Q4 2023 PowerSchool Holdings Inc Earnings Call

Okay.

Operator: Ladies and gentlemen, greetings and welcome to the Powerschool 4th Quarter 2023 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Shane Harrison, Senior Vice President, Investor Relations. Please go ahead.

Ladies and gentlemen, greetings and welcome to the power School fourth quarter 2023 earnings call.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host Shane Harrison Senior Vice President Investor Relations. Please go ahead. Thank you operator welcome everyone to power schools earnings conference call for the fourth quarter and full year ended December 31, 2023, I wanted to first let you know that we posted a slide.

Shane Harrison: Thank you, Operator. Welcome, everyone, to Powerschool's earnest conference call for the fourth quarter and full year ended December 31st, 2023. I wanted to first let you know that we posted a slide deck in the investor relations section of our website that accompanies our remarks here. On the call today, we have Powerschool's CEO, Hardeep Gulati, and President and CFO, Eric Shander. 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 for 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 risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings.

Back to the Investor Relations section of our website that accompanies our remarks here on the call today, we have power schools, CEO, Hardeep, Gulati, and president and CFO Eric <unk>.

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 for 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 risks and uncertainties that forward looking statements are subject to are described in our earnings release and other SEC filings.

Shane Harrison: Today's remarks will also include references to non-GAAP financial measures. Additional information, including definitions and reconciliations between non-GAAP financial information and GAAP financial information, is provided in the corresponding press release and results presentation, which are both posted on Powerschool's investor relations website at investors.powerschool.com. A replay of this call will also be posted on that same website.

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> power School Dot com.

A replay of this call will also be posted to the same website.

That I will turn the call over to already.

Shane Harrison: Thank you Shane, and thank you everyone for your time today. Powerschool finished 2023 with another outstanding quarter of execution, innovation, and profitability. Once again, we delivered double-digit revenue growth that was within our guidance while exceeding our guidance for adjusted EBITDA. For every quarter since our IPO, now the 10th quarter in a row, we have met or exceeded the guidance we provided for both revenue and EBITDA.

Thank you Shane and thank you everyone for your time today Barstool finish 'twenty to 'twenty three with another outstanding quarter of execution innovation and profitability once.

Once again, we delivered double digit revenue growth that was visiting over guidance, while exceeding our guidance for adjusted EBITDA.

For every quarter since our IPO now 10th quarter in general we have met or exceeded the guidance, we provided for both revenue and EBITDA.

Artie: We crossed 700 million in annual recurring revenue as of December, and for the year, we grew our top line double digits while expanding our adjusted EBITDA margin by 210 basis points to 33.2%. And we continue to translate our success into cash through our durable financial model, reaching a record free cash flow margin in 2023. Looking at slide four of the presentation, you will see our fourth quarter results. Total revenue grew 13%, and subscription support revenue grew 16%. ARR increased 18% to $701 million, and adjusted EBITDA of $59 million was ahead of the high end of Ferguson.

We crossed 700 million of annual recurring revenue as of December and for the ear. We grew our top line double digits, while expanding our adjusted EBITDA margin by 210 basis points to 33, 2%.

And we continue to translate our success into cash towards our durable financial model, reaching a record free cash flow margin in 2020 three.

Looking at the slight fall off the presentation, you will see our fourth quarter results.

Total revenue grew 13% and subscription and support revenue grew 16%.

Yeah, our increased 18% to $71 million.

Adjusted EBITDA of $59 million well ahead of the high end of our guidance.

Artie: At our investor day in September, we laid out four key components of our growth strategy, cross-selling and growing a large, expanding customer base, continued advancement of our platform through innovations and acquisitions, increasing our global reach, and investing in building personalized education solutions. This quarter exemplified how we executed across all four.

Out of an Investor day in September we laid out four key components of growth strategy.

Cross selling and growing of a large expanding customer base.

Continued advancement of our platform through innovation and acquisitions.

Increased our global reach and investing in building personalized education solutions.

This quarter exemplifies how we execute it across all four.

Artie: Starting with cross-sell and new local traction, we saw many customer wins in the fourth quarter that were driven by our differentiated and comprehensive platform of solutions. And we are seeing continued momentum as we enter 2024. At sunrise on slide 7, we saw several cross-sell deals in Q4. Chicago Public School, the third largest school district in the U.S., and user of several of our products, chose to add our professional development solution within our Educator Effectiveness Cloud to support its 20,000 teachers with effective career growth support. Wally Independent School District in Texas expanded from their usage of Naviance by adding four of our solutions: assessment, insights, staff evaluation, and professional development.

Starting with cross sell and new logo traction.

We saw many customer wins in the fourth quarter that were driven by our differentiated and comprehensive platform of solutions and we are seeing continued momentum as we enter 2024.

As summarized on slide seven we saw several cross sell deals in Q4.

Chicago Public school, the third largest school district in the U S and use it on several of our products chose to add our professional development solution within our educator effectiveness cloud to support their 20000 teachers, but effective career growth somewhat.

While independent School district in Texas expanded from their usage of Navios body four of our solution assessment insights stock revaluation and professional development.

Artie: Similarly, the Atlantic City Board of Education, New Jersey, user of our student information system and enrollment solutions, added insights, behavior, assessment, and curriculum planning to bring their product count to six. We also had a large multimillion-dollar cross-sell expansion with a virtual school organization that uses our SIS that added our Schoology LMS, Assessment, Naviance, Content Nav, and Connected Intelligence Platform. In the quarter, we also continued our partnership with the Puerto Rico Department of Education by booking further services related to their territory-wide attendance tracking system on top of our assist and enrollment solutions after our successful Go Live last fall.

Similarly, the Atlantic City Board of Education, you Jesse you use it all for student information system and enrollment solution chunks added insights behavior assessment and curriculum planning to bring their product conscious. Thanks.

We also had a large multimillion dollar cross sell expansion with a virtual school organization, who uses the horses.

<unk> added our school G LMS assessment, Navios content, nap and connected intelligence backbone.

In the quarter. We also continued our partnership with the Puerto Rico Department of education by booking further services related to their tender G wide attendance tracking system on top of her assistant and enrollment solutions. After our successful go live last fall.

Artie: Data-driven solutions that provide valuable insights into student, school, and district performance and operations continue to meet a large and growing market need. In 2023, we saw a 50% increase in the number of deals for our data product, with the total annualized value of those deals increasing over 60% year over year. In the fourth quarter, we saw this through dozens of customer wins, including cross sales with Cherry Creek School District in Colorado and Toledo School District in Ohio, who both selected Connected Intelligence. And finally, our statewide Vendor of Choice win with the Indiana Department of Education closed just after the end of the year in January.

Data driven solutions that provide valuable insights into student school and district performance and operations continue to meet our large and growing market beat.

In 2023, we saw a 50% increase in the number of appeals photo of data products.

The total annualized value of those deals increasing over 60% year over year.

In the fourth quarter, we saw this through dozens of customer wins, including cross sales with.

Cherry Creek School District in Colorado, and Toledo School District in Ohio, who bought selected connected intelligence.

And finally, our state wide vendor of choice has been with the Indiana Department of education.

Just after the end of the year in January.

Artie: This is the largest win for our special programs product line in double-digit millions, which will enable the Indiana DOE and all of its schools and districts in the state with advanced special education case management, eligibility, and progress tracking, individual education plan development, and service reporting and documentation. Moving on to slide six and our platform expansion successes in the quarter. In January, we acquired All of You, an innovative, advanced budget management, planning, and analytics startup specifically focused on the K-12 education market. We are seeing this as a top-of-the-mind need for many districts as they focus on more effective and efficient use of their ongoing budget as the extra COVID-related federal stimulus funds wind up.

This is the largest bitten photo of special programs product line in double digit millions, which will enable the Indiana D. O E and all are at school and district in the state with advanced Special Education case management eligibility and progress tracking.

The virtual education plan development, and sort of risk reporting and documentation.

Moving on to slide six and our platform expansion successes in the quarter.

In January we acquired all of you and innovative advanced budget management planning and analytics fast startup.

Specifically focused on the K 12 education market.

We are seeing this as a top of the mind need for many districts as they focus on more effective and efficient use of their ongoing budget as the extra COVID-19 related federal stimulus funds buying them.

Artie: We have partnered with all of you over the last few years as a strategic add-on to our K-12 ERP system. You also allow us to expand our reach into the broader K-12 finance software market as it integrates with other ERP systems. We are excited to add the All of You capabilities to the Powerschool solutions and the analytics platform, so we can provide even more comprehensive analytics that include financial planning, as well as enable districts to create more accountability and transparency by seeing the education improvement ROI of their budget investments. Our international expansion initiative made further strides during the quarter, as shown on slide six. We had a great international win with Marist education in Saudi Arabia, which is a great case study on how Powerschool can land and expand with our platform in international markets.

We have partnered with all of you over the last few years as a strategic add onto what K 12 ERP systems.

All of you also allows us to expand our reach into the broader quichua finance software market as it integrates with other ERP systems.

We are excited to add the all of your capabilities to the powerful solutions and analytics backbone. So we can provide even more comprehensive analytics that include financial planning as well as the enabled districts to create more accountability.

And transparency by seeing the education improvement or why off their budget investments.

Our international expansion initiative made further strides during the quarter also shown on slide six.

We had a great international been but Marty specification in Saudi Arabia.

Which is a great case study on how power school, you can land and expand with our platform in international markets.

Artie: Marif already uses nine Powerschool solutions for its international schools, and in the quarter, they added two of our recent innovations, Connected Intelligence and MyPowerschool. Maris also expanded the rollout of the Powerschool platform to 13,000 additional students in their national schools, leveraging the localization framework and the right-to-left translations we have built for the Middle East region. We continue to expand our international reach in Q4 by signing four additional channel partners, all of whom are strong technology resellers and integrators focused on the Latin America region, a strategic gold market for us, given our highly successful nationwide Schoology rollout in Uruguay during the pandemic. With these four, we will finish 2023 with 14 new international channel partners ahead of our goal of 12. Also, during the quarter, we hired a general manager for our international efforts who has a strong background in global enterprise sales and operations.

Marty already use this nine powerful solutions for the international schools and in the quarter. They added two of our recent innovations connected intelligence and my power School.

Morris also expanded the rollout of the powerful platform to 13000 additional students in their national schools, leveraging the localization framework and the right to left translations, we have built for the Middle East region.

We continue to expand our international reach in Q4 by signing four additional channel partners all of which are strong technology resellers and integrators focused on the Latin America region.

Our strategic growth market for us.

Given our highly successful nationwide school as you rollout in Uruguay during the pandemic.

With these four we finished 2023 with 14, New International Channel Partners ahead of our goal of trough.

Also during the quarter, we hired a general manager for our international efforts, who has a strong background in global enterprise sales and operations our focus through 'twenty 'twenty four will be to onboard over resell partners.

Artie: Our focus to 2024 will be to onboard our retail partners, sign on new ones, continue expansion with a growing global customer base, and develop sales opportunities in PIPE as we build towards our goal of having an international business that contributes 10% of our revenue by 2028. Turning now to our innovation momentum on slide seven. As we shared at our investor day in September, one of the biggest growth opportunities, which significantly expands our TAM to $100 billion, is providing personalized education for every student journey. With the advancement of generative AI, we now have the ability to personalize education at scale and provide conversational, adaptive, and tailored engagement for everyone in the education ecosystem. Teachers, administrators, parents, and students, all of whom contribute to a successful education outcome.

Sign on new ones continue to expansion with a growing global customer base and develop sales opportunities in pipe as we build towards our goal of having an international business that contributes 10% of our revenue by 2028.

Turning now to our innovation momentum on slide seven.

As we shared at our Investor day in September one of the biggest growth opportunities, which significantly expands our Tam 200 billion is providing personalized education for every store in Germany.

With the advancement of generative Yeah, we now have the ability to personalize education at scale and provide conversational adaptive and tailored engagement for everyone in the education ecosystem teachers administrators parents and students all of whom contributed to the successful education outcome.

Artie: There is a weakness in the generalized AI technologies and standalone supplemental AI tutors in that they don't have the details of what the individual student needs, the context of what's happening in the classroom and with the homework, nor do they have access to the daily engagements a student has with all the personas, with us being the most comprehensive K-12 platform in the market. We at Powerschool have solutions that process and understand all the key elements in education, including student, classroom, school, teacher, and district operations. And as the most pervasively deployed education platform in North America, we are interacting with all the personas in education millions of times per day. Combining these unique differentiators has resulted in our recently launched comprehensive, personalized AI platform for K-12 education, PowerBuddy.

There is a weakness in the generalized AI technologies and Standalone supplemental AI tutors in that they don't have the details of what the individual student needs or the context of what's happening in the classroom and with the homework nor the access to the daily engagement a student has with all the personas without being the most.

Comprehensive K 12 platform in the market.

We have parts will have solutions that process and understand all the key elements in education, including the student classroom school teacher and district corporations.

And that's the most pervasive Lee deployed education platform in North America, we are attracting that all the persona is an education millions of times per day.

Combining these unique differentiator has resulted in our very exciting recently launched comprehensive or slightly a platform for K 12 education power Buddy.

Artie: PowerBuddy is an AI assistant for everyone in the education ecosystem, including students, parents, teachers, district administrators, and even counselors. As a conversational AI tool that utilizes K-12 and district data, Powerberry changes every element of education engagement and enables personalized and highly effective support for everyone. For students, PowerBuddy is a personalized digital helper and tutor that knows their curriculums, grades, homework, areas of improvement, learning styles, interests, and more

Our body is an AI assistant for everyone in education ecosystem students parents teachers district administrators and even counselors.

As the conversational AI tool that utilizes K 12, and district data power Betty changes every element of education engagement and enables personalized and highly effective support for everyone.

Our students poverty the personalized digital help her and tutor that knows their curriculum grades.

Areas of improvement.

<unk> interested more.

Artie: For teachers, PowerBuddy is a teacher assistant that can help create lesson plans and assessments. Parents can leverage PowerBuddy to inquire about their child's performance and receive personalized resources. And district administrators can use PowerBuddy as a virtual data analyst that can efficiently access district performance information by talking to their data. PowerBuddy is the AI that will be integrated into each product across our platform. So it efficiently and seamlessly brings AI to every customer through the products they already use. On slide 7, you will see a link to a video that showcases PowerBuddy and how it will be used by our platform, various personas, and use cases.

For instructor poverty as a teacher assistant that can help create lessen clients and assessments parents can leverage barbaric inquire about their child's performance and receive personalized resources.

And district administrators can use part, but he is a virtual data analysts that can efficiently excess district performance information by talking to their data.

Your body is that yeah that will be integrated to each product a crossover platform. So it efficiently and seamlessly brings AI to every customer through the products they already use.

On slide seven you will see a link to a video that showcases our buddy and how it will be used by our platform various personas and use cases.

Artie: To make it affordable for every district and enable phased adoption, we will be offering PowerBuddy for individual use cases and products like assessments, learning, insights, communication, content creation, college and career readiness, teacher coaching, and other use cases with the ultimate goal to launch PowerBuddy for personalized homework that will be available to both districts and individual families to support their children. We have already started monetizing our AI platform. PowerBuddy for assessment to create test questions and passages using generative AI has been purchased and adopted by districts representing over 50,000 students, and we already have a strong pipeline for future opportunities.

To make it affordable for every district and enabled phased adoption, we will be offering poverty for individual use cases in products like assessment learning insights communication.

Intent creation college and career readiness teach a coaching and other use cases with the ultimate goal to launch power Buddy for personalized homework that'll be able to book districts and individual families to support their child.

We have already started monetizing over AI platform poverty for assessment to create test question, then passages using generative AI has been purchased and adopted by district, representing over 50000 students and we already have a strong pipeline for future opportunities.

Artie: Our recent launch of ContentMap, which utilizes AI to provide a centralized, dynamic, and easy-to-explore repository of digital instruction content for all grade levels and for a wide variety of PowerSchool districts and external sources, is in the market now with deployments with several districts with over 500,000 students and millions of dollars of opportunity in our pipeline. We are further enhancing that solution to leverage generative AI to help build original curriculum, content, class project ideas, explanatory text, and sample stories and passages. We're also seeing phenomenal interest in the beta test for other Power Buddies, including Power Buddy for Learning, which is integrated into Schoology, and Power Buddy for Insight. Many of the Fabri solutions are scheduled for launch in the summer and winter of this year.

Our recent launch of content nap, which looked like this to provide a centralized dynamic and easy to explore the paucity of digital instruction content for all grades level and for a wide variety of power school districts and external sources is in the market now with deployment with several districts.

With over 500000 students and millions of dollars of opportunity in our pipeline.

We are further enhancing that solution to leverage generic AI to help build original curriculum content class project ideas excellent rotary text and simple stories and passages.

But also think phenomenon and trust in the beta tests for other parties, including poverty for learning, which is integrated into <unk> and poverty for insights.

Many of these poverty solutions, that's scheduled for launch in the summer and the winter of this year.

Artie: Our data-as-a-service solution, Connected Intelligence, is the foundation of the safe, secure, customizable, and effective usage of our AI. We are generating very strong sales and demand for our connected intelligence data lake platform for AI. K-12 organizations like Epic Charter and Challenger Schools are using the Connected Intelligence Platform today to create custom AI models for different use cases.

Our data as a service solution connected intelligence is the foundation of the safe secure customizable and effective usage of five yeah.

We are generating very strong sales and demand for a connected intelligence data lake platform for AI.

K 12 organizations like epic charter and Challenger schools are using connected intelligence platform today to create custom AI models for different use cases.

Artie: We're launching a campaign to allow districts to get ready for AI with connected intelligence and PowerBerdy for custom AI, which allows customers to create their own chatbots with custom data sets, such as district handbooks, guides, and other resources for parents, communities, and internal staff. We are seeing this as a pivotal moment for K-12 education and for PowerSchool. PowerBuddy has the potential to completely transform education globally and how every persona engages and does their daily function in K-12.

We're launching a campaign to allow districts to get ready for AI with connected intelligence and powered ready for custom EI, which allows customers to create their own chat bots with custom data sets such as district can books guides and other resources for parents communities and internal staff.

We are seeing this as a pivotal moment in K 12 education and for power School.

Power, but he has the potential to completely transform education globally, and how every persona engages and does their daily function in K 12.

Artie: We are moving to an AI-first innovation investment philosophy, leveraging personalization and conversational elements in all of our new innovations. Our platform of 20-plus solutions is unmatched in the industry and provides us with a unique and large opportunity to integrate our powerful AI for K-12 education capabilities into each of our products to generate new streams of revenue. It creates many additional monetizable products that add $30 to $50 off TAM per student initially and a lot more as we move into providing integrated content and services to districts and families.

We are moving to an AI first innovation investment philosophy.

<unk> personalization and conversational element in all of our new innovations.

Our platform 20, plus solution is unmatched in the industry and provides us a unique and large opportunity to integrate our powerful AI for Quechua education capabilities into each of our products to generate new streams of revenue.

Eric: We have a significant competitive advantage to achieve this growth and further expand our overall differentiation and business model. All this customer, product expansion, and innovation momentum I shared sets Powerschool up very well for 2024. We are confident of a durable financial model to drive double-digit revenue growth, consistent margin expansion, and free cash flow generation. We continue to be the leader in our category and a best-in-class vertical fast company with a clear path to a Rule of 50 profile. With that, let me pass the call over to Eric to cover financial performance and guidance. Eric, thank you, Hardeep.

It creates many additional monetize able products that add 40 to 50 dollar off 10 per student.

Actually in a lot more as we move into providing integrated content and services to districts and families.

We have a significant competitive advantage to achieve this growth and further expand our overall differentiation and business model.

All this customer product expansion and innovation momentum I shared set smaller school up very well for 2024.

We are confident of our durable financial model to drive double digit revenue growth consistent margin expansion and free cash flow generation, we continue to be the leader in our category and our best in class what it goes fast company with a clear path to a rule of 50 profile.

Eric: We had a great quarter, as Hardeep outlined, and we exceeded almost all of our financial objectives, delivering profitability above guidance with revenue growth of 13%. Both revenue and Adjusted EBITDA were significantly ahead of our initial guidance that we provided at the start of the year. This performance gives us confidence in our 2024 guidance of double-digit revenue growth and continued margin expansion. For the full year 2023, our top line grew 11% while our adjusted EBITDA margin expanded by 210 basis points to 33.2%. We achieved all of this while expanding our international presence, acquiring and successfully integrating School Messenger and Never Skip, and investing in game-changing innovations that will help make personalized education a reality. A summary of our results is shown on slide 8.

With that let me pass the call over to Eric to cover the financial performance and guidance.

Rick.

Thank you Hardy, we had a great quarter as Hardeep outlined and we exceeded almost all of our financial objectives.

<unk> profitability above guidance with revenue growth of 13%.

Both revenue and adjusted EBITDA were significantly ahead of our initial guidance that we provided at the start of the year. This performance gives us confidence in our 2024 guidance of double digit revenue growth and continued margin expansion.

For the full year 2023, our topline grew 11%, while our adjusted EBITDA margin expanded by 210 basis points to 33, 2%.

Eric: Fourth quarter, total revenue came in at $182 million, up 13% year-over-year, and in line with our guidance range that we provided on our last earnings call. Full year 2023 revenue was $698 million, representing a growth rate of 11% for the year. For the year, fourth quarter subscription and support revenue grew 10% and represented 86% of total revenue. Our services business generated revenue of $15 million in the fourth quarter, flat year-over-year.

We achieved all of this while expanding our international presence acquiring and successfully integrating school messenger and never skipped.

And investing in game changing innovations that will help make personalized education a reality.

A summary of our results are shown on slide eight.

Fourth quarter total revenue came in at $182 million up 13% year over year and in line with our guidance range that we provided on our last earnings call.

Full year 2023 revenue was $698 million, representing a growth rate of 11% for the year.

Eric: For the full year, our services business grew 3% year-over-year. The moderation in services growth was expected and is due to us accelerating our implementations and driving more efficient deployment cycles, which deliver quicker value to our customers and ensure retention over the long term. Revenue from License Another, which relates mainly to our third-party license revenue, was $3 million in Q4 and was down year-over-year due to higher licensing activity in the prior year.

Fourth quarter subscription and support revenue grew 16% year over year and accounted for 90% of total revenue in the quarter.

For the year subscription and support revenue grew 10% and represented 86% of total revenue.

Our services business generated revenue of $15 million in the fourth quarter flat year over year.

Eric: Full year L&R revenue came in at $25 million, representing a 48% increase over the same time period last year. This increase was due largely to upfront license fees from the Los Angeles Unified School District and hardware revenue associated with our Puerto Rico Department of Education deal. We ended 2023 with an annual recurring revenue balance of 701 million dollars, an increase over the prior year. The strong performance was driven by the contribution from School Messenger. The new logo ARR growth, which was over 50%, continued cross-sell and up-sell, and our typical contracted price increase. Our Net Revenue Retention Rate, or NRR, came in at 106.7%, representing a sequential decline of 50 basis points from Q3.

For the full year, our services business grew 3% year over year.

The moderation and services growth was expected and is due to us accelerating our implementations and driving more efficient deployment cycles, which delivered quicker value to our customers and ensuring retention over the long term.

Revenue from license and other which relates mainly to our third party and license revenue was $3 million in Q4 and was down year over year due to higher licensing activity in the prior year.

Full year LNR revenue came in at $25 million, representing a 48% increase over the same time period last year.

This increase was due largely to upfront license fees from Los Angeles Unified School District, and hardware revenue associated with our Puerto Rico Department of Education deal.

Eric: This decline was due to the timing of large bookings, specifically the Unified Insights win with the state of Alabama in Q4 of 2022, which rolled off of the trailing 12-month calculation and the movement of the Indiana Department of Education deal from Q4 into January. As we've discussed in prior quarters, large deals continue to be very strategic and important to us. In my operations capacity, given the variability that these large, complex arrangements can create, I've been working with our services team to accelerate our implementations, which improve the time-to-value for our customers and lead to continued cross-sell opportunities as well as quicker revenue recognition. Adjusted gross profit for the quarter came in at $129 million with a 70.8% margin, representing a 130 basis point year-over-year improvement.

We ended 2023 with an annual recurring revenue balance of $701 million an increase over the prior year.

This strong performance was driven by the contribution from school messenger.

New logo, a IRR growth, which was over 50%.

Can you cross sell and upsell and our typical contracted price increases.

Our net revenue retention rate or <unk> came in at 106, 7%, representing a sequential decline of 50 basis points from Q3.

This decline was due to the timing of large bookings specifically the unified insights win with the state of Alabama in Q4 of 'twenty, 'twenty, two which rolled off of the trailing 12 month calculation and the movement of the Indiana Department of Education deal from Q4 into January.

Eric: For the full year, Adjusted Gross Profit reached $491 million, or a 70.4% margin, representing a 230 basis point improvement over 2022. We continue to benefit from greater operational scale and continued process efficiency improvement. Looking at operating expenses, fourth-quarter non-GAAP research and development expense came in at $24 million, representing 13.2% of revenue compared with 13.8% last year. Including capitalized R&D expenses, the total invested in R&D was 18.6% of revenue compared with 18.9% in the prior year. On a full-year basis, non-GAAP R&D expense declined 3% to $87 million, representing 12.5% of revenue compared with 14.4% in the prior year.

As we've discussed in prior quarters large deals continue to be very strategic and important to us.

And my operations capacity given the variability that these large complex arrangements can create I've been working with our services team to accelerate our implementation, which improve the time to value for our customers and lead to continued cross sell opportunities as well as quicker revenue recognition.

Adjusted gross profit for the quarter came in at $129 million with a 78% margin representing a 130 basis point year over year for.

For the full year adjusted gross profit reached $491 million or a 74% margin representing a 230 basis point improvement over 2022.

Eric: An improvement of 180 basis points. Including capitalized expenses, the total invested in R&D was 18.1 percent of revenue, a 280 basis point improvement over 2022. Non-GAAP SG&A expense increased 22 percent year-over-year in the fourth quarter to $45 million, representing 24.9 percent of revenue, an increase of 190 basis points year-over-year, in line with our long-term financial framework. The increase was due largely to higher sales and marketing investments around international expansion and increased North America sales coverage across our expanded product portfolio. Non-GAAP SG&E expense for the full year 2023 increased 19% to $171 million.

We continue to benefit from greater operational scale and continued process efficiency improvements looking at operating expenses fourth quarter non-GAAP research and development expense came in at $24 million, representing 13, 2% of revenue compared with 13, 8% last year, including.

Including capitalized R&D expenses. The total invested in R&D was 18, 6% of revenue compared with 18, 9% in the prior year on a full year basis, non-GAAP R&D expense declined 3% to $87 million, representing 12, 5% of revenue compared with $14 four per se in the prior year.

Eric: Our fourth quarter adjusted EBITDA increased 12% to $59 million, representing a 32.6% margin, and exceeded the high end of our guidance range by $1 million. Full year adjusted EBITDA was up 18% to $232 million, representing a 33.2% margin, which was 210 basis points over 2022 and 70 basis points higher than the original guidance we provided at the beginning of 2023. Non-GAAP net income in the fourth quarter was $0.17 per fully diluted share compared with $0.27 per diluted share in the same time period of the prior year, largely due to higher interest expense and non-cash tax expenses.

And our chrome of 180 basis points.

Including capitalized expenses the total investment in R&D was 18, 1% of revenue a 280 basis point improvement over 2022, non-GAAP SG&A expense increased 22% year over year in the fourth quarter to $45 million, representing 24, 9% of revenue an increase of 100.

And 90 basis points year over year in line with our long term financial framework the.

The increase was due largely to higher sales and marketing investments around international expansion.

And increased North American sales coverage across our expanded product portfolio.

non-GAAP SG&A expense for the full year 2023 increased 19% to $171 million.

Eric: For the full year 2023, non-GAAP EPS was $0.82 compared with $0.85 we earned in 2022. Fourth quarter free cash flow was $32 million, representing a margin of 17.7%.

Fourth quarter, adjusted EBITDA increased 12% to $59 million, representing a 32, 6% margin and exceeded the high end of our guidance range by $1 million.

Full year, adjusted EBITDA was up 18% to $232 million, representing a 33, 2% margin, which was 210 basis points over 2022, and 70 basis points higher than the original guidance, we provided at the beginning of 2023.

Eric: Full-year free cash flow grew 25% to $130 million, reaching a margin of 18.6%, a 210 basis point year-over-year improvement and a record free cash flow margin for the company, driven by improved working capital and lower capitalized product development costs, which helped offset higher interest expenses. Moving to the balance sheet, we ended the quarter with $39 million in cash and equivalents, impacted by the acquisition of School Messaging. Net debt leverage at the end of the year was 3.4 times.

non-GAAP net income in the fourth quarter was <unk> 17 per fully diluted share compared with 27 cents per diluted share in the same time period of the prior year largely due to higher interest expense and noncash tax expenses.

Full year 2023.

non-GAAP EPS was <unk> 82 cents compared with 85, we earned in 2022.

Eric: We expect our net debt leverage to be in the 2.5 times to 3.0 times range by the end of 2024. This debt level provides us with ample opportunity to continue our strategy of acquiring strategic assets that are accretive to our financial profile and help us build an even stronger platform for our customers. As shown on slide 9, for the full year 2024, we expect total revenue to be in the range of $786 million to $792 million, with the midpoint representing a 13% year-over-year growth rate. This guidance assumes stronger S&S growth, the most strategic part of our revenue. License and other revenue will be returning to 2022 levels, and our services revenue is expected to be growing in the single-digit range. For the full year 2024, we expect adjusted EBITDA to be between $267 million and $272 million, representing a 34.2% margin at the midpoint. For the first quarter of 2024, we expect to deliver total revenue in the range of $183 million to $186 million, representing a 16% year-over-year growth rate at the midpoint. For the first quarter adjusted EBITDA, we expect a range of $56.5 million to $58.5 million, representing a 31.2% margin at the midpoint.

Fourth quarter free cash flow was $32 million, representing a margin of 17, 7% full.

Full year free cash flow grew 25% to $130 million, reaching a margin of 18, 6%, a 210 basis point year over year improvement and a record free cash flow margin for the company driven by improved working capital and lower capitalized product development costs, which helped to offset higher interest.

Senses moving to the balance sheet, we ended the quarter with $39 million in cash and equivalents impacted by the acquisition of school messenger.

Net debt leverage at the end of the year was three four times, we expect our net debt leverage to be in the two five times to 3.0 times range by the end of 2024. This debt level provides us ample opportunity to continue our strategy of acquiring strategic assets that are accretive to our financial profile.

And help us build an even stronger platform for our customers.

As shown on slide nine for the full year 2024, we expect total revenue to be in the range of 786 million to $792 million with the midpoint, representing a 13% year over year growth rate.

This guidance assumes stronger SNS growth the most strategic part of our revenue line.

License and other revenue will be returning to 2022 levels and our services revenue is expected to be growing in the single digit range.

Eric: Just as a reminder, a lot of our in-person sales and marketing events occur in the first quarter that are intended to drive top-line growth throughout the year. For modeling purposes, we expect full year 2024 capital expenditures, including capitalized software, of approximately $48 million to $52 million and share-based compensation expense of approximately $80 million to $84 million. Fully diluted shares by the end of the year are expected to be in the range of $203 million to $207 million.

For the full year 2020 for adjusted EBITDA, we expect to be between $267 million to 272 million, representing a 34, 2% margin at the midpoint.

For the first quarter of 'twenty 'twenty four we expect to deliver total revenue in the range of $183 million to $186 million, representing a 16% year over year growth rate at the midpoint.

For the first quarter adjusted EBITDA, we expect a range of $56 5 million to $58 5 million, representing a 31, 2% margin at the midpoint.

Operator: As we wrap up 2023, we're excited about the business momentum heading into 2024, as it gives us confidence not only in our 2024 guidance but our pathway to reaching $1 billion plus in revenue by the end of 2026. This concludes our prepared remarks. Operator, will you 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 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

As a reminder, a lot of our in person sales and marketing events occur.

Occur in the first quarter that are intended to drive top line growth throughout the year.

For modeling purposes, we expect full year 2020 for capital expenditures, including capitalized software of approximately 48 million to $52 million and share based compensation expense of approximately 80 million to $84 million.

Fully diluted shares by the end of the year are expected to be in the range of $203 million to $207 million.

As we wrap up 2023, we're excited about the business momentum heading into 2024 as it gives us confidence not only in our 2024 guidance, but our pathway to reaching 1 billion plus in revenue by the end of 2026.

Stephen Hardy Sheldon: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Stephen Sheldon with William Blair. Please proceed with your question. Hey, thanks.

Artie: Nice, really nice work here. I want to start on the AI initiative and just kind of dig in a little bit there. How are the school districts you serve thinking about leveraging AI at this point? It seems like you guys are going to be rolling out a lot of tools and capabilities, but are you sensing any hesitancy from customers, at least initially, about these initiatives? Is it hesitancy mixed with excitement?

This concludes our prepared remarks, operator will you. Please open up the line for Q&A.

Thank you ladies and gentlemen at this time, we'll 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.

You May press Star two if you would like to remove your question from the queue.

Artie: I know a lot of your AI solutions are in the very early stages of a rollout, but what are you hearing from your school district customers about their comfort level with the technology? Do you think it could take some time here to get some traction? Chairperson, hi Stephen.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Our first question comes from the line of Stephen Sheldon with William Blair. Please proceed with your question.

Hey, Thanks, a nice really nice work here.

To start on the AI initiatives.

Artie: Great question. As you can imagine, there is a lot of interest in AI broadly in the market, and K-12 is not immune to that. In fact, we are seeing a lot of interest from K-12 districts about it. In fact, a survey, you know, showed that almost 60 to 70 percent of the districts are already dabbling with it, whether in, you know, certain schools, certain regions, or internally within the IT itself. And we're seeing the same interest, actually, from our customer base. In fact, we have a webinar that has almost 3,000 attendees who are looking at how to get ready for AI. That includes training, but then adopting tools as well. What we are seeing, especially with the broader need, there's a risk districts are very concerned about where if they try to experiment or they're trying to roll out AI in limited capacity, how do they make sure that their data AI is protected and also the responses are secure?

Okay, Great and then a little bit there how are the school districts, you sort of thinking about leveraging AI at this point. It seems like you guys are rolling out a lot of tools and capabilities, but.

Are you sensing any hesitancy from customers at least initially about these initiatives as it hesitancy makes a lot of excitement I know I know a lot of your AI solutions are on the very early stages of our rollout, but what are you hearing from your school district customers about their comfort levels and do you think it could take some time here to get some traction.

Sure, Hi, chip and a great cushion.

Can imagine there is a lot of interest around the eye broadly in the market and Quechua is not immune to that in fact, we are seeing a lot of interest from a catch all the district's about it in fact our survey.

Showed that almost 60 to 70 personnel of the districts are already dabbling with it better.

Southern school southern regions or in total dividend itself and we are seeing the same in trusts actually from our customer base. In fact, we have a webinar, which is almost 3000 attendees who are looking at how to get ready for AI.

It includes training, but then adopting tools as well.

Artie: Well, one of the differentiations we are bringing is that we are allowing them to bring their AI to the data, rather than taking their data to the AI. What I mean by that is, with our data lake platform, with our AI tools, we're actually allowing them to bring all the open AI and other models right within their firewall, right within their control, looking at their data to be able to make sure that it still protects privacy and security. So, that's one advantage which districts are really excited about, and that's why we're seeing a lot of interest in our data lake, as well as the whole AI platform itself. Second, what we're seeing is a lot of interesting is that they want to roll out one holistic AI platform. You can imagine there's a lot of interest in chatbots and multiple areas, from supplemental learning to college planning or other areas. But the problem is that none of those actually have the full context of what's going on in the classroom.

What we are seeing especially with the broader need theres a risk districts are very concerned about where if they try to experiment or they're trying to rollout and eliminate capacity how do they make sure that their data is protected and also the responses getting a secure well one of the differentiation, we're bringing is that weird, allowing them to bring their AI to the data.

Rather than taking the data out to the AI, what I mean by that is bit of a data lake platform without AI tools, we're actually allowing them to bring the all the open AI and other models.

Models right within their firewall right within their control looking at their data to be able to have a make sure that it's still protect the privacy and security. So that's one advantage, which districts are really excited about and that's why we are seeing a lot of interest in our data lake as well as the whole AI platform itself.

Second what we are seeing the Sevan is is a lot of interesting is that they want to rollout of one holistic AI platform you can imagine there's a lot of interest around chat bots and multiple areas from supplemental learning to from a college planning or other areas, but the problem is that none of those actually have the full context of what's going on in the classroom. So.

Artie: So, rather than putting these multiple tools together, they're looking for a platform that can have the full context and allows them to really roll it out in a comprehensive way. And the 3rd, which, you know, the fact that we have such a strong presence of our products across the base, we're able to embed the eye into every element of our product. So, they can actually interact with the same products now in a much better way, be able to have a conversational personalized experience, and that really is driving a lot of interest, whether that's the eye within Schoology, whether it's in our assessment, or whether it's in our parent portal, or my powerschool, and as well as Naviance and other tools. So, really exciting to see the traction, even though it's early We're going to start seeing a couple of million dollars of revenue around AI products and almost double that from there on.

Rather than putting these multiple tools. They are looking for a platform, which can have the full context and allows them to really rolled it out in a comprehensive way and the third which are you know the fact that we have such a strong presence of our products across the base, we're able to embed AI into every element of our product. So they can actually interact with the same products, knowing a much better way being able to have a conversation with person.

Nice.

<unk> experience and that really is driving a lot of interests better that's the IV than our <unk>, whether it's in our assessment or whether it's another parent portal my power school and as well as Navios. Another tool so really exciting to see the traction even though its early we are already seeing customers, who have bought it and also tons of interest on a beta.

Artie: It seems like, yeah, you clearly have a very large opportunity there as a follow-up. Great to see the international channel, partnership expansion, especially in Latin America. It seems like you have a lot of tips for the spear there now, and a good case study in Uruguay.

But we do expect within this year, we're going to start seeing couple of million dollars of revenue around AI products and almost doubling up from there on.

Artie: So how are you thinking about the potential to add to your... I know you're going to be relying on channel partners mostly now, but the potential to add to your direct sales resources in Latin America, what would you want to see before making a bigger investment and going direct? And on the product side, is there much you need to do to have the product ready to cater to? That's a great question.

Understood. It seems like you clearly have a very large opportunity there.

As a follow up great to see the international channel partnership expansion, especially in Latin America. It seems like you have a lot of tips to the spear there now and a good case study in Uruguay. So how are you thinking about the potential to add here.

Yes.

A light on channel partners, mostly now.

The potential to add to your direct sales resources in Latin America, what would you want to see before making a bigger investment in direct go to market and on the product side is there much you need to do that.

Artie: So when you look at it from a perspective, we want to make sure that we can expand internationally but in a profitable way. We already saw great results in our last year, but we almost grew our international ARR by 50%. What's also exciting is the channels we have established; enabling them, partnering with them so that they can actually help us create the broader distribution angle is what allows us to really scale that, but also in a profitable way. With that said, to your point, we're also looking at direct field investments in countries like India as well as the Middle East, where we're already seeing good traction. We might expand that to other regions as we see those regions kind of really driving the demand. But we do expect that this is going to be both a channel effort as well as direct markets where we will have a critical mass. All right, great, thank you. Thanks, everyone.

The product ready to cater to those markets.

Two great questions have been when you look at it from our perspective, we want to make sure that we can expand internationally, but in a profitable way we already saw great results over on the lawsuit, but we almost grew over internationally or by 50 person what.

What's also exciting is these channels, we have establish enabling them partnering with them. So that they can actually help us create the broader distribution angle is what allows us to really scale that but also in our profitability with that said to your point. We were also looking at direct field investments in countries like India as well as middle East, where we're already seeing good traction we might expand that.

Other regions as we see those regions cannot really driving the demand, but we do expect that this is going to be both a channel effort as well as direct markets, where we will have a critical mass.

Brent John Thill: Our next question comes from the line of Brent Thill with Jeffries. Please receive your question. Hey, thanks so much. This is David Lusker, Councilor Brad.

Alright, great. Thank you.

Thanks, everyone.

Our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.

Hey, Thanks, so much this is David Buckley on for Brad I wanted to ask around.

David Lusker: I wanted to ask around, you know, the guidance that you guys gave, and is there any way that you guys can, you know, quantify or give some color around how much of the guidance, organic versus inorganic, you know, mostly pointed towards the acquisition of school messengers? Thank you. Hey David, it's Eric.

You know the guidance that you guys gave in and is there any way that you guys can quantify or give some color around how much of the guidance.

Guidance organic versus inorganic most be pointed towards the acquisitions going back you guys. Thanks.

Yes, Hey, David it's Eric So yeah. So I think it's important as you think about the guidance. We're super excited around the full year double digit growth that we're seeing certainly on the revenue side.

Eric: So, I think it's important as you think about the guidance, we're super excited about the full year, you know, double-digit growth that we're seeing certainly on the revenue side. And what I prepared in my remarks, you know, hopefully it's helpful for everybody to understand as you think about, you know, LNO kind of moderating back to the 2022 levels. So, as you all know, 2023. We had some big strategic items in there. And then certainly the services business, you know, being in the low single-digit range from a growth perspective.

What I prepared my remarks.

Our remarks that hopefully is helpful for everybody to understand as you think about.

L N O kind of moderating back to the 2022 levels. So yeah. As you all know 2023, we had some big strategic items in there and then certainly the services business.

Being in the low single digit range from a growth perspective. So you can kind of back into the revenue piece, which will which is very much in line with our double digit growth. So.

Eric: So, you can kind of back into, you know, the revenue piece, which is very much in line with our double-digit growth. So, you know, we're super excited about, you know, how we finish the year, and how we're set up for 2024. And then obviously, you know, as we mentioned back at our investor day in September, we're going to do all of this growth, but we're going to do it, you know, with the mind of, you know, continuing to expand margins, which is why we're offering up, you know, 100 basis points of expansion. So, I think both the top line and the bottom line should really see the momentum that, you know, we have been articul And there is a good, you know, component of that continuing to come from the core business, which is very much intact and continuing to drive a lot of the business.

We're super excited around kind of how we finished the year, how we're how we're set up for 2024.

And then obviously you know as we as we mentioned back in our Investor Day in September.

We're going to do all of this growth, but we're going to do it with the with the mind of.

On to expand margins, which is why we're offering up 100 basis points of expansion. So I think both topline and Bottomline should really see the momentum that we.

We have been articulating and then there is a good component of that.

Continuing to come from the core business, which is very much intact and continuing to drive a lot of the business.

David: And then maybe as a follow-up, I also want to ask about international business. Obviously, I think last year maybe could be best described as, you know, the ramp-up year with you guys adding a lot of partners. I guess as you think of this year, you know, I know you guys look forward to international growth, but if you just think about the opportunity this year and, you know, how those channel partners that you got last year have ramped up, we'd just be curious to get your views on how you guys are thinking about, you know, how international growth can look this year and, specifically, the timing of the ramp of your channel partners would be helpful. Thank you so much, guys. Sure. So, David, I want to ask you two things.

Okay, and then maybe as a follow up I also wanted to ask on international obviously I think last year, maybe you can be best described as the ramp up year with you guys, adding a lot of.

Partners I guess as you think of this year.

I know you guys have tied to international but if you just think about the opportunity this year end.

How those channel partners that you got last year have ramped would just be curious to get your views on how you guys are thinking about.

How international can Buck this year and specifically.

Timing of.

The ramp of new channel partners would be helpful. Thank you so much guys.

Sure So David kind of two things one I guess just being off back from Eric's point about it just to make sure. You also noticed I think as Eric was talking about re trading from our investor.

Artie: One, I guess, just coming back from Eric's point about it, just to make sure you also notice, I think as Eric was talking about retrading from our yesterday, we were talking about, even if you take School Messenger out, we are expecting double-digit growth into 2024 and what we saw in 2023 as well, factoring the whole software growth as we shared about both the subscription as well as we had some large license deals. So, we are still feeling very strong on core growth, even outside that acquisition. Now, the piece, I guess, on the international front, as I mentioned, we saw 50% growth in our ARR. We are expecting the growth rates to continue in that, in fact, probably even x-rayed as we look at both the organic and inorganic part in the international.

Investor Day, we've talking about even if you take sickle messenger. It out we are expecting double digit growth into the 'twenty 'twenty four as and what we saw in 2023 as well.

During the whole software growth as we shared about both the subscription as well as those we have some large license deal. So we are still feeling very strong on the core growth even outside that acquisition now the pizza I guess on the international as I mentioned we.

We saw 50% growth in area or are we expecting the growth rates to continue and that the impact from a probably the next rate as we look at both organic and inorganic part in the international the channel partnerships are definitely shaping up well we have.

Artie: The channel partnerships are definitely shaping up well. We have a lot of activity going on in pretty much every part of the region around it. Our goal would be to focus on not just large deals but actually focus on how we create more international schools, IB schools, as well as areas where we can start selling not just our core systems, Schoology, but also our data products. So, this is where you would start seeing international schools also x-rayed on that.

A lot of activity going on in pretty much every part of the region around it our goal would be is to focus on not just large deals, but actually focus on how just recreate a more into international schools Ivy schools as well as the areas, where we can start selling not just sort of a core system called AG, but also bringing a of data products. So this.

Is where we would you would start seeing international just the ultra right on that.

Rich Hilliker: Our next question comes from the line of Rich Hilliker with UBS. Please proceed with your question. Hi, guys. Can you hear me OK?

Our next question comes from the line of Rich Hilliker with UBS. Please proceed with your question.

Hi, guys can you hear me okay.

Eric: Yes. Awesome. Thanks for taking my question and for all the helpful color today.

Yes.

Awesome. Thanks for taking my question and for all the helpful. Color today I was wondering to hit on school messenger once more.

Eric: I was wondering, to hit on School Messenger once more, if you could maybe disclose, or maybe you did and I missed it, the contribution to either revenue or ARR in Q4, because I saw that nice ARR growth number and I was wondering if you could tease that out a little bit more, given we're still early, you know, in that disclosure period. Yep. So, Rich, I think, you know, look, similar to all of the other acquisitions that we've made, our strategy is, as soon as we acquire these strategic, you know, assets and capabilities, we integrate them into the platform, you know, rather immediately. So, you know, for us to start breaking it apart and kind of, you know, looking at it piecemeal, doesn't, it's not the way we go about valuing things, the way we go about going to market.

I was wondering if you could maybe disclose or maybe you did and I missed it the contribution to either revenue or IRR in Q4, because I saw that nice gross number and I was wondering if you could tease that out a little bit more given we're still early.

And that disclosure period.

Yes, So Richard I think you know look similar to all of the other acquisitions that we've made we really you know our strategy is as soon as we acquire these strategic assets and capabilities, we integrated them into the platform rather immediately so you know for.

For us to start breaking it apart and kind of looking at a piecemeal.

It's not the way we go to that you know way we go to market and if you think about just for US it's really the value of the platform that our customers get from US. So you know last year, we had kind of given some color around the you know kind of think about the E. R. R.

Eric: And, you know, if you think about just for us, it's really the value of the platform that our customers get from us. So, you know, last year we kind of gave some color around, you know, the kind of think about the ARR and the, you know, call it the 40 million, you know, range around there. You know, that probably should be good enough for you guys to kind of model through what the impact is. And then, you know, as we mentioned last year as well, we did make some investments in the School Messenger platform as we're integrating it with MyPowerschool. So, you know, you saw a little bit of that in the last quarter.

Call it a $40 million in a range around there that probably should be good enough to you know for you guys to kind of model through what the impact is and then.

As we mentioned last year as well, we did make some investments and we are making some investments into the school messenger platform as we're integrating it in with my power School. So you saw a little bit that last quarter and then obviously as we get into this quarter. You'll note that the margins were down a little bit but again, that's very much seasonal with what we expect because we do.

Eric: And then obviously, as we get into this quarter, you'll note that the margins were, you know, down a little bit. But again, that's very much seasonal with what we expect because we do, you know, expect some continued investments in the School Messenger platform in Q1 as well as some of our on-site and sales and marketing events occurring in the first quarter. But again, you know, I think hopefully that's enough color to give you guys some ways of modeling it. Yeah. And Rich, just to give you some other data points to explain, we almost did 100-plus transactions just on School Messenger in Q4, but a lot of them were bundled with either our SIS or with MyPowerschool or with our attendance intervention.

We do expect some continued investments in the school messenger platform in Q1 as well as some of our on site and sales and marketing events occurring in the first quarter, but again I think hopefully that's enough color to give you guys. Some some ways of modeling it and rich just to give you some other data points too.

I explained we almost at 100 plus transaction just what's called a message during Q4, but a lot of them were bundled with the debt over S. I S or with my power school or with or tenders or intervention. So that's why we are seeing a lot of good exciting stuff now we're even more excited about where the second half as we are launching that is fully part of my power school, but two way chat all integrated.

Artie: So that's why we, you know, we are seeing a lot of good, exciting stuff. Now, we are even more excited about the second half, as we are launching that as fully part of MyPowerschool with two-way chat all integrated along with PowerBuddy to actually personalize the whole interaction itself. That's where we think it's going to completely, you know, drive an overall consolidated growth of that entire communication platform. Okay, that's really helpful. Thanks for that added color there.

Along with power Buddy to actually personalize the hold interactions itself, that's where we think that's going to completely you know drive our overall consolidated growth of that entire communication platform.

Got it okay. That's really helpful. Thanks for that added color. There I'll also wanted to just quickly touch on the bundle opportunity the persona based cloud bundles.

Rich Hilliker: I also wanted to just quickly touch on the bundle opportunity, the Persona-based cloud bundles. I think when we spoke in the past, you mentioned that, you know, you've been sort of using this as one more product rally cry, right, as you went to market, and customers were increasingly aware of these bundles. So I'm wondering, are you seeing traction yet? Have you tweaked anything, you know, in the sales organization or incentives in any way as we think about those potentially contributing more and more in 24 and beyond? Thanks. A great question.

I think when we've spoken in the past you had mentioned that.

You've been sort of using this one more product rally cry right. As you went to market and customers. We are increasingly aware of these bundles. So I'm wondering are you seeing traction yet have you tweaked anything.

And the sales organization or incentives in any way as we think about those potentially contributing more and more in 'twenty four and beyond thanks.

Great question as you know, we almost have not 20 plus products right best in class products satisfying a lot of different mission critical elements of the school district, but one of the things we were trying to figure out is that rather than customer having to think about one plus product. How do we go after personas and allowed them to buy multiple products with them to kind of fully have automation across all their critical elements.

Artie: As you know, we now have almost 20 products, right, best-in-class products, satisfying a lot of different mission-critical elements of the school district. But one of the things we were trying to figure out is that rather than customers having to think about one plus product, how do we go after Persona and allow them to buy multiple products, allow them to kind of fully have automation across all their critical elements? So we launched these six clouds plus our platform components like data as well as comms and AI. And what we're seeing is now pretty much every element of our GTM, from our collateral to our go-to-market, has been aligned to these clouds. So you would actually have a student cloud for going with the student services, personalized learning cloud for instruction. You've got the CCLR for the guidance counselors or MTSS for the whole student success cloud for accountability, and similarly, educator effectiveness, and, you know, the finance cloud.

So we launched the six clouds plus the platform components like our data as well as comms and Nai and what we're seeing is now pretty much every element of for G. T. M from a collateral two of our go to market has been now aligned to these clouds. So you would actually have certain cloud for going but the sore and services personalized learning cloud for their instruction.

You've got the CCL or for the guidance counselors or MTS as supposed to account the whole student's success cloud for the accountability and similarly educated effectiveness and.

Finance cloud so what has allowed us as true now as really cross sell more effectively within cloud make it simpler for our customers to buy products that they can buy more additional products that together as well as the also being able to have better relationship each of the personas and that strategy is working well.

Eric: So what has allowed us to now really cross-sell more effectively within clouds, making it simpler for our customers to buy products so they can buy more additional products together, as well as also being able to have a better relationship with each of the Personas. And that strategy is working well. So, in fact, pretty much now, every element of our sales actually leverages the cloud go-to-market. I think, Rich, the one thing I would say, just like Pardeep said, if you think about the cloud bundles, it's just really kind of focused the team in terms of the way they go to market to each persona, right? So it's a much more effective and efficient go-to-market motion. Got it.

Pretty much now every element of our sales actually leverages the cloud the go to market.

Yes, I think rich the one thing I would say just like Dave said, if you think about the cloud bundles is just really kind of focus the team in terms of the way they go to market to each persona right. So it's a much more effective and efficient go to market motion.

Got it okay. Thanks.

Rich Hilliker: Okay, thanks. Our next question comes from the line of Saket Kalia with Barclays. Please take your question. Okay, great. Hey guys, thanks for taking my questions here. I appreciate it.

Our next question comes from the line of Circuit Calia with Barclays. Please proceed with your question.

Okay, Great Hey, guys. Thanks for taking my questions here I appreciate it.

Saket Kalia: Hardeep, maybe just to start with you, congrats on the state-level contract with Indiana. You've actually had several state-level deals or wins like this in recent quarters. And so maybe a quick question there is, what product families are these deals sort of gravitating towards? And just to clarify, that's a deal that will contribute to Q1 ARR. That actually did not help here in Q4, is that right? Yes, that is right. That did not help Q4.

Thanks, maybe hey, maybe just to start with you and congrats on the state level contracts with with Indiana, you've actually had several state level deals or wins like this in recent quarters.

Maybe maybe.

A quick question. There is one product families are these deals sort of gravitating towards and just just to clarify that's a deal that will contribute to Q1 <unk> that actually did not help here in Q4 is that right.

Yes that is right that did not help the Q4 in fact I think as we've talked about some of the services elements.

Artie: In fact, I think as we've talked about some of the services elements, it also had a little bit of an impact on our Q4. But even though we have talked about these strategic deals having the phenomenal opportunity here, as you mentioned, if you look at the nine or 10 quarters, we've got significant state opportunities pretty much in every quarter. And even our pipeline actually looks pretty exciting. You actually took it from a perspective.

So it also had a little bit of an impact on our Q4, but even though we have talked about these strategic deals have the phenomenal opportunity here. As you mentioned is that if you look at the nine or 10 quarters, they've got significant state opportunity is pretty much in every quarter.

And we even have our pipeline actually looks pretty exciting.

So from our perspective, we see this as a broad range. We this was a special ideal Florida, what we did last quarter was around the talent recruitment, while we've seen a lot of analytics and trust. We've also done since the opportunity in Puerto Rico, We do see these large deals to be very strategic because not only it proves that we are best in class allows us to replicate that not just with us.

Artie: We see this as a broad range. This was a special ideal. Florida, what we did last quarter was around talent recruitment.

Artie: We've seen a lot of interest in analytics. We've also done a CIS opportunity in Puerto Rico. We do see these large deals to be very strategic because not only do they prove that we are best in class, but they allow us to replicate that not just to the state but large districts and other values. In fact, one of our big focuses as we focus on a lot of strategic deals over the last year, we're going to start really gearing up our sales expansion so we can start bringing that same capabilities to enterprise and inside. In fact, just in the last 12 months, we have done almost close to three deals, which are 10 million plus. It just shows you that kind of traction we have not seen before. So these are very exciting opportunities, but they do have, to your point, some revenue and implications which move it on. But ARR is going to come in Q1.

But large districts another valued in fact, one of our big focus is to as we focus on a lot of strategic deals over the last year, we're going to start really gearing up our sales expansion. So we can start bringing that same type of <unk> enterprise and insight in fact, just in the last 12 months, we have done almost close.

Close to three deals, which are 10 million plus just shows you that kind of traction we've not seen before so these are very exciting opportunities, but they do have to your point some revenue in the AR applications, which go wrong, but there are I'll say and John is going to come in Q1.

Eric: Got it, got it. That's super helpful. Eric, maybe for you, I was wondering if you could just dig a little bit deeper into the services delivery aspect that you touched on in your prepared remarks. I mean, it sounds like you're delivering just faster time to value for the customer. And I think that's coming through in sort of the services revenue guide for next year. Maybe the question is, what's driving that new approach with services? And how do you think about that services business, you know, kind of in the longer term? Does it make sense? It does, it does!

Got it got it that's super helpful. Eric maybe for you.

I was wondering if you could just dig a little bit deeper into the services delivery aspect that you touched on in your prepared remarks, I mean, it sounds like you're delivering just faster time to value for for the customer and I think thats coming through in sort of the services revenue guide for next year, maybe the question is.

Whats driving maybe that that new approach for the services and how do you think about that services business kind of longer term does it makes sense.

It does it does so and so I think many of you know I've I've actually taken responsibility for the services business for about a year now.

Eric: So, as many of you know, I've actually taken responsibility for the services business for about a year now. One of the things that we did was we actually restructured a lot of the work packages and the teams that were doing the work. So what you're seeing is, you know, increased productivity; you're seeing a lot more of the same type of activities being done by groups of people versus spread across many, many teams. So the result of that is actually, you know, quicker operational velocity, right?

One of the things that we did was we actually restructured a lot of the work packages and the teams that were doing the work. So what youre seeing is increased productivity, you're seeing a lot more of the same type activities being done by groups of people versus spread across many many teams. So the result of that is actually you know quicker operations.

Velocity right, it's getting the customer implemented quicker and certainly time to value as well as its enabler.

Eric: It's getting the customer implemented quicker, and certainly time to value, as well as enabling us to actually recognize the revenue quicker. The implication of that, right, is obviously that we're getting much more efficient. But I would also encourage you to take a look at our margins. Our margins are up 23 versus 22.

Selling us to actually recognize the revenue quicker.

The implication of that rate is obviously, we're getting much more efficient, but I would also encourage you to take a look at our margins. Our margins are up 23 versus <unk> 22, and in a lot of that really has to do with the efficiency of how we've reorganized a lot of these teams. So I am Super proud of the work that the team is doing and you know look there.

Eric: And a lot of that really has to do with the efficiency of how we've reorganized a lot of these teams. So I'm super proud of the work that the team is doing. And, you know, look, they're going to continue to be very strategic to our customers because they are what enable our customers to get the most value out of the technology. So it's going to continue to be, you know, a big part of the value proposition. And we're going to continue to focus on how fast we can, you know, get a lot of the products in. You know, I think a good example of this was when we did Puerto Rico. I mean, we did one of the largest SIS implementations across 270 plus thousand students in, like, six and a half months, which has never been done before. And the team did it with a, you know, huge amount of quality in it, too.

They're going to continue to be very strategic to our customers because there. They are what enables our customers to get the most value out of the technology. So it's going to continue to be a you know a big part of the value proposition.

We're going to continue to focus on how fast we can get a lot of the products in and I think a good a good.

Good example of this was you know when we did Puerto Rico I mean, we did one of the largest Sis implementations.

<unk> 270, plus thousand students in like six and a half months, which is never been done before and the team did it with a.

Huge amount of quality in there too. So so stay tuned so yes, youll see less you won't see the revenue growth is high but again youll see continued strong margins as well as you know we will get the revenue recognition quicker and that obviously helps on the subscription side as well.

Eric: So, yes, you'll see less revenue growth, you won't see the revenue growth as high, but again, you'll see continued, you know, strong margins, as well as, you know, we'll get revenue recognition quicker. And that obviously helps on the subscription side as well. Seems like a nice trade-off. Thanks very much.

It seems like a nice trade off thanks, very much I appreciate it.

Brian Peterson: Appreciate it. Thanks, everybody. Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question. Hi gentlemen, thanks for taking the question. So I just want to touch on the SIFT market a little bit.

Thanks, Okay.

Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.

Hi, gentlemen, thanks for taking my question. So I just wanted to hit on the CIS market a little bit I know, that's a big part of the product portfolio love to understand maybe how that how that performs through 2023 and how does the pipeline of deals look as we head into 2024.

Artie: I know that's a big part of the product portfolio. I'd love to understand maybe how that performed through 2023. And how does the pipeline of SIFT deals look as we head into 2024? Thank you, Brian.

Sure Brian.

I think as you said this is very strategic right. We have not only our biggest part of our business. It's also the most strategic when it comes to school district allows us to cross sell especially as we were talking about the AI platform data platform, having those integration definitely gives us even a bigger leadership opportunity to be able to do that sits.

Artie: Again, I think, as you said, SIS is very strategic, right? It's not only the biggest part of our business, but it's also the most strategic when it comes to school districts, and allows us to cross sell, especially as we are talking about the AI platform and data platform. Having this integration definitely gives us even a bigger leadership opportunity to be able to do that. SIS actually, when you look at the student cloud, it actually grew double-digits for us in 2023, and we are expecting that to continue to do so in 2024 as well. Their pipeline looks pretty healthy, both in the US as well as internationally. That's great to hear.

Actually when you look at the store and cloud it actually grew double digit for us in 2023, and we are expecting that to continue to do that into 2024 as well their pipeline looks pretty healthy both in the U S as well as international.

That's great to hear.

Brian Peterson: And I just have a separate question on the families monetization. I know you have an embedded opportunity given your presence in all the school districts, but what kind of sales and marketing effort are you guys thinking about potentially making as you kind of broaden the monetization opportunity? Any perspective there?

Just maybe a separate question on the family's modernization I know you have an embedded opportunity given your presence in all the school districts.

What kind of sales and marketing effort or are you guys thinking about potentially making as you kind of broadened the monetization opportunity any perspective, there. Thanks guys.

Artie: Thanks, guys. An excellent question, Brian. So, as we've talked about with the PowerBuddy, right? So, imagine PowerBuddy having the ability in school districts to be able to roll out for parent engagement, for student engagement, and for driving any help they need with homework, for teachers to be able to create lesson plans, for counselors, and students to be able to understand better on the career and college path. It's a very pervasive AI system that allows us to not only support the school districts but now take that one level right within the family's engagement itself and provide families with additional support that they are interested in. So, there is a strong opportunity for us to even commercialize that into a whole B2C relationship with the families. Our first focus is again on the districts.

Yeah excellent question, Brian So as we've talked about with the power body right. So imagine poverty, having the ability and school districts should be able to rollout for parent engagement for student engagement and driving any help they need our homework for teachers to be able to create lessen clients for counselors and students to be able to understand better on the Courier in College Park, it's a very.

Pervasive, but AI system, which allows us to not only support the school districts, but now take that one level right within the families engagement itself and providing families with additional support that they are interested in so there is a strong opportunity for us to even commercialize that into a or b to C. With our families. Our first focus is again on the district.

Brian Peterson: That's where, as we talked about, PowerBuddy is almost adding close to $2 billion of TAM just within our base. But as we take it to the B2C opportunity and also think about us like a Netflix of education, where we can provide the right content, services, and tools right within our AI system to the families, it allows us to kind of go after even $100 to $200 per student TAM in a consumer world. So, that is what really gets us assigned to almost a $100 billion TAM. It's good to hear from you. Thanks, Harjit.

That's fair as we talked about part, but he is almost adding close to $2 billion of Pam just within our base, but as we take it to the BDC opportunity and also being able to think about us like a Netflix of education, where we can provide the right content and services and tools right with the nobody Isa central the families and allow.

Owes us to kind of go after even a 100 to $200 per store in Tampa and in a consumer world. So that was what really gets us assigning to almost $100 billion chime.

Good to hear thanks, Randy.

Ryan McDonald: Thank you. Our next question comes from the line of Ryan McDonald with Needham & Company. Please proceed with your question. Hi, thanks for taking my questions.

Thank you.

Our next question comes from the line of Ryan Macdonald with Needham and company. Please proceed with your question.

Hi, Thanks for taking my questions.

Artie: Hardy, maybe first for you, you talked about in your prepared remarks about AI and K-12 creating this incremental $30 to $50 of TAM per student. Can you talk about today how much of that $30 to $50 are you going to market with today in terms of driving incremental sales? And then, how should we think about what part of the budget that incremental $30 to $50 of TAM per student comes from in districts today? Is it sort of new pockets of budget, potentially, or what would you, I guess, be replacing to sort of unlock this incremental opportunity over time? Thanks.

First for you you talked about in your prepared remarks about the AI in K 12, creating this incremental 30 to $50 of Tam per student.

Can you talk about <unk>.

Day, what's how much of that 30 to $50 or are you going to market with today in terms of driving incremental sales and then how should we think about.

Part of the budget that the incremental 30 to $50 of Tam per student comes from from district. Today is it is it sort of new pockets of budget potentially or what would you I guess be replacing.

Sort of unlocked this incremental opportunity over time thanks.

Sure.

Artie: Sure. When you look at it from this angle, the products we've already launched, as I shared in my prepared remark, were like our data lake with the AI platform, our PowerBuddy for assessment, so your teachers can create quizzes and everything, as well as our content map, which we are further enhancing with the ability to even create curriculum and additional content. So, think about that could be somebody in the range of eight to ten dollars. That's what we are already monetizing and selling to our customers. Now, by the end of this year, we expect this to almost grow to thirty to fifty dollars, depending upon the size of the volume of the contracts, and the number of students. So, we are trying to monetize all the elements.

When you look at it from our perspective the products, we've already launched as I shared in my prepared remark was like of a data lake with the AI platform or poverty for assessments of your teachers can create quizzes and everything as well as of our content, which we are further enhancing with the ability to even create curriculum and additional content. So think about that could be somebody in about range.

Eight to $10 is what we are already monetizing and selling to our customers now by end of this year, we expect the strongest growth of $30 to $50, depending upon the size of the volume of the contracts, but the number of students.

So we are trying to monetize all the elements now the reason we are trying to do this in a chunk says that even though it's the same platform. It has the full context of the entire student, but we are aligned to be able to adopt these things in a in a chunk so that they don't feel a big.

Artie: Now, the reason we are trying to do this in a chunk is that even though it's the same platform, it has the full context of the entire student. But we are aligned districts to be able to adopt these things in a chunk. So that way, they don't feel like they have to have a big, secure, a big budget compared to economy go or others where, you know, they might have to spend thirty, fifty dollars, right?

Having to have a big secured a big budget compared back to economy go or others, where they might have to spend $3 $50 right to be able to take help them that so that's kind of a differentiation that we can easily embed them into the tools. They are using adopt it in chunks, but still have the benefit of the full platform.

Artie: To be able to take help on that. So, that's kind of our differentiation that we can easily embed them into the tools. They are used in chunks, but still have the benefit of the full platform.

Artie: And from a budget perspective, we see this both within the budget because they're already providing data elements and everything to enable the different elements, but more so from the fact that this helps take all the investments they are doing on tutoring and content for interventions and make them more surgical. So they can actually reach more students and help them with the needs they have as well as being able to engage with parents and support teachers. Super helpful color there.

And from a budget perspective, we see this both within the I T budget, because they are already providing data elements and everything to enable the different elements, but more so from the fact that this helps pick all the investments they are doing on choo training on content on interventions and make it more surgical so they can actually reach more students in.

Help them underneath what they have as well as being able to engage with parents and support features better.

Yeah.

Super helpful color, there, maybe maybe just piggybacking off that you mentioned sort of the tutoring opportunity inherent with it as you look at going to market and sort of any early days. This year is there an ability to access some of the remaining pools of the essar funding with maybe some of the power Buddy applications.

Artie: Maybe just piggybacking off of that, you mentioned sort of the tutoring opportunity inherent in it. As you look at going to market in the early days this year, is there an ability to access some of the remaining pools of the ESSER funding with maybe some of the PowerBuddy applications or use cases this year to maybe pull in some of that sort of last or final spend before it needs to be allocated? And then just on ESSER funding generally, I know it doesn't obviously impact the business directly too much, but are you seeing any early days of changes in prioritization within the districts and schools for the upcoming selling season, given the fact that they know that they need to sort of prioritize and allocate that pool of spend first before maybe paying closer attention to sort of the core budget? Yeah, I think there's a mix of everything you're saying. But from our perspective, as you know, our solutions are basically recurring subscription based. So they have to secure the dollars for them from their normal budget, right? They typically don't use the ESSER.

Our use cases this year to maybe pulling some of that sort of last or final spend before it needs to be allocated and then just on aster funding generally I know it doesn't obviously impact the business directly too much but are you seeing any early days of changes and prioritization within the disk.

Strict and schools.

For the upcoming selling season, given the fact that they know that they need to sort of prioritize and allocate that pool of spend first before maybe.

Paying closer attention to sort of the core budget. Thanks.

Yes, I think there is a mix of everything what you are saying, but from our perspective as we you know that our solutions are basically recurring subscription based so they have to secure the dollars for them from their normal budget right. They typically don't use the S. There, but with that said as we have said, sometimes if on an implementation they might use a one.

Artie: But with that said, as we have said, sometimes, if on an implementation, they might use a one-time element. So we're not seeing that to be, you know, any major change in our buying patterns. We do see that there is a behavior change within districts around what they need to spend on from an ESSER perspective, those elements to be prioritized and others. You're absolutely right.

Time.

So we're not seeing that to be.

Any major change in our buying patterns, we do see that there is the behavior change within districts around what they need to spend on from a <unk> perspective, those elements to be prioritizing another you're absolutely right. Some of the pieces, we are selling out of a data and power, but it does allow us to be more allowed them to spend these dollars more surgically so.

Ryan McDonald: Some of the pieces we are selling on our data and PowerBuddy does allow us to be more, allowing them to spend these dollars more surgically. So from that perspective, we do see a role to play in helping these districts spend their ESSER dollars better, and especially with all of you acquisitions, we are also allowing them to manage their ongoing budgets better and be able to tie that to the ROI as well. So that's why we do help these districts with that budgeting and planning. Thank you again for the color.

From that perspective, we do see a role to play in and helping these districts spend there is a dollar better.

And especially with all of your acquisition, we're also allowing them to manage their ongoing budget is better and being able to tie that to the Ottawa as well. So that's why we do help these districts on that budgeting and planning.

Thanks for the color.

Koji Ikeda: Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed with your question. Yeah, hey guys, thanks so much for taking the questions. I wanted to ask you a question, you know, kind of in the commentary, in the prepared remarks you talked about, and the results of the IPO, meeting and beating your guide, and I do appreciate that. But really thinking more about the revenue side, it seems at times deal sizes or deal cycles in NRR can be volatile, which puts a damper on upside potential. I was thinking about the edtech vertical; I was under the assumption that deals... It should require us to think about predictability a little bit more. So can you help us understand some? Yes, Koji, it's Eric.

Our next question comes from the line of Koji Ikeda with Bank of America. Please proceed with your question.

Yeah, Hey, guys. Thanks, Thanks for so much for taking the questions.

Wanted to ask you a question you know kind of in the commentary.

In the prepared remarks, you talked about consistency in the results since the IPO, you know meeting and beating your guide and I do appreciate that consistency, but really thinking more about the beef side on the revenue. It seems at times deal sizes, our deal cycles, and NR or it can be volatile, which can put a damper on upside potential just just thinking about the Ed.

Tech vertical I was under the assumption that deal cycles can be a bit more predictable in seasonal within this category, but maybe thinking about your expanding product offerings. You know larger deal size isn't going more international it should require us to think about the predictability a little bit differently. So can you help us understand some of the puts and takes there. Please.

Yep, So koji, it's Eric So I think and we've had several large deals whether it's L. A USD, whether its Puerto Rico and now, Indiana as an example, right.

Eric: So I think, you know, and we've had several large deals, whether it's LAUSD, whether it's Puerto Rico, and now Indiana, as an example. One of the things we've consistently said is what we're not going to do is we're not going to try to artificially time a deal. And, you know, just to get it into a particular quarter, right?

One of the things we've consistently said is what we're not going to do is we're not going to try to artificially time a deal.

And just to get it into a particular quarter right because a lot of times. When you do that it means youre going to be doing some sort of a natural pricing and discounting et cetera. So.

Eric: Because a lot of times when you do that, it means you're going to be doing some sort of natural price, in discounting, etc. So these deals are big, they're strategic. And, you know, when we've got line of sight to a large deal, right, it's just a matter of sometimes there are, you know, a lot of processes on the customer side, especially when you're talking about some of these state deals, you know, they can have up to 30 different approvals required there. A lot of that, which is out of our, you know, out of our hands in terms of the timing of it. I mean, we were very optimistic that it was going to close in Q4.

These deals are large they're strategic.

When we when we've got line of sight to a large deal right. It's just a matter of sometimes there's a lot of processes on the you know on the customer side, especially when you're talking about some of these state deals you know they can have up to 30 different approvals required there.

A lot of that which is out of our.

Out of our hands in terms of the timing of it you know, Indiana is a perfect. One right. I mean, we we were very optimistic that it was going to close in Q4, but then as you as you kind of see as it progresses through the approval cycle.

Eric: But then, as you, you know, as it progresses through the approval cycle, sometimes the approvals take a little bit longer than anticipated. We knew we had the deal; it was just a matter of timing. So, what I would just say is, you know, as we've said in the past, really kind of focus from our standpoint on the full year and, you know, what we're committing to from a full year perspective. And look, when there is deal variability, we're obviously going to articulate it and articulate the impact of it. I think it's also important to, you know, kind of think about as you think about something like Indiana, the impact of that, had that closed in Q4, right? Our net revenue retention would have been 100 basis points higher than where it ended up being. So it would actually show a 50 basis point sequential improvement versus going down by 50 basis points.

Sometimes the approval has taken a little bit longer than anticipated. We knew we had the deal. It's just a matter of timing. So so what I would just say as you know as we've said in the past really kind of focus from our standpoint on the full year and what we're committing to from a full year perspective in <unk> and look win when there is deal variability, we're obviously gonna articulated and articulate the.

Impact to it I think it's also important just to kind of think about as you think about something like Indiana. The impact of that had that closed in Q4 right. Our net revenue retention.

Tension would've been 100 basis points higher than where it ended up being so it would have actually shown a 50 basis point sequential improvement versus going down by 50 basis points. So.

Eric: So, again, it just kind of gives you the magnitude that it will have on the metrics. And, you know, what Hardeep and I have committed to is being very transparent around, you know, some of the ins and outs of these deals. But, I mean, again, we don't want to get into a spot where we're just trying to force-fit a deal into a particular quarter.

Again, it just kind of gives you the magnitude that it will happen on the metrics and what her deep and I have committed to is being very transparent around you know the the some of the ins and outs of these deals, but I mean again, we don't want to get into a spot where we're just trying to force fit a deal into a particular quarter. It is just not good for you know it's not good for the business in <unk>.

Eric: It's just not good for, you know, it's not good for the business in terms of trying to do that from a discounting standpoint. Helpful and just one follow-up here: 14 channel partners to finish the year ahead of the goal of 12 is 14 enough to hit your 2024 revenue targets, or should we think about 14 expanding to a certain level and to reach the revenue targets, and then there is, is there some way to think about maybe And we're not putting an artificial number on it. It's more actually driven by how good our coverage is in the markets where we already have product solutions and targeted, and do they have the right access and ability to be able to sell that? So it's more about coverage than the number.

Trying to I'm trying to do that from a from a discounting standpoint.

Got it that's super helpful and just one follow up here.

14 channel partners to finish the year ahead of the goal of 12 is 14 enough to hit your 2024 revenue targets or should we think about you know 14, expanding to a certain level and to reach the revenue targets and then Theres is there some way to think about maybe a stretch goal for partners or where the number of partners that could be.

Available for power school to partner with over the next several years.

It's a fair question because you're in a week.

Not putting an artificial number two it's more actually driven by how good of a coverage in the markets, where we have already products solutions and targeted and do they have the right access and the ability to be able to sell that so it's more about coverage then the number there will be more partners absolutely, but at the same time. It's also the quality of the partners we are not <unk>.

Koji Ikeda: There will be more partners, absolutely. But at the same time, it's also the quality of the partners. We are not going with the approach of, "Let's have 100, 200 partners and then see if anybody sells."

The approach of let's say 100 to 100 partners and then see if anybody's cells because there'll be investing these partners. We are driving them to have the growth and we believe that it.

Artie: We are investing in these partners. We are driving them to have growth, and we believe that we can continue to provide the guidance as we've given it that this should become a material business in the next few years. Thank you so much.

We will we can.

Continue to providing the the guidance as we've given effect this should become a material business in the next few years.

Got it thank you so much.

Joseph D. Vruwink: Thanks, Soji. Our next question comes from the line of Joe Vruwink with Robert W. Baird. Please answer either question.

Thanks Rajiv.

Our next question comes from the line of Joe <unk> with Robert W. Baird. Please proceed with your question.

Eric: Great. Hi everyone. Thanks for taking my questions. Maybe just one clarification to start, and it's on the core organic performance and subscription and support, and something I think, Hardeep, you actually mentioned in a prior answer. So just to be clear, in FY24 and the guidance you've provided, that does entail organic growth in the double digits, and that rate of growth in 2024 is actually going to be stronger than where FY23 finished. Is that all an accurate statement?

Okay.

Great Hi, everyone. Thanks for taking my questions, maybe just one clarification to start and it's on the core organic performance in subscription and support and something I think our deep you actually mentioned in a prior answer so just to be clear tie in FY 'twenty four and the guidance you've provided that.

It doesn't entail organic growth in the double digits and that rate of growth in 2024 is actually going to be stronger than we're at slide 23 is that all an accurate statement.

Joseph D. Vruwink: Yes, that's absolutely accurate. And, Joe, the thing that I think is also important is that we've kind of talked about LAUSD being a big strategic deal, right? If you were to look at subscriptions and support and then also kind of account for what we're calling our strategic software activity, that being a very strategic software transaction, we were also in low double-digit growth for 2023. So, absolutely. And you see that pick up even a little bit more as we get into 2024. Okay, that's great.

Yes, that's absolutely accurate.

And Joe the thing that I think is also important as we've kind of talked about L. A USD being a big <unk>.

T J deal right. If you were to look at the subscription and support and then also kind of account for what we're calling our strategic software activity that being a very strategic software transaction. We were also in the low double digit growth for 2023, So yes, absolutely and youll see that pick up even a little bit more as we get into 'twenty.

24.

Okay. That's great. Thank you.

Artie: Thank you. This next question is probably going to be guilty of apples and oranges analysis, but I'll give it a try. So at your investor day, I think the comment was made that AI products, in terms of the revenue potential for PowerSchool, could approach maybe 100 million or so in the midterm horizon. You know, today, you're talking about a $2 billion TAM associated with these products. Obviously, when I think about your product suite, they operate at a very high market share, you know, much higher than the simple math here would be, maybe a 5% share of the TAM as it's being defined. I guess, what's your reaction to that analysis? And are you maybe just being pragmatic, and you don't want to get ahead of yourself because it is super early?

This next question is maybe going to be guilty of apples and oranges analysis, but I'll give it a try it so at your Investor day.

Thank the comment was made that AI products in terms of the revenue potential to power a school that could approach, maybe a 100 million or so in the mid term horizon.

Today, you're talking about a $2 billion Tam associated with these products.

Obviously, when I think about your product suites, they operate at very high market share.

Higher than the simple math here would be if maybe a 5% share of the Tam is it's being defined.

I guess, what's your reaction to that analysis and are you may be just being pragmatic and you don't want to get ahead of yourself because it is super early or is there some embedded observation about maybe the uptake of AI products in the K through 12, setting you're trying to factor in.

Artie: Or is there some embedded observation about maybe the uptake of AI products and the K-12 setting you're trying to factor in? Yeah, I think you're right. We are trying to be pragmatic, make sure that we are able to get the early, you know, what we're seeing early interest in, don't let it kind of get us ahead of ourselves. We do want to kind of launch all these fire buddies, being able to start showing the value, which we believe is tremendous in our, as I mentioned, in my prepared remarks, especially think about student time, teacher time, principal times, parents' time. It's so valuable in these AI tools, the conversational and personalized element, allowing them to engage proactively with the right persona changes everything in the education of how these products are built, how all of our products are integrated, and how they are actually communicating.

Yeah, I think you're right, we're trying to be pragmatic make sure that we are able to get the early but we're seeing a little early interests don't let it kind of get US ahead of herself.

We do want to kind of launch all these power, but he's being able to start showing the the value, which we believe is tremendous and over as I mentioned in my prepared remarks. The in K 12, especially think about student time teachers time principal times parents time, it's so valuable and these AI tools, the conversational and personalize element, allowing them to engage proactively.

<unk> with the right persona changes everything and education of how these products are built how all of our products are integrated and how they are actually communicating and that's why you see such a phenomenal big opportunity here or districts see this over persona and.

Artie: And that's why you see such a phenomenal big opportunity here. And we, our districts see this, our personas see it, and we do expect this to be big. This is the whole reason why we are, you know, if you think about profitability compared to our competitors, we've been investing significantly in R&D, almost with our capitalized R&D to almost 40 to 50 million dollars, you know, and that has been brought around the data and AI platform, which allows us to really invest in the kind of And we now see that actually start getting real and being able to start monetizing. That's great! Thank you very much.

And we do expect this to be a big this is the whole reason why we are you know if you think about from a profitability compared to our competitors, we have been investing significantly in R&D almost of it though to capitalize R&D to almost $40 million to $50 million.

And that has been brought around the data and AI platform, which allows us to really.

<unk> kind of transformation element in personalization that we had been counting on and we now see that actually start getting real and being able to start monetizing that.

That's great. Thank you very much.

Gabriela Borges: Our last question comes from the line of Gabriela Borges with Goldman Sachs. Please proceed with your question. Hi, this is Callie Valenti on behalf of Gabriela.

Our last question comes from the line of Gabrielle are gorgeous with Goldman Sachs. Please proceed with your question.

Hi, This is Kelly Wolinsky on for Gabriela first one for me is I wanted to follow up on what you said before and conduct the idea of being the Netflix of education.

Callie Valenti: The first one for me is I wanted to follow up on what you said before, and kind of the idea of being the Netflix of education. If we think about the content side of that, how do you think about partnering with versus acquiring an asset, potentially, on that content side? Hi Kelly.

If we think about the content side of that how do you think about partnering with versus acquiring an asset potentially on that content.

Yeah, Hi, Kelly at you're absolutely right. It's both from a just kind of think about a netflix model or a prime or a GPO model. It's both about create you know having a partnerships.

Artie: You're absolutely right. It's both from a just kind of think about a Netflix model or a Prime or an HBO model. It's both about, you know, having partnerships with a lot of strategic content providers, being able to provide the right content and services within the context. So, imagine, based on a kid's need, you're providing the right content that has the most efficacy to support that child as well as being able to provide services like tutoring targeted to that child's need. Because we have a system of engagement with them, right?

But a lot of strategic content providers being able to provide the right content and services within the context of imagine based on our kids need you are providing the right content, which has the most efficacy to support the child as well as being able to provide services like triggering targeted to that Charles need because we have we are we have the system of engagement with them right. We have the internal.

Callie Valenti: We have the intelligence and context. So, this is both a partnership as well as, in some cases, acquisitions, which will allow us to kind of have those more targeted content as well. That makes sense.

Just some context. So this is both partnership as well as in some cases acquisitions, which will allow us to kind of have those more targeted content as well.

That makes sense. Thank you.

Artie: Thank you. And the second one for me is you kind of called out a very impressive new logo, new logo, ARR growth number. I'm curious, like, what products are you seeing drive new logo growth the most? Is that just SAS?

Second one for me is you kind of called out a very impressive new logo new logo like IRR.

Gross number.

Curious like what products are you seeing drive new logo growth and most of that just SaaS or you think the data products via common land and then also just any trends you would call out in new logos and international markets birthday in the core North American market.

Callie Valenti: Are you seeing some of the data products via common land? And then also, just any trends you would call out in new logos in international markets versus in the core North American market? Pretty, pretty balanced in terms of most of our products. I think the same products we've talked about, which are seeing very good growth. Data products, of course, the student. You know, we're selling data products even when they're not our customers.

Pretty pretty balanced in terms of most of our product I think the same products. We have talked about which are seeing very good growth. There are products of course the student.

We are selling data products, even when they're not of our customers. We are also seeing against student cloud to be continues to do very well talent products are being doing exceptionally well and even things like about attendance intervention at all of that is actually creating new logo opportunities and then it.

Artie: We're also seeing again student cloud continue to do very well. Talent products are doing exceptionally well. And even things like our attendance intervention and all that is actually creating new logo opportunities. And then it's very reflective of our market share, but Nitin and Dash are a little higher on the new logos as well.

It's very reflective of the market share, but actually being a little higher on the new logos as well.

Callie Valenti: And thank you. Great. Thanks, Hildegard. That concludes our question and answer session. I'd like to hand it back to Hardeep Gulati for closing remarks.

Thank you.

Great. Thanks Kelly.

That concludes our question and answer session I would like to hand, it back to her deep <unk> for closing remarks.

Hardeep Gulati: Thank you, everyone. I appreciate everybody staying for this uneasy, as Eric and I shared. This has been a very exciting quarter as well as an exciting year. Not only are we looking at double-digit growth, but we are also guiding to double-digit growth, which just shows you the robustness of this business model as well as our platform. And all the differentiations in terms of being the most comprehensive platform, both in terms of being able to sell to different needs of the customer, to be able to have a diversified platform, so it provides stability, being able to secure larger deals, as well as being able to use our innovation to continue performing with double-digit growth, both within the U.S. as well as internationally, are what's exciting about our business.

Thank you everyone and I appreciate everybody staying for the unequaled aesthetic and I shared this has been a very exciting quarter as well as an exciting gear not only better could double digit growth we are.

We are also guiding to a double digit growth, which just shows you the robustness of this.

Our business model as well as the platform and all the differentiations in terms of being the most comprehensive platform both in terms of being able to have.

Sell to different needs of the customer to be able to have the diversified platform provides us stability being able to secure larger deals as well as being able to use our innovation to continue performing but the double digit growth both within the U S. As well as internationally is what's exciting about our business and we appreciate everybody's support and looking forward to an exciting showing 34.

Operator: And we appreciate everybody's support and are looking forward to an exciting 2024. Thank you, everyone. 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.

Thank you everyone.

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.

Oh.

Okay.