Morning! Thank you for joining us at the PowerSchool Session at the Goldman Sachs Communacopia and Technology Conference. I'm Gabriela Borges. I cover emerging software here at Goldman. Delighted to have Hardeep Gulati, CEO of PowerSchool, on stage with me. Thank you for your time. Thank you for having me. So one of the things that most resonates with us about the PowerSchool story is the vision you have about the efficiencies, and automation, and success outcomes that software can drive in the classroom. And I think we're so early on in realizing some of those advantages. Talk to us about what the ideal PowerSchool of the classroom looks like. The customers that you have that fully embrace the potential for software to drive better learning outcomes, what do they look like? Yeah, great, question, Gabriela. So I think, as you said, there's a significant opportunity right now in terms of the technology adoption in the classrooms. If you look at universally, we still have a lot of learning crisis across the board on student outcomes, teacher, fatigue, lack of data and visibility, student engagement, equity issues. I can name, you know, dozens of, the challenges, school districts are facing. And one of the ways to really solve and really do it at scale is through technology, not just throwing more bodies at more funding. And, technology, when you look at from an adoption, it's still only less than 1%-2% of the total budget spent. Most of the other industries, technology is almost 8% or 9%. So there's a huge opportunity of leveraging technology to really improve the efficiency of the rest of the 98%-95% of the budget. And when you look at, to your point, an ideal, we already have, you know, more than a thousand customers who are using more than almost five or six of our products, where they're using it as a platform to bring together the different elements of how to run the school operations, to classroom, to talent management, to analytics, and being able to have one view to be able to do that. A great example of that is the entire state of Alabama, which actually uses 10 of our modules and across the entire state, so all 180+ school districts. They're able to have one, you know, unified way of really being able to understand where the kids are, engage them in the classroom, have the analytics, which they've just deployed now, to be able to see where they need to improve and where they need to support the kids better. That's just the start. As you start looking at all the different, to your point, where do we see this ten years from now? Well, not only do we see more and more of our districts, we are in front of 80% of the school districts with at least two of our module. We think in the next 10 years, we'll have more automation and adoption of technology across multiple of these areas. But we also have opportunity to really bring analytics, including AI and personalized learning, to be able to support these districts in the next 10 years, and that would be definitely the game changer. Absolutely. Okay, so when we do due diligence in the education supply chain or the education decision makers, you have examples like Alabama, where the advantages are so obvious. How do you navigate the buying process and the change management process to get more of your customers looking like Alabama? Absolutely. So I think that typical in education, one of the biggest reasons for that option is: how do you really make sure the technology is not being disruptive to the classroom, to the teachers, and parents, and students? How is it additive and actually improving, not just throwing another technology, which could be a little bit more cumbersome, right? So how do you manage that change management, and how do you do that in a way that it's an integrated, unified technology versus here's another app, here's another resource? Because, you know, most of our school districts, and we did a survey with our school district, on average, they use a teacher actually uses 15+ different systems. And in fact, 50% of the admin, teachers' time actually goes on administrative tasks versus actually teaching in the classroom. So think about 80% of our $700 billion we are spending in education is around teachers, and 50% of that is going to administrative tasks, which can be automated and improved, which will improve quality of life for teacher. We can retain more teachers, attract more teachers, and improve education outcomes. So technology is a huge ROI, and that's how we actually approach that inertia and the change process, by showing how much value we're creating to the rest of the budget in terms of improving that and making their rest of the investments more effective. As I think about catalysts that could cause that process to be faster or slower than it has been in the past, one of the hypotheses that investors have had is COVID was a big catalyst. Mm-hmm. Do you think the changes that we saw in how classrooms approached technology during COVID are structural, or have you seen signs of willingness to invest in technology fading post-COVID? It's a very important thought, and I think the way we have seen post-COVID is that COVID has been a step function change in the growth factor. So I think we already had a very strong tailwinds on technology adoptions with demographic changes, the learning crisis we talked about, the need for technology to improve the lives of teachers and students. But with the COVID, it almost became a table stake that you cannot... no society, no economy, even globally, can work without having kids in school, because that means disruption to the parents. So how do you handle disruptions? It also exposed the lack of data to be able to understand where the kids are. A lot of the kids. There have been reports almost in the paper almost every week. It talks about, "Hey, we have issues around learning gaps. Kids have fallen behind. We have social, emotional issues the kids have not recovered from." We are seeing a drop in attendance in a lot of the schools, and especially in the urban school districts. Where are those kids? So COVID also created an exposure that how much, not only our systems in education are not able to handle the disruptions, and how much technology will help them solve those problems and make it more efficient to even deal with a hurricane gap, or how do you deal with, you know, the hurricane, and you have school shut down or snow day? How do you make that almost like a normal? That's something you should expect the schools to do. Plus, the data elements of the visibility. So what we've seen is a huge adoption curve change and growth curve change. Gartner talks about the growth has increased from what used to be 9%-10% to almost 13%+, and we are seeing that in data products. We are seeing that a lot of our products. The next question is: If there is an acceleration happening in the market, when do we see that in PowerSchool's numbers? So we definitely have seen acceleration of that in a lot of our growth products, like Insights and stuff. We've actually, w e shared on the last earnings calls, we almost had, you know, 90% increase in our analytics growth areas. But we also see that the market is still recovering a little bit from a post-COVID element, where in terms of, "Hey, how should I adopt an ERP right now?" They've still kind of just gone through the last two years of survival, and now they're kind of looking up. We start seeing already on the SIS side. Last year, we have actually grown our SIS with a lot of new state-level and promise-level deals like Puerto Rico, which just went live with our system in six months. Stride, yeah, so Peel in Canada. So we're seeing a lot more adoption of SIS post-COVID already, and we're going to start seeing that in some of our other products, which have kind of taken a little bit of a backseat post-COVID. So what you'll see is that we are definitely seeing acceleration of growth in a lot of the classroom and analytics products, and you're going to start seeing the rest of the products coming back up to kind of overall give us that growth path. We also are investing now in international, so that plus personalized learning could help us even further accelerate. But let's also keep in mind, we are on a path to be a billion-dollar company in the next three years. So we are also talking about a lot of bigger numbers, but we also see that we are continued to be committed to be able to have the double-digit organic growth, and then having these upside additional metrics, which can hopefully support our growth to be accretive even further. So at any given time at a technology company, you can point to pieces of the portfolio that are growing faster and pieces of the portfolio are growing slower. During your tenure, if you compare where we are today with PowerSchool's portfolio, is it fair to say that you have more pieces of the portfolio that are growing faster, therefore, you can underwrite a faster growth rate over the next five years versus the last five years? Yeah, absolutely. You know, we are hosting an Analyst and Investor Day next week, and we're going to actually some of the data we are planning to show there is that just the trajectory of a company growth, and then how each of those product areas have grown as well, how each customer segments have grown too. So you're going to see a lot of data coming from us at the investor day to highlight some of the growth drivers and help people understand how the multi-product growth and areas are even functioning as well. And you'll see that the focus area around some of the areas on acquisitions and innovations we have done, the focus area on strategic large deals, the focus area on multiple product customers to buy the full platform. Those are actually growing much faster than over the rest of the PowerSchool. And that gives us an opportunity to replicate that success with other products and other segments of our market to help accelerate that growth in all the different segments. Absolutely. Okay, so I want to spend a little bit of time on the data piece of this, because all of the conversations around generative AI and even strong forms of AI require a solid underlying data foundation in order to be successful. And I think about the challenges that enterprises are having coming up with a data strategy, and I can only imagine how those challenges are exacerbated at your education customers. So what are the steps that you can take to help customers first come up with a data strategy before we even start to talk about some of the more exciting generative AI applications? Yeah. I think, Gabriela, you nailed it. I think a lot of time, people think generative AI and some of the broader stuff, you know, you can't achieve that without having a strong data foundation because you need the data to build your models and train them in the right way as to how you support it. Plus, you need data to be able to understand where your gaps are, so we can provide the right help to the right child. So data strategy, and that's why when you look at our investments over the last couple of years with organic and inorganic, and how we have built a very differentiated platform with partnership with Snowflake, with AWS, and now with Microsoft and OpenAI, we're building an entire Data-as-a-Service platform with our Connected Intelligence and Unified Insights. And that is a foundation to allow districts and states to be able to do, have their strategy on insights as well as AI and how to leverage that. Good example of that, we shared in our last earnings call is L.A. Unified. So they adopted our Connected Intelligence, full Unified Insights platform, and as they are looking at their generative AI initiatives, they're actually leveraging the data on that Connected Intelligence platform. And that's not true for just logistics. State of Montana, similarly, we had a private school chain here in California and Utah called Challenger, has about 10,000 students. They're using our stuff to actually create their own AI models to be able to do that. That platform strategy is core, as states and districts look at adopting modern technology, and we are one of the differentiated companies in the market, which is providing that platform and foundation to allow them to do that. The key part of data as a service, I think, is the as a service part. Exactly, yeah. How much investment does a potential PowerSchool customer have to make in order to get to a place where they're taking advantage of your partnership with Snowflake or your partnership with AWS or OpenAI? So we are, you know, we're making it easier for our districts to not have to figure out... because today they can do this by, hey, building their own data lake... Right, exactly ... on Snowflake and everything, but then they have to start from scratch. They have to build all the ETLs. They have to keep them fresh. Yeah. They have to understand the data. They get all that as part of the data service. So literally in a matter of a few dollars per student per year, they get all the capabilities, and they don't have to worry about all the different elements of pay-per-use, of all those elements and stuff. That is all something which we are able to provide them with that scale. Yeah, absolutely. Okay, so are there a couple of exciting generative AI applications that you've seen your customers work with you on that are closer rather than further away of moving the needle? Absolutely. So this is another exciting thing we're gonna share next week in our Investor Day, where we're gonna actually preview some of our generative AI products. And we do see generative AI, especially in education, and it's not just me. If you, you know, listen to Bill Gates and a lot of other people, they talk about education is one of the most industries where generative AI can be very transformative, and it is gonna become part. In fact, Google put out the data that if you look at homework, was the second highest used category of search for ChatGPT. So we know our kids already have started taking advantage of some of the generative AI components. And if you look at our vision on personalized learning as one of the key nirvanas, which really, to solve these education challenges at scale, you want to be able to personalize education for every child. Generative AI is giving us those tools which has helped us x-ray that roadmap and really allow us to be able to get, almost really provide now more than a platform, a full service, around being able to do personalization. So we are gonna be able to play even a bigger role with these districts, as we are already the enterprise software, but now with the generative AI technology, we are actually becoming the context of all the different elements of where the student needs help, where the teacher needs help, where the district needs to invest. And that is allowing us to monetize and capture much bigger value than our platform. We're seeing use cases where you're gonna see us want to talk about generating lesson plans and quizzes for teachers, so it saves a huge amount of time for teachers. We're gonna be previewing our whole notion of personalizing the homework itself. So imagine, I think every parent in the room probably knows how much time a kid has to spend on their homework, and they can definitely use the help. And having a homework buddy system, which would be through a generative AI tutor as well as personalization homework, will allow us to really support that big learning part, which is very, very incredible differentiator because there's no other company which has some of those elements of homework being actually done through the system today anyway. The majority of the classrooms do use our SIS or LMS to issue those homework. We're able to bring that technology to the basic tenets of education, which will help us provide much more bigger value to our districts. One of the consistent themes in our conversation so far has been platform. One of the things that stands out to me about where your executive team has made progress in partnership with Vista is the M&A strategy, including, most recently, the acquisition of School Messenger. The concern that investors sometimes have from the outside in is when you have a lot of pieces, it's hard to integrate the pieces in a way that appears seamless and unified to the customer. How do you feel about the progress you've made on integrating the pieces? Maybe let's put School Messenger aside for a moment... Yeah ... because that's a recent. Yeah. But, do you feel like there's more work that you have to do on integrating the pieces, or do customers already have that seamless experience? Yeah, absolutely. You know, my background, I've spent almost a decade at Oracle and, you know, this was the same question Oracle we used to get on this strategy. What we have done at PowerSchool is really bringing a full stack integration methodology. One of the advantages of our acquisition strategy, especially in K-12, is important, is that K-12 really allows us to take best-in-class applications which are already proven and be able to scale and grow them much faster. Because think about a school district superintendent or CIO, rather than adopting a fresh new product, they'll be happy to more easily convince to be able to adopt a product which already is being used by a neighboring district, or they know that there's already a large district or somebody using that. So we are able to bring these best-in-class, proven technologies and are able to build into our platform this full stack integration and be able to x-ray the growth. So that has really helped us fuel the double-digit organic growth with the, with our acquisition and integration strategy. And in terms of the integration, it is a multi-year process, but one of the things which we have done a significant investment over the last few years, especially, is almost building a reference architecture, which allows us to create these integrations much effectively. So notion of micro front-end, so take example, SchoolMessenger. For us to bring a new micro front-end on SchoolMessenger and integrate that right into our parent portal is in a matter of now a few months, doesn't take a year. And that allows us to integrate these acquisitions much faster on common security, common in navigation, common experience, common analytics with our Connected Intelligence. So the customers get immediately a benefit of the full stack of integration faster. When you meet with your corporate development team, and they have an exciting prospect, and they want your opinion on it before getting to the final stages, what are the one or two questions that you are focused on in determining whether Company A, B, C is a good fit for PowerSchool? Yeah, it's a great question. So number one is that if you look at all our acquisitions, they have been strategic in nature to help us build a system of record, the system of engagement, and the system of intelligence. So what I mean by that is, think about these systems need to be mission critical to the school operations, because we're not in the business of nice to have or things the districts may turn it on or off. We are in the business of enterprise software, which is mission critical, helps run the school operation and classroom, and support the talent, right? So we are very sticky. We want anything which we are acquiring to have the same profile of the stickiness, has the mission criticality that, be able to support it. Each of those engagement allows us to engage a teacher, student, and parent on our platform even more. Messaging was a perfect example of that, is that parents, students, and, you know, again, if you're a parent, you probably get messages from your kids' schools from multiple different sources. So having that unified is a key element which allows us to, schools to be able to engage students and families better. That's the kind of acquisition which fits into our strategy to allow us to have that unified experience much better. So the strategic fit on mission criticality and expansion of that engagement is key. We also make sure that the acquisitions we are doing are accretive to our growth and profitability profile. And this is where our scale allows us to x-ray their growth and their profitability both. So allows us to even have a benefit of an arbitrage, to be able to buy these acquisitions and then be able to grow them into our base. So, it, you know, most of the acquisitions we have done, we actually have been able to take advantage of that arbitrage and growth profile. Absolutely. So I want to switch gears and spend a little bit of time on the demand profile for the medium term. One of the things that I think investors appreciate about your model is consistency. Yeah. We saw that through many quarters in COVID, where there was volatility happening in other areas of software, and PowerSchool was consistent. Year to date, the guidance philosophy from the outside in has been less consistent. There have been three quarters in a row where the seasonality of the business has been maybe a little unpredictable, and large deals have been unpredictable. So maybe just compare and contrast for us, why has guidance been less consistent versus investor expectations this year versus last year? Yeah. So fair question. So let me first, I think, reiterate the point you made, is that one of the best parts and PowerSchool advantage is the consistency and robustness of business. We're in a market which is very stable, right? That doesn't have that much impact to the macro factors. So its funding sources are multiple. It's a must-have part of the GDP and investment, so it doesn't go on and off, right? We are very well positioned as a market leader. With that kind of market share and leadership, with access to 80% of the school districts, we are able to have consistent, predictable demand with our customer base. We also have the right stickiness that customers really, you know, allows to have a very strong retention profile and be able to expand that. And then, how we are running this business in terms of our operating leverage, also allows us to grow, not just the top line, the bottom line as well. So that's why you see over the last eight quarters or so, since going public, pretty much every quarter, we have delivered to our guidance and be able to have both top double-digit growth on the top line, as well as profitability growth. And we have full confidence to continue doing that for many more years, right? To be able to continue building that same predictability. The guidance element is something which we are trying to better understand how to work with the market, that what we are confident is, as we, our business continues to grow and we become billion dollars, and I think you asked this question: Can we x-ray the growth? Because the beat and raise guidance require us to continue x-raying the growth, and we are trying to x-ray our profitability as well. So we're trying to just make sure that the market doesn't get ahead of ourself, and in terms of raising these guidance, is to, so that we can do that maybe one time in the year rather than every quarter... Right. ... having to go raise every quarter, which is what we were doing last year. So we're trying to train the market to think about this as more of a full year, because we have a good visibility. We want them to have more confidence in the guidance we are giving, that we're going to hit it, rather than continue to expect that every quarter we're going to keep raising that as well. So it's a little bit different guidance philosophy, and we're trying to make sure that the market understands that they can still count on more predictable of our guidance than, rather than think about it, that this is going to continue to raise. So there's two pieces to that. There's expectations... Yeah. ... and then there's absolute. Yeah. I'll come back to where we started this conversation, which is there are pieces of the portfolio that maybe are slowing a little bit, which is why the headline growth has been sub 10% for the last couple of quarters. So is that also a piece to this, where you've got moving pieces in the portfolio that, for a period of time, are driving single-digit growth instead of double-digit growth? Yeah. So I think a fair question on that. So we actually, when you look at it, I think that's a seasonality within the quarter caused by some of the large deals. So I think... Okay. When you look at the full year guidance, we're still guiding to the 10%. Yeah. Some of the large deals created that first half to be on that kind of a little bit lower as we get the back-end revenue on that. Sure. But the full year guidance still stays at the 10%, which is what we have been guiding, and we are still committed to deliver that. So that, there's been no change on that. I think the point you're making about it, that we do have some products like ERPs and one, we have, I shared that in my earnings call, is that which are growing lower than the market. And as we have talked about, we haven't seen the market picking back ERP after the COVID yet, and we're going to start seeing potentially that. But the rest of the products actually have been delivering to the growth profile we've been doing. So it still doesn't. We have already factored that in our 10% growth, and we are not wavering from that, double-digit growth. Fair enough. Okay, so staying on the comments on seasonality and large deals, for 3Q, I know 3Q is an important quarter for you because it's where you tend to see more new business lands, more churn. Are there any observations that investors should be aware of on 3Q, in particular, relative to normal seasonality? Yeah. So I think we've shared that 3Q seasonality, the factor in terms of revenue growth, I would not, you know, we pretty much the seasonality has that. What we do see in the ARR is where the third quarter does have, that we have been able to continue to grow ARR, and third quarter is where our biggest renewals are. Yeah. Kind of from a year perspective, the ARR growth quarter over quarter won't be the same as you see in the Q1, Q2. Yes. But that's also factored in our guidance. Okay. We've, you know, again, the way I would look at the market to not have to worry about the quarterly seasonality and not have to worry about the big deal seasonality, and really look at us as a full year profile, right? Because it is a large business. We do have a lot of large customers around stuff, and some of these deals can create that. But as long as our consistency on delivering the full year commitment is where we would want the, this, you know, straight to measure us. Does the mix of large deals, assuming that will be a recurring trend, give you better visibility into next year? Absolutely. Okay. I think the large deals are very strategic, and I think we can't overemphasize that, is that we're seeing a little bit of the seasonality, so people are kind of thinking, is large deals good for PowerSchool or not? Yeah. They're very strategic. So think about the deals of, you know, rolling the full analytics at Alabama... Yeah ... and Montana, and having state contracts, large districts. These really are changing the profile of our business on how we are able to work with the districts and state on it. And these use cases are putting us into a whole different level playing field with our customers. And they set like a tone. When L.A., you know, buys it, we're going to see the next 10 other districts of similar size or smaller size are going to follow that. And that advantage is what I think we are going to start seeing that into our future results. Okay. I just want to clarify the nuances around the guidance philosophy. Our expectation should be that you will guide to what you think you can deliver for the full year, and we should expect you to hit that number. Yeah. In the scenario where you start to see more consistent acceleration across the business, that is when we will see more upside to the full year number. More upside to the full number. And if we do have it, like when the two years we were guiding and raising each quarter... Sure. ... we're going to try to guide to the full year, and then if we do see something measurably change in the middle of the year... Yeah ... we will guide to that. But we, you know, we want to kind of have more consistent full year visibility. Okay, fair. Okay. The other question I wanted to spend time on is the turnover in the executive suite. A Chief Accounting Officer, Chief Revenue Officer, Chief Operating Officer, Chief Marketing Officer, that's a lot of people in a short amount of time. Help us get comfortable with that pace of change. Yeah ... and what's happening in the business. So most of this has been kind of planned over the last two years in that transformation, and part of that is, I think, if you think about from an IPO perspective, right? There is pre-IPO and the post-IPO, you have definitely executives who have vestings and everything, which typically happens in the two-year period, you know, who have been around for us for four or five years and some kind of almost six, seven years. So we, we're kind of looking at that as we're setting up the team to be able to help us go to the next thre to five years of the goal of a billion dollars in three years into a, you know, a more robust even after that. So we're building the scale team based on where we need the next level of execution, more international sales experience. So we have brought in a new CRO, which, you know, has worked with companies like Oracle and FinancialForce to help us be able to grow that. Our CMO, who has worked at TIBCO, you know, and bringing international experience on building that elements of that as well. So we're up-leveling the, both the commitment for the future as well as the skills required to both from a scale as well as the kind of initiatives that's going to help us drive more growth. Let me pause for a moment and go to questions from the audience. Please. I have a question to our newsroom story, but just trying to understand ARR per customer trend. My calculation's about $42,000. How would this look in five years? Can you, can you give different scenarios in terms of, where you expect to, where you'd like to bring that number to? Yeah, so I, I think it's a great question. The way we look at it, because doing it by individual customers with a district of a size of L.A., which has 450,000 students, to a charter school, which might have 1,000 students, is, you know, I think you're going to see a lot of variation. So we do it by per student. And if you look at it, our ARPU on being able to have almost $12 per student, with allows us to, you know, upward of, We continue to be able to increase that 10% each year to allow us to almost grow that. The other way to look at it also is the number of modules we have per customer, because, you know, having access to 80% of the market, a lot of it is through cross-sell. So we're also looking on average, our customers have two per products, and we really want to be able to grow them to four products out of our 20 products. We would actually can sustain 10% growth each year for the next 10 years. And so just doubling our, from a two to an average four, will allow out of our 20 products with where our customer base is actually going to go give us 10% growth each year for the next 10 years. So there's almost a $4.5 billion cross-sell TAM, that we are just 7% of the market today, that we can take advantage and, and grow in by cross-selling, as well as going after some of the additional school districts. And then international and personalized learning are on top of that. So I think you kind of see that there's a lot of growth vectors here. And we look at just, you know, both in terms of how do we create per student more growth, as well as having more modules. And we're going to be sharing some of the visibility on that, over the next three years, as well as a longer-term plan in our Investor Day next week. Please. Given the low penetration just now, why the focus on starting on international, when you still have such a long runway in the US? That's, that's a great point. And, you know, when you look at just the North American market, to that point we just made, by just going from having the market share from 7% to 15%, we have 10 years of double-digit growth, you know, that we can easily execute to. But what we were seeing is that when you look at the... You know, and I think Gabriela asked the right question, is: Can you accelerate the business? What we saw that, especially after post-COVID, international, we are seeing a lot of inbounds, not just from individual schools, but in fact, states and countries, to say: "Hey, we had a huge disruption in education, and we need systems like PowerSchool." Even globally, like, one of the biggest competitive advantage of PowerSchool is the fact that there is no other vendor in North America who's got the full breadth of the platform, of a student system, to learning management, to talent management, to ERP, to analytics, to college career planning. And you think about globally, also, there is no other vendor who has got these best-in-class applications to be able to address the needs. So we're getting a lot of interest in inbound internationally, is that we want a platform approach, even international. So we didn't want it to get left behind in that market, given the demand increase post-COVID, and start having our boots, you know, flagship customers that we can prove. The idea still is to make sure that the international is not growth dilutive and not EBITDA dilutive. So while we are investing in international, but we're doing it in a measured way, and yet we are still going to be able to deliver double-digit growth and have our profitability profile increase over the next few years by continued 100-150 basis point each year. So we are able to balance this in a very sustainable way and not kind of leaning in. Our strategy also has been, is rather than boots on the ground in international, we are doing more in terms of partnership, exclusive partnerships, and then also acquisitions international, which will help us kind of get that initial installed base. Fantastic. Let's leave it there. All right. Excellent. Thank you, Hardeep, for your time. Well, thank you for the opportunity.