Okay. You got it? Yeah. All right, everybody, thanks for attending this fireside chat. My name is Koji Ikeda. I'm one of the software analysts here at BofA on the enterprise software team. Super thrilled to have PowerSchool. We have Eric Shander, CFO. Thanks for being here. Yeah. Super appreciate it. Appreciate it. Yeah. Yeah. Thank you. Yeah. I'm just gonna ask you the very boilerplate question right off the bat, you know, just for those in the room that aren't familiar with PowerSchool on the webcast. Not familiar with PowerSchool, just give me the 30-minute-- or not 30 minute, I'm not gonna give you the 30-minute overview. The one-minute overview of PowerSchool, and maybe just a little bit of background on yourself. Yeah, sure. Well, first off, good afternoon, everybody. For those of you who have children, more than likely, you probably, your kids, in one shape or form, probably have some interaction with our platform, whether it's in the back office of the school or perhaps even with the learning management system. PowerSchool is the leading platform servicing the K-12, all of the technology needs. We're a cloud-based platform. You know, we're well over 20 years old. We've been public for 2 years. You know, obviously, we'll talk about a little bit more about the platform in terms of some of the capabilities, we're really running the mission-critical systems for schools. In terms of my background, I've been with the company for over 3 years now. I joined when the company was private. We took the company public back in July of 2021. Fast-forward, and this is my second stint as a public company CFO, and, you know, certainly thrilled with the impact that we're making from a social perspective in terms of the ability to be able to influence and impact education through technology. Got it. No, thank you for that. I've been asking every management team at the conference. I've posted a couple of the same question, one on the macro, and then, of course, one on AI. Yeah. Everyone's saying the topic of the day for the conference. On the macro, I think this is interesting because you're vertical software. Yep. You're addressing a very specific vertical education. How would you characterize the macro in June 2023, right now? Yeah ... versus six months ago, entering the year, June, January 2023, and then one year ago? How does it feel to you? Has it changed much? Are customers talking about different things? Yeah. How could you characterize that? Yeah. You know, look, I think it's a good point, and, you know, one of the delineations we make, you know, we are a vertical SaaS company supporting the education industry. We're not an edtech company. We're not in content. If you think about the industry and just the funding and the stability of our end customers, it's schools. You know, the funding, both at the state level and the federal level, has been very, very durable. We're a very small piece of that. In fact, a lot of the funding that happens in this space is only about 2% of the overall funding that gets allocated for kids goes to IT. It is a small part. I would tell you, durable end market. You know, the things that we've seen that's changed a little bit, you know, fast-forward, you know, from last year to this year, is we're seeing a lot more larger deals. As the company continues to get more strategic, as the deal size continues to get larger, we are seeing bigger opportunities. You know, with that, I think, comes a lot of the strategic opportunities, and certainly, you know, as we've kind of talked on some of our quarterly earnings, you know, it will create some variability from one quarter to the next, but as you look at the full-year financials, it really, you know, lends in well to the double-digit organic growth that we're driving. Got it. Got it. I wanted to actually, before getting into AI, wanted to spend a minute on the platform. Sure. I think edtech or vendors that sell into the education vertical have maybe gotten a little bit of a bad rap thinking about, you know, AI potential disruption there. Maybe walk us through what is the PowerSchool platform? I mean, I've done work on the platform, but- Yeah for those that aren't, you know, new to the story, what is SIS? What is administration? Yeah. Why is it so important for schools? Look, I think it's important for everybody to know, every single school district has a student information system. They have to, right? That is the source of information that every school needs to be able to provide for all their federal and regulatory compliance, as well as that's how they get funded. Every district has a student information system. PowerSchool has a dominant market share in that space. Around, you know, the student information system, there's a set of technologies, whether it's the talent management, think of hire to retire, or it's our ERP implementation, or it's our analytics, or it's our assessment products. We've actually taken the entire product suite and really built a platform on top of this SIS environment. It really is, and as we talk about, you know, certainly from competitive standpoints, we have competitors in a lot of the respective areas, but there isn't one competitor that has the complete platform like we do. Got it. I can dig into that a little bit more. Sure. In the education space, specifically K-12, is the right way to think about PowerSchool. It does fall into SIS administration, it feels like it's back office. Mm-hmm. Isn't it kind of revenue-generating, too? Because if you don't have accurate data of your students and how they're attending school, I mean, the schools kind of don't get their money. They don't get their money, yeah. Yeah. Yeah. Yeah. I mean, it is. Look, they're, the way that we kind of, you know, pin the, the platform is you have your administrative elements of it, which is your student information system, then your back office, your ERP. We're also in the classroom, so your learning management system, your assessment products, your curriculum products. We have a social/emotional, you know, well-being product, which kind of, it can give teachers early indicators of potential challenges for kids. Then you have the teacher side and the administrative side in terms of the whole, you know, onboarding teachers, professional development, and then certainly at some point, off-boarding teachers, which is interesting. That has been an area that has certainly been very popular over the last few years, just given all the teacher shortages that, you know, the administrations are facing. Thank you. Next topic, AI. All right. Okay. Been asking every management team the AI question... Yeah three different flavors. Here we go. First question: How does PowerSchool think about leveraging AI, generative AI, in the platform? Where can we find it today? Where might we find it in the future? Yeah. Look, when we're talking to investors and certainly, inside the company, think of AI in 2 pieces, right? One piece, which is the mainstream AI, which has been around for quite some time. If you look at the majority of our platform, whether it's our analytics platforms or it's our assessments platforms, you're gonna see the machine learning language, machine learning algorithms in there, the AI algorithms in there, and that continues to be part of the product portfolio. There is absolutely no change there. The second piece, the generative AI, if you think about our platform, we do have a dependency, and we do work with third parties for content, okay? As an example, like our assessment platform, we have third parties that provide the item banks, the questions, et cetera. One of the things that we've been actually looking at is how you can leverage generative AI to create and actually augment some of this third-party content that we rely on today, which does a couple things. A, it reduces our costs in terms of dependencies on third parties. B, if you think about our products, it actually can create a much more personalized, real-time, adapting, analytic or assessment part of the platform in real-time form. We're super excited about it, and I'm sure at some point we'll talk about personalized learning. As you look at our overall mission, which is, you know, the next few years, having a personalized learning, opportunity for children, we do believe that generative AI helps accelerate some of the pathways towards that, and we're certainly leveraging and looking at ways to leverage generative AI in our analytics platforms as we speak. Okay. Okay, we're in a room full of financial professionals. Mm-hmm. We're always thinking about, how are you gonna monetize this? Yeah. You know, does AI, generative AI, for PowerSchool mean that it's just embedded within the products, and you kinda get it as a new feature? Do you have to pay up for the feature? Yeah. Is it SIS Plus that you have to buy, or new products altogether? I think there's gonna be a combination of things. There will be some new products. You know, one of the things that we're currently working on now is a product around personalized homework. Think about, you know, if we're all in the same class, the way that public schools teach today, right, they teach to the average. Everybody gets the same homework assignment. Everybody gets the same test. Everybody gets the same, you know, set of assignments. Think of a world where, you know, there's intuitive learning through the technology that says, "Hey, Koji's a lot smarter than I am in math, so he should be getting more advanced problems in math," whereas I may need a little bit more help in math, and, you know, there are certain, you know, math areas that I've got to focus on to get me up to the average. You're gonna see it in new products. We're continuing to kinda leverage it in existing products. I think the other thing, too, that when you talk about AI, one of the byproducts that, candidly, I think gets a little bit overlooked is just the fact that everybody in this room is talking about technology. Everybody in this room is talking about AI. We were at the Baird conference. We were at the William Blair. We were at the, you know, two other conferences this week. Everybody's talking about AI, and it is, it's not only just in conferences, but even schools are talking about it. It gives us one more opportunity to have a technology-based conversation with these superintendents. Again, we also look at just the fact that it's creating a discussion around technology. It's one more opportunity for our sales team to go have a conversation with the superintendents in terms of the importance of technology. Obviously, a lot of schools still have quite a way to go in terms of the adoption curve for technology. Well, you just actually got to my great segue into my last question on AI is how the end market is thinking about it. You said schools are talking about it. How are they talking about it? Are they thinking of it as an opportunity, a risk, a problem? What are they? All the above. All the above, right? If you think about just some of the applications for it, you know, look, schools historically haven't, I'm not gonna make a generalization, but a lot of schools haven't absolutely looked at technology as a must-have, right? I think, you know, I think superintendents and school districts are realizing that it's not going away, how it gets used. You know, kids are getting pretty sophisticated in, you know, whether it's helping them do their math or perhaps helping them write an essay. I think schools, you know, you can't ignore it. There's a discussion around, you know, how do you kind of coexist with it and, you know... I think some of the more progressive school districts are actually using it as: Is this an opportunity to kind of accelerate some of, you know, the visions that some of the more progressive superintendents have? You know, our CEO spends a lot of time with some of our largest districts, and there is a discussion around personalized learning. There is a discussion around how you leverage generative AI, and, you know, I think ultimately at some point you'll see a lot more embracing of it. I still think a lot of the schools and even around a lot of the businesses, they're still kind of ingesting what it does and doesn't mean for them. When I think about your end market, I guess, for lack of better words, maybe not the fastest adopters of technology or replatformization... Yeah of technology. You know, maybe, a little bit, you know, takes some time for them. Yeah ... replatform and go digital. Clearly, we saw during the pandemic a lot of adoption of new technology. Do you think that AI could be another accelerant for technology adoption? Yeah. I mean, look, what I would tell you, Koji, and if you kinda think about, you know, pre-COVID, if we were to, you know, meet with customers and ask them, "Hey, what are your top three priorities?" technology wasn't always one of them. You know, post-COVID, technology is one of the three. Staffing's typically another one, and it depends upon what's happening in the region as, you know, what is the third one. I think, you know, COVID actually emphasized a lot of the importance around technology, so I think that was one, you know, if you will, push towards the industry that they need to start, you know, moving forward, right, at a little bit more of a rapid pace. I just think, yeah, again, the discussion around AI is just helping kind of bolster that. To your point, this is where I think it's important for investors to understand, if you look at where school systems are and you look at the opportunity ahead, there's a significant amount of digital transformation that's still going to happen. We work with our customers. We take long-term views with our customers, multi-year, you know, view of how they're going to, digitally, you know, change and transform. A lot of what they're doing is actually taking manual processes and actually putting them in systems. Change management is the number 1 thing that, you know, investors will say, "Wow, if there's such great opportunity, how come you're not growing 30%, 40%?" The fact of the matter is, there's only so much change that a school can take, right? Especially if it's impacting the teachers, and the students. You know, while there's the opportunity, I think that's one of the things that kinda throttles the low double-digit organic growth. At the same time, too, you're not gonna see us growing at 20%, but you're also not gonna see us going to 0%, right? We've got, you know, really good, you know, headlights in terms of the pipeline, as well as the technology roadmaps that our customers are on. Got it. I wanted to switch the conversation over to guidance for a couple reasons here. Sure. On the first quarter earnings call, you mentioned or you maintained the guidance, but when you kind of work through the numbers, it looks a little bit back half-weighted. Yeah. We've talked about this, but maybe help walk us through for the people in the room and on the webcast, what are the assumptions in the guidance? Why is it just a little bit back half-weighted? Yeah. Look, I mean, one of the things, as I mentioned earlier, big deals are becoming more commonplace for us as we become more strategic, which is a great thing. We've got several large deals that we're looking at in the pipeline. In fact, Hardeep mentioned that the pipeline was up 20%. In that pipeline, there are some larger deals. Some of them are even at the state level. The challenge that you get is a couple things. One, you know, when we announced our Q4, because we wait until the audit's done, when we gave that guidance, wasn't but, you know, maybe just a little bit more than 2 months until we actually announced Q1. There wasn't that big of a period between the time we issued the guidance and we actually reported in Q1. You couple that with these larger deals in the second half, and candidly, the timing of when they happen. You know, we feel very comfortable that we're going to win them. The question is when, right? If a big deal happens in Q3, that has a different financial impact than if it happens in Q4. What I did not wanna do is lean in and force the teams internally to try and have to time when a big deal happens, because I think you all know, the only way you really do that is really through unusual discounting to make a deal happen at a particular point in time. I'm not gonna do that, right? I'm not conditioning our internal team to kinda cater towards... We're gonna do good deals, we're gonna do big deals, but we're gonna do them on the timetable that works for the customer as well as works for us, and the economics make sense. Yeah. No, no. Just to kind of follow up there, on the pipeline, you said up 20%. What are customers coming to you this year for, you know, from a pain point perspective? Is it broad-based? Is there something very specific that they're trying to solve this year? Just help us understand that pipeline commentary. Several areas. You know, we started out in, you know, talking about the student information system and again, the heart of any school. I think it's important to understand, we have a third of the market. The next 3 competitors collectively have a third of the market. There's still 40% of that market that's legacy or very state-antiquated SIS implementations. Those are significant opportunities for us to go after and win. If you look at Puerto Rico, which was a large deal for us, was SIS. If you look at Stride, which was a large deal for us, was SIS. The reason that 40% is an opportunity is because it is data-antiquated technology. There are concerns that superintendents have around cyber and the potential risk there. SIS is growing faster than the company growth rates. Our talent management module, just given the teacher shortage, the whole ability to be able to systemically hire to retire teachers and professional development, that is growing faster than the company growth rates. The other area is around our data and analytics platforms. While it started out as a smaller part of the company, that's growing in the high double digits, so we're seeing a lot of large analytics plays, lot of large analytics offerings. And as we look in the back half of the year, we see a continuation of that into the back half. We're super bullish around the analytics platform that we continue to invest in. Got it. Got it. Maybe, one more question from me on the guidance. I wanna open up to the audience to see if there's any Q&A from the audience. We'll get the microphone over to you, for the webcast. Last question on guidance. You, you know, you mentioned, we've kind of gone over the second half- Yeah ... and the we'll say conservatism, and just, you know, on the deals. Hardeep has been on the call saying, "Hey, no, you know, degradation in sales cycles. Yeah. Deal closure rates feel still pretty good. Yeah. I mean, you know, when I put those two and two together, it feels pretty good for the second half. I mean, what is it about PowerSchool and the selling motion that is enabling, you know, no degradation in sales cycles? Yeah, I mean, look, so, well, first off, when you're, when you're talking about larger deals, especially state-level deals, those are gonna be longer in duration, and they're obviously gonna be bigger in terms of the size, and we're not gonna try and, you know, force them into a particular timeframe, because, again, like, as I mentioned, a lot of times you'll do that through discounting, which we're not gonna do. As we look at the broad scale level of deals, the velocity of the deals, the closure rates of them, we have. You know, we've seen very consistent rates with what we had last year, which, you know, again, the teams are doing a great job in terms of continuing to, you know, be with our customers. I think the other thing that's important, too, is as you think about PowerSchool, since we have 80% coverage of the U.S. and Canadian students, with average customer using 2 of our 19 products. 80% of our business is cross-sell. We have relationships with the customers, right? We know how to navigate the board meetings and the, some of the administrative elements of it. That motion is pretty well understood. We actually haven't seen any kind of elongation in them. It's just now, as you, as you kinda look at the back half, what has changed is just the size of some of the deals has gotten a little bit bigger. Got it. Got it. So. I'd like to open it up to the audience. Any Q&A, please raise your hand. Shane, you can't ask questions. Our head of HR, he can't ask questions. I got lots. It's all good. I know you do. Yep, yep. I know you do. I wanted to ask you about the margin trajectory. You know, how do we think about EBITDA over time? Mm-hmm. I know margins are already pretty good, actually, really good. How do we think about levers for EBITDA margin expansion from here? Look, it's important, you know, first off, you know, we've always had a growth mindset, we always have growth with profit. That's our PE heritage that we have. It's instilled in how we run the business and how we manage our costs. We'll end this year last year, we were around just under 32%. We'll end up just under 34% this year. You know, what we've said to the street is at least you know, 50 to 100 basis points of improvement. This year, we offered up 140. What I think is important, I'll get into the levers in a second, is as we continue to drive operational leverage inside the company, we're actually driving more than we're offering back to the street because we're investing in our international opportunity. We're investing in the personalized learning, longer-term opportunity. The levers that we have, there's several structural things we've done. We've reduced our real estate footprint. When I first joined the company, we had 13 U.S. locations. We're down to three. You know, a lot of the work we did, we leveraged our India Center of Excellence. We have about a third of our employees there. You know, mid-last year, we invoked what I've termed responsible hiring in the company. Anytime somebody leaves, we question the team in terms of how we can figure out how to redeploy that work amongst the existing team. If that's not an option, then we, you know, we'll fill the role back into India. If for some reason we'll put in the U.S., it's typically a sales or a customer-facing job. The other piece of work that we did when I first came into the company that had not been done... If you think about, you know, we were over 20 years old, and at the time I joined, we were a few hundred million dollars. Nobody had ever really looked at the processes. Nobody had really looked at a lot of the work we were doing inside the company. Nobody had really looked at, should we automate certain activities that were manual? We spent the last few years doing that. We've really streamlined a lot of the processes. We've automated a lot of work. We're upgrading our Salesforce instance this year. There's a lot of the things that we've done that, you know, once you get past a half a billion in revenue, as the, as the company continues to grow, the beauty of the model as we scale, we don't have to add resources at the same rate as the company's growing. As we continue to get that operational leverage, we're still gonna continue to improve the margins, but we are gonna invest in international and personalized learning as well. Yeah. You mentioned international twice there. Let's dig into that a little bit. I know in the past few months, some big announcements on the international front. Yep. How do we think about international from a growth strategy? How do you price internationally? Maybe over the long term, what% of net new ARR could potentially come from international? Yeah, let me unpack that a little bit. As we're talking to investors about international, it's usually one of two things that investors will say is, "Hey, it's a huge opportunity," because today, we have less than 2% of our business is, you know, coming from the international space. Some investors will say, "Hey, it's a huge opportunity to go faster," and some will say, "Hey, you guys need to be careful because we've seen companies do it really wrong." We spent a good part of last year studying the various markets. Today, we do, you know, we do have a lot more than just proof points in terms of the international space. You know, we've got half a million students in the Philippines. We've got a few hundred thousand students in India. We've got the whole country of Uruguay. We've got all of the American schools that are internationally based. you know, we've got a lot of different proof points. We've got a lot of inbound activity coming from the Middle East. What we've done is, as we've studied the regions, our strategic approach is going to be a little bit different, and we are taking a very measured approach because we don't need international currently to support the growth algorithm. We do believe that as we start to build up the international business, and Hardeep said on the last earnings call, you know, we expect it to be a material part of the business in the next 3-5 years, so read that as at least 10% of the business. That will be done both organically and inorganically. There are certain regions that we're looking for inorganic targets to kind of build the base, get the management team, kind of bring the platform over, and then start to scale it out. There are certain regions, such as the Middle East, where there was a lot of inbound activity to us, and if you think about that region as an example, it's a region that is actually taking education and technology together to kind of differentiate themselves. You're gonna see more of a platform-type approach there as we kind of go to market with them. Huge opportunities. We've actually put people, and we've opened up an office in Dubai, so we're, you know, we're making an investment there. We're also doing partnerships, right? You're gonna see we've announced two recent partnerships. you know, one of them called OneConnect, which is giving us broad reach across the Sub-Saharan African region, which gives us a broad reach that, candidly, it would be hard for us to get and build that capability, you know, not only in terms of the investment, but then also the time to do it. We have laid out a plan for each of the regions. Europe's got a little bit of a different approach, probably more of an inorganic play, and kinda build that up. You're gonna start to see those unravel and, you know, roll out over the next few quarters as we go. The thing that's important, though, is we're not gonna do this at the expense of eroding margins, okay? This year, we're investing millions of dollars in international. Again, as I mentioned, we're driving up, you know, incremental operational leverage beyond what we're offering back to the street. We're reinvesting that into the international opportunities. We're gonna continue to do that. Our philosophy is we don't wanna erode margins. It's forcing a level of discipline in the company in terms of what we go after and how we go after it. You mentioned partnerships. Yep. Maybe a little bit of inorganic pathways into other geographies, too. Just focusing more on the partnerships, how do you evaluate partnerships? You know, how do you think about partnerships? I mean, Middle East, you've got a big partner. Yeah. How does that kinda play out for you guys? What we look for is we look for partners that know the education industry. They know the end market. They have connections. They may be selling something else into the education space. We look for technical partners that we're gonna be able to train up. They're gonna you know, be able to quickly understand the platform. We'll be able to start, you know, kinda pushing it through their channel. We have a pretty regimented process in terms of we're looking for broad reach. We're also in, the two partnerships that we've done, we're also looking for a commitment from them because there's a commitment on our part in terms of training them, in terms of getting the product to them, in terms of, you know, some of the marketing that happens, but we're also looking for minimum commitments from them in terms of what are they gonna do for us annually. We're looking for that mutual commitment, but then we're also looking for partners that can kinda help us scale and have broad reach into some regions that would be, you know, harder for us to do in person- Okay. boots on the ground. Okay. Then the follow-up on M&A, inorganic, how do you guys think about it, you know, kinda going forward from here? You guys have been acquisitive in the past. Yeah. You just did mention maybe inorganic pathways into geo, but what about technology? You know, just kind of the whole strategy. Yeah. Yeah, look, our international strategy, you know, over the last seven years, you know, when Vista came in, we built the platform, a lot of that through acquiring the leading technologies that worked well with our platform, brought them in and integrated it, you know, and built the platform. We have the majority of the platform today. The areas that you'll see that we're really interested in: anything that's gonna advance personalized learning, anything that's in the international space that can accelerate that strategy, the last area that we think is super important, and we see as a pain point, is areas around communications, that, you know... Today, you know, a lot of the communications that happen between the schools and parents and stuff like that, we see that as an opportunity and, you know, even maybe something in, like, the payment space may be something interesting to us. What you're not gonna see us necessarily do is, there are some capabilities that we don't have in the platform, like a bus routing, you know, management tool. You know, while it's important, we don't necessarily view that as you know, extremely strategic for us and something that we could, you know, grow materially. We're looking for things that are gonna be strategic, be growth-oriented, and, you know, again, I think it's important as you think about how the way we approach M&A, it cannot and will not be dilutive to both profit as well as growth. Even if we do buy smaller technical tuck-ins that typically aren't profitable, we rebalance our expense structure inside the company to be able to make it net neutral. Got it. Got it. My last question for you. I know, cross-sell, up-sell is a big growth driver for you guys. Earlier in the conversation, you mentioned 19 products. I think the average customer is 2? 2 products. What does the sales process look like for that? Yeah. You know, do you go into these customers and say, "Hey, we got all this other stuff. You should buy it," or is it more strategic? Just kinda walk us through the sales process. Yeah. So I think it's important to, as you kind of think about the, "Wow, it's only 2 of 19. Why is that the case?" We have over 15,000 customers. Some of this is the law of numbers. Just a couple data points that would be helpful for all of you. When we went public, we had 1,800 customers using 4 or more of our products. Fast-forward to today, less than 2 years later, we're over 2,500 customers using 4 or more of our products, accounting for about half of our ARR. You can see the, you know, just the value of the platform the customers are seeing. Now, for the customers that have multiple products, especially the larger ones, it's a very intentional sale. As I mentioned, we have a longer-term strategic roadmap with these customers, so we know what the next thing is that they're gonna wanna deploy, and it's just part of a deployment plan. For some customers, they might be, let's say, a student information system-only customer. Well, it makes sense, you know, logically, to do an LMS and then maybe an assessment, maybe curriculum management, and then put data analytics on top, maybe the, you know, talent management module. What we do, though, with our sales team is, since we do typically most of our business is cross-sell, 80% of our net new is cross-sell, we equip the sales team with a very instrumented sell, which, based off of the data that we have and our customer information, is based off what a customer is using, here are the next logical one, two, or three more modules for them to go and sell into. It's more of an instrumented sell, versus, "Hey, we have a bunch of stuff. What do you want?" Right. Got it. That makes sense. Eric, we're out of time. All right. Thank you so much for doing this. Appreciation, Koji. Yeah, it was a fun conversation. Thank you so much. Thank you so much. All right. Thank you. Yep. Appreciate it. Yep, thanks.