your win rates improved over the last couple of years, and just maybe a little bit more of a competitive dynamic.
Yeah, Yeah. Thanks, again metric commentary absolutely you know our win rates are actually holding up.
Well in fact, improving especially when it comes to win rate against the legacy vendors.
And you know to your 0.1 of the differentiated which is really playing out is the platform right. There's a lot of people would call them sell platform, but they buy power from but just within one pillar of her classroom or from an operations nobody has the fifth the which is the core the classroom the talent and all those pieces and one of the data points I shared with you.
You look at customers, who actually have products from each of the pillar that itself now is 1000 and customers were up seven plus product almost a full platform that almost as 100 million for Iraq. So almost 20 person Oh for business coming from those customers. So and that's the flywheel effect. The board. They are buying they are buying more products from us and that's what X rating the cross.
As well as creating more demand outside that in net new who are realizing that hey, we have best in class products and they can really start consolidating their platforms.
Got it helpful. And then last quarter, you announced your new CRO Ah Tony Kinder.
It's sort of you know now you had a chance to work with him a bit longer.
Any changes that he's making to sort of the you know the sales kickoff or territories or plant quotas or anything like that that that that are worth noting.
We actually had a very phenomenal kickoff with almost 400 people are our sales team is almost double our when you look at from just two years back from where it is so we're very excited to see.
Although sales really geared up and Tony is bringing a lot of discipline around not just the the commitment in the forecasting process, but actually is solution selling what you saw from our press release around bundling and selling more solutions. So we actually selling more products at the same time, so that actually creates a a customer acquisition and cross sell acquisition even foster.
What's exciting about it is with the with people like Tony who have years of experience at Oracle and Netsuite with people like Paul we brought it in as our CTO with the public company experience like Kashi carpet new relic in Oracle.
Like for example that our years of experience at Red Hat, We now have management team, who actually not only manage billion dollar plus businesses, but actually even help them scale up and manage to the public company commitments expectations as well so very excited about the leadership team and where that allows us to almost.
Make us into a billion dollar enterprise.
Thanks, a lot guys.
Thank you.
Thank you our next.
Next question comes from the line of Joel ruling from Beth. Please go ahead.
Hi, Greg Hi, everyone I wanted to go back to unified insights and I guess I'm curious on the labeling of this quarter as the breakout quarter since.
Then your fast one of your faster growing products or they might not a stranger statewide deals.
With this maybe more just referring to the absolute size of the awards in the quarter or are you.
Are you starting to see the scope and use cases brought in advance of the potential.
For the suites become something bigger than maybe you thought about what the products like who do I started coming together to make it up by themselves.
That's a great find point Joe So when you look at from a you know we already have market leadership and unified insights in fact, we have 10 plus straight contracts.
We've talked about in Maryland doesn't get lost here, what's exciting about the Alabama when there's the fact that it's not only the student's success analytics that actually multiple modules of fountain lakes, including over new product or an M. TFS multi tier system of support we launched last year its already showing this differentiation and Alabama look through an RFP process and look through all that.
Anders they selected us to be that partner, who can give that to them.
Holistic analytics and MTS to support so that just shows you the strength of our leadership already and the innovation and how we are quickly able to bring those innovations to the district and then you take another spectrum, a fairly unified where they're adopting of a snowflake platform for connected intelligence, bringing data even from they don't use of LSI as they're bringing data from multiple of the system.
El Paso is another good one so theres a lot more districts would actually now adopting of our school snowflake connected intelligence and that also shows you the breadth for us to now able to go with analytics to even a much broader audience and I think that's why it's a very exciting quarter from the analytics perspective.
Okay, that's great.
I guess on new logos.
As I recall I think last year was a very high rate of growth in new logos.
I think this year tend to hire as well.
And yet you're bringing in more new customers than your net retention is still going on so I guess the question is that new customers are powered school do not seem to be necessarily smaller where the deals are getting smaller in scope. It is that fair.
And then I guess it begs the question since you do have fairly large coverage of the market already we shouldn't really think about as you're moving maybe in a down market or private that that's a lesser opportunity I. It sounds like these new customers are continuing along kind of lets say in Germany has your your heritage.
Customers.
No. It's it's a it's a great point then you know what I'll say is that the ticket example of a district and you know, Rhode Island put ticket or a commuter unit school district teaser rate in Illinois, they're not just buying dollars test as a backlog, they're actually buying fortify modules in that chart. So to your point, we are seeing more multi module deals with.
New logos, as well, including tons and tons of the charter schools and small schools as well, including private schools, So epic charter double down, but the adoption of our curriculum solution. They've got tons of success is happening at that level as well, yes prep and text us buying out of school with your platform. So we are seeing the demand.
Across the full spectrum.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Fred half mile from Macquarie. Please go ahead.
Hey, Thank you and congrats her deep Eric and the entire power schools him here.
I think just bigger picture on S are funding at this point.
And we're at a place where schools can certainly continue to deploy us or funding and at the same time, we're considering the 'twenty 'twenty four time frame ending of the availability of some of those funds.
Her team and Eric can you just give some context about how schools are thinking about continuing their purchasing of power school in any any case, where perhaps ask your funds were applied.
Yeah, Thanks, Brett with prejudice. The first thing the based on all of our deals observation still majority of the deals in fact, 80% plus of them still like using the core funding there they're not relying on that Sir we do feel some of the districts would adopt this or fund for the first two years and then they still are allocating budget for ongoing basis for those products because of beauty.
For business products are right then they adopt it sticky they're doing it for multiyear so theyre not necessity using as sort of as the only buying pattern. It does help them price them that question. So the initial implementation costs and everything they can exercise. Good example of that how Puerto Rico is doing that but that's definitely not a restriction as as you said theres still about 100.
Billion to be spent on essar. So we still feel that the budget environment called budget environment remains stable.
Just to provide that additional cushion, but were not expecting this to change over demand or adoption or growth rate in any shape or form.
Got it thank you and.
So it sounds like is it really just helping get getting deals across the line there, especially on some of those nonrecurring items.
That's a fair fair comment yes.
Thank you and you know it was really help with seeing some of the comparison of what you've achieved versus your initial IPO timeframe our targets in the back of the IPO. We were also talking about how how were schools penetrate not just among schools, but in terms of the overall wallet share of them.
He spent within schools and software spend by sea.
And I wanted to check in on that just at that time, we've seen substantial multi product progress you're certainly seeing 3% year over your growth in the overall four plus product customers you have just where do you presently stand or words power school stand with respect to overall wallet penetration among our it spend the schools and could you remind us about how to think about where the.
It could go overtime.
Sure.
When you look at from a multi product like the two products are we've said on average our customers have a little more than two products and that has improved in fact now the number of customers who have two plus products has improved from almost 2021.
The low forties to almost now in the high forties. So we're already seeing more adoption, but what's been interesting is that especially we're focused on strategic and enterprise customers that multipart arch option is already three plus so our biggest focus than other sales channels that are actually showing that we can easily move our customers to pay but now were translating that to the enterprise.
And the small insight customers as well so we do have a lot of opportunity and it continues to improve but as we also said as we are improving that we also added 5 million new students. So it kind of a you know that changing the denominator as well.
Thank you.
Thank you.
Our next question comes from the line of Brian Peterson from Raymond James. Please go ahead.
Hi, gentlemen, I'll I'll Echo my congrats on the strong quarter or maybe two high level ones for her need, but but first on the international opportunity Yeah, I don't want to hold it on Africa, a little bit you know I'd be curious what products do you think will be kind of the first to be adopted in that market.
Youre curious about things like you know learning loss or compliance orientation, where you guys are really strong here in North America, but like I guess I was curious if there's a narrative on point of emphasis for the initial adoption there what would that look like as you guys buildup in Africa.
That's a great question and you know what we the primary initial adoption of harken billions children commitment is actually coming from our student information system and the school Lucci products. So those are our two main products, where we are basing the commitment on a.
We do have upsell opportunity as we expand into the data insights into the talent products as well so those would be future kind of a road maps, but typically when we are entering the market. Those are the two products. We are entering the market and then having the rest of the products volatile we have seen them pick example, in middle East, where we get example, those.
Customers, who are buying multiple products as well so they are almost buying like 9% to 10 products. So we do have opportunities with these products are pretty much apply but we initially focus on systems globally.
Great Oh Super clear in a follow up just on pricing and I wanted to look at that maybe some of your analytics offerings, but obviously you have some some large deals that you referenced in the call today.
I'm curious what is the variability on what some districts can pay for that is it are you able to kind of address maybe at a smaller and then the larger because maybe they would have their needs or is that how it works I just I'd love to understand the bounds on a pricing perspective, just given that there may be functionally different needs. Thanks, guys.
Yeah, that's fair Brett So when you think about it is that there are multiple analytics says I was talking about right. You've got the core essential analytics. Then you have the students affects analytics that allows you to do and modeling it unfair to the students or what other acro students. We've got talent analytics, we are operational analytics and then even broader connected intelligence, we're bringing other data. So there are multiple each of these products are five to $10.
The price points right per student talk typically reprice. It if you're a large districts or stay if you bring the lauder and your smaller sort of just take youre paying the hiring but then as you bundle you get go get option to buy these clouds as well, which allows you to kind of have to take advantage of that so.
So we can walk through this a little bit more of an investor day, you guys kind of get a clear picture.
Great. Thanks Marty.
Thank you.
Yeah.
Thank you. Our next question comes from the line of Rich silica from Credit Suisse. Please go ahead.
Hi, guys. Thanks for taking my question I wanted to circle back and talk about new persona specific clouds, Hardeep I think you've touched a little bit on this but I was wondering if you could more fully flesh out how you think about this really playing into your go to market strategy multi product expansion efforts the way the portfolio looks feels and help.
And and how customers maybe by moving forward, but would love to understand your your your trajectory in your view there.
Yeah.
Great question right. So when you think about what.
What we were seeing as people are buying multiple of our products. We had also seen based on persona that likelihood to be buying multiple products at the same time. So we created these bundles around solutions off student cloud on a personalized learning cloud for classroom for a student's success cloud around you know College college readiness and the success of all our workforce planning.
So we're creating these bundles that allows us to go with the persona and give them a full turnkey solution for all their key problems rather than one a la carte kind of a product at a time and that is based on how we are seeing the deals happening. It all helps us kind of create more efficiencies on our site with selling and marketing it to Eric's point about service.
Right. It also creates efficiency and other services to implement these things together so that does bring up a service cost a little bit lower right. That's why you received some of the reflection on the services revenue, but it actually it's great for the customer and got great for exploration or velocity of creating more business and overall subscription growth and that's how we've kind of structure of this and we are already seeing some good.
Results and even though a development another posting an all processes are getting optimize around these clock called rollouts.
Excellent. Okay. That's very helpful. And then maybe just as a follow up.
The learning now in content now, but you highlighted how this really helps position you even more strongly for the $100 billion personalized learning opportunity I was wondering if you can bring to life. How this changes the average customers path towards this vision, which I think a few years ago felt a little lofty, but now it seems like it's coming into focus so how does this change the game.
For customers.
Really striving towards personalized learning thanks.
It's a great point ratio, whereas we've been talking about the unique opportunity. We have is because we have the biggest platform. We have the biggest thing. So we have the system of record we have the system of engagement across these persona. We also have the system of intelligence with the data we are in a unique position to provide more personalization and automation through the eye.
To really augment the teacher in achieving this and we've been working towards some building all the pieces that now we are actually there and launching with this content recommendation and learning path recommendation using AI, we'd actually now able to start working with the districts on creating that we still are it's a one to two years before.
We kind of pretty much harder in these models and AI models to be able to really launch it fully across the north American base, but expect that over the next two to three years, we actually would be in a position where we can fully have a personalized learning platform for our customer base.
Very helpful. Thanks, and congratulations.
Thank you.
Thank you. Our next question comes from the line of Gabriella Bulges from Goldman Sachs. Please go ahead.
Hi, This is Kelly vontae on for Gabriela Congrats on the continued business momentum. So what are customers, telling you were kind of the biggest gaps and the periscope portfolio that you guys have yet to address and how can you share. How these discussions are informing your organic product roadmap and maybe M&A priorities.
Okay.
We've been talking about that we got all the mission critical pieces. The most core components. If you ask a district, we actually have that in the platform, but we do see continued expansion opportunities on other adjacencies as well as international and tuck ins around technology or for the functionality and we'd be doing back things like communication curriculum, we do have a roadmap.
Around further expansion, especially around analytics on unified parent experiences and stuff like that the payments to be another area of expansion those things.
Coming through organic plus somebody.
I am a napalm roadmap would allow us to continue expanding the platform.
And that makes sense and then as a follow up where schools are continuing to gain share are you seeing any changes in competition or any noticeable trends with the types of deals youre seeing in the space My impression, it's a little bit more competitive on.
And yeah, the learning management system.
Hi.
Yeah, I think you know, it's a basically a I would call. It you know us in the canvas as a true strong LMS platforms, and then you've got Google classroom Midships district wants to have a low end kind of collaboration than they are a Google house for them. So we typically see Google classroom customers as well as 25% Mark of it doesn't use anything to be where we get it.
About a million five students surplus in school to do this year and we are that's what was happening before pandemic in pandemic, we did add almost 4 million plus students, but we've kind of back to pre pandemic levels of about $1 2 million five students.
Congrats again, thank you.
Thank you.
Thank you.
Our next question comes from the line of Karl Keirstead from UBS. Please go ahead.
Great maybe two for me.
Eric Upends, the Q1 revenues coming in a little bit light on the delay of a very large deal to mind elaborating, how one off was that and when you expect the deal to close.
Yes, so the deal should be closing any time now it's a it's a rather large deal that hardeep had mentioned in his prepared remarks.
And yeah. So it's just it's a matter of days away from actually getting closed now I will tell you I mean, a lot of times. When we have these deals that we're very confident we're going to when we do a lot you know will do to the extent, we can we will do some upfront work to help kind of accelerate that but I can tell you that the majority of the the <unk>.
Impact that we're seeing in Q1 will start picking that up in the out quarters. When this big deal desk side got it. Okay. Thanks, and then secondly, Eric because we try to model out cash flow I do notice and in 2022.
Your EBITDA margins were up about 220 bps year over year, but your operating cash flow margins were down 190 bps. So there was a big divergence there. So when we when we're modeling 2023 operating cash flow.
Should it be a little bit more correlated to the pace of the EBITA margin expansion or is there something funky in 'twenty two 'twenty three that you would advise we keep in mind as we model out cash flow.
Yeah. So I mean, we historically do not provide cash flow guidance, but what would I would just say Karl if you're looking at operating cash flows. It you know what I would encourage you to look at is look at 2022 dynamics as an indicator for 2023 2021 obviously we.
Had a couple of items in there that would have been a little bit more favorable. So I would say you know look at the dynamics in 2022 as you're kind of going through some of your assumptions and we're happy to you know work offline with you in terms of some of your modeling assumptions. If that's helpful. As well Okay. That's helpful and congrats on the margin performance this past year.
Okay.
Thank you.
Okay.
Thank you.
Our next question comes from the line of Ryan Macdonald from Needham. Please go ahead.
Hi, Thanks for taking my questions and congrats on a nice quarter her deep I wanted to get your sense.
Of the funding dynamics that you're seeing.
Within the core budgets across the states.
Being more Governor's budget is now in state of the state address is talk about.
Obviously sustained support for K 12, but we're also seeing sort of an increase in tax cuts that are being proposed as well, which could have an impact on state budget. So I'm. Just curious as you think about the 2023 to 2020 for school your upcoming and what that budget.
Michael could look like.
How you're feeling about the pipeline and potential opportunities there.
But we think it's still the budget the nutrition to be pretty strong and healthy as you said the mostly Quechua budgets are protected from most of the federal and the state level stuff.
And especially with the additional federal discretionary spend but that's fair that's providing some of the cushion or the concern if anybody has about it but if there is any pressure on the state stack space budget allocation.
So and you know one of the beauties as what we do is mission critical right. So and typically it's actually helps district save money. So a lot of time actually even though even with the budget gets tight they actually do adopt our solution because that's the only way for them to have a sustained execution.
Super helpful and maybe just a quick follow up on that you know one of the main priorities that keeps getting excited at the state level is around mental health services with a K through 12. So I'm curious what impact do you think this has and on the demand for the Kickboard offering.
You know sort of whether or not you think this may be increased focus heading into 'twenty. Three here creates a potential inflection point in the in the adoption cycle of that offering thanks.
Yes, there is a lot of focus on social emotional support and in fact, a lot of that is also what's driving some of the analytics as well because part of the analytics is to understand the whole child, not just that I can't make a treatment, but also bringing the CL data and we definitely see that S. He ought to be focused said, nova data opportunities and about behavior opportunities as well as.
Grading their Sis because that also helps them get a better understanding and the communication aspects with the parents and students.
Okay.
Great.
Operator are you still there.
Some of them.
Our next question comes from the line of Brett Knoblauch from Cantor Fitzgerald. Please go ahead.
Hi, guys congrats on the quarter.
I know you guys have reached your maybe long term.
That leverage target.
2023, inspect it would probably be a bigger free cash flow year.
Would you consider using some of that incremental cash to pay down debt given kind of interest expense has gone up a bit or is M&A your kind of primary focus there.
Yeah, Brett it's Eric I. Appreciate the question so absolutely look as you've heard from her deep we are going to continue to be very opportunistic around M&A and M&A remains a top priority. So we feel that that's a more likely use of the cash versus paying down the debt and where we're going to continue to work down the debt and its normal scheduled terms, but.
We feel very optimistic around the M&A opportunities and are still very active in the market.
Perfect and maybe just one follow up in terms of that large deal that got pushed back did you include that in your M. A R or no.
No.
Got it thanks guys.
Yeah.
Thank you.
Ladies and gentlemen, we have reached the end of the question answer session and I would like to turn the conference silver two hot dip Galotti seal for closing comments.
Thank you sorry for running two minutes laid a lot of great questions.
You can see we had a phenomenal a good fourth quarter, but what's exciting is we are poised for another year of double digit revenue growth and even further margin expansion.
We operate in a market that is really large growing and durable and sticky mission critical products. We are kind of really essential to the school operations. So we really feel excited about our ability to continue to perform.
And as a player who only player who has the most comprehensive platform. We are really poised to meet the evolving needs of K 12 ecosystem I'm going to attack. Each one of you for joining about earnings call as well as of our employees and customers for their support we're excited about.
About all the opportunities head off expansion as well and we'll keep you guys updated as we progress of them throughout the year. Thank you again for your time for joining us today.
Thank you.
Conference they'll fall. The school has now concluded. Thank you for your participation you may now disconnect your lines.
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Yes.
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