Well, hey, good morning, everyone. Welcome to day two of the Barclays Tech Conference. My name is Saket Kalia. I cover software here at Barclays. I'm honored to have the team with us here from PowerSchool. We've got Eric Shander, CFO and COO. Also have Shane Harrison somewhere. Oh, there we go. Shane Harrison, head of investor relations, here in the audience. We've got about 30 minutes together. Let's take the first 20 or 25 minutes just to do some fireside chat with Eric. Sure. which I know is going to be fun. And then we'd love to make this interactive. Anybody that's got a question, just pop up your hand, and we've got a microphone on the back. So maybe, with all that, Eric, thanks so much for being with us here today. Sure. Absolutely. Yeah. Pleasure. For sure. Eric, a lot to be proud of from PowerSchool, kinda coming out of Q3. But just maybe before we dig into those results, I wanna spend some time on that. Just for people in the room who may not be as familiar with PowerSchool, can you just spend a couple of minutes giving us an introduction to this vertical SaaS business? Sure. So rightly said, we are a vertical SaaS platform. I think the one thing, and if any of you have children, most likely, whether you know it or not, you're probably your kids or yourself are probably using and engaging with PowerSchool. But the easiest way to think about PowerSchool is we run the critical mission-critical systems that are the backbone for schools. We do not do content, so we're not. So this is why we kinda differentiate ourselves a little bit from EdTech- Absolutely ... because we're, we're not a content player. We. Some of our platform does rely on content, which we get from third parties, but we are, you know, really a vertical SaaS, company. The great news with, you know, the end customer, if you will, very durable end customer, and, you know, the profitability of the company, given our PE heritage, we're, you know, in the low 30% range, and we see continued, you know, momentum beyond that. So it's a durable business, great end customers, and it's a mission-driven company providing, you know, really critical aspects. And I think that one thing I would say that just differentiates PowerSchool from... You know, as you look at the education space, and many of you probably have seen this, there's a myriad of players out there, but we're the only one that actually has, and we've spent the last eight years building a platform, servicing in the classroom, the administrative part of the, you know, the entire ecosystem. We've really been conscious around getting all of the capabilities put together and really kind of streamlining the experience for the administrators, for the children, and obviously for the parents. Yeah, absolutely. Definitely a broad platform for this vertical. You know, I'll go one step further and say, I think PowerSchool touches something like 70% or in that range of- 80%. 80%? 80%. 80%- Yeah, so ... of K-12 students in North America, which is just staggering, if you really think about it. So very helpful background, Eric. So I want to dig into Q3 a little bit. Sure. Right? Great quarter all around. I think we beat on net new ARR, EBITDA, as we've seen so consistently from you folks. What are some of the things that you and your team were proudest, proudest of, kinda coming out of Q3? Yeah, I mean, look, so we continued to, you know, deliver on the revenue expectations that we set externally. You know, we continued to really do a great job from a cost management perspective, delivering the, you know, profitability. Cash flow was above the—even the external expectations. So I think from a financial standpoint, we're just, you know, we're firing on all cylinders. From a business, you know, level, I mean, we've got a lot of momentum that's happening. You know, one of the things, and you, you'll continue to hear us talk about these larger deals, and larger deals, while they create a little bit of variability from quarter to quarter, they really do kinda represent, if you will, the strategic nature of, you know, the company and just the fact that the platform is really resonating with, you know, the districts and the states. So, a lot of business momentum and, you know, it's, it's showing in the results. And, you know, like I said, we're, we're super excited about, you know, finishing strong in 2023 and setting up for a great 2024. Yeah, absolutely. Just to add on to that, I mean, I think we signed some... I think it was state of Florida. State of Florida ...... Q3 and prior quarters, it was really the. It was Puerto Rico. I mean, these are some. These aren't just districts. These are entire school systems- Yeah ... right, that we're signing. So- Yep Great to see the momentum continue. You know, I wanna talk about some of the recent developments, or relatively recent developments in just the K-12 vertical a little bit. You know, one of your competitors, in one segment of your business and structure, I think in its last earnings call, called out maybe a little bit of an increase in K-12 activity as we sort of get closer to this funding deadline around ESSER, right? And so maybe just for the benefit of everybody in the room, can you give us a little bit of background on what ESSER is, and how this could benefit PowerSchool, if at all? Yep. So I think it is important for the background, so for those of you who aren't familiar. So ESSER, this was the emergency funding that, you know, during COVID happened, and a lot of it was really geared towards infrastructure and addressing the learning loss that, you know, schools were facing, and the nation is facing. So it was $180 billion that was earmarked. There's still about one-third of it that has yet to be spent. A good part of the first third was really spent on things like infrastructure. Think of this as air ventilation systems for schools, right? You know, post-COVID, there was an increased focus on making sure that HEPA systems and stuff like that have been implemented in schools and whatnot. And then what you're now seeing is this last third is really oriented towards the impact on students and being able to actually demonstrate that we are kind of bridging this learning loss. Because, you know, there's some statistics out there around children, and, you know, some of you who have kids may have even experienced this, is kids are behind from where they were, and a lot of this is really related to going remote and all the situations related to that. Absolutely. So there's a big focus on social and emotional well-being for children, the assessments and this learning gap. This remaining $60 billion, if you will, we have never put it into our growth algorithm. And if anything, we view this as it just de-risks our growth profile. So it really, you know, whenever we do see where the funding comes from for particular deals, it's typically, if there is ESSER funding in there, it's typically 10% to 15% of a deal. I would be worried if we had deals that were 100% ESSER funded because we are a subscription business, and, you know, when the money runs out. Sure. So, so basically, schools have until September of next year to either earmark it or spend it. So, there could be a flush through of this. And if anything, you know, we'll, we might see some incremental services, one-time services activities. But again, as we've kinda, we'll set our guidance for next year, and as we look at our growth algorithm, we're not, you know, we're not relying on it. Yeah. We don't need it. Sure. But it could be some potential upside, as we see those dollars. And there have been studies out there, too, that indicate, McKinsey has indicated, could be up to 40% of that remaining that doesn't ever even get spent. Oh, wow! We shall see. Absolutely. Well, listen, first of all, $60 billion is a big number, but, you know, I think Hardeep has also talked about how this, you know, you're not reliant on, on this, but I kinda think about it almost as like an invisible hand that seems to be, you know, helping deals progress, if anything, right? Sure. Which isn't necessarily happening with a lot of my other enterprise companies, so very, very helpful, very helpful background. I'd love to dive into some of the products and product families here. And Eric, I believe the business is really split into three key product families. You correct me here if I'm wrong, but it's Unified Classroom, it's Unified Talent, and the Student Information or SIS, for short. Could you just give us a broad brush, roughly how big each segment is and how the growth across those segments maybe differs, if at all? Sure. So, let's start with the biggest. So if you think about our Student Information System and enrollment business, that's about 50% of our ARR, and it's growing slightly faster than the company growth rates. And if you think about it, that's pretty impressive because we have one-third of the market share within the student information system. Yeah ... space. The next three competitors have a third collectively, but that 40% is really a continued opportunity for us. Right. Because what's happening now is, you know, post-COVID, a lot of superintendents are faced with things like cybersecurity. They're faced with the fact that they're, you know, running on antiquated technology that they know is at risk. So they either have to invest in that, or they come to a more, you know, robust platform such as PowerSchool, which is why we've been a beneficiary of the growth rates. And then as you think of we say being in the classroom, so our classroom products, think of this as LMS, our assessments platform, you know, that is 25% of our ARR. And again, that's growing in line with the market rates. So I would say it's, you know, low to mid-single digits, overall. And then when we have our, in the last, which we call, you know, the administrative side, you know, in the back office, so it's gonna be your ERP and your talent, that's, you know, that's growing in the low double-digit range as well- Mm-hmm ... and that's 25%. So it's 50, 25, and 25. Got it. Got it. So- I wanna dig into each of those because I think there's just a really fun, unique story in each one. But I wanna start with SIS. Maybe you touched on this a little bit, but I think one of the things that's just surprised us has been, you know, I would argue, somewhat dominant share and also a relatively established market, but you've actually seen good growth in SIS, you know, which kind of implies just continued market share gains. What's driving that? I wouldn't have expected it. It's been great to see, but what are your thoughts on maybe what's driving some of that? Sure. So, you know, as you think about the student information system, and, you know, the United States, every single state has different regulatory compliance for how, you know, how the individual districts get funded, okay? And what comes out of this is, not only does it house all of the most important information for children and the attendance and the grading and all that, but it also has all the compliance reporting for what the districts need to get their funding. We started out as a student information system company- Yeah ... many, many years ago, over 20 years ago. So we have a dominant, you know, nature there. It is a very big competitive moat—I mean, over the years, we've spent, you know, hundreds of millions. But, you know, to my point, that 40% of what I'm gonna call either, you know, homegrown, state-specific, or, you know, underinvested technology is an opportunity for us because in a—Hardeep's hosted many customer meetings where, you know, the biggest issue on a superintendent's mind is cyber risk. And interestingly enough, there have been more cyber attempts on schools than have been publicized. So it is a big issue. Really? It has really resulted in that particular part of the business growing faster than the company growth rate. So... We continue to see, and you mentioned Puerto Rico earlier. You know, this was 250,000 students. We completely modernized all of the, you know, the districts within Puerto Rico, you know, in their student information system. So, I mean, we are also seeing large deals in this space. Yeah. You know, that's really interesting. I feel like I've heard Tyler Technologies, right? You know, a little bit more of a desire for government or public sector customers to sort of modernize their systems, right, from cyber, you know, from a cybersecurity perspective. Mm-hmm. So that actually jives. That's really interesting. Maybe if we move to Unified Classroom here, Eric. I mean, I guess as students go back back to school, you know, what are you seeing in terms of demand here for Unified Classroom? You know, I think all of our kids were using something, right, during COVID that was, you know, that was on their laptop. But do you feel like customers you know see the need to replace maybe some free solutions like Google Classroom for something more robust, right? Like Schoology. Yeah, so it's an interesting question because as you think about the LMS, obviously during COVID, we saw, you know, tremendous growth rates. And, you know, both us and our next biggest competitor Instructure, you know, our product is called Schoology. Theirs is Canvas, right? Very, very comparable products, very competitive in the marketplace. We, you know, by student count, we both have equal market share. You know, during COVID, we were adding, you know, several million students a year. We're now back to what I would say, pre-COVID growth rates. So if you're adding 1 million to two million students a year, both us, you know, and Instructure, very comparable rates. So I think you're seeing it moderate back. But you know, the question around Google Classroom is an interesting question because Google Classroom, it's the delivery element of a learning management system, right? It's how your kids are engaging with, you know, their classes. But what it doesn't do is it doesn't send the grades back to the student information system. It doesn't do the attendance. It's not as robust a platform as a learning management system. Right. So I think this is where, you know, as schools continue to understand the impact and importance of technology, this again, is one more, you know, opportunity for them to continue to modernize. And look, a lot of schools have seen— Yeah, they're going back in person, but they've also seen the value of hybrid, and they're also— and you're also seeing a lot of schools leveraging the ability to be able to do a hybrid-type format where, you know, you're in class, but then you also have this flexibility of being remote, too. So I think it's opened up a lot of avenues. So I would say we're seeing post, you know, COVID growth rates, but still healthy, business out there. And again, we are still, you know, you know, replacing things such as Google. But it's also interesting because our LMS platform will work with Google if for some reason the school district decides they want Google as an the end delivery, we can do that as well and really integrating with that. So it's it, it I think it's just, it's like anything else, especially with school districts, the number one thing that's preventing us from growing, you know, 20%, 30%, 40%, it's not that there isn't demand out there, it's not that there is an opportunity, but it's the rate of change that schools can absorb, right? Right. There's lots of teacher shortages that are happening. There's so many things that are happening in a school district that, you know, technology is one more element that has to be incorporated into that overall change management system that schools are dealing with. Yeah, sure. Let's talk about the other side of the coin as kids go back in person to school, right? So we talked about sort of what I'll call more normalizing growth, right, in Unified Classroom. But the other side of the coin there is Unified Talent and Administration, right? And so maybe the question is: Are you seeing more interest in those solutions, just, you know, given that return to school... Does that make sense? It does. So our talent platform, so think of this as the, you know, the CRM for hire to retire, right? You know, it's everything from job postings to onboarding teachers, to professional development, to ultimately the retirement or off-boarding teachers. So it is a very comprehensive platform. Because of the teacher shortage and because of the just the demand that, you know, districts are having, we have seen, you know, an uptick there. This past quarter, we're super proud of the team. We won a competitive takeout from for the state of Florida, where Frontline, which is, you know, our probably most formidable competitor in that space. Mm-hmm. We displaced them for the whole state of Florida. Super proud of the work that the team did there. But even beyond that, we are seeing, you know, that particular part of the platform growing, you know, a bit ahead of the company growth rate. Again, a lot of this is really what's happening within a particular school district, which kinda drives the demand and whatnot. And for us, I mean, these are great opportunities for... You know, sometimes we even start with the talent, you know, platform, and then from there, we start selling other adjacent parts of the platform. Yeah. Yeah, definitely shows. Maybe staying with within the product areas or just maybe to put a bow on sort of this line of questioning. I want to talk about some of the recent acquisitions that we did, right? So I think it was SchoolMessenger as well as Neverskip. Can you just talk to us about how those solutions fit into those product families and any rough sizing financially that you could share on those? Sure. So, SchoolMessenger, for those of you who are not aware of it, it's a really comprehensive, scaled-up communications platform. As we kinda looked at, you know, all of the product capabilities that we've been either building or, you know, acquiring and integrating into the platform over the last eight years, communications was one of these areas that we you know thought was a big opportunity. Because as you think about today, whether it's mass communications or it's individual communications or it's, you know, bulletins, you name it, it's a pretty scattered environment in terms of all the different solutions that are out there. SchoolMessenger is a very scaled solution. From a profit standpoint, it's gonna be very similar to the PowerSchool profit profile. These next couple of quarters, we are making some investments in it as we're kind of embedding this platform into some of our newer products. And, you know, for us, as we think about communications, this is a part of the platform that, yes, we will sell it individually, but we're also embedding it across the overall platform ecosystem, because communications is gonna be super important for one of our upcoming products called MyPowerSchool. Has a single pane of glass for the student, has everything from their grades to the attendance- Mm. -to the communications, et cetera. So, and then just from a revenue standpoint, you know, just rough math, I would, you know, I would factor in, I know everyone's trying to figure out what it is. I mean, you know, just assume $10 million around that range. Mm-hmm. So. Got it. Very helpful, very helpful. Per quarter, that is. Right. Right. So call it $40 million a year. Yeah. Yeah, that's an important detail that I almost didn't include. Sorry. You know, I wanna get maybe deeper into some financial questions and maybe just preface. I mean, given the footprint that we have here in K through twelve, particularly in North America, you know, I think gaining wallet share has just been such an important part of the PowerSchool story just over the years. And that's the reason why I think this net revenue retention or NRR metric is just a particularly important metric here for PowerSchool. Can we just talk a little bit about how that metric has maybe ebbed and flowed? And I think it was a little bit lower last quarter, right? Yeah. Can you just walk us through some of the mechanics there? Because I think there are some explanations behind it, and just how you think about NRR in general. Sure. So let's first do the buildup of NRR. So as you think about our gross retention, you know, think of this in the low 90s, 92%, 93%, which is your gross - I mean, obviously, when you, when you think about things like SIS, it's gonna be much higher than that. Sure. But the overall platform is, you know, in your low 90s. You add a few percentage points for price increases that we have built into our contracts, so, you know, 3%-4%, and then you've got your cross-sell, which gets you to anywhere from 107-110. What you have is because this is a trailing twelve-month metric, you know, last year in Q3, we actually signed a large deal, a large cross-sell opportunity with Stride, that popped up that metric from 107.5-108.5. It was a full percentage point impact there. Mm-hmm. As that kind of rolls off, right, that's, you know, that's, that's in the calculation. Yep. And then we also have this large state deal that, you know, we've been working on for some time now. There was an expectation we were gonna close it in Q3. Had we closed it in Q3, that would have been another percentage point increase, which would have gotten you... Again, if you take those two, we ended up having 107.2, would have been 109.2, if you normalize all that. Oh, interesting. So, I think it's, you know, again, this is where what's important, you know, I've said as the company continues to get more strategic, deals are gonna continue to get bigger. What I'm not gonna do, and you're gonna continually hear me talk about this, is I'm not gonna incent the sales team to get a big deal closed in a particular quarter just to hit a particular metric, because I think you all know the only way you really do that is through discounting- Yep ... and that's just not healthy for the business. So we will see these ebbs and flows, and I think it's just important we're, you know, as in my prepared remarks, we're being as open and transparent with, you know, with everybody so they understand these metrics and what they really constitute. And I think, look, the net revenue retention from our standpoint is, I think, the comfortable range is anywhere from the 108-110+ range over the next couple of years. Yeah, absolutely. And listen, we appreciate that transparency. I wanna use that to maybe shift, shift gears to your long-term targets from Analyst Day, which, by the way, was a super helpful session for anyone that wants to- wants the slides. But, you know, one of the biggest takeaways, I think, from that session was this $1 billion revenue target in 2026, which I think implies roughly low double-digit CAGR growth, right? Which is really that steady eddy type of low double-digit CAGR is, I think, something that you and Hardeep have really been talking about for such a long time. We talked about sort of the importance of NRR, right? I think an important part of, or an interesting and an important part of that is also international. There's been so many strides here, international. Or I should say, seeds that have been planted internationally. Right. Talk to us a little bit about how international plays into that $1 billion target. Yeah. So today, if you look, international is about $10 million. So it's actually relatively small, less than 2% of the company. You know, over the next several years, you know, it's gonna still be in the calculation for the $1 billion. It's still very low double-digit contribution to that. So we're not reliant on international, but we do have some really, I think, helpful charts as you kinda see, both personalized education and international, as they start to kinda scale up in the out years, 2026 and beyond. So I guess, you know, said differently, the core business is really the main, you know, driver for what's gonna get us to that $1 billion+ by 2026. Yeah. and again, a lot of that is our cross-sell momentum, right? I mean, any given quarter, we're, you know, our cross-sell activity is anywhere from 75%-85% of the bookings, is cross-sell into the existing customer base. Yeah, when you've got an 80% footprint, right? Yep. Like, that's just a really good real estate. I wanna shift to profitability because I think it's been such a consistent performing part of the business since the IPO. Maybe the question here for you, Eric, is: Where do you see longer-term EBITDA margins, and do you feel like that target sort of gives you enough room to sort of continue investing in things like international or personalized learnings? Yeah. Talk to us a little bit about that long-term margin target. Yep. So, you know, as you look in, what we talked about in Investor Day, you know, this year we'll finish, you know, roughly full year, 33%, you know, adjusted EBITDA margin. Won't be any big surprise when you see the guidance for next year will be at least 100 basis points expansion. You know, we said every single year, that's the model, 100 basis points. The great thing about, you know, the company and kind of, you know, some of this comes back to our PE heritage, is there's a huge focus on cost management. You know, when I first came in, we spent a lot of time on the number of systems, the processes, I mean, just as a data point, when I first came in, PowerSchool itself was using over 1,000 systems, okay? We're down to just over 300, and, you know, we brought in a CIO, works for me. We, we streamlined it, we streamlined our processes. And the reason I talk about this is because, you know, in my experience, when you hit $1 billion... when you hit $500 million and you, and you start to continue to grow the company, you're not having to invest in a lot of the support functions at the same rate the company's growing, which gives you a lot of operational leverage. Some of that we offer back to the street, some of that we also invest in international and personalized education. So I think what's important is, while we're continuing to expand margins. It's not at the cost of us not investing in the strategic priorities, because we absolutely are, so. Yeah, absolutely. Boy, 1,000 systems down to 300, that's really something. Yeah. Hoping to get rid of your old right out. Yeah, I know. I know. I'm telling you, when I, when I first came on board, we got 1,000 systems, we got work to do- Yeah. But it was, it was fun work. Yeah, absolutely. Absolutely. You know, maybe the logical extension to this, right, is cash flow, right? Yeah. The cash flow generation. I think you guided to a long-term free cash flow guide of-- or margin, free cash flow margin, that is of 20%-25%. Talk us through that, you know, a little bit. I think that's great to see, and I think that's an important part of the story as well. Yeah. So, you know, look, cash flow is super, super important to me. You know, if you look at the financials, you'll see basically, you know, our interest expense year on year has basically doubled. Even having said that, our free cash flow margin will be at least flat, if not slightly up from where it was last year. So we're continuing to really manage that appropriately. As we go in the out years, you're gonna see efficiencies in our R&D expense, you're gonna see efficiencies in the capitalized software, that starts to trail down because the investments we're making today in a lot of the AI-related products and the personalized education products, as those come to market, we're not gonna be backfilling those with necessarily new products. So you'll see that come down. What's exciting to me is we'll be comfortably into the mid-20% range by 2026. It's not overly dependent, actually, it's not really dependent on interest rates coming down. Mm. So a lot of it is operational driven. And then obviously, as we start to really see the efficiencies in, you know, G&A, as we see the efficiencies in R&D, sales and marketing, you will see go up over the next few years as we continue to expand internationally, as we continue to add more sales reps, et cetera. So that's an area that we're continuing to invest in, but other areas we're able to get more efficient. And then we've got a great center in India that we're continuing to leverage. A third of our employees are there. Got it. Got it. You know, you mentioned interest rates, and we're talking about cash flow. So maybe a logical follow-up here is, I think PowerSchool has done a great job just delevering the business since the IPO, while really growing both organically and inorganically, you know, through that time. Maybe the question is, where do we sort of stand on leverage now, Eric, and where do you see that going? Yep. So, it's interesting, before, when we were private, we were more than 10x levered. We will finish this year at 3.5x net leverage. You'll see at least 0.5 turn improvement, you know, next year and then the following year. So we'll be—you know, as a public company, I really wanna be around 2.5x net levered. Yeah. I think it's probably the most healthy. I mean, the good news is, you know, we've got a really and stable customer base- Absolutely ... so, you know, we can, collections are pretty predictable. But even having said that, I just think, you know, I always focus on the balance sheet, and, you know, some of my peers don't spend as much time on the balance sheets as they probably should, but I do- Yeah ... and I think it's important. So we'll be around 2.5 times in the long-term model, and maybe even eke it a little bit down. Now, having said that, we are opportunistic, so if there is M&A over the next few years, you know, we may, you know, bounce up a little bit, but long term, you'll see us in the, in the mid-2 times. That's just good, been great consistency leveraging that we've seen since the IPO. Yep. Maybe a good point to end on is sort of the topic that you just brought up, right? Is M&A. And if you look, you know, while the company's been public, and even, of course, even before the IPO, I think PowerSchool's really been a leader of consolidating, right? In this relatively fragmented market. How do you sort of think about opportunities for M&A going forward? And just to tie that back to the long-term targets, do we need M&A to get to that $1 billion in 2026? Yep. So, I think it's important to understand our framework for how we think of M&A. So if you look at any of the acquisitions we've made, any of the acquisitions we've made have been partners in our ecosystem, meaning that, you know, we work with them today. They have a capability that we don't have, so they're part of our partner ecosystem. We know how well they kind of integrate in with our platform. We know the management teams, we know the, you know, how the technology, you know, how current it is, and we also know what customers, you know, are valuing from these particular assets. So I would say that our M&A strategy is very, very thoughtful in terms of the specific capabilities we want. Whenever we make an acquisition, we always do a make versus buy, right? Can we develop it ourselves? What's the time to market? You know, how much is it gonna cost? What, what do we think we're gonna generate revenues versus can we acquire a capability that's, you know, pretty good, that maybe we have to put some investments in it, but we can put it into the hands of a couple hundred sales folks- Yeah, go-to-market machine. So, I would just say that we'll continue to think about M&A. It's a very slight adder to the overall, you know, billion plus. Got it. So it's not... You know, as I look at the core business, I still think, and when we add in just the SchoolMessenger acquisition we just made, you know, we pretty much get there with that international- Yeah ... and personalized education, and that's where we set $1 billion+, because obviously- Yeah ... as we start to do acquisitions, that's where the plus comes in. Got it. Got it. Makes a lot of sense. I think that's about all the time that we have. Eric, thanks so much for taking the time with us, today. Yep. Really enjoyed it. Thanks, Saket. Appreciate it. Yeah. Thanks, everybody. Absolutely. Thank you.