Q1 2024 PowerSchool Holdings Inc Earnings Call
Good day and welcome to the power School first quarter 'twenty 'twenty four earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Shane Harrison Senior Vice President of Investor Relations. Please go ahead.
Shane Harrison: Thank you operator welcome everyone to power schools earnings Conference call for the first quarter ended March 31, 2024, I wanted to first of all you know that we posted a slide deck to the Investor Relations section of our website that accompanies our remarks here.
Shane Harrison: On the call today, we have power school, CEO, Hardeep, Galotti, and President and CFO, Eric Sander.
Shane Harrison: Before getting started I'd like to emphasize that this call, including the Q&A portion. It will include statements related to the expected future results for our company, which are therefore forward looking statements.
Shane Harrison: 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 to the GAAP financial information.
Shane Harrison: Bided and the corresponding press release and results presentation, which are both posted on power schools Investor Relations website at investors Power School dotcom.
Shane Harrison: A replay of this call will also be posted at the same website.
Shane Harrison: With that let me now I'll turn the call over to Hardy.
Hardy: Thank you Shane and thank you everyone for joining US today, we are starting 'twenty 'twenty four with continued strong momentum, beating the midpoint of our revenue outlook and exceeding the high end of our outlook for adjusted EBITDA.
Hardy: Iraq grew 18% year over year, well enter our improved 30 basis points sequentially to 107%.
Hardy: Fourth quarter revenue totaled 185 million up 16% year over year, and subscription and support revenue growing 18% to 167 million.
Shane Harrison: Adjusted EBITDA improved 24 person year over year to 61 million, representing a 33% margin and expansion of about two percentage points year over year.
Shane Harrison: These first quarter results showcase the robustness of software spend in Quechua market and the continued demand and stickiness of our market leading mission critical solutions that drive better education outcomes empower educators and help districts run more efficiently.
Shane Harrison: These results are driven by the strength of our multiple growth vectors, which create the diversity and sustainability of our business model and enabled us to deliver consistent results quarter. After quarter now 11 consecutive quarters since our IPO of meeting or beating guidance.
Shane Harrison: I will highlight the updates in the quarter based on each of the four key growth vectors, we have shared in the past.
Shane Harrison: Plus.
Shane Harrison: They can cross sell and net new opportunity across North America for a comprehensive and broad 20, plus products meeting a variety of district and state strategic initiatives.
Shane Harrison: Second our expansion and successes in the untapped large international market.
Shane Harrison: Third continued strategic M&A that expands over time and that solutions that address the most important growth areas such as our recent all of your budgeting and planning acquisition.
Shane Harrison: Launching new disruptive high growth innovations like poverty, a K 12 industry first assistant for everyone.
Shane Harrison: Let's talk with our fast growth vectors and shared with you some of the highlights of customer momentum in cross sell and new logos with our Cubans in Q1.
Shane Harrison: I'll speak briefly previewed in our last earning calls we are thrilled and honored to have signed in Q1, one of our largest deals in recent history to stop the Indiana Department of education to provide special program solution to the state and all its districts to modernize systems processes and improved special.
Shane Harrison: <unk> program needs for every student at every school in Indiana.
Shane Harrison: Our solution to replace their existing vendor as we provide a more boredom interoperable platform with enhanced compliance for federal and state reporting requirements.
Shane Harrison: We also saw several other notable cross sell wins during the quarter, including Toledo public schools, who selected our S. I S and ERP solutions.
Shane Harrison: Sylvia Unified School District, who chose our communication and our new might power school product.
Shane Harrison: San Bernardino steady unified School district, which selected our analytics and talent modules.
Shane Harrison: Social enterprise in Puerto Rico, who brought in their presence with us on multiple products, including S. I S <unk> enrollment and Navios.
Shane Harrison: The volume and the types of deal across these broad solutions show over our ability to meet the very needs and priorities or districts of different sizes and across regions.
Shane Harrison: During the quarter. We also added great new logos, including Manitoba, plus Nations Education Resource Center, who purchased over student information system to power their district operations and reporting in fact, one of the reasons or ongoing cross selling bulova successes is a key differentiator of strong unparalleled leader.
Shane Harrison: Ship off of our student information system or S. I S along with many of our other solutions.
Shane Harrison: The science is the heartbeat the source of truth at stores and manages all student data within a school district or charter school system.
Shane Harrison: Gold's user S. I S. Four combined supporting two department of education and to provide support to key stakeholders to inform decision making to help students succeed.
Shane Harrison: Our school of Science is a premium solution and a clear market leader with gross retention rates in the high nineties and a strong customer satisfaction scores.
Shane Harrison: We continue to win new accounts in our science and have brought in over a million new students over the past two years, but now reaching over 20 million K through 12 students globally and roughly one third of North American students.
Shane Harrison: That's why I said, it's one of the keys to cross selling additional products and we have much stronger win rates with customers, who already use our S. I S.
Shane Harrison: During the first quarter, we made great progress in our second growth vector of international expansion, particularly in the high growth target markets in the Middle East Latin America and India.
Shane Harrison: In the middle East through over Board Middle East B M partnership, we signed a new logo nights of knowledge International schools in Saudi Arabia.
Shane Harrison: Who purchase S I S.
Shane Harrison: <unk> and other modules to benefit all of their students and teachers.
Shane Harrison: We also continue to cross sell into our international customer base with customers like Arabian Education development.
Shane Harrison: The deployment from student cloud personalized learning cloud talent cloud and now we're analytics club.
Shane Harrison: Another example of International Cross sell is in Latin America, where we brought it up a presence with the international school of Tegucigalpa, Honduras in an existing school does your customer who expanded to a broader platform, including S. I S enrolment eclipse and other modules.
Shane Harrison: In India, we won new business with a guitar education and <unk> among many others.
Shane Harrison: We are very excited about the international prospects this year as of our full year International pipeline has grown over 200% year over year.
Shane Harrison: This includes large deals in pipeline to our partner channels.
Shane Harrison: Before we move forward towards growth driver I wanted to touch on funding and our key priorities in front of our customers.
Shane Harrison: As you know Patrial is one of the largest spend categories globally with over 700 billion in U S alone and over five trillion globally.
Shane Harrison: The core budgets are resilient and are relatively insulated from inflationary and other macroeconomic events.
Shane Harrison: Budgets are funded through multiple sources federal state and local and education as a bipartisan priority.
Shane Harrison: That's sort of injected an additional 5% to 10% per year to the overall budget targeted towards one time purchases and managing additional stopping supplemental content and services needs during the past few years.
Shane Harrison: While in some cases district use Essar to fund the initial implementation and rollout of K through 12 technologies.
Shane Harrison: Strict largely required to allocate their ongoing software contract spend from the regular core ongoing budgets there.
Shane Harrison: The broader appeal means driving the software growth in K 12 has been the need for digital transformation to support more automation of their back office.
Shane Harrison: Limited costly manual task.
Shane Harrison: Teacher administrative time modernize the classroom to drive more engagement with students and also get better insight. So districts can optimize their investments to create better store knockoffs.
Shane Harrison: That is why education software spending is forecasted to remain one of the highest growth areas in K through 12 education.
Shane Harrison: In March we conducted a survey of our Anvil Education focus report, where we received nearly 2000 educating responses from across the U S. From every state and U S. Saturday on a wide range of questions, including top K through 12 technology priorities budget and much more.
Shane Harrison: I'd like to share some of the preliminary results from our market research, which will be formally released in July.
Shane Harrison: Top five technology priorities districts identified are integrating technology solutions connect.
Shane Harrison: Connecting data across systems, implementing a tender solutions to address chronic absenteeism, providing guidance and infrastructure.
Shane Harrison: Cyber security and protecting student data.
Shane Harrison: Conversely, the top areas of budget management that district identified we're limiting additional stopping budget.
Shane Harrison: Hardware spend and reducing tutoring spin.
Shane Harrison: These survey results directly aligned with our solutions and platform strategy to provide secure modern integrated systems and data with mission critical needs like M. T. S. S.
Shane Harrison: This intervention and data insights to provide the right help efficiently and surgically based on individual student needs and drive better attendance and engagement to help keep students in school.
Shane Harrison: In fact, helping districts with budgeting and spending efficiency and efficacy was the key rationale behind our recent strategic acquisition of all of you.
Shane Harrison: As we discussed during our last earnings call. We acquired all of you in January of this year and we're already seeing very strong demand for its capabilities.
Shane Harrison: Results from the second and will all of you education financial survey found that roughly half of the educators surveyed said that their budget tools are out of date and our need of modernization.
Shane Harrison: By adding all of you power school can now provide schools districts and state education leaders with most comprehensive suite of K through 12 data and analytics tools.
Shane Harrison: Stable to accurately plan budgets and provide clear visibility for the communities into district spending and the impact on student outcomes.
Shane Harrison: This showcases how we are leveraging our third growth vector of strategic M&A expansion to drive additional growth.
Shane Harrison: On current district priorities.
Shane Harrison: Now turning to our fourth growth vector of differentiated innovation in January we announced a a generative AI platform power school power Buddy.
Shane Harrison: K through 12 industry first AI powered assistant or everyone poverty is designed to deliver conversational personalize contextual and embedded experiences for educators students administrators and parents.
Shane Harrison: We recently announced general availability of two new AI powered solutions already for learning and power body for assessment.
Shane Harrison: These two solutions are targeted for teachers to save them countless hours spent generating student assignments lessened plants and assessments.
Shane Harrison: Of course, nice to different reading levels subjects languages and state standards.
Shane Harrison: They seamlessly integrate within school to cheat and performance matters and are built on Microsoft Azure, we're opening I, but designed and fine tuned by power school, specifically for K 12 with controls for responsible AI principles and compliant the district and state standards and content.
Shane Harrison: Demand for property has been very strong and we already have signed dozens of customers, including epic charter schools and do all county public schools.
Shane Harrison: We have several other poverty solutions into beta with districts, representing approximately 2 million students and have built roughly 10 million of opportunity pipeline for these solutions.
Shane Harrison: Additionally, we have received impactful testimonials from teachers thing they have reduced the amount of time needed to create a standards aligned assessment item by more than two thirds.
Shane Harrison: We are excited to launch additional power products, including power body for data analysis custom EI college, and career engagement and coaching and mentoring, which will be available for 2024 and 2025 school here.
Shane Harrison: Given our leadership and reach scale.
Shane Harrison: <unk> breadth and impact we are uniquely positioned to provide generally backed solutions that personalized experiences leveraging all child information and our embedded into existing solutions that students parents teachers and administrators use everyday and provider contextualize help and assistance for all of their knee.
Shane Harrison: <unk>.
Shane Harrison: We are also helping districts formalize the data platform for AI with our differentiated connected intelligence data Lake solution that enabled district to ensure their data severity and empower their educators and students to leverage any eye by bringing AI to their data.
Shane Harrison: When it comes to data Barstool lead for K through 12 industry Institute on data privacy and data security a responsibility we take very seriously do that and we are certified by industry leaders, such as trust chalk and people and.
Shane Harrison: And we probably would hurt all applicable federal and state laws pertaining to certain data, including federal laws, such as family Education rights and Privacy Act Papa.
Shane Harrison: And the child online privacy Protection Act Copa as little of State regulations, including California students online personal information Protection Act, so people and its variant and many other states.
Shane Harrison: We are also proud signatories of the student privacy pledge.
Shane Harrison: And the White house secure pad design initiative, a voluntary pledge developed by the cyber security and infrastructure Security Agency Caesar and the U S Department of education.
Shane Harrison: We also pledged our commitment to further secure the education technology ecosystem by offering free and subsidized security resources to all U S schools and districts.
Shane Harrison: For more information on our student privacy compliance security investments and have a responsible AI guidelines. Please refer to the accompanying earnings presentation for links to a data security policies and.
Shane Harrison: A chief compliance officer privacy block.
Shane Harrison: Barstool today is the vastly larger than a fundamentally different company than it was just five years ago.
Shane Harrison: Since 2019 and based on the midpoint of our 2024 outlook, we will have more than doubled over revenue and nearly tripled our adjusted EBITDA, while expanding our EBITDA margins by nearly 10 percentage points.
Shane Harrison: Or the same Peter we have acquired 11 companies and nearly doubled the number of products in our portfolio we.
Shane Harrison: We have started to put boots on the ground in international markets and build out a channel partner network of 14 partners across all of our targeted international markets.
Shane Harrison: Delivering this kind of growth requires exemplary executive talent and high performance culture.
Shane Harrison: I'm proud to have been able to attract and retain the world class executive leaders and team needed for pascua today, many of them drawn to the company's powerful mission.
Shane Harrison: Highlighted by the strong first quarter results, we remain focused and confident about our continued success and ability to execute in line with the strategy and targets. We shared at our Investor day last year to reach 1 billion plus in revenue in the next three years.
Shane Harrison: Now I will turn over to Eric to discuss the financial results and outlook Eric.
Eric Sander: Thank you Hardeep, we kicked off 2024 with a strong first quarter that demonstrated continued execution in line with our strategy.
Eric Sander: We delivered double digit top line growth expanded our adjusted EBITDA margin by more than two points over the prior year and continued to invest in product innovation and international initiatives that will drive long term value to our customers and to the company.
Eric Sander: First quarter total revenue came in at $185 million, representing 16% year over year increase.
Eric Sander: In line with the guidance range, we provided on our last earnings call.
Eric Sander: Subscription and support revenue came in at 18% year over year $167 million and accounted for 90% of total revenue in the quarter.
Eric Sander: As Hardeep mentioned, we're thrilled and honored by the opportunity to serve the Indiana Department of education with our special program solution, reaching the entire special education population of the state.
Eric Sander: This large deal represents approximately $5 million in subscription and support revenue and approximately $9 million and services revenue that will span into 2025, given the significant scope of this opportunity.
Eric Sander: Revenue from our services business totaled $17 million in the quarter, representing a slight increase over the prior year.
Eric Sander: We continue to see more efficient deployment cycles from our implementations, which drives quicker time to value for our customers using our platform.
Eric Sander: Revenue from license, another which relates mainly to our third party revenue and is the smallest revenue stream totaled $1 million for the quarter. This came in slightly below our expectations based on the mix of third party partner activity in the quarter.
Eric Sander: We ended the quarter with an annualized recurring revenue balance of $720 million, representing an 18% increase over the same time period last year.
Eric Sander: This strong performance was driven largely by the strongest cross sell activity, we have ever seen in our first quarter as well as the addition of our recent acquisitions.
Eric Sander: Our net revenue retention rate came in at 107%.
Eric Sander: Up 30 basis points on a sequential quarterly basis.
Eric Sander: Adjusted gross profit for the quarter came in at $128 million with a 69, 2% margin representing a 110 basis point year over year improvement driven by our continued focus on cost management and operational scale.
Eric Sander: Moving to the first quarter operating expenses.
Eric Sander: non-GAAP research and development expense came in at $25 million, representing a 13, 6% of revenue compared with 12, 5% in the same time period last year.
Eric Sander: This 110 basis point increase in adjusted R&D expense as a percentage of revenue reflects our continued focus on investing in the data and AI products that will shape the future of education.
Eric Sander: Including capitalized R&D expenditures are total invested in R&D was 18, 4% of revenue compared with 18, 5% in the prior year.
Eric Sander: non-GAAP SG&A expense totaled $42 million in the first quarter, representing 22.5% of revenue compared with $39 million.
Eric Sander: Or 24.6% of revenue in the same time period last year.
Eric Sander: This 210 basis point improvement was largely due to lower G&A expense driven by our operational scale, which was partially offset by the investments we are making in sales and marketing focused on go to market activities and our continued international Buildout.
Eric Sander: First quarter, adjusted EBITDA was $61 million, representing a 33, 1% margin exceeding the high end of our guidance range and reflecting our continued commitment to margin expansion.
Eric Sander: non-GAAP net income in the first quarter was 17 cents per fully diluted share down one penny from the 18th cents per fully diluted share we reported in the same time period last year.
Eric Sander: Higher interest expense was a headwind of approximately three cents to our non-GAAP earnings per share and we had a noncash tax expense related to the acquisition of al have you, which had an impact of approximately four cents.
Eric Sander: First quarter free cash flow, which typically reaches a seasonal low point in Q1 due to the timing of renewals and bonus payouts was a negative $103 million.
Eric Sander: Compared with negative $70 million in the same time period last year.
Eric Sander: This reduction is driven by the increase in interest expense acquisition related costs and the changes in working capital, which we believe to be timing related.
Eric Sander: Moving to the balance sheet, we ended the quarter with $17 million in cash and equivalents a decrease of 73% over the same time period last year.
Eric Sander: This was due largely to the seasonality of Q1 cash flow and cash payments related to the school messenger and all of your acquisitions, partially offset by a $125 million draw on our revolving credit facility.
Eric Sander: Net debt leverage as of the end of the quarter was three eight times compared with 3.3 times a year earlier.
Eric Sander: As a reminder, our net leverage decreases in the second half of the year given the collection seasonality.
Eric Sander: Now turning to our 2024 second.
Eric Sander: Second quarter and full year financial outlook for.
Eric Sander: For the second quarter, we expect to deliver total revenue in the range of 192 million to $197 million.
Eric Sander: And adjusted EBITDA in the range of $67 million to $69 million, representing a 35% margin at the midpoint.
Eric Sander: For the full year 'twenty 'twenty four we are reiterating our guidance with total revenue expected to be in the range of 786 million to $792 million with the midpoint, representing a 13% year over year growth rate.
Eric Sander: We are raising our full year adjusted EBITDA guide to a range of 68 million to 73 million, representing a 34, 3% adjusted EBITDA margin at the midpoint.
Eric Sander: For modeling purposes, we expect full year capital expenditures, including capitalized software of approximately 48 million to $52 million and share based compensation expense of approximately 80 million to 84 million.
Eric Sander: Fully diluted shares by the end of the year are expected to be in the range of $203 million to $207 million.
Eric Sander: Overall, we're very pleased with the progress in the first quarter, we demonstrated continued execution against our strategy by delivering double digit topline growth and margin expansion.
Eric Sander: We are intensely focused on delivering market, leading innovation and value to our customers through a comprehensive and differentiated platform.
Eric Sander: This concludes our prepared remarks, Alan will you. Please open the call for Q&A.
Alan: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. It. Please press Star then two at this time, we will pause momentarily to us.
Eric Sander: Symbol our roster.
Eric Sander: Our first question comes from Matt Hedberg of RBC capital markets. Please go ahead.
Eric Sander: Hey, it's Dan Bergstrom for Matt Hedberg, Thanks for taking our questions.
Dan Bergstrom: So Eric you called out more efficient implementations in the prepared remarks, I think that's something you've been working on.
Dan Bergstrom: Are there any incremental undertakings, maybe this year with the services team to accelerate implementations and time to value anything new or where or maybe.
Eric Sander: The incremental do you want to point out there.
Eric Sander: Yeah, No look it's a.
Eric Sander: It's a good question and I appreciate that and and as you will have seen we you know last year, we have seen a lot of success.
Eric Sander: When we did Puerto Rico, which as you know a large student information system implementation you know the team Super proud of what they did did it in seven months you know years ago that never would have been possible, but you know look this team and we're always focused on continuous improvements. So we are continually looking at how we're packaging up the work you know where the work is being <unk>.
Eric Sander: <unk>, So I would tell you while I'm certainly.
Eric Sander: Pleased with the progress we're not done so I would tell you we're going to continue to focus on our efficiency levels and then certainly you know the other areas we'll continue to.
Eric Sander: Build out our factory approach in India. So you know I guess I would say stay say stay tuned because we'll continue to see efficiencies there, but you know I'm Super proud of the progress the team made last year, which was significant and you know we're not going to stop with that.
Speaker Change: That's great. Thanks, and then you mentioned, Puerto Rico, there internationally, you highlighted that as a key growth factor. It sounds like the pipeline is building nicely. There I think he had a lot of success last year, adding new International partners I guess looking at this year are you targeting maybe adding a similar level of partners are more focusing on the ramp of what you've signed up so far.
Eric Sander: Sure Dan This is sandeep I'll jump in on that then all you know we were very excited about the international I.
Sandeep: I think as we look at I mentioned the pipeline, we had almost 200% growth in the pipeline with some especially a good sized large deals helped by the partners to 14 plus partners channels. We have built across the entire globe. What's also exciting is that we are still expecting almost 50% growth on international this year as well so.
Sandeep: We are definitely have built a pretty strong engine through the partner as well as our own management team, especially we did brought in a new GM of international and we are seeing a lot of success. Both in terms of improving our partner channel pipeline also love own execution about bringing these deal then we do expect to sign more partners, but we've also have a pretty good.
Sandeep: Coverage of these partner and the most focus agents as we expanded to southeast Asia. Some of the Western Europe, you're going to see a little bit more coverage on the partners in Africa as well and.
Sandeep: And we will continue to develop that but the big focus is actually the partners, we do have kind of enabling and bringing their pipeline that actually executing and closing those.
Speaker Change: That's great. Thanks.
Sandeep: Yes.
Sandeep: The next question comes from Brian Peterson of Raymond James. Please go ahead.
Brian Christopher Peterson: Hi, This is doesn't go on for Bryan I'm sorry.
Sandeep: With.
Brian Christopher Peterson: Or are there any particular product sets that you're prioritizing for cross sell and like what have been multi success selling back into the base.
Speaker Change: So it just got great cushion so one of the exciting part of the rest of the platform is that we have really a lot of these different solution addressing all the variety of neat. So when we are going to the when we're looking at the demand we see on the cross sell and where we are focusing on what we call. It an Xbox we've worked with the customer.
Eric Sander: Defy each of these customers keep pinpoints, where the total knee and with the as you can imagine with the 20 plus solutions then the different elements, whether it's in their back office, whether it's their talent management needs, whether it's in the classroom, whether it's in terms of improving graduation rates or overall funding, we'd really helped drive the right solution to the key.
Eric Sander: These these district space and be able to bring a solution to them. So of a cross sell motion is actually are across the globe. We have the largest K 12 software sales channel in the whole country. We are engaging with these districts on all levels all the way from CIO to their chief got Mcarthur, such as a printer and as well as the CFO the natural.
Eric Sander: And building that core transformation plan from them based on what are the key strategic plant now we do see solid levels of areas, which are really at the high demand of this are for this year as well one as we were in continuation of what we've seen in the last year data and analytics products are a big focus, especially as these districts deal.
Eric Sander: With how do they manage more limit the limited investment on supplemental money, but reaching out every specific kit, we are able to help them with the data to identify which keeps need what health and how they can optimize their funding and spend so they can reach every child based on their need.
Eric Sander: We also as I mentioned in the prepared remarks, all of you as the big growth area for US. This year, we're seeing a lot of exciting the amount of that but the pipeline of about $10 million, where we're seeing the need for budgeting solutions that they can actually help manage all the different elements.
Eric Sander: Parent engagement and communication remains one of the top priorities. That's why the school messenger along with our school is one of our big growth areas as well and then as I mentioned, we are actually very excited about the demand. We are seeing them. The AI are we have been doing about a 40, plus luncheon and series with our customers across the nation and we are really excite.
Eric Sander: About the pipeline that we are seeing from districts, where pretty much universally seeing almost 20% of the districts have shown and trust or Theyre already started looking at how big it can be brought into districts. So we are expecting that to be a phenomenal growth area as well.
Speaker Change: That's really cool and it's like digging further into what you're saying just now about your AI.
Speaker Change: The rollout of the car bodies.
Speaker Change: What is some of the early user feedback so far like how do you view part bodies potential for further increasing the stickiness with schools.
Speaker Change: Yeah, you know as I was mentioning that there is already there.
Speaker Change: Feedback, they're getting quantitatively that this is a significant time saving for districts, especially for teachers to create lesson plan and items.
Speaker Change: Beta of some of the elements, which we are launching around the data insights as well as custom AI allows them to actually create better efficiency and understanding of their data and how they can get in front of all the principals and teachers and their boards and real time, there's also value of the.
Speaker Change: The my Power School and College Korea, that's less coaching bird poverty helps you drive efficiency and across so the feedback across all these different barbarities, which we have general liability as well as the ones in the beta has been pretty instrumental in fact, we do see that districts are seeing this to be one of the big areas of her.
Eric Sander: Now they can actually help navigate on their improved and proven efficacy of our education outcomes and we have actually a few testimonies, which have got good media coverage from epic charterer as less district level and we encourage you guys to check those news outlets as well where teachers are silly thing, having that ability to be able to provide help to a teacher and student.
Eric Sander: It has been a phenomenal game changer.
Speaker Change: Awesome. Thank you.
Eric Sander: The next question comes from <unk> Kalia of Barclays. Please go ahead.
Kalia: Okay, Great Hey, guys. Thanks for taking my questions here.
Kalia: Thanks, Okay heartbeat.
Kalia: Maybe I'll start with you.
Kalia: You know I appreciate it and in your prepared remarks.
Kalia: Just kind of Flushing out.
Kalia: Impact that that that are a little.
Heartbeat: The impact of that funding.
Heartbeat: It was kind of had on the business can you just maybe remind us what the timeline for Essar funding is for for your customers and maybe related to that I mean have you seen any change in pipeline as a result of it kind of positive or negative.
Heartbeat: Yeah. When you look at the overall extra funds socket that you know, but depending upon the states again is the federal portal unnecessary transparency better people can check it out.
Heartbeat: So you will see that almost 70% to 80% of the funds have been spent and I would say even more of that has been already allocated.
Heartbeat: We as we mentioned in the Essar funds were largely towards one temperatures as district shopping supplemental content to training to help lending loss when they buy software they are buying it from their normal ongoing budgets right. So we don't see a very direct impact with that we did see some benefit of that on the implementation dollars they might use it to roll out the systems.
Heartbeat: So we are not seeing that to be a material impact to our pipeline.
Heartbeat: In fact of our pipeline is growing year over year, and we even while we have put more validation of the qualifications on our pipeline and we also seeing actually the second half pipeline, especially as we have launched of our new My power School solution, our Oh, where AI powered buddy as well as bringing in and the integration of all of you.
Heartbeat: And our international ramp up where you're actually seeing a second half pipeline, which is already showing a lot of important improvement to that as well. So we do see this took them a business perspective, our pipeline to be very healthy and given these solutions are mission critical as you can imagine that where gross retention and overall order retention actually are showing given.
Heartbeat: Well, you know similar trends, where if not for the positive trends on that.
Speaker Change: Got it got it.
Heartbeat: Eric maybe for my follow up for you.
Eric Sander: Can we just talk a little bit about how you're thinking about free cash flow either this year or just kind of more broadly you know EBITDA guide is always helpful and it's good to see that go up a little bit but.
Eric Sander: The cash flow here. It's just it's just nice to see I would love to kind of hear how you think about that just even even anecdotally or just kind of broad brush.
Speaker Change: Yeah sure second so you know it just as you know as I mentioned in my prepared remarks, right. So we're expecting full year adjusted EBITDA.
Speaker Change: To be around 268 million to 273 million, we took it up on the top end.
Speaker Change: Which as you know well over 100 basis points of where we finished the year as you think about and as I you know focusing on free cash flow last year. We were you know roughly 19% margin, while we don't guide on free cash flow, what I will tell you.
Speaker Change: A couple of the key components to it we will have about an incremental $20 million in interest expense this year.
Speaker Change: Almost three percentage points. However, we are still targeting to be.
Speaker Change: In the range of flat from last year.
Speaker Change: While we're also absorbing those three percentage points of interest and then certainly you know who knows what's going to happen with interest rates in the back half of the year. So we could certainly get some benefits from there, but you know what I would just say is we are very much focused on free cash flow very much on track with what we said back in September on our Investor Day, we will be in it.
Speaker Change: The mid twenties by 2026, and we're you know we're marching towards that end and you know the company as well as I have a very keen focus on that so hopefully that gives you. Some color around you know where we're thinking about the the mark from an overall margin standpoint, with some of the ins and outs that go into that.
Speaker Change: Very helpful. Thanks, guys.
Speaker Change: Yeah. Thanks.
Speaker Change: The next question comes from Brent Thill of Jefferies.
Brent John Thill: Please go ahead.
Brent John Thill: Thanks on go to market this year any big changes, you're making in terms of quota carrying reps or new distribution partners or.
Brent John Thill: Any any any differences in strategy and changes that you're you're are you putting into the in to help the adoption of a broader platform.
Speaker Change: Yeah, Brent we were all with the optimizing of our sales team, but also expand it gets as well we've actually increase over our sales force coverage model by at least 10 to 15 person each year as you will see from our investments.
Brent John Thill: That's an.
Brent John Thill: The area, where we continue to focus on.
Brent John Thill: As our platform continues to grow and we are actually reducing the territories for our sales teams. So they are able to further engage on that platform with each of the persona that the districts at all levels and be able to continue to do that so that is a constant motion for us each year, we have actually seen a doctor be actually create better results.
Brent John Thill: From a bringing new business both on the cross sell as well as net new.
Brent John Thill: International We started this a you know investment last year, where we started creating the international that has definitely ramped up we are continuing to ramp that up this year as well and both supported by partner channel partner channel coverage from our site, but then also the boots on the ground in Middle East, India as well as in Latin America to kind of support.
Brent John Thill: Both partner as well as some direct deals. So you know we we one of the exciting parts. So far school is the coverage model that we are in front of these <unk>.
Brent John Thill: 19000 deaths, we call it buying entities in North America, and we are in front of them and pretty much periodically to make sure that we are addressing their most strategic needs with one of the solutions that you offer.
Speaker Change: Okay, and when you think about just your overall pipeline and the visibility that you see how.
Speaker Change: How would you characterize the pipeline versus in the past you know what what are the differences the nuances of what you're seeing any any anything to be concerned about or do you feel you feel better about maybe where your pipeline said, even six to nine months ago.
Brent John Thill: Yes, that's the benchmark that we have seen definitely year over increase in the pipeline, even as the or the last call. It 12 to 18 months, we have put in a lot more controls on our pipeline and implemented Kerry to give us better visibility as well as the eye on another pipeline and close rates. So we have a better visibility on how things are going.
Brent John Thill: So we're actually very comfortable with that I did mentioned some of the growth areas. For example, you know just the all of your piece of poverty piece are these are the areas, where we actually already seen some exciting pipeline. If you think about par, but each we've just launched at less than two months back the poverty for learning and assessment and not only we are.
Brent John Thill: Closed a.
Brent John Thill: A handful of deals almost with 400 key off revenue. The fact that we're sitting on 100 plus opportunities on power, but even though our pipeline almost close to $10 million. Just tells you that how much opportunity that exists and we do see that that's going to be a definitely give us a pretty exciting growth area. So the you know as you can imagine.
Brent John Thill: Going back to the survey result, I highlighted district still are dealing with a lot of or.
Brent John Thill: Old systems, which they are worried about data security and they are looking at automation districts are still worried about integrations of their different siloed systems that not having the ability you have to have seamless integration, which are the big nightmare in time thing for them districts have worried about continued before their budgets to be more efficient and more efficacy. So theyre looking at data and <unk>.
Brent John Thill: Sites and they're also looking at help on managing their budgets their help on continuing empower teachers you. When you look at the breadth and the depth of the solutions and everything what we do we are hitting on all these strategic priorities will districts. So whenever we're sitting with a customer where walking with the weight with at least one if not five opportunities on the books.
Brent John Thill: Want to prioritize over the next 12 months an ear. So the more we are getting from customers. The more pipeline, we're seeing and that's why we are continuing to invest in our coverage model.
Speaker Change: Thanks Arnie.
Brent John Thill: Yeah.
Brent John Thill: The next question comes from Stephen Sheldon of William Blair. Please go ahead.
Stephen Hardy Sheldon: Hey, you've got to have that going on for Stephen today. So my first question you announced a nights of knowledge win this quarter and I just wanted to ask for a win like that.
Stephen Hardy Sheldon: Is the implementation burden is that any heavier than it would be for a customer domestically or does that require any additional customization of your existing platform to go live with a customer like that.
Speaker Change: Yeah, Patrick when you look at the international there are couple of models, one is the especially with the that.
Patrick: Deal, where b M E, which is one of our partners involved they will be actually doing some of the implementation elements of it as well. So that's the reason why we have such strategic these partnerships, where they're providing the local support and services provided an oversight and but some of the support from our global as well as our India implementation teams.
Patrick: Second in terms of the localization questions you have we actually do already have translated our students' systems of oncology for the full middle east or Arabic as well less left to right.
Patrick: And right to left for the Middle East region, including localization of calendars and other elements, which are also in the product. We already now have local schools not just international schools, but actually local schools, who are implementing golar S. I S as well as collagen and the middle East. So the localization element has already been the investments, which we have done over the last year.
Speaker Change: Yes, but the actual implementation of that will be supported through partner and we do have extensive partner network in the region, including the <unk> carrying the majority of the loan.
Speaker Change: Okay understood and then just as a follow up to that under that partner model and with some of those.
Speaker Change: Additional customization will call them, you know I know.
Speaker Change: It's early but just generally as you scale outside of the U S are there any considerations, we should be thinking about with the price point of your solutions, there or you know the margin profiles.
Speaker Change: All of them internationally.
Speaker Change: Yeah. So Patrick two things one is that one of the big differentiator for our student information system is that the level of extensibility bolt from actually how you.
Speaker Change: Viewed application configure the application they put different rules different attributes as well as integrations to other systems and local elements. That's why we've been so pervasive in North America across all states in Canada across all the provinces and even also having CIS deployments at almost 80 to 90 countries.
Speaker Change: So doc inherent.
Speaker Change: Level of Configurable T is actually very easy and built into the product that is a big differentiator in terms of the margins. We expect that your middle east to be very close to the price points. We are seeing is very close to where it would not make appointed but theres. Some adjustment of GDP pricing. We do we do see the Latin America, and India regions to be a little bit more lower price point. So we have built.
Speaker Change: Of our support service.
Speaker Change: And hosting models based on the local pricing, so where margins are not dilutive even as we are expanding to international.
Speaker Change: Okay, Great. That's all really helpful. Thank you already.
Speaker Change: Yeah. Thanks Peter.
Speaker Change: Our next question comes from Gabriele <unk> of Goldman Sachs. Please go ahead.
Gabriele: Hi, this is more on for Gabriela Thanks for taking the question.
Speaker Change: On the power body products, they seem like a really exciting pipeline.
Speaker Change: There's a lot of interest rate and can you talk a little bit about the build out for power, but he capabilities for the 'twenty 'twenty four 'twenty five school year, and if theres any focus specifically given customer demand.
Speaker Change: Yeah. No. This is a really exciting because you can imagine the opportunity here for power body for us is to transform the entire experiences and we are such a unique position because we have such a huge installed base. We have understand everything about the student what's happening in the classroom, we would able to personally.
Speaker Change: Elisa and contextualize you end up.
Speaker Change: And says I've been leveraging genuity, while I make then conversational, but then also embed them into our solution. So they are easy for districts to adopt so there would be pretty much a power Buddy element to every one of our solutions. We've launched it in school Aegean performance matters they'll get powered body for talk to your data and your unified insights, there's a poverty for customer connect.
Speaker Change: Intelligence. So we can bring even district rest of the data and allowed them to be able to easily search and be able to have a conversational elements to those there's poverty within navios switch would help them with college and career planning, but talent to help them with coaching and mentoring as well as at my public schools parents and students can engage and ask any question. So we've pretty much.
Speaker Change: But he is gonna be pervasive part of our all platform supported by one power body, which is also a big differentiator because you're not going to have any you know they're all other niche providers are not going to have the broader breadth depth of understanding and personalizing, but also having being able to embed that into these different applications not only just creating us.
Speaker Change: Huge amount of additional time and costs for poverty.
Speaker Change: AI component, it's actually making of our core platform, even more different sugars, we're actually seeing more sales of her talent in school Digi and assessment platform. Thanks to power Buddy because it's helping us differentiate from some of the niche solutions, who don't have adult each or haven't invested and strongly and having a more comprehensive AI platform. So we do think.
Speaker Change: This allows us to really address a lot of the value for districts and supporting all of these different elements, whether they are trying to provide interventions or help but also improve over solution than experiences and making them even more to for sure. So it is going to help us even improve our cross sell growth off our existing platform.
Speaker Change: That's helpful color, Thanks, and sticking with the power, but he products can you talk a little bit about the pricing models, and how youre thinking about pricing for teachers and students.
Speaker Change: As parents and expense.
Speaker Change: Yeah, absolutely we shared this isn't about Investor day that we are looking at car bodies to be about you know when you think of it from the value to make such that these are bite size or districts can start adopting them more quickly so.
Speaker Change: So we have a par birdie for you know ive set for each of these solutions, which would be about three to $5 per student.
Speaker Change: But somebody wants a full platform that would be in the range up almost 30 40 to $50 per student.
Speaker Change: We are seeing that price points to be pretty attractive given.
Speaker Change: Overall, we are seeing the market and we do think the value of the equity we actually are getting a pretty good response on those.
Speaker Change: Great. Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Koji Ikeda of Banc of America Securities. Please go ahead.
Speaker Change: Hi, This is George Mcgreevey and not for Koji. Thanks for taking my question.
George P. McGreehan: You know I've, just kind of wanted to ask in terms of the international markets that you guys are in kind of on the competitive front you.
George P. McGreehan: You know how would you say.
George P. McGreehan: The competitive dynamics in your international markets or are kind of different from what you see domestically.
George P. McGreehan: Yeah, George when we look at the market, especially where we are focused on like the Middle East Latin America, and India, We don't see a clear leader, which has established these are untapped market. There high growth population growth areas. There's a lot of investment going on in creating new private schools given some of the government schools are putting better.
George P. McGreehan: Infrastructure and what one of the reasons, we have prioritized. These regions is that there is no clear leader and no even but you do see some other niche solutions. They don't have the full platform and as you can see from these deals when these districts or private schools or even national schools are looking at it they want the platform. They want a student system. They want an L M.
George P. McGreehan: They want our ability to do it enrollments they want analytics, they wouldnt want college and career planning and we have a.
George P. McGreehan: We have a unique for a company even globally, which has the full depth and breadth of the platform with best in class and that's why we're seeing a lot of great opportunity one of the Big thing and I think also we see them in the pipeline, we have literally country level opportunities. So we definitely see that should be a big differentiator I think some of the more mature markets like Western Europe, especially U.
George P. McGreehan: Can all they are established players, but those are also the markets, where we don't see a very high level of growth either.
George P. McGreehan: That's why we are investing in these high growth areas, where there is not much of a strong competition.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Rich Hilliker of UBS. Please go ahead.
Richard Myron Hilliker: Hi, Thanks for taking my question.
Richard Myron Hilliker: The first one for Eric.
Richard Myron Hilliker: In the past we've talked about the 3000 to 50000 student segment.
Richard Myron Hilliker: And how that's an important driver for organic growth moving forward I'm wondering if we could talk a little bit or if you could give us a little bit of color on how that segment performed in the quarter any color or any metrics would be really helpful.
Speaker Change: Thanks, Yeah, and just kept thanks rich just for everybody's benefit what rich is referring to is our enterprise customers right. These are the 3000 to 50000 students and then obviously.
Speaker Change: The larger ones in that or the strategic.
Speaker Change: That actually it has performed quite well and I can talk both from a retention standpoint as well as the bookings momentum standpoint, you know as you. All can appreciate our first quarter from a renewal standpoint is a is a low point for just renewals volume are rentals volume really happens in Q3.
Speaker Change: But what we are saying is you know good retention rates with the enterprise segment.
Speaker Change: As our teams are working on the upcoming renewals they are partnering with the sales teams.
Speaker Change: From that as Hardeep mentioned, you know, there's a lot of good opportunities within that segment and we've we've made some sales changes with some of the leadership team over the past year on that and what we're seeing both in terms of bookings as well as pipeline that is a very.
Speaker Change: A good segment for us and will continue to be a nice contributor as we kind of look you know as we go through the rest of the year.
Speaker Change: Okay, great. Thanks for that helpful color.
Speaker Change: My next question here.
Speaker Change: Given us a lot of helpful details around what customers are interested in adopting and how your broadening your portfolio.
Speaker Change: One remark was that you have the strongest cross sell ever in a Q1 I'm wondering if we could more pointedly talk about which specific products drove that or if there's any sort of commonality or trends that you could just re highlight for us. Thanks. So much.
Speaker Change: Yeah, I mean, so I'll I'll start rich on that so you know as we announced our Indiana Department of Education, you know, it's actually our largest special programs opportunity that we've ever had in the company's history.
Speaker Change: But that is an existing customer. It is you know a large cross sell opportunity for US you know from an IRR perspective, well over $5 million on that it you know that this is the largest cross sell we've seen obviously, indiana being a big contributor to that but even back to you know some of the prior comments I made we did see.
Speaker Change: This momentum across our enterprise segment, as well and I don't know hard even if there's anything unless you bad yet what typically what we see rich is that every one of our products would actually have deals in many of the quarter. So when you look at our crossover entire 20 plus products there'll be always some deal happening on every one of the products right. So whether it's unified insights.
Speaker Change: Navios each of the talent products each of the areas of CCR, There's always multiple cross sells happening for us and that's the exciting part of it is just the breadth and the depth of the volume of the cross sell would be doing the any quarter.
Speaker Change: Our next question comes from Joe Ruing of Baird. Please go ahead.
Joseph D. Vruwink: Hi, great. Thanks for taking my questions I wanted to go back a little bit to the conversation around pipeline.
Joseph D. Vruwink: Seems like you've gone through kind.
Joseph D. Vruwink: Have a more robust grading and validation process around pipeline when.
Joseph D. Vruwink: On the outside but again, we look at your guidance for not just this year, but also the midterm framework does that embed a certain conservatism maybe conversion rates below prevailing trends just on the potential that schools becomes distracted when trying to finalize budget decisions into the next school year and then.
Joseph D. Vruwink: Similarly, what about the forward gross retention assumptions that you've baked in for the mid term forecast.
Joseph D. Vruwink: Yeah, Joe It's Eric Let me, let me start and then Hardeep can add in in terms of the guide you know.
Joseph D. Vruwink: As you all can appreciate and have seen over the last several quarters.
Speaker Change: Large deals will drive quarterly variability.
Eric Sander: But yet you know as we look at the full year achievement right. We're certainly very firm on where we believe we're going to and from a full year. So what's your really kind of thing is you know just us kind of recalibrating a little bit just in terms of some potential larger.
Eric Sander: Deal variability, but yet you know reaffirming the full year. So that's all you're seeing in the guidance that we provided and then just from a gross retention standpoint.
Joseph D. Vruwink: We continue and you know like I said, you know Q1 is our lowest period from a renewal standpoint, but yes Q1 was very successful, we're obviously ramping up through Q2 for our Q3 period.
Joseph D. Vruwink: And the early signs are extremely positive there as well so I would just say that there isn't anything that we've seen to date that has us concerned that we're you know that we're going to see something unexpected.
Joseph D. Vruwink: And I guess the other part of your question on just the different trends, what we see right. I think this is the beauty of our business. When you look at compare to a niche solutions right. They might have suddenly a growth and suddenly that particular area of demand has been impacted for whatever reason they might slow down and then come back up right, but what happens in our solution is because we have.
Joseph D. Vruwink: Pretty much selling to all the different mission critical elements all the critical software elements as well as with our data products pretty much impacting the entire decision making for these districts. We see a lot more consistent result, now southern products might have up and down depending up on an area. We've mentioned like classroom was a bigger growth area for us and backing the 20 <unk>.
Joseph D. Vruwink: One area data and then data picked up the all that demand and we saw a lot more growth out of the data products. So we will see some variations I think this is what we are highlighting is when we look at this here right. Some of the big areas of focus as you mentioned like budgeting as there is a big area and that's why you still see the demand for our data products demand for.
Joseph D. Vruwink: For all of your products is top of mind as they continue to look at how do they improve attendance. So they can improve their funny, we see a lot of demand for our attendants intervention or MTS test to help.
Joseph D. Vruwink: Provide the intervention support as well as the word communications. So they can actually engage so these are the kind of think this is what we are able to have the front row seats, but this district on their strategic priorities and the broader neat that allows us to both invest our innovations as well as other acquisitions to golar. The top priorities, we've seen the trend has.
Joseph D. Vruwink: That full view across the nations with 80% of the school districts and sitting in front of the Superintendency iOS Academy.
Joseph D. Vruwink: Cutbank advisors, we are able to get that view, which allows us to make sure that we're sales motions over sales players over marketplace and a lot of innovation is all aligned to where we see the priorities and that gives us that robustness of demand what you don't see in other kit catch all players because they don't have that mission could validate solutions and they don't have the breadth and depth of the V.
Joseph D. Vruwink: And the coverage model.
Speaker Change: Okay. That's great and then I wanted to actually ask about al have you Oh, that's a good brand and it's come up a couple of times on this call.
Speaker Change: What sort of financial impact might that have had in the quarter and maybe the full year and then is that all going to be it in software or is there actually kind of a consulting or a services component to that business as well.
Speaker Change: Yeah, we've already closed a couple of deals like Chesterfield and Columbus, but largely this is you know we have.
Joseph D. Vruwink: Built into our models, what you guys have shared with the guidance when we give the full year guidance, we already have that visibility.
Joseph D. Vruwink: This is gonna be are what I would tell you there are some you know.
Joseph D. Vruwink: I wanted to lodge, a big services deal in the pipeline as well if there are those things we will let you guys know, but largely this is again most of our base business.
Speaker Change: Okay, great. Thank you.
Frederick Christian Havemeyer: The next question comes from Fred have a Myer of Macquarie. Please go ahead.
Frederick Christian Havemeyer: Hey, Thank you very much for fitting me in here I wanted to begin on competition.
Frederick Christian Havemeyer: There's been a couple of points out there about infinite campus and others in the core S. I S space. So I wanted to just drill into U S. I guess in particular in house.
Frederick Christian Havemeyer: With that at this point is the largest market shareholder market share leader in North American S. I S. K 12.
Frederick Christian Havemeyer: Are you seeing and there aren't any major changes in the competitive landscape.
Frederick Christian Havemeyer: But as I mentioned right, we are still the clear market leader with more than double the market share of our nearest competitor. We are best in class. If you look at the deals like stride, which is a public company, which decided that eisai solutions, Puerto Rico, but if you look at it from a perspective of Toronto Public School. These are major districts, which looked through all.
Frederick Christian Havemeyer: The different competitions on selected us as an as high as of our gross retention, but you know our top class. So you know there they would be deals where we might lose one or two deals, but when you look at from the other win rates, we've been more than we lose and we are all you know we are definitely in terms of capabilities. The most modern solution and the rest of our platform gives us even more differentiator.
Frederick Christian Havemeyer: Our size because we we allowed them to integrate with all these other pieces.
Speaker Change: Thank you Archie I.
Speaker Change: I wanted to then also asked about.
Speaker Change: Multi product adoption as well if that's something you gave quite a bit of good detail about actually back at the Investor Day. This past fall and as I recall, I think 46 plus products customers were among your fastest growing groups of customers. So I wanted to ask I guess two parter here. Firstly, what are you seeing in terms of multi product adoption and.
Speaker Change: How that's trended since the analyst day, and secondly, now as we're going into the primary bumped up the K 12 buying cycle are there any major products or pinpoint in particular this year that you think or are of particular importance going into that.
Speaker Change: June purchasing time frame.
Speaker Change: Yeah, Fred that wouldn't be ranked analyst as we pretty much seeing the similar trends to what we shared with us So theres not a major update the trends on the growth on cross selling multi product that's pretty similar to what we shared we happy to share that in maybe the next earning calls or later this year about a little bit more update on that so you guys can get a little bit more full year over your view on that as well.
Speaker Change: What we're seeing is the we are seeing more suite and cloud like all the different pieces. Similarly, we are seeing a lot more interest on the full talent cloud as well as the data product integrated with that so those are definitely the areas of the cloud we are seeing the highest growth.
Speaker Change: Great. Okay. Thank you very much.
Speaker Change: Yeah.
Speaker Change: The next question comes from Ryan Macdonald of Needham and company. Please.
Ryan Michael MacDonald: Please go ahead.
Ryan Michael MacDonald: Hi, Thanks for taking my questions fully realizing that obviously as you said very clearly that essar is not really a beneficial a beneficiary for your business and it is of course, then wanted to get a little bit creative on on maybe potential impacts here and it relates to power Buddy.
Ryan Michael MacDonald: It's great to see obviously, you're starting to see all that success in the automation, but one thing we keep picking up from districts and schools that we talked with a lot of this spending was additional.
Ryan Michael MacDonald: Additional funding was spent on staffing and in a in 2025 that staffing is going to be challenged from those budgets because of that one time spend is that acting as a driver of maybe schools and districts looking for more automation around power Buddy to make.
Ryan Michael MacDonald: The fewer <unk>.
Ryan Michael MacDonald: So they have more effective a more streamlined just anything around that thanks.
Speaker Change: Absolutely I think you've touched on a key point here is that when you look at from our perspective, and whether they're putting supplemental content, they're true trained theyre, putting helping interventions. It's very hard to reach every student based on the need and in fact, one of the logical districts gave us the data point is that there's been tens of millions on tutoring and the $10.
Ryan Michael MacDonald: The kids, we actually used it they need it and the 40% of the Kid, who need it had never even touched it and they would never able to they were able to engage with them. This allows them to provide the just in time contextual help and tutoring as well as overall support and assistance to every students. So they can now optimize their overall spa.
Ryan Michael MacDonald: They're putting on supplemental contract services and everything this allows us to tap into almost a thousand dollar per student and help their providing today and we'd be able to have more surgical and more effective way to do that this is why it's expanding over time. It's also a lot industrial and differentiate and help it disrupt the broader kits withdrawal market.
Speaker Change: That's really great gear I appreciate the color on that already but maybe just as a quick follow up for Eric as power Buddy.
Eric Sander: Continue to have more success with that we already talked about the pricing, but is it priced at a point, where that's it would we should expect it to be gross margin neutral neutral if not accretive.
Eric Sander: Yeah. So what I would say Ryan is you should assume that it will not be dilutive. We have designed it such that you know there are certain elements that we've kind of put in the pricing such that you know some of the calls into the AI algorithms.
Eric Sander: There they kind of get cap, so that we don't get into a situation, where there's a high volume of calls in there that are causing our cost to get out of whack. So the way that we've set it up now is that it'll be very similar to the the current margin profile that we have and you know look the this technology is is as you know expanding quite rapid.
Eric Sander: Leigh Anne and whatnot. So as we continue to kind of look at all of the different AI algorithms and the you know the the open you know some of this open source possibilities. We do expect these costs to come down so at some point I would say, yes. It can be accretive, but you know what I would say in the short term here short to medium term just assume that it's going to be in.
Eric Sander: With what our current margins are our biggest focus candidly was to make sure that it was not going to be dilutive to the margins.
Speaker Change: Excellent I appreciate the color. Thanks.
Speaker Change: Yeah. Thanks Ryan.
Speaker Change: The next question comes from Brett Knoblauch of Cantor Fitzgerald.
Brett Anthony Knoblauch: Go ahead.
Brett Anthony Knoblauch: Hi, guys. Thanks for taking my question, maybe just on AI.
Brett Anthony Knoblauch:
Brett Anthony Knoblauch: You guys are talking to customers I guess, how big of a focal point is that in every conversation.
Brett Anthony Knoblauch: Is that a driving factor in winning deals I guess, what's the add on rate that you have seen isn't as good or better than expected.
Brett Anthony Knoblauch: And let me just some commentary on what you think that the revenue opportunity, where the AI related products.
Brett Anthony Knoblauch: Maybe not this year given a lot of it just went GA, but as we look to next year and in 2026. Thank you.
Speaker Change: Yes, Brett so I think you'll be surprised how many of the conversations actually are front and center as I mentioned, we are doing a luncheon series almost 40 plus across the nation. We started in Q1 and going into Q2 and pretty much in Worsley, what we're running a campaign called get ready for AI and what we're seeing is that the participation in the number of districts.
Brett Anthony Knoblauch: Almost 70% 80% of these audience have already formed AI committees. The teachers are already using some open source versions are because they are worried about their data privacy and security because what is being loaded. There every district data is that risk so with our strategy with connected intelligence, they're able to get really photo I bet, giving better data.
Brett Anthony Knoblauch: They can bring out of the data rather than taking their data to the eye. But then also they are using these different elements to start improving the efficacy we were talking about just in the last cushion. So we are seeing this to be front and center for a lot of the leaders and that's why you see such a exciting pipeline and the growth opportunity. There. We are expecting the revenue I shared this little bit in the last year.
Brett Anthony Knoblauch: Last we are lost.
Brett Anthony Knoblauch: Earnings release is that we do expect this to be in few millions of dollars of revenue for us this year already but really doubling up from there into the next year. So we do expect this to almost become a material business for us in the next few years.
Speaker Change: Thank you so much really appreciate it.
Speaker Change: Thank you.
Hardeep Singh Gulati: This concludes our question and answer session I would like to turn the conference back over to Mr. Gulati for any closing remarks.
Gulati: Yeah. Thank you operator, thank you again, everyone for joining us today, our team delivered a strong start to 2024 and a continued double digit growth margin expansion and excellent innovation momentum with the launch of her products.
Gulati: As you can see our business fundamentals remain strong and robust we provide sticky mission critical software products to a stable and beautiful kit to trail end market of our cross sell engine continues to drive repeatable sustainable growth and we continue to win new logos innovation in the areas of data is a top strategic focus and I'm thrilled about.
Gulati: The success with par Buddy as well as the opportunity ahead of US. We also continue to execute thoughtful and timely M&A such as our latest acquisition of all of you with financial planning and budgeting software as a top of mind concerns for district, and we continue to build out proof points in key international market that will support our long term growth.
Speaker Change: Look forward to updating you on these key strategic growth drivers in the next quarter. Thank you again, everyone for joining today.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].